New Zealand Law Society - Lawyers Complaints Service: Undertaking must be within lawyer's control

Lawyers Complaints Service: Undertaking must be within lawyer's control

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A recent decision from the Legal Complaints Review Officer has illustrated the importance of only giving an undertaking when the undertaking is and will remain within the control of a practitioner.

In LCRO 322/2012, a lawyer, B, acted for the vendor of three properties in a subdivision. C acted for the purchaser of one of the properties.

Settlement of all three properties was scheduled to take place on the same day.

Two of the properties were subject to separate mortgages to the vendor’s mortgagee.

B requested discharges of the mortgages but did not receive separate repayment figures for each of the mortgages. Instead, a lump sum figure was provided by the mortgagee. Funds from the settlements of all three properties were therefore required before any of the mortgages could be released.

B sent a usual form of settlement undertaking (“I undertake that immediately following receipt of confirmation of deposit of settlement funds…”) by facsimile to C at 3.28pm on the settlement date. The undertaking was not made conditional on the other settlements occurring. As such, B was not in a position to release the discharge of mortgage over the property that was being purchased by C’s client until settlement of the sale of all three properties in the subdivision had been effected.

The e-dealing relating to the sale to C’s client was not released until 4.50pm, being the time at which B had received funds from the other settlements.

C made a complaint that B had breached his undertaking. This was considered by a lawyers standards committee (and subsequently reviewed by the LCRO).

The LCRO noted that B had released the e-dealing some 80 minutes after giving the undertaking and considered the decision of FY v UM LCRO 239/2010 against the circumstances of the present case.

In that decision, an undertaking to immediately release an e-dealing was given by fax at 11.30am, although the e-dealing was not released until 4.05pm. The standards committee determined that the solicitor’s undertaking had not been breached (and, although the LCRO did not disturb the decision, it did note that it would not have been so ready to excuse the solicitor’s conduct).

In the current matter, the LCRO confirmed the standards committee’s view that there should be no adverse finding against B for the delay in releasing the e-dealing.

Of more concern to the LCRO was that B had provided an undertaking that, at the time it was given, was dependent on other events occurring which were outside his control (namely, settlement of the other two transactions).

Although B had received prior assurances from the solicitors acting for the other two purchasers that they would be in a position to settle, neither assurance was given in the form of an undertaking.

C also submitted that he had given an undertaking to his client’s bank not to release funds without ensuring that he was in a position to register the bank’s security and that he was also under a duty to his client not to release funds without ensuring that title was transferred to his client. C was exposed to breaches of both of those obligations if B did not fulfil his undertaking.

As it turned out, the two other settlements were completed on the same day as the settlement with C.

Notwithstanding that fact, the LCRO found that the giving of the undertaking by B without advising C of the facts potentially constituted unsatisfactory conduct. It nevertheless declined to make any orders against B given his acknowledgement that he should have done things differently.

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