New Zealand Law Society - Undertakings need to be honoured even if they do not reflect client’s intentions

Undertakings need to be honoured even if they do not reflect client’s intentions

A Standards Committee determined that a lawyer failed to honour an undertaking he had given in relation to an estate dispute, resulting in a finding of unsatisfactory conduct. The lawyer was censured and ordered to pay a fine of $5,000 and costs of $1,200.

The lawyer acted for one of the beneficiaries, Mr A who owed the estate a sizeable sum of money. The trustees made demands for repayment of the loan.  In response, Mr A indicated that he would challenge the will as he considered that the deceased had promised that one of the other beneficiaries would be excluded. The lawyer informed the trustees that Mr A’s claim would be based on promissory estoppel.

Some time later, in the course of ongoing correspondence between the parties’ lawyers, the lawyer sent a letter to the trustees’ lawyer confirming that he had received monies from Mr A and gave an undertaking to hold this sum “as interim security, pending a second mortgage being registered on the title” of Mr A’s property in the trustees’ favour as replacement security.” The letter stated that “upon registration of the second mortgage the monies would be returned” to Mr A.

Mr A did not register a second mortgage over his land in favour of the Trustees.  Nor had he initiated proceedings in relation to his claim of promissory estoppel. In those circumstances, the trustees commenced proceedings against Mr A for the debt owed to the estate.

The lawyer wrote to the trustees’ lawyer informing them that because they had filed proceedings against Mr A he did not consider that his firm was bound by the undertakings it had given and that the funds would be released to Mr A.  The lawyer then released the funds to Mr A.

The lawyer argued that the undertaking needed to be considered in the context of the preceding correspondence.  A previous email referred to an agreement that a security arrangement be put in place “in return for which” the estate would “hold off” on filing debt recovery proceedings.

However, the Standards Committee considered that if it had been the client’s intention that the undertaking only applied while the trustees did not issue debt recovery proceedings, then that should have been explicitly stated.

The Committee noted that even if the undertaking did not clearly reflect the client’s intention, it was incumbent on the lawyer to comply with it.

“In the view of the Committee [the lawyer] failed to honour his undertaking to hold funds in his trust account as ‘interim security pending a second mortgage being registered’ when he released the money to his client in circumstances other than ‘Upon registration of the second mortgage’. “

The failure to uphold the undertaking, which the Committee viewed as “serious” and “unprofessional” was deemed to be a breach of Rule 10.3.

The lawyer’s failure to hold funds in his firm’s trust account as a stakeholder and adhere strictly to those terms and disburse the funds only in accordance with them, was in breach of Rule 10.3.2.

These two breaches constituted unsatisfactory conduct on the part of the lawyer as defined by sections 12(b) (ii) and 12 (c). The lawyer was censured, ordered to pay a fine of $5,000 and costs of $1,200.

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