The Law Society’s Ethics Committee recently released the following Professional Conduct Ruling as guidance for the profession. For your convenience, I’ve listed the ruling below but it can also be found in our Professional Conduct Rulings Database.
Date: December 1, 2016
Cite as: 2016 SKLSPC 9
Code Chapter: 7.2
Code Heading: Responsibility to Lawyers and Others
Classification: Undertakings and Trust Conditions
Practice Area: Family Law
Lawyer X and Lawyer Y represented opposing parties in a matrimonial dispute. Pursuant to an Interspousal Contract, the family home was to be sold. As Lawyer Y had agreed to handle the sale transaction, Lawyer X sent a Transfer Authorization to Lawyer Y on trust conditions. Lawyer X, via email, agreed to amend one of his trust conditions to read as follows:
“Upon receiving the [money] into your trust account, thereafter forthwith pay in full the Bank ABC Line of Credit now secured on title, and provide confirmation to our office, and shall then forthwith pay our office 50% of the remaining proceeds, plus $1,200.00, further to paragraphs 28 and 29 of the Interspousal Contract.”
Lawyer Y proceeded to close the transaction for the sale of the parties’ family home. However, when he sought confirmation on the amount of sale proceeds each of his and Lawyer X’s client would receive, an objection was raised by Lawyer X and his client on Lawyer Y’s intention to adjust for:
- property taxes to the date of possession;
- Lawyer Y’s legal fees and disbursements for handling the real estate transaction; and
- the mortgage discharge fee charged by the lender in exchange for the lender’s Interest Discharge Authorization required to clear the encumbrance from title.
Counsel then engaged in a discussion over their inconsistent understanding of the word “proceeds” in the Interspousal Agreement and trust conditions imposed on Lawyer Y. Lawyer X and his client argued that the trust conditions did not permit Lawyer Y to deduct anything from the proceeds of sale payable to Lawyer X’s client other than the money required to pay out the balance remaining on the Bank ABC Line of Credit. Lawyer Y and his client asserted that it is customary practice to deduct such payables prior to the proceeds of sale being divided and paid to the parties.
Lawyer X and Lawyer Y referred their dispute to the LSS Ethics Committee for its interpretation of “proceeds” as used in the trust condition.
It is not within this Committee’s jurisdiction to define the term “proceeds” for the parties. This is a legal question. If the parties remain unable to agree, this question will need to be determined in another forum.
This reference, however, raises the following issues that are within this Committee’s jurisdiction:
- Was it reasonable for Lawyer X to impose trust conditions upon Lawyer Y that were inconsistent with the customary practice in real estate transactions?
- Was it reasonable for Lawyer Y to accept trust conditions that were in conflict with that customary practice?
The Ethics Committee considered the previous ruling of the Law Society (2012 SKLSPC 7). To summarize, it is important for lawyers to be absolutely diligent in both drafting trust conditions and in accepting them. Further, counsel should neither impose unreasonable trust conditions nor accept them. In this instance, neither of Lawyer X or Lawyer Y devoted sufficient attention to the trust conditions necessary to complete the transaction.
By way of guidance to the profession, family law practitioners may benefit from reviewing the LSS Uniform Letter of Trust Conditions used in real estate transactions and adopting similarly appropriate trust conditions when imposing binding obligations upon one another in family law matters involving real estate conveyance. Specifically, family law practitioners are encouraged to routinely prepare and provide a statement of adjustments to opposing counsel when supplying a Transfer Authorization under trust conditions. Doing so will identify any misunderstanding among counsel and the parties on how the proceeds of sale will be distributed.