This is a summary of a decision by a Lawyers Standards Committee under the Lawyers and Conveyancers Act 2006. This summary was published in LawTalk 767, 11 March 2011.
Undertakings are the cornerstone of legal practice, a Standards Committee said recently when it ordered a lawyer to pay compensation. The lawyer had breached an undertaking he made to a finance company who had loaned funds to his clients.
The clients had borrowed the money to finance the cost of subdividing their property and to refinance current debts over the property. The lender approved the loan on the basis that it would be used only for those purposes. It also inserted a condition in the loan contract that the borrowers’ lawyer would undertake to retain some of the loan funds in his trust account to be used only for the costs of subdividing, as opposed to refinancing existing debt. The undertaking given by the lawyer read: “Our office further undertakes to retain the sum of approximately $25,000 being the surplus to be used for the subdivision.”
In the event, the borrowers failed to meet the loan payments and did not complete the subdivision. The lender exercised its right to realise the value in the security property and during that process discovered that the lawyer had disbursed all the loan funds in payment of the existing debts.
The committee found that the lawyer had breached his undertaking and had therefore breached Rule 6.07 of the Rules of Professional Conduct, in force at the time. That Rule is now substantially repeated in Rule 10.3 of the current Conduct and Client Care Rules. The new rule requires lawyers to honour all undertakings given in the course of their practice.
The committee said that undertakings were the cornerstone of legal practice and should not be given lightly. Before he had given the undertaking the lawyer should have ensured he would be in a position to honour it. The committee rejected his assertion that the undertaking had been conditional, that it had depended on there being surplus funds after the debts on the property had been paid. The committee said it appeared the lawyer had decided to proceed with settlement knowing there would be no surplus funds.
The committee found the lawyer guilty of unsatisfactory conduct in the form of conduct unbecoming. It found his conduct unacceptable measured against the standards of “competent, ethical and responsible practitioners” (B v Medical Council [2005] 3 NZLR 810). The lawyer was ordered to pay the finance company $2,500 in compensation and to pay $2,000 in costs to the Law Society.
