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Fined for breach of undertaking

14 March 2016

Two lawyers from the same firm, who were found to have breached an undertaking, have each been censured and fined $750 by a lawyers standards committee.

The complainant was a lawyer, C, who was acting for the purchasers in a property transaction. C stated that on settlement date, the firm acting for the vendors gave an undertaking that stated:

“We undertake that we have certified and signed the instruments listed below and we further undertake immediately upon receiving your undertaking that you have deposited the sum of $180,738.54 into our trust account in accordance with our settlement requirements:

  1. “To release the following instruments from the Landonline Workspace into your control
    a. Transfer for Computer Freehold Register [number given]
    b. Discharge of Mortgage [number given]
  2. Not to attempt to withdraw such a release or attempt any alteration of such instruments following settlement or release
  3. To instruct the agent to release the keys to the purchaser (if applicable).”

C then received a telephone call on settlement date from one of the lawyers acting for the vendors, D. She advised that they would not be releasing the e-dealing into the purchaser’s control as undertaken, as they could not pay the required settlement amount to their clients.

C stated that the reason for this was not made completely clear but that D mentioned that they could not pay the required settlement amount to their client’s bank.

In response to the complaint, the other lawyer from the firm acting for the vendors, E, explained that D had made the mistake of providing the undertaking to the purchaser’s lawyers before receiving confirmation from the mortgagee of the amount required for settlement.

Delay acknowledged

Both D and E acknowledged that there was a delay in honouring the undertaking as D had been unable to comply with the bank’s requirements to effect discharge of the mortgage. D submitted there was no intent to deceive or mislead when she provided the undertaking and that at the time when she provided it, she did not know that the sale proceeds would be insufficient to repay the mortgage.

C submitted that the breach was of a continuing nature which had significant implications for the purchasers. An urgent caveat had to be registered, the purchasers were in breach of the loan agreement due to the failure to register their bank’s mortgage, their plans for the property to be rented out were delayed and they had the added anxiety of not knowing what was happening to their funds and the transfer of ownership.

Following the failed settlement, C said, he requested D to return his clients’ funds should her firm not be able to satisfy its undertaking to release the e-dealing into the purchaser’s control. C said that D informed him that her firm would not be returning the funds.

Both D and E acknowledged, without reservation, that they were unable to comply with the undertaking. E further submitted that while there was a delay with the undertaking, it was met as settlement was completed.

There was a “clear breach” of the undertaking by D and E, as settlement could not be completed on the agreed settlement date, the committee said.

Breaches very serious

Any breach of undertaking “is a very serious matter”, even though the breach may not have been intentional.

The committee noted that there were numerous dicta to the effect that the ability of others to rely on the undertakings of lawyers “is of fundamental importance”.

The committee quoted the Legal Services Tribunal in Vincent Cofini [1994] NSWLST 25, which said:

“Undertakings are given by legal practitioners for the specific purpose of enabling legal activities to be carried out …

“Without enforcement, undertakings would be worthless, persons and Courts would be unable to rely on the word of the legal practitioner and this aspect of legal practice, that demands compliance for legal efficiency, would collapse.”

The committee also said it was of the view that D and E should have returned the purchasers’ funds to them as soon as it became apparent that they would not be in a position to honour the undertaking provided.

“Had [D] and [E] immediately returned the funds to [the purchaser’s lawyer], the consequences may well have been different,” the committee said in finding D and E guilty of unsatisfactory conduct.

The committee said it considered it appropriate to order D and E to pay C compensation in the amount of C’s fees and the loss which he suffered as a result of D’s and E’s breach of undertaking.

As well as the censure and fine, the committee ordered D and E to each pay C compensation of $1,901.25 and to each pay the Law Society $250 costs.

Last updated on the 14th March 2016