By Russell Cocks, Solicitor
First published in the Law Institute Journal
New rules are being considered that will change the present r 27.2 offence of giving a conditional undertaking to an offence of asking for a conditional undertaking.
Legal practitioners are under stringent obligations to comply with undertakings that they may give. Specifically rule 27.1 Professional Practice and Conduct Rules 2005 requires practitioners to honour undertakings given to third parties.
Further rule 27.2 makes it an offence for a practitioner to give an undertaking that requires the cooperation of a third party. It can be seen that the logic behind such a prohibition is to prevent the practitioner from defending a charge of failing to honour an undertaking by blaming the failure on the actions of a third party. Simply giving such an undertaking is itself a breach of r 27.2, although one would imagine that it would be the failure to honour the undertaking that might trigger disciplinary proceedings.
The Supreme Court in Simon v Legal Services Commissioner[2014] VSC 185 considered an appeal from a Victorian Civil and Administrative Tribunal (VCAT) finding that Simon had been guilty of professional misconduct by failing to honour an undertaking. The facts concerned litigation funding finance. Simon introduced his client to a lender who had the client sign an Irrevocable Authority to Simon to direct repayment of the litigation funding to the lender from the anticipated proceeds of litigation. Simon had no direct obligations pursuant to that order but accepted the order by way of a separate document referred to as a ‘response’ whereby Simon acknowledged the order and agreed to account to the lender.
Simon was unable to ‘account’ to the lender as he did not receive the funds. The Commissioner charged Simon with misconduct in giving an undertaking ‘which required the actions of a third party’ and Simon was found guilty of misconduct. However VCAT’s decision was based on the fact that Simon had undertaken to pay the money to the third party and failure to do so was a breach of r 27.1. Simon appealed to the Supreme Court and the decision was set aside on the basis that Simon had been charged with giving an undertaking that required the ‘actions of a third party’ (r 27.2) but was found guilty of failing to ‘honour an undertaking’ (r 27.1). The charge was referred back to VCAT.
Simon argued before VCAT that the response, which is the document that was either an undertaking that he did not honour contrary to r 27.1 or an undertaking requiring the action of a third party contrary to r 27.2, was not an undertaking at all but merely an acknowledgement by Simon that provided that he received the funds he would account to the lender. Certainly it would have been possible for Simon to ensure that the response, which was drafted by the lender, was worded in that way and he failed to do so, but it appears to read too much into the document to interpret it as an unequivocal promise by Simon to pay funds to the lender. It is more in the nature of a conditional promise. With respect, there is no breach of r 27.1.
In relation to r 27.2, had Simon taken more care to ensure the response was worded in a way that made it clear that provided Simon received the funds he would account to the lender, then it is suggested that the response would not have been in breach of r 27.2.
Rule 27.2 should not prevent a practitioner giving an undertaking that involves the actions of a third party provided that the undertaking is expressed as being conditional on those preliminary actions. It is for the beneficiary of the undertaking to then decide whether the beneficiary is prepared to accept those terms. Rule 29.2 ought to be restricted to prohibiting undertakings that are dependent on undisclosed actions of third parties.
VCAT in Simon found that by signing the response Simon had promised the lender that settlement would occur and that the money would be paid. But the response does not say that and, with respect, it is difficult to imagine a litigation lawyer making such a promise or a lender expecting a document drafted as a ‘response’ to constitute an unconditional guarantee. Simon’s failing was to not take more care before signing the document that was put to him by the lender.
New rules are being considered by the Commissioner that will change the present r 27.2 offence of giving a conditional undertaking to an offence of asking for a conditional undertaking. However, such a rule should not prevent a person who requests an undertaking acknowledging that the beneficiary accepts that preconditions may exist before the undertaking is honoured. In the Simon situation, requesting an undertaking from Simon that, upon receipt of the funds, he account to the lender would not be in breach of the rule.
However, on balance, it appears preferable to maintain the offence as the giving, rather than the requesting, as this will cover all such inappropriate undertakings rather than just those sought by practitioners.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.