Unintentional breach of undertaking
[Names used in this article are ficticious]
A lawyer who unintentionally breached an undertaking has been fined $4,000 by a lawyers standards committee.
The lawyer, Bunsby, applied to the Legal Complaints Review Office (LCRO) for a review of the decision.
Bunsby claimed the decision was incorrect because he had made a genuine mistake and because the undertaking would be honoured out of his own funds. He claimed on those bases there had been no breach of the undertaking.
Even if there was a breach, Bunsby said, the penalty was too severe in the circumstances.
However, in confirming the committee’s determination, the LCRO (in LCRO 131/2017) said “Undertakings are fundamental to the practice of law”.
“There are excellent reasons for principals to limit who can give undertakings, to closely monitor undertakings that are given, and to be able to ensure they are honoured.”
Bunsby’s firm acted for joint vendors selling a property. One of the vendors, Mr C, held a quarter share, which was subject to a Property (Relationships) Act 1976 claim in favour of Ms D.
As the claim notice presented an obstacle to settlement, a lawyer employed by Bunsby’s firm offered the following undertaking to Ms D’s lawyer:
Ms D “will remove the notice of claim on the basis that we undertake to hold [Mr C]’s share of the sale proceeds in our trust account until an agreement can be reached between the parties (or a Court order is issued).”
Ms D’s lawyer removed the notice of claim and settlement took place.
The joint vendors were unable to agree on how the proceeds should be divided between them and Bunsby’s firm retained the entire settlement funds. Later, when the vendors had finally resolved their dispute, Bunsby’s firm paid out $72,500 to Mr C. Six days later, Ms D’s lawyer wrote to the firm requesting confirmation of the exact amount of Mr C’s share and that the firm still held that amount.
After a brief period of confusion, because Bunsby was not aware of the undertaking, Bunsby confirmed that Mr C’s share had been paid out.
However, Bunsby immediately told Ms D’s lawyer: “you may treat it as if we were holding the funds so that no undertaking has been breached. We will have to recover that from Mr [C] later”.
“[Bunsby] says there is no breach of the undertaking because he will honour it,” the LCRO said.
“I accept that [Bunsby] genuinely holds that belief and fully intends to honour the undertaking.
“However, his contention that he did not breach the undertaking is not accepted as correct. As neither of the two events that authorise him to release the funds has occurred, [Bunsby] is bound to a continuing obligation he can no longer fulfil.”
Bunsby argued that he could substitute his money for Mr C’s share of the sale proceeds thereby honouring the undertaking.
However, the LCRO said the substitution argument “relies on an incomplete analysis of the benefits the undertaking had for Ms [D]”.
One of the benefits to Ms D was preservation of the status quo, which improved her negotiating position with Mr C.
“[Bunsby] upset the status quo. He deprived Ms [D] of that benefit, and imposed an added burden on her by allowing Mr [C] immediate use of all the money.
“Providing security is better than nothing, but it is not sufficient to honour the undertaking,” the LCRO said.
As well as the fine, the standards committee ordered Bunsby to pay $1,000 costs.
The LCRO confirmed the committee’s finding of unsatisfactory conduct by Bunsby and the orders it made. It considered the level of fine imposed to be “a justifiable and justified amount”. It also ordered Bunsby to pay $1,200 costs.
Last updated on the 7th February 2018