Unsatisfactory conduct: Mistaken breach of undertaking
This is a summary of a decision by a Lawyers Standards Committee under the Lawyers and Conveyancers Act 2006.
A lawyer who mistakenly breached an undertaking given to the District Court to hold funds as security for costs was found guilty of unsatisfactory conduct and fined. The Standards Committee emphasised the importance of honouring all undertakings, which it said were the cornerstone of legal practice.
The complainant had been a co-defendant in a 2008 defamation case, and the lawyer had acted for the plaintiff. Because the plaintiff was living overseas the complainant and his co-defendant applied for security for costs, with the result that the parties consented to the plaintiff paying $10,000 into the lawyer’s trust account. The lawyer gave an undertaking to the District Court that the money would not be released “unless agreement by parties or judgment in favour of the plaintiff and the appeal period has lapsed or Court’s order”. The undertaking continued that “in the event of an appeal being lodged, the money will not be released unless parties agree or Court orders otherwise”.
When the case was heard in November 2008 the plaintiff succeeded against the co-defendant but not against the complainant, who was awarded costs. The co-defendant immediately appealed. Contrary to the terms of the undertaking the plaintiff’s lawyer returned the security for costs to his client, on the same day that the judgment was given.
The complaint followed criticism of the lawyer’s breach by a High Court Judge, in a different set of proceedings in which the complainant was not involved and in which the defamation plaintiff was a defendant. In May 2009 the High Court had made a charging order against the funds that were at the centre of the complaint, but the lawyer had already released them from the trust account by the time the order was made. Hearing the lawyer’s challenge to the charging order the Associate Judge said: “I accept that the payment may have been made by inadvertence but the point still remains … that an inadvertent breach of an undertaking is still a breach of an undertaking.” The judge said he would have taken “a stern view” of the breach had the complainant been before him that day, and would have made sure the complainant was not left out of pocket because of the breach.
The complainant told the Standards Committee that as a successful defendant he had been entitled to costs and that he had indeed been left out of pocket by the lawyer’s breach.
The lawyer acknowledged his error in releasing the funds and apologised to the complainant and the New Zealand Law Society. He said he had drafted his undertaking on the understanding – which was evidently mistaken – that the money was to be held for the co-defendant’s benefit only, not the complainant’s. Further, when he later released the funds he had believed there was no prospect of the co-defendant succeeding in his appeal and being awarded costs. He had not gone back to check the terms of his undertaking and had forgotten that it required him to continue holding the money if an appeal was filed.
The Standards Committee noted that the lawyer had admitted the breach and found him guilty of unsatisfactory conduct for a clear contravention of the Conduct and Client Care Rules. These require lawyers to honour all undertakings, whether written or oral, that they give to any person in the course of practice (Rule 10.3). The committee said that undertakings should not be given lightly and that any breach was a serious matter.
Turning to the issue of penalty, the Standards Committee noted that the lawyer had apologised and that his firm had paid the complainant $1,200 in satisfaction of the costs awarded in the defamation case. It fined the lawyer $2,500 and ordered him to pay $750 in costs to the New Zealand Law Society.