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

Transcription

1 LCRO 108/2018 CONCERNING an application for review pursuant to section 193 of the Lawyers and Conveyancers Act 2006 AND CONCERNING a determination of [Area] Standards Committee [X] BETWEEN WR Applicant AND NS Respondent The names and identifying details of the parties in this decision have been changed. Introduction [1] Mr WR has applied for a review of the determination by [Area] Standards Committee [X] in which it made two findings of unsatisfactory conduct against Mr WR, imposed a fine of $10,000 and ordered him to pay costs of $2,000. The Committee determined to take no further action on two other matters considered in the complaint. [2] The submissions made by Ms CG on Mr WR s behalf, address one of the findings of unsatisfactory conduct only, but all aspects of the Committee s investigation and determination have been considered. Background [3] Mr EU owned a farm in [town] comprising hectares. [4] In 2001, Mr EU subdivided the property into four blocks. Mrs NS and her husband had lived on one of the blocks since the late 1980s. 1 1 Mrs NS advises they had moved there at the request of her parents.

2 2 [5] Mrs NS says that it was her father s intention to leave one block to each of his four children. This was set out in a Memorandum of Wishes addressed to the Trustees of The [AB Trust] which had been established by Mr EU and his wife. 2 [6] The trustees of the Trust were Mr EU, Mr WR and Mr EU s accountant, Mr FG, and Mr EU s will provided that the property was to pass to the Trust on Mr EU s death. 3 [7] In 2013, Mr EU was involved in a motor vehicle accident which resulted in cognitive difficulties for him and the family agreed that it was unsafe for him to return home when he was discharged from hospital. [8] Mr EU moved into residential care at [rest home] in August [9] Mr WR met with Mr EU on four occasions in November 2013 to discuss Mr EU s personal affairs. He says that as far as [he] was concerned, the November 2013 meetings were instigated by [EU] and that he was acting under his own volition and clearly understood what he was doing. 4 [10] Mr WR advises, that at that time, Mr EU offered to sell the whole farm to his sons, SU and ZU. SU said he was interested in the proposal but not at that stage. 5 I infer from other material, that at that time SU was farming the land, and paying a rental of $10,000 to Mr EU. [11] Mrs NS advises, that on 28 November 2013, her father signed a Memorandum of Wishes, in which he expressed the wish that each of his children were to have the option of purchasing the farm (or presumably, any of the blocks) but that preference was to be given to any of his children who wished to purchase all four blocks. [12] SU was Mr EU s attorney, and at a meeting in August 2014 about Mr EU s property matters, Mr WR asked SU if he was still interested in purchasing the farm. [13] Mr WR says: 6 When SU said yes we simply went back to EU to see if he still wanted to sell to SU and if so on what terms? 2 Mrs EU had passed away in It is puzzling that Mr EU had not provided for the blocks of land to pass directly to a designated child. 4 Letter WR to Lawyers Complaints Service, 25 August 2017 at [9]. 5 In her letter of complaint Mrs NS does not refer to this offer being made in November She says the offer was made to SU and ZU in August Accepting Mr WR s advice that Mr EU made the offer in 2013, the meetings to discuss the sale in August 2014 which Mrs NS says were instigated by Mr WR, take on a different light, in that they were following on from the offer made by Mr EU previously. 6 At 10.9.

3 3 [14] The sale was negotiated at a value fixed by valuation with the full purchase price being advanced to SU and secured by way of a mortgage over the property. The interest rate was fixed by calculating the amount required by Mr EU for rest home fees over and above Mr EU s superannuation payments. This resulted in a rate approximating 1.6% per annum. [15] The terms of the mortgage included a provision that no demand was to be made for repayment of the advance while Mr EU was alive and following his death, demand could only be made on six months notice. [16] Mrs NS says that the sale excluded the house owned and occupied by [her and her husband] and reserved [them] a life interest in the land the house was on and the curtilage around it. 7 [17] In 2015, Mrs NS issued proceedings seeking the appointment of a property manager under the Protection of Personal and Property Rights Act 1988 to manage Mr EU s affairs. 8 [18] In the course of those proceedings, affidavits were provided by Doctors MC, RY and UL. Copies of those affidavits were provided by Mrs NS together with the discharge summary dated 19 August 2013 provided by the [town] hospital when Mr EU was discharged following his motor accident. Mrs NS complaints [19] Mrs NS summarises the areas of concern relating to Mr WR s conduct as being: 9 His failure to take reasonable steps to ascertain my father s capacity; Meeting with SU to plan a transaction without my father s instructions; Failing to take instructions from Dad over the terms of the sale and purchase agreement; Failing to advise over the terms of the disadvantageous terms of that agreement; Failing to ensure that the sale price of the farm reflected market value; and Swearing an affidavit relating to Dad s affairs without instructions which was misleading. 7 Letter NS to Lawyers Complaints Service, 23 June Standards Committee Determination, 9 May 2018 at [6]. 9 Above n 7.

4 4 The Standards Committee determination [20] The Standards Committee condensed Mrs NS complaints into four issues: 10 Did Mr WR act for Mr EU with respect to a memorandum of wishes and sale and purchase of his property to his son SU in circumstances where Mr EU lacked legal capacity due to having dementia? Did Mr WR discuss matters relating to Mr EU s affairs with SU without appropriate instructions? Did Mr WR fail to take instructions from Mr EU regarding the terms of the property transaction or provide advice in relation to the transaction and fail to protect his interests? Did Mr WR swear a misleading affidavit in support of SU in the proceedings? Mr EU s capacity [21] The Committee was satisfied that Mr EU probably lacked capacity 11 when he entered into the agreement to sell the farm to SU. It based its conclusion on the evidence provided by the hospital discharge summary and the doctors affidavits referred to in [18] above. [22] In considering whether Mr WR had fallen short of the standard of care required of a lawyer, the Committee referred to a decision of this Office in which the LCRO said: 12 When confronted with elderly persons or others who may be vulnerable for one reason or another, the question of mental competency is one that needs to be in the forefront of a practitioner s mind. There are basic steps that can readily be taken by a practitioner to test the competency and/or free will of a client. [23] The LCRO continued: 12 It is the responsibility of practitioners to be alert to circumstances where further enquiry ought to be made, and to be able to undertake basic steps that can assure them of their client s legal capacity. The necessity for such enquiry is particularly clear where mental health has been raised. [24] The Committee referred to file notes made by Mr WR in 2013 and 2014 where he specifically recorded his view that Mr EU had the required capacity to make decisions at that time. The Committee considered the fact that Mr WR had made these 10 Standards Committee Determination at [9]. 11 At [11]. 12 HF v SZ LCRO 186/2009 at [13].

5 5 notes in respect of the earlier attendances, reinforced its views that what Mr WR did know was sufficient to put him on notice that Mr EU s capacity required investigation. 13 [25] Mr WR had failed to do this and delegated the task of seeking comment from Mr EU s GP to SU. [26] Having considered all of the factors relating to this issue the Committee said: 14 The best course of action would have been to obtain a formal assessment If it was permissible to rely on less formal inquiries, such inquiries should have been made by Mr WR personally. It would have been prudent to make inquiries of the rest home, as well as Mr UL. It would have been prudent to ensure those being inquired of were in possession of all medical notes. That would likely have brought to light the hospital discharge summary. It would have been prudent to make inquiries of Mr EU s other children. That would have brought to light what the family had been advised of Mr EU s cognitive s[t]ate by the hospital. [27] Having considered all of the circumstances the Committee determined that: 15 Mr WR failed to take steps to properly determine whether Mr EU had legal capacity. He had then proceeded to act for Mr EU with respect to the sale of Mr EU s farm to SU in circumstances where Mr EU probably lacked legal capacity. Mr WR s conduct in failing to make proper inquiry fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer. [28] The Committee determined that there had been unsatisfactory conduct on Mr WR s part in terms of s 12(a) of the Act. Discussing Mr EU s affairs with SU [29] At one stage during negotiations relating to the sale of the farm Mr WR had a meeting with SU and Mr FG. The Committee considered that this was not best practice 16 in that Mr EU s affairs were being discussed with others without him present. [30] However, it noted that SU and Mr FG were aware anyway of the general terms of sale and in the circumstances the Committee determined to take no further action in respect of this issue. Failing to take instructions and protect Mr EU s interests [31] The issues and the Committee s view on these is reflected in [54] of the Committee s determination: 13 Standards Committee Determination at [13]. 14 At [31]. 15 At [37]. 16 At [42].

6 looking at the terms of the transaction and lack of advice to Mr EU regarding those terms, the Committee considered that Mr WR failed to take instructions from Mr EU regarding all the terms of the property transaction or provide full advice in relation to the transaction. The Committee would have expected to see a clear file note from Mr WR recording his advice to Mr EU about the transaction and Mr EU s clear instructions that he wished to sell the property to SU. Instead it appears that FG had obtained a valuation of the property in June 2014 and both FG and Mr WR had then met with SU to confirm whether he was still interested in purchasing the property in August The Committee had some concern about FG s involvement (no matter how well intentioned FG might have been), given that Mr EU remained the registered proprietor of the property and that FG was a trustee of the family trust which would only hold the property in trust once Mr EU died. 6 [32] Having considered all of the evidence, the Committee formed the view that Mr WR had failed to protect Mr EU s interests. It determined that: 17 Mr WR had failed to take proper instructions from Mr EU regarding the terms of the property transaction or provide full advice in relation to the transaction and failed to properly protect his interests. Mr WR s conduct had fallen short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer. [33] The Committee determined that this constituted unsatisfactory conduct pursuant to s 12(a) of the Lawyers and Conveyancers Act A misleading affidavit [34] Mrs NS complaint in this regard was that Mr WR had sworn an affidavit in connection with the Protection of Personal and Property Rights proceedings which provided support for her brother SU rather than being impartial. [35] The Committee summarised its determination in respect of this matter in the following manner: 18 Mr WR s affidavit could fairly be criticised for being less than a full accounting of events, but the Committee did not consider that the evidence sufficiently clearly supports a finding that Mr WR deliberately swore a misleading affidavit in support of SU in the proceedings seeking the appointment of a property manager under the Protection of Personal and Property Rights Act 1988 to manage Mr EU s affairs. [36] The Committee determined to take no further action on this matter. [37] In finalising its determination the Committee referred to some ancillary matters 19 in respect of which it determined to take no further action. 17 Standards Committee Determination at [56]. 18 At [60]. 19 At [63].

7 7 Summary/orders [38] The Committee made two findings of unsatisfactory conduct against Mr WR. It imposed a fine of $10,000 and ordered Mr WR to pay costs in the sum of $2,000. Application for review [39] Mr WR has applied for a review of the Committee s determination, in particular the finding of unsatisfactory conduct with regard to the issue of Mr EU s capacity. [40] Mr WR instructed Ms CG of [law firm] to act for him in this review. Mr WR seeks to have the finding reversed. Review [41] Both parties consented to this review being completed on the material to hand, being the Standards Committee file and the material/submissions provided in the course of this Review. Mr EU s capacity to give instructions [42] Ms CG submits that because the affidavit evidence filed in conjunction with the application to appoint a Property Manager was never tested in court, the Committee could not rely on it to the extent it did when reaching the view that Mr EU probably lacked capacity. [43] However, the issue is not whether or not Mr EU lacked capacity. That is not something a lawyer can, or can be expected to, determine but [w]hen confronted with elderly persons or others who may be vulnerable for one reason or another, the question of mental competency is one that needs to be in the forefront of a practitioner s mind. 20 [44] The Committee has accepted that Mr WR was alert to the need to be sure that Mr EU had the appropriate degree of competency, 21 and there is no question that was the case. 22 What Mr WR should have done to satisfy himself that Mr EU was able to give valid instructions and enter into the transaction, can not be laid down with any degree of certainty. 20 HF v SZ, above n 12 at [13]. 21 At [21]. 22 As discussed by the Standards Committee at [18] [21].

8 8 [45] In Sandman v McKay the Supreme Court has made some helpful observations: 23 When acting for a client, solicitors have a duty to follow a client s instructions. Solicitors also, however, need to provide the relevant advice and information to ensure the client is in an appropriate position to give informed instructions. Where the instructions are to prepare a will in circumstances where there might later be issues raised about capacity, the lawyer should carefully document the advice given and the steps taken. In this regard it would be prudent for a solicitor to suggest that a medical certificate be obtained. It would also be prudent to document the reasons for the provisions of the will and the process involved in taking instructions and in ensuring that the instructions had been correctly understood. It is certainly arguable that once the steps set out above have been taken it would not be up to the solicitor, who is not a medical expert, to decide whether a client has testamentary capacity and thus to decide whether to follow his or her instructions. The position arguably is that a solicitor, even if he or she does not think a client has capacity, would nevertheless be obliged to prepare and arrange for the execution of the will. The issue of actual capacity would then be decided after the client s death, on the basis of the evidence including expert medical evidence. [46] The Court therefore, puts the duty to follow a client s instructions ahead of any uncertainty about the client s capacity to give those instructions. What might be considered to be prudent does not necessarily set the standard for determining whether a lawyer s actions can be considered to be unsatisfactory conduct. [47] It is helpful to compare what the lawyer in the Sandman case did, with what Mr WR relied on. In Sandman the lawyer had taken instructions from the client to make a new will, which departed significantly from the terms of her existing will. 24 After taking instructions, the lawyer then summarised those instructions in a letter to the client. In the same letter, she advised that she would arrange for the client s doctor to pay a visit and provide a certificate as to the client s testamentary capacity. The lawyer indicated that she considered this to be a prudent step to take, notwithstanding that she herself had no concerns. The lawyer then made the appropriate arrangements for the doctor to attend the client. She then arranged for an independent solicitor to take the will and other documents for signature to her client for signature. She provided the independent solicitor (with her client s consent) with a copy of the medical certificate. She also obtained a certificate 23 Sandman v McKay [2019] NZSC 41 at [80] [81]. 24 The new will left her daughter s share of the estate, if she predeceased her mother, to various other beneficiaries. The previous will had left her daughter s share if she predeceased her mother, to her other child, who was to receive half the estate in any event.

9 9 from the independent solicitor that he had no reason to suspect that [Mrs Sandman] was or may have been mentally incapable at the time she signed the [documents]. [48] Mr WR says: 25 - he knew Mr EU very well - he had attended on Mr EU several times to discuss the matters out of which the complaints arise, and Mr EU s instructions had been consistent - he did not telegraph his attendances and so there was no opportunity for family interference - he did not consider Mr EU s instructions to be irrational or out of step with previous discussions some years before in 2008 and the medical staff at the retirement home did not raise any concerns - the family had been involved when Mr EU had executed Powers of Attorney some 18 months earlier and no issues had been raised at that time - the view of Mr EU s doctor (as communicated by SU) coincided with his own. [49] Mr WR did not take the step of confirming his instructions in writing. Nor did he speak to the doctor himself. The only thing that could have prompted Mr WR to be concerned that Mr EU may have lacked capacity, was the fact that Mr EU had been in an accident and was living in a rest home. Those are not factors that invariably mean a person is unable to give valid instructions, whether for a will or otherwise. Indeed, the authors of the text Ethics, Professional Responsibility, and the Lawyer say: 26 It should also be noted that the degree of understanding needed to enter into a transaction may vary depending on the nature of the transaction. It has, for example, been found that the capacity required to execute a will is higher than to enter into a contractual arrangement. 27 [50] The Committee was satisfied Mr WR was alert to the need to be satisfied about Mr EU s capacity. He was not aware of the earlier hospital discharge report which noted Mr EU s cognitive limitations at the time. 25 Letter WR to LCS 25 August Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington, 2016) at Scott v Wise [1986] 2 NZLR 484 (CA) at 491.

10 10 [51] Mr WR s duty was to Mr EU. Although Mr EU s instructions were substantially altering his previous wishes, Mr WR was nonetheless satisfied that Mr EU was able to give these. [52] The Standards Committee has determined that Mr WR s conduct constituted unsatisfactory conduct pursuant to s 12(a) of the Act. That is conduct that falls short of the standard of diligence and competence that a member of the public is entitled of expect of a reasonably competent lawyer. [53] It can not be said that Mr WR was incompetent. The decision to be made is whether Mr WR s conduct lacked diligence. There was nothing to alert Mr WR to the possibility that Mr EU lacked capacity to be making decisions. None of the family (including Mrs NS) made him aware of the content of the hospital discharge report. Mr WR attended Mr EU on four occasions, and on each occasion, Mr EU was clear and consistent with his instructions. [54] In taking particular note of the evidence provided subsequently, and coming to the conclusion that Mr EU probably lacked capacity the Standards Committee is retrospectively impugning this information to Mr WR. It is not information that can be used to come to a determination that Mr WR lacked diligence. [55] When objectively considering all of the facts, it can not even be categorically said that Mr WR s conduct lacked prudence. That is a long way from determining that his conduct lacked diligence. [56] In all of the circumstances, I do not consider the finding of unsatisfactory conduct with regard to this issue can stand. Mr WR s duty to Mr EU. [57] Mrs NS says that Mr WR did not protect Mr EU s interests. Mr EU had no need to extract the largest amount of money from a sale of the property. His needs were met by the top up payments being made by SU. [58] The response to this issue, largely flows from the decision above, that Mr WR followed Mr EU s instructions. Provided he was satisfied (and he was) that Mr EU was able to give him informed instructions, he could not decline to implement them. [59] In the circumstances, the finding of unsatisfactory conduct with regard to this issue, is also reversed.

11 11 Discussing Mr EU s affairs with SU [60] Mrs NS complained that Mr WR had instigated the sale process in August 2014 without first confirming with Mr EU that he still wanted to sell the farm as a single unit. [61] The Standards Committee determined to take no further action on that issue and that is confirmed on review. [62] However, the Committee was critical of Mr WR, when it stated that he had not followed best practice in relation to this issue. It should not be overlooked, that in August 2013, Mr EU had expressed a wish that preference be given to any one of his children who wished to buy the whole farm. Mr EU s will provided that the whole farm would pass to the [AB Trust], of which Mr WR was a trustee. At that time, the trustees of the Trust would be involved in implementing Mr EU s wishes, and by raising the possibility of a sale in 2014, Mr WR was acting proactively to pre-empt any difficulties that the trustees may be faced with in the future. The sale also provided additional funds to Mr EU at that time, enabling his remaining funds/assets to be preserved for the future. [63] It is difficult to criticise Mr WR for looking ahead to a time when the trustees would be faced with the same responsibilities. Other issues [64] Mrs NS complaint related to the affidavit sworn by Mr WR in relation to the litigation which had ensued. The Committee criticised Mr WR for providing a less than a full accounting of events. 28 Whilst confirming the determination of the Committee to take no further action with regard to this issue, it is a little unfair to criticise Mr WR for the lack of content in an affidavit. That is an issue which could only be determined or commented on by the Court. [65] Mrs NS complaints relating to other matters, arising in the course of the litigation, are properly dealt with in that forum, and, as noted by the Committee, the costs incurred by Mrs NS would have been taken into account when the settlement was negotiated and agreed. 28 Standards Committee determination at [60].

12 12 Decision 1. Pursuant to s 211(1)(a) of the Lawyers and Conveyancers Act 2006, the findings of unsatisfactory conduct against Mr WR are reversed and replaced with a determination to take no further action in respect of Mrs NS complaints. 2. This decision is made pursuant to ss 211(1)(b) and 138(2) of the Act. DATED this 23 RD day of August 2019 O Vaughan 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 WR as the Applicant Mrs NS as the Respondent Ms CG and Mr HO as the Applicant s Representative Mr WN as the Related Person [Area] Standards Committee [X] New Zealand Law Society