MC v QK [2020] NZLCRO 31 (3 March 2020)

Last Updated: 17 September 2020

LEGAL COMPLAINTS REVIEW OFFICER ĀPIHA AROTAKE AMUAMU Ā-TURE

	[2020] NZLCRO 31 Ref: LCRO 123/2019 LCRO 124/2019
CONCERNING	an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006
AND
CONCERNING	a determination of the [Area] Standards Committee [X]
BETWEEN	MC Applicant
AND	QK Respondent
AND BETWEEN	QK Applicant
AND	MC Respondent

DECISION

The names and identifying details of the parties in this decision have been changed.

Introduction

[1] On 11 July 2019, the [Area] Standards Committee [X] delivered a determination in respect to a complaint that had been filed by Ms QK against Mr MC.

[2] Both the parties have sought to review that decision to the Legal Complaints Review Officer (LCRO).

[3] It is appropriate that a single decision be issued to record the outcome of the two reviews.

Background

[4] In March 2014, Mr MC acted for Mr B and Mrs G XW on the purchase of a one- half share interest in a residential property situated at [address] (the property).

[5] The property was owned by Mrs QK. Mr XW is Mrs QK’s grandson.

[6] In 2015, Mrs QK had financial problems. A mortgage broker with [bank] was approached with purpose to ascertain whether funds could be obtained from [bank] to assist Mrs QK.

[7] A decision was made to refinance the property. It was concluded that the best method to secure the finance was through the vehicle of a family trust.

[8] Mr MC was approached to carry out the necessary work which included:

• (a) discharging the existing mortgage, and
  
• (b) registering the [bank] mortgage, and
  
• (c) necessary conveyancing work to transfer the property to the trust.
  

[9] The trust created did not provide for Mrs QK to be recorded as a trustee, those roles being filled by Mr and Mrs XW.

[10] The mortgage fell into default.

[11] The parties provide differing accounts as to which was responsible for failing to meet the mortgage payments, and the extent to which each had financially benefited from the [bank] mortgage advance.

[12] The property was sold at a mortgagee sale.

The complaint and the Standards Committee decision

[13] Ms ZN lodged a complaint with the New Zealand Law Society Complaints Service (NZLS) on behalf of her mother on 20 August 2018.

[14] The complaint advanced by Ms ZN was comprehensive, comprising some 20 specific heads of complaint.

[15] Underpinning Ms QK’s complaints, was the concern that Mr MC had acted for both Mrs QK and Mrs QK’s grandson in organising the transfer of her half share in the property to the trust, and in doing so, he had failed to recognise the need for the parties to be independently advised.

[16] Mr MC was invited to provide a response to Ms QK’s complaint. Through his counsel Mr RD, he submitted that:

• (a) Mr MC had been careful to comply with the relevant conduct rules; and
  
• (b) the party’s interests were completely aligned, and
  
• (c) Mr MC had complied with r 6 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules); and
  
• (d) the fact that Mr MC had not obtained a written waiver from Mrs QK was of little consequence; and
  
• (e) there was no evidence that Mrs QK was pressured into agreeing to the property being transferred to a trust, to the contrary she understood the nature of the transaction and was supportive of it; and
  
• (f) question as to whether there has been compliance with or a breach of a conduct rule, depends on the facts, circumstances and context of the particular situation under scrutiny; and
  
• (g) there was in the circumstances only a negligible, less than negligible or no risk that Mr MC could not discharge legal, professional and ethical obligations owed to Mrs QK; and
  
• (h) in substance the complaint was being advanced by Ms ZN; and
  
• (i) the issues raised by the complaint were not reflective of a conduct issue, but rather the product of a family dispute which Mr MC had been ensnared in; and
  
• (j) Mrs QK had refused to take independent legal advice, and had been emphatic that she wished for Mr MC to represent her; and
  
• (k) Mr MC’s recommendation to Mrs QK to seek independent advice had been recorded by him in a file note; and

• (l) Mr MC accepts he did not provide any of the usual client engagement information to Mrs QK, and that this omission represents a lack of compliance with rr 3.4 to 3.9; and
  
• (m) the conflict rules do not require the promotion of a person’s interests to the exclusion of the interest of third parties in an absolute sense; and
  
• (n) the rules allow for the possibility of a lawyer acting for more than one party in a transaction; and
  
• (o) if the Committee was to conclude that there had been unsatisfactory conduct, there is no evidence that there was a serious or substantial risk to Mrs QK, the low level of risk needing to be reflected in any sanction imposed; and
  
• (p) the case did not warrant publication in any form.
  

[17] The Standards Committee distilled from the complaints filed the following issues for consideration:

• (a) Whether Mr MC took adequate steps to protect and promote Mrs QK’s interests to the exclusion of the interests of third parties, when acting for Mrs QK in respect of the formation of a family trust, the transfer of her one half-share in the property to the trust and the refinancing of the property with [bank], in all the circumstances applying, in terms of his obligations under r 6 of the Rules.
  
• (b) Whether Mr MC breached his obligations under r 6.1 of the Rules, by acting for more than one client, in connection with matters referred to in
  • (a) above, in circumstances where there was more than a negligible risk he would be unable to discharge the obligation he owed to one or more of the clients for whom he was acting.
    
• (c) Whether Mr MC obtained the prior informed consent of Mrs QK and the other parties for whom he was acting, in connection with the matters referred to in (a) above, to act for more than one party, in respect of the same matters, in accordance with r 6.1.1 of the Rules.
  

[18] The Standards Committee delivered its decision on 11 July 2019.

[19] The Committee determined, pursuant to s 152(2)(b) of the Lawyers and Conveyancers Act 2006 (the Act) that there had been unsatisfactory conduct by Mr MC.

[20] In reaching that decision the Committee concluded that:

• (a) it should have been obvious to Mr MC that he could not act for three people on the conveyancing transaction as their interests did not align; and
  
• (b) Mr MC had accepted and acknowledged there was a conflict when responding in correspondence to concerns raised by Mrs QK’s lawyers; and
  
• (c) Mr MC could not act for all the parties in circumstances where there was a more than negligible risk that he may be unable to discharge the obligations owed to one or more of the clients; and
  
• (d) there were circumstances surrounding the family dynamics which should have alerted Mr MC to the fact that he could not possibly purport to act for all three parties; and
  
• (e) Mr MC had not taken adequate steps to protect or promote Mrs QK’s interests to the exclusion of the interests of third parties; and
  
• (f) submissions filed by Mr MC’s counsel in response to the complaints, give indication that there was an acceptance by Mr MC, to some extent, that his conduct had fallen short.
  

[21] Consequential upon its finding of unsatisfactory conduct, the Committee made orders that Mr MC be censured, pay a fine, and contribute to the costs and expenses of the conduct enquiry.

Applications for review

[22] Mr MC filed an application for review on 21 August 2019. Mr MC seeks a reversal of the Committee’s decision. He commences his review application by indicating agreement with the Committee that the pivotal issue for the Committee to address, was the question as to whether he had breached r 6.1.1 of the Rules.1

[23] He submits that:

1 A summary of that rule will follow in this decision.

(a) his representation of both Mr and Mrs XW and Mrs QK did not constitute a conflict of interest, such as to merit the imposition of an unsatisfactory conduct finding; and

(b) even in the event that his conduct was unsatisfactory, it did not require a disciplinary response; and

(c) the Standards Committee put weight on factual matters which separately or collectively were neither meaningful or relevant; and

(d) there was no evidence that Mrs QK suffered any impairment; and

(e) reference to him being influenced by cultural factors was both inaccurate and culturally insensitive; and

(f) all parties to the transaction were satisfied that the transaction was fair to all; and

(g) the Committee had misdirected itself on the significance of his recommendation to Mrs QK that she obtain legal advice; and

(h) any Tribunal should be slow to make a finding that a lawyer is at fault in circumstances where the lawyer has accepted instructions from a competent client who the lawyer is familiar with; and

(i) the conduct complaint may be being pursued with ulterior motive to assist Mrs QK in advancing a potential civil claim.

[24] In a comprehensive response to Mr MC’s submission (which I will summarise), Ms ZN, for Mrs QK, submitted that:

• (a) in the event the LCRO confirmed the Committee’s conduct finding, it would be inappropriate for the LCRO to exercise a discretion to not impose an unsatisfactory conduct finding; and
  
• (b) Mr MC’s admission supported a finding that there had been a breach of the Rules; and
  
• (c) reference to her mother’s age and state of health was inappropriate; and
  
• (d) family dynamics played a part in the transaction; and

• (e) her mother was not satisfied that the transaction was fair and reasonable; and
  
• (f) the Committee was correct to conclude that conduct rules had been breached; and
  
• (g) accusation that the conduct complaint had been advanced for collateral purposes was incorrect.
  

[25] Mrs QK (again through her representative Ms ZN) filed an application to review the Committee’s decision on 21 August 2019.

[26] She submitted that:

• (a) the Committee had failed to address all aspects of her complaints; and
  
• (b) significant issues raised by her had not been thoroughly investigated; and
  
• (c) the censure and fine imposed by the Committee presented as an inadequate response considering the seriousness of the conduct breach.
  

[27] In response to Mrs QK’s review application, Mr MC (through his counsel Mr RD) sought directions that Mrs QK be required to attend the review hearing to answer questions as to the extent of the influence that Ms ZN may have had on advancing Mrs QK’s complaint.

[28] That request was addressed in a Minute issued.

[29] Counsel for Mr MC did not the address the issues identified at [26] above, but signalled his intention to request the LCRO to direct that Mrs QK attend the review hearing.

Nature and scope of review

[30] The nature and scope of a review have been discussed by the High Court, which said of the process of review under the Act:2

... the power of review conferred upon Review Officers is not appropriately equated with a general appeal. The obligations and powers of the Review Officer as described in the Act create a very particular statutory process.

The Review Officer has broad powers to conduct his or her own investigations including the power to exercise for that purpose all the powers of a Standards

2 Deliu v Hong [2012] NZHC 158, [2012] NZAR 209 at [39]–[41].

Committee or an investigator and seek and receive evidence. These powers extend to “any review” ...

... the power of review is much broader than an appeal. It gives the Review Officer discretion as to the approach to be taken on any particular review as to the extent of the investigations necessary to conduct that review, and therefore clearly contemplates the Review Officer reaching his or her own view on the evidence before her. Nevertheless, as the Guidelines properly recognise, where the review is of the exercise of a discretion, it is appropriate for the Review Officer to exercise some particular caution before substituting his or her own judgment without good reason.

[31] More recently, the High Court has described a review by this Office in the following way:3

A review by the LCRO is neither a judicial review nor an appeal. Those seeking a review of a Committee determination are entitled to a review based on the LCRO’s own opinion rather than on deference to the view of the Committee. A review by the LCRO is informal, inquisitorial and robust. It involves the LCRO coming to his or her own view of the fairness of the substance and process of a Committee ’s determination.

[32] Given those directions, the approach on this review, based on my own view of the fairness of the substance and process of the Committee’s determination, has been to:

• (a) Consider all of the available material afresh, including the Committee’s decision; and
  
• (b) Provide an independent opinion based on those materials.
  

The hearing

[33] The two review applications were heard on Thursday 13 February 2020.

[34] Mr MC was represented by Mr RD, Mrs QK by Mr PY QC.

[35] Mrs QK attended the hearing.

The Law

[36] I agree with the Committee that the pivotal issue underpinning the complaints advanced by Mrs QK, was the question as to whether Mr MC was conflicted when acting for the parties in the transaction involving the refinancing of the property and its transfer into the ownership of a trust.

3 Deliu v Connell [2016] NZHC 361, [2016] NZAR 475 at [2].

[37] It is so obvious and well understood by lawyers as to risk approaching the trite in repeating, that fundamental to the lawyer/client relationship, is the obligation of the lawyer to act as a robust guardian of their client’s interests.

[38] Consistent with the consumer protection purposes of the Act and a lawyer’s fundamental obligation to protect their client’s interests, r 6 requires that: 4

[i]n acting for a client, a lawyer must, within the bounds of the law and [the rules], protect and promote the interests of the client to the exclusion of the interests of third parties.

[39] The principle that applies to a lawyer who acts, or proposes to act, for more than one client on a matter has been described as “... an obligation of the lawyer to avoid any situation in which the duties of the lawyer owed to different clients conflict”.5

[40] In such circumstances r 6.1 contains a qualified prohibition that:

[a] lawyer must not act for more than 1 client on a matter in any circumstances where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to 1 or more of the clients.

[41] The threshold, “a more than negligible risk” above which the prohibition in r 6.1 applies, is very low. It has been described in a decision of this Office as circumstances where there is “no meaningful risk that the obligations owed to the parties would not be able to be discharged”, and “where there is a real risk of an actual conflict of interest ...”.6

[42] The distinction between contentious and non-contentious matters provides a useful way to assist in determining whether or not a conflict of duty exists for a lawyer, or is likely to arise in a particular situation.7 In the latter category, where the parties “... are negotiating and significant terms remain to be resolved, it would be more or less impossible for a lawyer to act for both parties ... an advantage acquired by one client will often result in a detriment to the other client.”8 The responsibility for making that determination rests with the lawyer concerned.9

4 Sections 3(1) and 4 of the Act. But see s 4(d).

5 Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington, 2016) at [7.1], referring to Moody v Cox & Hyatt [1917] 2 Ch 71 at 781.

6 Sandy v Kahn LCRO 181/2009 (9 December 2009) at [27] and [36]. In this context, the word “negligible”, which is not defined in either the Act or the Rules means, “unworthy of notice or regard; so small or insignificant as to be ignorable”: Shorter Oxford English Dictionary (5th ed, Oxford University Press, Oxford, 2003).

7 Webb, Dalziel and Cook at [7.2]. See Sandy v Kahn, and more recently ZAA v YBC LCRO 243/2013 (June 2017); generally, GE Dal Pont Lawyers’ Professional Responsibility (6th ed, Thomson Reuters, Sydney, 2017) at [7.35], [7.95] and [7.115].

8 At [7.2].

9 Taylor v Schofield Peterson [1999] 3 NZLR 434 at 440, applying Clark Boyce v Mouat [1993] 3 NZLR 641 (PC) at 646; see Webb, Dalziel and Cook, above n 5 at [7.3].

[43] In circumstances where a lawyer considers that the prohibition in r 6.1 does not apply, r 6.1.1 contains a qualified permission for a lawyer to:

... act for more than 1 party in respect of the same transaction or matter where the prior informed consent of all parties concerned is obtained.

[44] Rule 1.2 defines “informed consent” to mean:

.... consent given by the client after the matter in respect of which the consent is sought and the material risks of and alternatives to the proposed course of action have been explained to the client and the lawyer believes, on reasonable grounds, that the client understands the issues involved.

[45] The process of obtaining informed consent under r 1.2 requires that positive steps be taken by the lawyer who must first, explain to the parties (a) the material risks to each of them of the lawyer acting for the parties and (b) the alternatives available, for example, each party instructing an independent lawyer; and secondly, believe, on reasonable grounds that the clients understand these issues. Informed consent must be given without influence, and independent from the other clients.10

[46] These rules still apply where different lawyers in a firm act for different parties in a matter or a transaction.11 Moreover, “[a]n information barrier within a practice does not affect the application of, nor the obligation to comply with, rr 6.1 or 6.2”.12

[47] Under r 6.1.2, even though a lawyer may have obtained the prior informed consent of all parties concerned to act:

... if ... it becomes apparent that the lawyer will no longer be able to discharge the lawyer’s professional obligations owed to all of the clients for whom the lawyer acts, the lawyer must immediately inform each of the clients of this fact and terminate the retainers with all of the clients.

[48] This rule acknowledges the possibility that the interests of the clients for whom a lawyer is acting may or could diverge to the extent that by continuing to act the lawyer considers himself or herself no longer able to carry out his or her professional obligations owed to all of the clients for whom the lawyer is acting.

[49] For example, a lawyer may (a) receive information from one client which the lawyer would be duty bound to disclose to the other client(s) (see r 7), but in doing so may breach the duty of confidence owed to the client who provided the information to

10 Sandy v Kahn, above n 6, at [41] and [42]; see also Webb, Dalziel and Cook, above n 5, at [7.4].

11 Rule 6.2 of the Rules.

12 Rule 6.3.

the lawyer (see r 8);13 or (b) act to protect one client’s interest at the expense of another client(s) for whom the lawyer is also acting on a matter (in contravention of rr 6 and 6.1).14

[50] In such circumstances r 6.1.2 requires that the lawyer concerned “must immediately inform each of the clients of this fact and terminate the retainers with all of the clients.” This Office has stated that “it is unacceptable for a single firm to act for two parties who are in dispute with each other”, and that “[o]ther than when proceedings are actually filed there can be no clearer conflict of interest”.15

[51] Under rule 6.1.3, it is only if “the other clients concerned, after receiving independent advice, given informed consent to the lawyer continuing to act” for one of the clients, and “no duties to the consenting clients have been or will be breached” may the lawyer act for that client.

Issues

[52] The issues to be determined are:

• (a) In acting for both Mr and Mrs XW and Mrs QK, was there a more than negligible risk that Mr MC would be unable to discharge the obligations owed to one or more of the clients?
  
• (b) If the answer to (a) is yes, was the breach negated by the fact that Mr MC had Mrs QK’s consent to act?
  
• (c) Did the Committee err in referencing cultural factors and Mrs QK’s personal circumstances?
  
• (d) Were the complaint and review application improperly advanced by a third party who had progressed the complaint in Mrs QK’s name for the benefit of the third-party?
  
• (e) If the answer to (a) is yes, were the orders made by the Committee appropriate?
  

13 See Black v Taylor [1993] 3 NZLR 403 (CA) at 419, referred to in Torchlight Fund No 1 LP (In Receivership) v NZ Credit Fund (GP) Ltd [2014] NZHC 2552 at [15].

14 See Sandy v Kahn, above n 6, at [25] and [32].

15 At [34].

Analysis

In acting for both Mr and Mrs XW and Mrs QK, was there a more than negligible risk that Mr MC would be unable to discharge the obligations owed to one or more of the clients?

[53] Unquestionably yes.

[54] It is difficult to conceive a more fertile ground for potential conflict than the circumstances encountered by Mr MC when called on to facilitate the proposal to transfer the property to a trust.

[55] Mr MC had acted for Mr and Mrs XW (as purchasers) when Mrs QK had sold her half-interest in her home to Mr and Mrs XW.

[56] There were a number of reasons which had prompted Mrs QK to consider selling an interest in her home, not the least of which appears to have been the opportunity it provided her to relieve herself of the pressing debt which was threatening her ability to remain in the home.

[57] The fact that she was selling an interest in the home to close family members, likely would have made Mrs QK more comfortable with the arrangement. The transaction was not solely commercially focused. It was Mrs QK and the XWs’ expectation that they would live contentedly in the home together as a family unit, with the ultimate objective of building a self-contained unit at the property to provide independent accommodation for Mrs QK.

[58] Importantly, as was essential, Mrs QK and the XWs were independently represented and advised when the prospect of the XWs taking a half interest in the home was mooted.

[59] Two years later, when again, there appeared to be difficulty with meeting the financial commitments for the property, the circumstances were quite different to those encountered by Mr MC in 2014.

[60] Mr MC says he became aware that Mrs QK and the XWs were considering refinancing the property when he received an approach from a mortgage broker.

[61] He says it was his understanding that Mrs QK was having financial problems, and that the proposal to refinance was principally motivated by a desire to alleviate those problems.

[62] Mrs QK and Mr and Mrs XW have sharply opposing views as to the circumstances that prompted the proposal to refinance.

[63] They also provide differing accounts as to the agreement reached by the parties concerning the respective contributions to be made to the household expenses, including the extent of the payments to be made to the mortgage, and the degree to which the parties had conscientiously met their obligations.

[64] These differences were regrettably significantly amplified after the property had been transferred to the trust.

[65] The extensive raft of acrimonious email exchanges between the XWs and Ms ZN (representing Mrs QK) starkly reflect the extent to which the dispute deteriorated.

[66] But is not the task for this review to evaluate the conflicting explanations provided as to what prompted the decision to refinance the property, or to speculate as to what arrangements had been agreed by the family members concerning the financial contributions the respective parties would make towards maintaining the property.

[67] Nor is it my task to determine whether either of the parties had breached agreements reached with the other. The focus for this review is on the question as to whether it was appropriate for Mr MC to have acted for both parties on the trust transaction.

[68] The first step when addressing complaint that a lawyer has breached r 6.1, is to consider whether Mr MC was acting for more than one client on a matter.

[69] He was. He had previously acted for Mr and Mrs XW and was asked by them to represent them again.

[70] Mr MC concedes that when he first attended on the parties to discuss the trust proposal, that he had immediately recommended to Mrs QK that she obtain independent legal advice. This was a proper recognition by him that the transaction engaged (as it so obviously did) the potentially competing interests of two separate parties, and demanded that the parties be independently advised. His recommendation to Mrs QK reinforces both that he was continuing to act as Mr and Mrs XW’s lawyer, and his recognition of the conflict potential that could arise if he was to represent Mrs QK.

[71] Mr MC recorded his advice to Mrs QK that she be independently advised in a file note.

[72] Faced with what he describes as an emphatic indication from Mrs QK that she did not wish to avail herself of the opportunity to be independently advised, Mr MC concluded that Mrs QK’s refusal to instruct her own lawyer cleared the path for him to represent her.

[73] In correspondence forwarded to Mr and Mrs XW and Mrs QK on 4 December 2015, Mr MC confirmed his instructions to act for all three on the formation of the family trust.

[74] In responding to Mrs QK’s complaint, Mr MC says that he was unaware that there had been a fallout amongst the family members until he received correspondence from Mrs QK’s lawyer in March 2017.

[75] Reflecting on the instructions received in 2015, and the steps then taken, Mr MC says that his role was limited to attending to the conveyancing aspects of the transaction. He emphasises that when he received instructions in 2015, there was a unanimity of purpose in the instructions that gave him confidence to act for all parties on the transaction. He suggests that the acrimonious estrangement between the XWs and Mrs QK (of which there was no evidence when he took instructions in 2015) provides the true explanation for the complaint that has been advanced.

[76] When a lawyer is working for a client whose interests are in conflict (or may be in conflict) with the new client’s interests, the lawyer is prohibited from taking on the new client except in narrow circumstances.16

[77] Mr and Mrs XW were existing clients of Mr MC.

[78] In agreeing to act for Mrs QK, Mr MC was taking instructions from a new client. He was at this point, effectively acting for two clients.

[79] Attention then turns to the question as to whether, in doing so, Mr MC was faced with a more than negligible risk that he would be unable to discharge the obligations owed to one or more of his clients.

[80] It would be immediately apparent that the hurdle a lawyer must overcome in order to be satisfied that there would be no difficulty with representing two clients on the same transaction is a high one. A lawyer must not act for more than one client in circumstances where there is a more than negligible risk that the lawyer may be unable

16 Webb, Dalziel and Cook, above n 5 at [5.7.4].

to discharge the obligations owed to one or more of the clients. If a more than negligible risk is identified, the lawyer must not (emphasis added) act.

[81] The Oxford English Dictionary has defined negligible as “able to be neglected or disregarded; unworthy of notice or regard, so insignificant as to be ignorable”.17

[82] In endeavouring to persuade Mrs QK of the wisdom of her instructing independent counsel, Mr MC was obviously alerted to the potential for conflict.

[83] It could not reasonably be argued that the potential was so insignificant as to be ignorable.

[84] To the contrary, the potential for the interests of Mr and Mrs XW and Mrs QK to diverge was patently obvious.

[85] The factors that signalled manifest potential for risk included:

• (a) the consequences of the transaction for Mrs QK, being that she was effectively losing control of her interest in the property; and
  
• (b) the transfer of control of the property effectively into the hands of clients who Mr MC had previously acted for, in a transaction in which a half- interest in the property had previously been transferred to his clients; and
  
• (c) the complexity of the transaction, being that it introduced a new dimension of ownership through the vehicle of a trust; and
  
• (d) the obvious necessity for Mrs QK to be independently advised as to the consequences and implications of trust ownership; and
  
• (e) the extent to which Mrs QK’s position in respect to exercising control over her home became vulnerable.
  

Was the breach negated by the fact that Mr MC had Mrs QK’s consent to act?

[86] No.

[87] Mr RD argues that the issue for the Committee to determine was whether there had been a breach of r 6.1.1.

17 See Shorter Oxford English Dictionary, above n 6 at 1901.

[88] He suggests that the “more narrow issue in this case therefore, is whether Mrs QK provided informed consent”.

[89] If a more than negligible risk is established, a lawyer cannot find safe haven in argument that he or she may legitimately continue to act if they have the prior consent of all parties (r 6.1.1), or, if having commenced acting and then identified a potential problem in discharging his or her obligations, terminated the retainer (r 6.1.2).18

[90] Rule 6.1 forbids a lawyer from acting for more than one client on a matter in any circumstances where there is more than negligible risk that the lawyer may be unable to discharge the obligations owed to all clients.

[91] It has been noted, that “when considering whether to act for more than one client on a matter, a lawyer must ensure that this first hurdle can be cleared. If you cannot clear this hurdle then no amount of informed consent or provision of information will cure those conflicting duties and the lawyer must only act for one party”.19

[92] Mr MC says that he had recommended to Mrs QK that she consult the lawyer who had acted for her in an earlier transaction involving the property. He says that Mrs QK had told him, that she had some reservations about the representation she had received from those lawyers.

[93] Clearly, Mr MC concluded that any obstacles to him representing Mrs QK were overcome by the fact that she presented as both unwilling to seek advice elsewhere, and positive about the prospect of him representing all the members of the family. Mr MC says that Mrs QK had, after the first transaction had concluded, approached him and talked to him about taking steps to have a caveat registered over the property removed. Whilst she met with Mr MC and apparently provided him with an authority to uplift her file from her previous lawyers, she did not pursue the matter. It is argued for Mr MC that this is evidence of Mr MC having a pre-existing relationship with Mrs QK which gives indication that Mrs QK had confidence in Mr MC.

[94] I place no weight on this. The fact that Mrs QK may have considered instructing Mr MC on a matter prior to the decision being taken to transfer the home into a trust, did not absolve Mr MC of the responsibility to recognise, and appropriately manage the conflict issues that arose when he commenced acting for two parties. If anything,

18 Where a retainer is terminated, a lawyer may continue to act for 1 client, if the other(s), after having received independent advice, consents to the lawyer continuing to act (r 6.1.3).

19 Samuel Hood “No lawyer can serve two masters” (2015) 872 LawTalk 24.

Mr MC’s knowledge of Mrs QK’s affairs should have made him more acutely sensitive to the need to ensure that she was independently advised.

[95] Mr MC was mistaken to conclude that obstacles to him representing Mrs QK were removed by virtue of her agreeing that he could do so.

[96] It was Mr MC’s responsibility to inform Mrs QK that he could not represent her. It was he who was expected to have a proper appreciation of conflict principles, and the awareness that his professional obligations could not allow him to represent Mrs QK in circumstances where there was such ripe potential for the parties’ interests to diverge.

[97] A proper refusal to represent Mrs QK would not have compromised Mr MC, nor presented him with any difficulties in respect to his duties and obligations to represent a client when asked by a client to do so.

[98] A lawyer may refuse to act for a client or prospective client, if the lawyer has good cause to refuse to accept instructions.

[99] Good cause includes those circumstances where a lawyer accepting instructions would expose the lawyer to risk of breaching his or her professional obligations.20

[100] It was required of Mr MC to explain to Mrs QK that he was simply unable to represent her, and that she was required to instruct her own lawyer.

Did the Committee err in referencing cultural factors and Mrs QK’s personal circumstances?

[101] Mr MC argues that the Committee placed undue weight on Mrs QK’s age, cultural factors and familial dynamics. In identifying these issues, he is complaining that the Committee was painting a picture of Mrs QK as a vulnerable individual, who was not well positioned to fully understand the implications of the transaction. This impression suggests Mr MC, was markedly at odds with his experience of Mrs QK whom he had found to be a robust and competent person, well able to understand what was going on.

[102] If the Committee, in referencing cultural factors, had intended to convey an impression that [country] people were more likely to require separate representation, Mr MC says that a suggestion of that nature would be distasteful.

20 Rule 4.1 of the Rules.

[103] I do not consider that the Committee was remiss in identifying Mrs QK’s age and family dynamics as factors that Mr MC would need to be both aware of and sensitive to.

[104] Context is critical in conduct complaints. It would be a sterile analysis for a Committee to attempt to determine a conduct issue without giving proper consideration to the circumstances from which the complaint arose. Frequently relevant to those circumstances are factors relevant to the personal situations of the individuals most directly affected.

[105] Mr MC disagrees with suggestion that Mrs QK was not in a position to properly consent to the [address] transaction because she was elderly and not keeping good health.

[106] Ms ZN and Mr MC provide differing accounts as to the state of Mrs QK’s health. I am not positioned to provide definitive comment on those matters here, nor do I have need to.

[107] Mr MC’s submission is advanced with purpose to support argument that Mrs QK was ably equipped to provide her consent.

[108] However, as noted above, the issue was not whether Mrs QK was in a position to freely provide consent, but rather that the potential for conflict was so marked, that Mr MC should have recognised that he simply could not act for her.

[109] I draw no more from the Committee ’s brief reference to familial dynamics than to see those as a reasonable and proper recognition of the reality that this was a transaction that was inevitably shaped by family considerations.

[110] Nor do I consider that the Committee’s reference to cultural factors was intended in any sense to be disrespectful (and Mr MC does not go so far as to suggest that it was) but rather was intended to simply reinforce another layer to the family dynamics that were in play.

Were the complaint and review application improperly initiated by a third party who had advanced the complaint in Mrs QK’s name for the benefit of the third-party?

[111] Mr MC does not consider that Mrs QK had any objection to him acting. It is his view that Ms ZN is driving the complaint, with purpose to assist in laying a foundation for a negligence claim.

[112] I do not propose to go beyond the complaint and review documents and speculate on whether Mrs QK is genuinely promoting the complaint that is advanced in her name.

[113] The complaint was filed on 18 August 2018. The complaint commences with Ms ZN recording that she is advancing the complaint on behalf of her mother.

[114] On 31 August 2018, Ms ZN forwarded an authority to act, signed by Mrs QK, to the Complaints Service.

[115] Mrs QK’s review application records that Ms ZN had been authorised to advance the review on her behalf.

[116] Section 132(1) of the Act provides that any person may complain to the Complaints Service about the conduct of a practitioner or former practitioner.

[117] It would have been open to Mrs ZN to advance a complaint in her own name.

[118] The complaint having been filed, both the consumer protection and regulatory oversight requirements, necessitated the completion of a conduct inquiry.

[119] The broad powers available to a Review Officer when conducting a review, include the ability to review all of the aspects, or any of the aspects, of any investigation conducted by or on behalf of the Standards Committee in relation to the complaint or matter to which the final determination relates.21

[120] The limitations for a complainant in advancing a complaint or review solely through the voice of a representative are obvious.

[121] Ms ZN cannot give evidence on behalf of Mrs QK.

[122] She cannot for example, provide explanation as to whether Mrs QK understood, or failed to understand, the implications of the [address] property transaction.

[123] Whilst it is clearly the case that Ms ZN has played an active role in advancing both Mrs QK’s complaint, and the application for and response to review, Mrs QK has not been entirely silent. Included in the documentation filed on review was a statement from Mrs QK. I accept that it may be the case that Mrs QK was assisted in the drafting of that statement.

21 Section 203(b) of the Act.

[124] But the absence of more direct input from Mrs QK is neither fatal to her complaint nor to this review. What is uncontested, is the nature of the transaction on which Mr MC acted for both parties, being the transfer of Mrs QK’s interest in her home to a trust over which she effectively had no control. It is the nature of the transaction itself which provided proper foundation for a conduct complaint.

[125] When the review had advanced to the hearing stage, Mrs QK had instructed Mr PY to represent her.

[126] As noted, Mrs QK attended the hearing. She had opportunity to present her position at the conclusion of the hearing. She spoke briefly but clearly in providing her recollection of the events surrounding the transfer of her interest in the property to the trust. Her position, clearly put, was that she did not understand the implications of the arrangements that were being put in place.

Were the orders made by the Committee appropriate?

[127] This question directly engages a consideration of the issues raised by Mrs QK’s application.

[128] It is argued by Ms ZN that the Committee neglected to address a number of the complaints raised by Mrs QK. She was concerned that the Standards Committee focused its inquiry on the conflict issue to the exclusion of a proper consideration of the other complaints raised.

[129] Coupled with this, was complaint that the penalty imposed by the Committee presented as an inadequate response, when measured against the loss that was said to have been suffered by Mrs QK.

[130] In identifying the points that she says were overlooked by the Committee, Ms ZN says that Mr MC:

• (a) drafted the trust deed to benefit the XWs at the expense of Mrs QK; and
  
• (b) failed to ensure that Mrs QK had received adequate compensation for transferring her interest in the property to the trust; and
  
• (c) failed to prepare documentation to record the transfer of the property to the trust; and

• (d) incorrectly certified documents that had been filed with LINZ.
  

[131] Ms ZN describes the omissions and failings described above as amounting to negligence on the part of Mr MC.

[132] Negligence is a cause of action that is well-understood by traditional civil courts. Its ingredients include a duty of care, a breach of that duty, and a measurable loss that has been caused by the breach of duty. Findings of negligence may only be arrived at after comprehensive – sometimes expert – evidence has been given. Issues that often arise in claims of negligence include whether a person has breached their duty of care, or whether there is a connection between the alleged loss and the breach of duty. Complex arguments often arise about whether any loss has been suffered.

[133] Neither a Standards Committee nor the LCRO is equipped to make findings of negligence. The default position for a Standards Committee is to conduct their hearings on the papers. A negligence analysis is simply not possible with that process.

[134] A lack of competence or diligence does not necessarily amount to negligence – particularly if there has been no loss as a result of a practitioner’s lack of competence.

[135] However, the relationship between the tort of negligence and unsatisfactory conduct as defined in s 12(a) is close. In the Introduction to the chapter on negligence in The Law of Torts the authors state:22

Negligence is a relatively straightforward and well-understood concept in lay terms. It is defined in the Concise Oxford Dictionary simply as a lack of proper care and attention or carelessness. This broad notion of carelessness is undoubtedly an integral part of negligence as a foundation for legal liability, but other elements are also involved. If one or more of those elements is lacking, then an action will fail, even though the defendant may have been careless, even grossly so, in a popular sense.

[136] Ms ZN is arguing that Mr MC’s failure to properly advise Mrs QK, resulted in a substantial financial loss to Mrs QK.

[137] This is argument that is properly addressed in the context of Court proceedings, in circumstances where the evidence is open to full examination and where both parties have opportunity to subject that evidence to cross examination.

22 Stephen Todd (ed) The Law of Torts in New Zealand (6th ed, Thomson Reuters, Wellington, 2013) at [5.1].

[138] Those seeking compensation based on negligence should look to the general law for a remedy. Standards Committees and this Office have many times stated that the complaints process is not to be considered an alternative to court proceedings.

[139] A refusal by this Office (or a Standards Committee) to deal with a complaint, where it is determined that the matter should more properly be pursued in another forum, is not to be seen as an abdication of the responsibility of the disciplinary process to provide appropriate oversight and supervision of a lawyer’s conduct. If it was to be subsequently established in court that Mr MC had been negligent in managing Mrs QK’s affairs, she would then, those findings having been established, be free if she wished, to pursue further conduct complaints, but then from the basis of a court of competent jurisdiction having made a definitive finding on the negligence argument.

[140] It must be emphasised that the disciplinary process is not a substitute for civil proceedings.

[141] The Standards Committee did not, in my view, overlook elements of the complaint filed, but rather correctly confined its determination to those issues that fell within its jurisdiction.

[142] In addressing the Committee’s orders, Mr MC argues that if the LCRO was to conclude that there had been a breach, the breach was not of such significance as to merit a disciplinary finding being entered.

[143] I disagree.

[144] Mr MC’s decision to represent Mrs QK presents as a serious lapse of professional judgement.

[145] Mr MC’s professional lapse merited, and required, a strong disciplinary response.

[146] In a recent decision, the New Zealand Lawyers and Conveyancers Disciplinary Tribunal expressed concern that Standards Committees may be adopting a too lenient approach to cases where serious conflicts of interest had been established.23

[147] I do not consider it appropriate to interfere with the Committee’s decision on penalty.

23 Canterbury-Westland Standards Committee No. 1 v Whitcombe [2019] NZLCDT 37 at [38].

[148] I see no grounds which could persuade me to depart from the Committee’s decision.

Publication

[149] Pursuant to s 206(4) of the Act I direct that this decision be published so as to be accessible to the wider profession in a form anonymising the parties and bereft of anything as might lead to their identification.

Costs

[150] Where a finding of unsatisfactory conduct is made or upheld against a practitioner on review it is usual that a costs order will be imposed. I see no reason to depart from that principle in this case. Taking into account the Costs Guidelines of this Office, the practitioner is ordered to contribute the sum of $1,200 to the costs of the review, that sum to be paid to the New Zealand Law Society within 30 days of the date of this decision.

[151] The order for costs is made pursuant to section 210(1) of the Lawyers and Conveyancers Act 2006.

[152] Pursuant to s 215 of the Lawyers and Conveyancers Act 2006 I confirm that the order for costs may be enforced in the civil jurisdiction of the District Court.

Decision

Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006 the decision of the Standards Committee is confirmed.

DATED this 3rd day of March 2020

R Maidment

Legal Complaints Review Officer

In accordance with s 213 of the Lawyers and Conveyancers Act 2006 copies of this decision are to be provided to:

Mr MC as the Applicant /Respondent

Mrs QK as the Respondent/Applicant Mr RD as the Representative for Mr MC

Ms ZN as the Representative for Mrs QK

Mr PY QC as the Representative for Mrs QK [Area] Standards Committee [X]

New Zealand Law Society