Edgar Smith Case Study - Violation of Professional Ethics and Responsibility Standards - Law Assignment Help

Assignment Task

Legal Opinion
To: The Law Society
From: Ms Hager
Re: Smith / violation of professional ethics and responsibility standards.
Date: 8 May 2015
 

Facts
Edgar Smith conducts an attorneys practice and owns a building company. Smith’s building company needed a financial injection to survive, due to financial problems. Joe De Maggio, a client of Smith, consulted him about a R1 million investment. Smith had made various investments on behalf of De Maggio over the years. Smith was aware of the fact that De Maggio was allegedly the kingpin of a criminal syndicate. Smith suggested that De Maggio lend the money to him personally, as an investment in his building company. Liquidation proceedings on Smith’s building company commenced. De Maggio never received the loan money which Smith owed him. Mrs Belinda De Maggio, De Maggio’s wife, approached Smith to institute a divorce action against Mr De Maggio.

Legal issue presented
Did Smith violate any standards of professional ethics and responsibility?
Answer
Yes
Applicable law
International Code of Ethics
Financial Intelligence Centre Act 38 of 2001
Attorneys Act 53 of 1979
Law Society of South Africa - L.E.A.D Professional Legal Ethics Practice Notes 2014 (hereafter 2014 Practice Notes)
Lewis, E.A.L. Legal Ethics 1982
Rules of the Law Society of the Northern Provinces, Kwazulu-Natal Law Society and the Law Society of the Cape of Good Hope.
Professional ethics provide the norms in terms of which a practitioner is judged to be fit and proper person to practice. The rules of professional conduct apply in the area of the relationship between the attorney and his client.
Application of the law to the facts
Smith conducts an attorney’s practice and owns a building company.
The practitioner has the right to engage in other business apart from his legal practice, provided it is lawful and conducted lawfully.
Smith is aware of the fact that De Maggio is allegedly the kingpin of a criminal syndicate.
The Financial Intelligence Centre Act 38 of 2001 imposes a duty on attorneys to identify the client, before concluding any transactions with the client. The purpose of this Act is to combat money laundering activities and organised crime. If the attorney finds that his client is, or contemplates, engaging in unlawful activity, he must attempt to restrain him. Thus the duty of the practitioner is to advise the client against breaking the law and to restrain him from committing offences. Lewis however notes that the practitioner is not the keeper of his client’s conscience. The court will have to decide whether Smith had knowledge of the fact, and whether it is a violation of the standards of professional ethics and responsibility, or not.
Smith borrows money from De Maggio rendering it a personal loan between them, not a mere investment made by Smith on behalf of De Maggio.
It is unprofessional, dishonourable or unworthy conduct for a practitioner to borrow money from a client, “unless that client is independently represented in the transaction, or it’s part of the client’s normal business to lend money.”
A practitioner should not act in any transaction to which he himself is a party with an adverse interest. Lawyers should not place themselves in the position where their clients’ interests conflict with their own interests. It is thus a conflict of interest situation to borrow money from a client.
Lewis defines the transaction of a loan by a client to the attorney, as a vulnerable transaction and that it is desirable to obtain independent advice in such transactions. The presumption of undue influence by the attorney can only be rebutted by the attorney with proof that the client had been guided by independent legal advice, when entering into the contract.

Rule 1 of the International Code of Ethics states that lawyers must always maintain high standards of honesty and integrity. Lawyers should always maintain sufficient independence from their clients so that they are able to give their clients unbiased advice. Practitioners should make it a principle never to contract with their clients.
“It is irregular and unethical for an attorney to conclude a loan agreement with his or her client” whether such attorney acted with or without the consent of the client, it is deemed as misappropriation of funds. Case-law supports the fact that it is unprofessional for an attorney to borrow money from a client.

Smith is not able to repay the loan
The International Code of Ethics Rule 7 states that lawyers should account faithfully for any of their client’s money in their possession and that they shall keep it separate from their own money. Lewis states that an attorney acting recklessly and failing to seek guidance, could be held liable for civil damages and misconduct. In the case of Theron v Law Society of the Cape of Good Hope the court held that it is not clear why the firm found it necessary to reimburse the client, if the loans were concluded between the client and the attorney personally.
Mrs De Maggio approaches Smith to institute a divorce action, against Mr De Maggio.
A practitioner is under no obligation to accept a client’s instructions if there is a potential conflict of interests. The International Code of Ethics Rule 5 states that lawyers shall at all times maintain the duty of confidentiality to their present and former clients, unless required otherwise by law. All communications between the attorney and the client are confidential. Thus confidentiality between the client and the attorney will remain in existence even after the attorney-client relationship is terminated.
It would be unprofessional conduct for Smith to act on behalf of Mrs De Maggio, because a conflict of interest may arise, because Smith can use information obtained from

De Maggio, to his prejudice.
Summary and recommendation
Where the practitioner puts his personal interests ahead of his professional responsibilities, ethical problems arise from the conflict of interest. The duty is on the practitioner to recognise such a situation, or potential situation, and act accordingly. Smith failed to act accordingly and violated the standards of professional ethics and responsibility and is guilty of professional misconduct.
Each practicing attorney must be familiar with both the Attorney’s Act and the Law Society’s Rules, thus ignorance is no excuse. An attorney putting himself into a position where his own interests conflict with those of his client, creating a situation highly advantageous to himself and strongly prejudicial to the clients’ interests, is guilty of conduct “so reprehensible that it warrants the removal of the name of the respondent from the roll of attorneys”.
It is in the discretion of the court to decide whether an attorney, found guilty of unprofessional and unethical conduct is still a fit and proper person to continue practicing as an attorney. If the court decides that such a practitioner is unfit to continue practicing, section 22(1)(d) of the Attorneys Act states that an attorney may be struck off the roll.
Smith acted in a transaction to which he had an adverse interest. De Maggio had not been guided by independent legal advice, thus Smith acted unethically and unprofessionally when exercising undue influence on De Maggio. Smith placed himself in an advantageous position, to benefit his own interests above those of De Maggio. He did not remain independent from De Maggio and he failed to produce unbiased advice regarding investing the money, because of his conflicting personal interests.

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