Solicitor Fined $30,000 For Conflict Of Interests

OPINION
by Peter Mericka B.A., LL.B
Real Estate Consumer Advocate
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

The Wangaratta Chronicle reports that a Wangaratta solicitor has been fined $30,000 after being found guilty misconduct.(Wangaratta Chronicle1 May, 2006 p.3)According the article:

“Jeffrey Alexander Francis has been reprimanded by the Victorian Civil and Administrative Tribunal (VCAT) and given three months to pay…

VCAT fined Mr Francis $30,000 on a charge of misconduct by failing to avoid a conflict of interest situation…

Mr Francis allegedly failed to tell a client, for whom he was acting in relation to the sale of land, that he was a director of the company purchasing the property.”

It appears that the solicitor told the estate agent and his client that his wife had an interest in the company which purchased the property, but failed to disclose that he was also a shareholder, director and secretary of the company.

According to the Wangaratta Chronicle Mr. Francis was disappointed in the VCAT decision because he had “acted in good faith“, and “there was no question of dishonesty“.

What I find particularly interesting about this case is the clear message that lawyers must always avoid situations of conflicting interests. And yet, the most glaring examples of conflicting interests appear to be ignored by the regulators and the Law Institute of Victoria.

Many, if not most, lawyers in Victoria depend heavily on real estate agents for conveyancing referrals, and the payment of kick-backs or secret commissions is common.

We are aware of one lawyer who sent letters to local estate agents, offering them movie tickets, free conveyancing and even accommodation at a luxury hotel, in return for referrals. It would have been bad enough if the lawyer had simply established relationships with the estate agents he had written to, but the matter went further. One estate agent actually approached other lawyers in the area, showed them the lawyer’s letter, and attempted to extract even higher “incentives” from them.

We do not believe that the lawyer has kept records of where his “incentive” payments have gone, and we do not believe that he has informed his clients that he has “bought” them from the referring estate agent. In such circumstances an “incentive” is likely to be an illegal secret commission.

Even where the lawyer offers nothing in return for an estate agent’s referral, a conflict of interests arises as soon as the referred client has a difference with the estate agent. Will the lawyer, whose business has come to rely on estate agent referrals, protect the client’s interests ahead of the lawyer’s own need to protect the source of referrals?

The situation has become so bad in Victoria that many lawyers simply do as they are told by the estate agent. The preparation of sale contracts is a perfect example. A lawyer, engaged by the vendor to prepare sale documents, delegates this responsibility to the non-lawyer estate agent. Why? Because the estate agent wants it that way.

Similarly, a lawyer who acts for a purchaser would rarely prepare his client’s offer. Instead, the client is advised to attend at the estate agent’s office and to allow the estate agent to attend to the preparation of the offer. The lawyer steps in only when the estate agent’s commission has been secured through the signing of the contract.

In conclusion, I regard the “conflict of interests” issue as something of a sick joke. When regulators and lawyers can allow a corrupt system, fueled by conflict of interests, to flourish while they extract penalties in only a few unusual cases, something is very wrong.

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