This Week in Legal Ethics – New Professional Conduct Rulings

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LegalEthicsBannerBy Melanie Hodges Neufeld

Last week, I discussed how the Law Society’s Ethics Committee reviews specific fact situations involving lawyers that fall within the ethical “grey area” and makes Professional Conduct Rulings that are published anonymously as guidance for the profession. As luck would have it,  this week the Committee has released three new rulings in the areas of:

  • Real Estate – Deposits held for an opposing party; dealing with unrepresented parties
  • Immigration; Civil Litigation  – Conflict of interest
  • Family Law – Undertakings and trust conditions

For your convenience, I’ve listed the rulings below but they can also be found in our Professional Conduct Rulings Database. These rulings will also be in our next edition of the Benchers’ Digest, due out at the end of January.     

2015 SKLSPC 8 (November 26, 2015)

Classification:            Undertakings and Trust Conditions; Clarity; Reasonableness; Amending Trust Conditions; Accepting Trust Conditions; Imposing Cross Conditions;
Practice Area:            Family Law

Facts:

Lawyer X represented Client A and Lawyer Y represented Client B, who were opposing parties in a family law matter. The parties reached a settlement agreement at a pre-trial settlement conference, and signed Minutes of Settlement, relating to the division of their family home. Client A would reside in the family home and pay its associated costs, until Client B could obtain financing to buy out Client A’s interest in the family home. The Minutes of Settlement were then incorporated into written judgments.  Both the Minutes of Settlement and the issued Judgments indicated that Client B was to advise by a certain date whether Client B was able to obtain financing. If Client B was unable to do so, the home would be sold. The documents were, however, silent as to by when Client A was to leave the family home.

The deadline passed without any confirmation of financing from Client B; however, there were also no efforts by either party to have the house sold. Client B obtained mortgage financing Thereafter. This was communicated via letter to Lawyer X, without any explanation for the delay.

Lawyer X provided executed Consents of Non-Owning Spouse to Lawyer Y on the condition that “they not be utilized unless and until you are in a position to forward the settlement funds in accordance with the agreement.” The letter also indicated that due to the delay in mortgage approval, Client A had not yet found a place to live, and therefore would require some time to vacate the family home.

Lawyer Y advised that “we will not be in a position to forward funds to you unless we are allowed to use the documentation that was sent to us.” Lawyer X responded apologizing for the confusion and stated, “Please feel free to use the documents provided you are in a position to forward settlement funds upon registration.” Lawyer Y did not confirm the change in trust conditions in writing.

Lawyer Y requested that Client A vacate the family home within two weeks. Lawyer X responded that that was an unreasonable time period in which to locate another residence and pointed out that pursuant to the Minutes of Settlement/Judgment the family home should have been sold, following Client B’ failure to obtain mortgage financing by the deadline.

Lawyer Y advised they received the mortgage proceeds and provided a calculation of the equalization payment. The letter also demanded that Client A vacate the family home within two days. If Client A was not prepared to do so, then Client A ought to pay Client B rent. Lawyer Y also advised that Lawyer Y would be away on holidays for the remainder of the week and that Lawyer Z would be handling the file in the meantime.

Lawyer X responded that same day saying that the initial agreement contemplated one month between the time the funds were received and Client B’ possession and that that should remain the same. Lawyer X also confirmed the numbers proposed were correct.

Lawyer Z advised that Client B was agreeable to extend the deadline to vacate the home by six days, but not an additional month. From Lawyer Z’s interpretation of the judgment, there was no contemplation of 30 days to vacate the home from the time title was transferred. Lawyer Z enclosed a trust cheque, on the trust condition that “your client vacate the home by no later than [date]”

Lawyer X was not present when the settlement funds arrived at the office. Lawyer X understood that the funds were to be received as soon as the transfer was registered in accordance with Lawyer X’s trust conditions and did not expect that there would be further trust conditions placed on the original trust conditions. Before leaving the office, Lawyer X had instructed the staff to release the funds to Client A, if the money arrived. Lawyer X indicated that had Lawyer X known of Lawyer Z’s letter, Lawyer X would have not accepted the funds and would have alleged a breach of trust conditions on the part of Lawyer Z and Lawyer Y.

A few days later, Lawyer Y indicated that Client A was refusing to vacate the family home and that Client B was now paying a mortgage on a home that he did not live in. Lawyer Y indicated in correspondence of that date that contempt proceedings against Client A would be prepared.

Lawyer Y advised that Client B was agreeable to wait one month for Client A to vacate the home, but that Client A would be responsible for the mortgage payments, while resident there. Lawyer Y also stated that the previous calculations would therefore change and requested a return of the settlement funds.

The next day, Lawyer X served a Notice of Withdrawal of Counsel of Record, at Client A’s request. Lawyer Y responded asking for the settlement funds to be returned.

Lawyer X responded saying that the monies would not be returned, as the monies had been released and that Lawyer Z was not in position to impose any new trust conditions, as it was an attempt to impose trust conditions on existing trust conditions.

Lawyer Y responded and disagreed with Lawyer X’s interpretation of the trust conditions. As they had fulfilled Lawyer X’s trust conditions, they were able to impose their own.

Decision:

The Ethics Committee considered the use of trust conditions by all lawyers in this transaction. The Committee determined that all lawyers failed to properly use trust conditions and did not adequately protect their respective client’s interests.

Trust conditions should be clear, unambiguous, and explicit. They should state the time within which the conditions should be met. Trust conditions should not be unreasonable, impossible, impractical, or manifestly unfair. Trust conditions must be able to be personally fulfilled by the lawyer. Trust conditions should be imposed in writing and communicated to the other party at the time the property is delivered. Trust conditions should be accepted in writing. Once a trust condition is accepted, it constitutes an obligation on the accepting lawyer that that lawyer must honour personally, even if the conditions later appear unreasonable. Once trust conditions are accepted, it is improper to unilaterally impose new trust conditions on those existing trust conditions.

Therefore:

  • Lawyer X’s trust condition that “[the executed documents] not be utilized unless and until [Lawyer Y was] in a position to forward the settlement funds in accordance with the agreement” was deficient in that it was unreasonable and impossible to comply with. Lawyer Y would have to use the documents in order to be in a position to forward settlement funds;
  • Lawyer X should have sought additional trust conditions, including:
    • that Lawyer Y transfer the settlement funds to Lawyer X upon the transfer of title, registration of the mortgage, and receipt of mortgage proceeds;
    • that if Lawyer Y could not provide the settlement funds by a certain date, that the documentation was to be returned, unused and uncopied;
  • Lawyer X should have included in the trust condition letter the amount of the settlement funds that Lawyer Y was to forward upon registration of title and mortgage and the receipt of mortgage proceeds;
  • Lawyer X should have given an undertaking that the settlement funds would not be released to the client, until confirming that the client had vacated the family home;
  • Lawyer Y should have asked for the above undertaking from Lawyer X when the executed documents were sent/received;
  • Lawyer Y should have confirmed in writing that the amended trust condition was acceptable.
  • Lawyer Z’s trust condition that “[Client A] vacate the home by no later than [date]” was improper, in that it sought to impose a trust condition on an existing trust condition.
  • Lawyer X was not bound by Lawyer Z’s trust condition, as it was an attempt to impose a trust condition on a trust condition.
  • While Lawyer X was not bound by Lawyer Z’s trust condition, best practice would have been to immediately advise Lawyer Z that Lawyer X did not consider him/herself bound by the attempt at imposing a trust condition on an existing trust condition.
  • While Lawyer X was not in the office at the time the funds were received, lawyers must educate their staff to flag such issues and to bring them to the attention of another lawyer in the office. It is dangerous practice to leave blanket instructions to pay out money, as soon as it comes in. There can always be unanticipated issues that arise, and the lawyer should ensure that such issues are dealt with in as appropriate manner as possible and as soon as possible.

2015 SKLSPC 7 (November 26, 2015)

Classification:            Conflict of Interest
Practice Area:            Immigration; Civil Litigation

Facts:

Lawyer X and Laywer Y work at the same law firm. Lawyer Y represented the corporation, Client A. Client B and Client C, both who were employees of Client A, retained Lawyer X a few months later to represent them and their professional corporations in an immigration matter.

A few days after Lawyer X met with Client B and Client C, Lawyer Y sent demand letters to Client B and Client C. Client B and Client C discussed the demand letters with their civil litigation counsel, Lawyer Z; however, they did not raise the issue with Lawyer X at this time. Client B and Client C elected to not respond to the demand letters. A few months later, Lawyer Y drafted a Statement of Claim naming Client A, as Plaintiff, and Client B and Client C and their professional corporations, among others, as Defendants.

Through an error in their system, no conflict of interest was flagged at this point, due to how Client B and Client C were entered in to the system.

Lawyer X submitted the immigration application. There was some difficulty in obtaining same, and a few months later, Client B and Client C became aware that Lawyer X’s firm was representing Client A in the action against them. Client B and Client C raised the issue of conflict with Lawyer X, who advised that although the matters were unrelated, he would look into the potential conflict issue.

Client B and Client C directed Lawyer X to file a second immigration application. However, Lawyer X delayed filing same.

Lawyer X and Lawyer Y discussed the potential conflict. Shortly thereafter, Lawyer Z raised the issue of conflict directly with Lawyer Y.

Client B and Client C confirmed that Lawyer X had not filed the immigration application. They contacted Lawyer X to discuss why the immigration application had not been submitted. Lawyer X indicated that he was not comfortable proceeding with the immigration Application due to the potential conflict and withdrew from representing Client B and Client C.

Lawyer Z indicated by letter that he believed Lawyer Y was in a conflict of interest, as a result of Lawyer X doing work on Client B and Client C immigration matter. Lawyer Y dismissed this concern, indicating that the immigration matter was unrelated to the litigation matter. However, Lawyer Y ultimately withdrew from representing Client A.

When the issue was brought to the attention of the Law Society, neither Lawyer Y, nor Lawyer X represented any of Client A, Client B, or Client C on any matters.

Decision:

The Ethics Committee considered whether Lawyer X’s representation of Client B and Client C in their immigration matter brought Lawyer Y and their firm into a conflict of interest or whether the Client A civil litigation matter was sufficiently unrelated that there was no conflict. The Ethics Committee determined that there was no conflict of interest in this matter.

The Ethics Committee was of the opinion that even though the law firm determined it was in a conflict of interest at the time, they may not have been. The Committee reviewed the decision, Dr N Vankoughnett Dental Prof Corp v Miller Thomson LLP, 2012 SKQB 84, which outlines the test for conflicts and particularly whether a law firm’s duty of loyalty prohibits it from acting in a matter. The Committee determined that there was no need for either counsel to withdraw, as there was no confidential information that would be obtained in the immigration matter that could be used to benefit the civil litigation matter and vice versa.

The Ethics Committee determined that Client B and Client C waived the duty of loyalty. Client B and Client C were aware of Lawyer Y’s involvement on the file, when they received the demand letter. However, they continued to use Lawyer X’s services without raising any concerns. Client B and Client C only raised the issue of conflict when they were dissatisfied with the fees charged. At that point, both Lawyer X and Lawyer Y withdrew.

The Committee recommended that:

  1. Lawyer Y and Lawyer X review the Dr N Vankoughnett Dental Prof Corp v Miller Thomson LLP, 2012 SKQB 84, decision to ensure they understand the duty of loyalty and conflict situations for future circumstances;
  2. Lawyer Y and Lawyer X review their conflict search procedure to ensure that detailed and accurate party information is obtained and recorded for the purpose of future conflict searches.

2015 SKLSPC 6 (November 26, 2015)

Classification:            Deposits held for an opposing party; Dealing with Unrepresented Parties
Practice Area:            Real Estate

Facts:

Lawyer X represented the Vendors in a real estate transaction. Lawyer X prepared the agreement for sale. The Purchaser was unrepresented at that time. The Purchaser gave the deposit to the Vendors, who in turn gave the deposit to Lawyer X to hold in Lawyer X’s trust account.

The Purchaser retained Lawyer Y to prepare the mortgage documentation related to the sale. Lawyer X advised Lawyer Y of the deposit in trust. Shortly after, the Purchaser delivered another cheque to Lawyer X, representing the balance of the deposit.

The sale was contingent on the Purchaser obtaining financing by a certain date. The Purchaser was ultimately unable to obtain mortgage financing and advised that to Lawyer X, requesting a refund of the deposit held in trust.

The Agreement for Sale did not contain the standard clause that in the event of that all of the conditions were not satisfied, the Vendor would return the deposit to the Purchaser.

The Vendors took the position that the Purchaser did not act in good faith in that the Purchaser did not apply for financing with the intent of successfully obtaining same.

Decision:

The Ethics Committee considered whether there was an increased obligation on Lawyer X when the Agreement was signed and the deposit provided, because the Purchaser was unrepresented. The Committee determined that there was not.  Lawyer X was not required to do anything other than what was done with the deposit, once received. Lawyer X was merely following the Vendors’ instructions and at no point did they instruct to return the deposit. The deposit should remain in trust pending either a settlement or court direction.

The Ethics Committee agreed that there was a lack of clarity as to what would happen with the deposit money. Best practice would have been to have the forfeiture or return of the deposit clearly outlined in the agreement. Since the agreement was unclear, Lawyer X ought to have taken steps to clarify with party opposite the terms upon which the deposit was held. This should have occurred regardless of whether the party opposite was represented or not. Lawyer X also ought to have discussed with this client the lack of clarity and the possible consequences that could result therefrom.

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