20/06/2022

Solicitors can have a conflict of interest in situations where adult children engage the solicitor with a parent who is borderline lacking capacity.

The recent case of Wardle v Wardle outlines potential issues regarding such family transactions.

In this case, a daughter became her mother’s carer. After five years of caring for her mother, the mother needed to be moved into aged care. The mother had numerous physical and mobility issues and was diagnosed with Dementia. The two of them agreed that the mother’s home would have to sell and the proceeds from the sale would be used to purchase a home in the daughter’s name.

The pair engaged a solicitor to act on behalf of them for both the sale and purchase transactions. The solicitor was told the mother had a mild dementia diagnosis and he then arranged to meet her in the hospital to do his own independent assessment of her capacity. The solicitor was satisfied the mother had clear appreciation and understanding of the decisions she was making and the Appointment of Enduring Guardian that was prepared for her to sign. The mother was also aware of her dementia diagnoses, and her health issues.

The mother instructed the solicitor and told her the proceeds of the sale of the house were to go to the daughter so she could buy her own property. This was fair in the mother’s view because her son was given a property by her late husband. She went on to mention that her and her son did not have a healthy relationship.

The solicitor accepted the instructions but wanted to have the mother sign a document highlighting her wishes. This was the solicitor’s way of due diligence to ensure that this transaction was not a result of undue influence or unconscionable dealings. The mother happily signed the document.

Subsequently the mother passed away and her Will instructed her estate to be split in equal shares between both her children. The son commenced proceedings against the daughter claiming that the sale and purchase transactions were as a result of undue influence and unconscionable dealings due to the mother’s disadvantage of having dementia and the dependance on her daughter.

In the proceedings, the son was unable to establish undue influence and the Court was satisfied that the gift of the proceeds of the sale was a genuine gift between a parent and child.

That left the issue of whether the gift was an unconscionable transaction. The tests were summarized in the case of Hewitt v Gardner:

1. The weaker party must, at the time of entering into the transaction, suffer from a special disadvantage vis-à-vis the stronger party.
2. The special disadvantage must seriously affect the weaker party’s capacity to judge or protect his or own interests.
3. The stronger party must know of the special disadvantage (or know of facts which would raise that possibility in the mind of any reasonable person).
4. That party must take advantage of the opportunity presented by the disadvantage.
5. The taking of advantage must have been unconscionable.

 

Her Honour went on to say that once the first three are established, then it becomes more evident that the transaction was a consequence of the special disadvantage.

The son submitted that the mother was 86 years of age, frail and physically infirm with impaired movement, hosts of medications were consumed for pain management and impaired with dementia, making her strongly dependent on the daughter leaving her vulnerable to commercial exploitation.

A prior solicitor had been engaged initially to act for the daughter in the sale and purchase of the property. That solicitor advised the daughter about the inability to act for both transactions using the deceased’s funds because of the potential conflict of interest between mother and daughter.

The solicitor advised that there were many legal issues in this situation by acting for the sale and then using her funds to acquire another property which would affect her Centrelink benefits and deprive herself of funds. Additionally, there was question around the dementia diagnoses. That solicitor would not act for both parties.

Despite the prior solicitor’s reservations, the clients’ solicitor acted for both parties. This could have led to a decision that the daughter had taken unfair advantage of her mother particularly if the solicitor had not fully explained to the mother all the possible negatives of carrying out the transaction.

This did not happen in this case. The impression of the Court was that the mother and daughter had a warm affectionate parent-child relationship which nourished both their lives. The late mother was grateful to the daughter for all the years she cared for her. The mother was willing to give sale proceeds to the daughter as a thank you for the sacrifices she made for her. The reliance, trust and confidence were not found to be a dominant motive force for the gift to her daughter.  Thankfully the solicitor’s conflict did not undermine the strength of the mother’s intention to proceed.

The Legal Profession Uniform Law Australian Conduct Rules 2015 sets out that a solicitor and a law practice must avoid conflicts between the duties owed to two or more current clients. Specifically, if a solicitor or law practice seeks to act for two or more clients in the same matters where their interests are adverse and there is a conflict or potential conflict of the duties to act in the best interests of each client then the solicitor and law practice cannot act.

The Court identified this issue as a matter worthy of further investigation by the authorities charged with scrutinising the conduct of solicitor especially when the first solicitor hired took a position consistent with the Solicitors Conduct Rules.

The Court said it would undermine the honourable and ethical conduct of legal practice in this State if the identification of a conflict of duty by one solicitor, which is arguably ignored or overlooked by another solicitor, and arguably leads to loss by a client, were not to be referred to the proper authorities for further scrutiny.

 

For further information, please contact Townsends Business & Corporate Lawyers on 02 8296 6222 or email info@townsendslaw.com.au.