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Breach of undertaking ‘never acceptable’

06 October 2017

Note: All names used in this article are fictitious.

A legal executive who breached an undertaking has been fined $5,000 by a lawyers standards committee.

The legal executive, Catesby, acted for the vendor in a conveyancing transaction. She provided an undertaking to the purchaser’s solicitors including ‘not to disburse any of the settlement funds until the release has been effected unless the delay is occasioned by matters solely within the control of you or the purchaser’.

Due to circumstances outside the control of the law firm acting for the purchaser, the balance of the purchase price was only paid to Catesby’s firm at 4:25pm on settlement day. Just before receiving the funds, at 4:20pm, Catesby advised the purchaser’s law firm that her clients reserved their right to charge penalty interest.

At 4:39pm, Catesby advised the purchaser’s law firm that she was still waiting to receive instructions from her clients and that she would advise them once a response had been received.

Earlier on the settlement day, Catesby used the funds received from the purchaser’s lawyer to settle her client’s on-purchase. She did this despite not having received her client’s instructions on penalty interest, and despite not having released the e-dealing to the purchaser’s lawyer.

The purchaser’s law firm made two requests, at 4:54pm and 5:06pm on settlement day, to release the e-dealing in accordance with the lawyer’s undertaking. However, Catesby had left the office and a fellow staff member responded at 5:12pm requesting an undertaking that penalty interest would be paid on 7 November. At that time, no partners were available at the purchaser’s law firm and, therefore, no undertaking could be provided.

On Monday, 7 November 2016, Catesby advised the purchaser’s law firm that penalty interest of $1,032 was due. This was paid the same day and the e-dealing was released following payment.

“If [she] wanted to exercise her right to withhold release of the e-dealing until such time as penalty interest had been paid, she should have held the funds as a stakeholder,” the committee said.

“If, however, [she] wanted to use the funds and apply it towards her clients’ on-purchase, as she had done, it was incumbent on her to release the e-dealing.

“By applying the funds towards her clients’ on-purchase, [Catesby] waived any right to withhold release of the e-dealing. The funds were not [her]’s, or her clients’, to use until such time as she had released the e-dealing. [She] cannot use the funds on the one hand, while still reserving her clients’ position in relation to penalty interest, on the other.”

The committee said it was of utmost importance that lawyers acting for vendors hold any funds received as stakeholders until such time as they have released the e-dealing. It considered the issue was serious, “as it strikes at the fundamentals of how lawyers operate. Undertakings are considered to be the cornerstone of legal practice and any breach of an undertaking has the potential to undermine the legal system.”

The committee made two findings of unsatisfactory conduct on Catesby’s part. One was that she breached her undertaking by failing to hold the funds until the release was effected. That breached rule 10.3 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. The second was that she disbursed the funds for her clients’ on-purchase before release of the e-dealing.

As well as the fine, the legal executive was ordered to pay $2,000 costs.

In making an order that the facts of the decision be published for educational purposes, the committee said it was “important to show the wider legal profession that it is never acceptable to breach an undertaking and that lawyers who fall short in this regard can expect to be subject to professional discipline”.

Last updated on the 6th October 2017