Thai law: Conflict of interest

In terms of the conveyance process when buying property in Thailand, it is not unusual for a lawyer to act for both the buyer and the seller (or agent). Although by and large there is no general rule prohibiting this practice, it is strongly discouraged by courts and professional bodies in all legal jurisdictions throughout the common and civil law world, the rationale being that loyalty to the client must be undivided, particularly where there are two parties giving instructions with countervailing interests. In days gone by, English courts were littered with cases of lawyers acting for both vendor and purchaser. The pervading issue soon became apparent in cases where defects in property title or contracts with unfair terms detrimental to one party would render the lawyer liable if they did not disclose these: thus they compromised their own interests and those off their clients. Using the common law notion of fiduciary, a lawyer must act for and on behalf of their client in circumstances which give rise to a relationship of trust and confidence. By definition the term fiduciary is derived from the Latin fides, meaning faith, and fiducia, meaning trust. In spirit it is a relationship where one person justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in a professional matter. Although the concept of fiduciary is new in Thailand, recent examples are now enshrined in the Security and Exchange Act, 2008, which recognizes a comprehensive fiduciary duty of care and loyalty. On appearance it captures executives and managers from listed public companies, yet it will eventually capture directors from private companies including lawyers and real estate agents. While the Thai legal system does not have a separate equitable body of law by comparison to English common law, good faith and honest dealing is a foregone conclusion under section 6 of the Commercial and Civil Code, and the distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty. Conflicts are often difficult to avoid yet the key to managing them is mandatory disclosure. Included in the most sophisticated legal jurisdictions such as the US or Australia, Thailand is no exception in allowing the practice whereby a lawyer may act for more than one party to a transaction where both parties have provided informed consent. Informed consent means that both parties have given consent with full knowledge of the conflict and advice should be given to the parties in writing to obtain an independent legal opinion. If contested, the onus is also on the lawyer to prove that they have advised the client and the client consents in writing to the transaction. Sound risk management practice would dictate that suspected conflicts can be at least avoided or sanctioned if legal practitioners seek advice from the Law Society of Thailand and furnish that advice to the parties in writing. In the high end luxury property sector this practice would ensure confidence that the buyer’s lawyers and real estate representatives are acting honorably. While the freedom to act for both parties is acceptable, it has its limitations, and raises a key question: Whose interests is the lawyer really serving? There have been examples of lawyers accepting kickbacks or gifts from real estate agents and developers to finesse the sale of a property through all the administrative and legal hoops that would ordinarily provide some protection for the buyer. Particularly, in luxury property deals, it can become a costly nightmare if buyers are unaware of issues that can hinder or even freeze the development of their property. Examples of such can include encumbrances on the property such as mortgages or servitudes rights to access roads or water to parties unbeknown to the buyer. If caught out, undisclosed representation and behind-the-scene dealings can subject a lawyer to disciplinary hearings, the denial or disgorgement of legal fees, or in some cases (such as the failure to make mandatory disclosure) criminal proceedings. Of course it is a common practice for real estate agents to work closely with lawyers, especially in resort areas where property sales represent a significant portion of lawyers’ incomes, but buyers will be happy to know they have a cache of legal armory available if the deal fails to conclude due to negligent and misleading conduct on the part of their representatives. As fiduciaries, lawyers and real estate agents in Thailand fall under sections 797,798 and section 807 of the Commercial and Civil Code, and can be held liable for any injury resulting from negligence. Julian Male is Foreign Adviser and Managing Director for Siam Legal (Samui) julian@siam-legal.com.



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