This Week in Legal Ethics – Breach of Trust Conditions

April 20, 2016

By Melanie Hodges Neufeld

The Law Society website’s Common Concerns section has useful information on an ethical issue we see far too often – Breach of Trust Conditions/ Undertakings:

In legal transactions, money and property must change hands. The lawyer’s role is to hold documents and property in trust until the performance of particular conditions.  These conditions are called “trust conditions”.  Promises by lawyers to carry out certain tasks and/or fulfill certain conditions are known as “undertakings”.

For example, in the sale of a residential property, the seller’s lawyer sends the document signed by the seller transferring the land over to the buyer’s lawyer on several ‘trust conditions’. The trust conditions must be fulfilled before the buyer’s lawyer can register the land transfer.  The most important trust condition in this example is that the buyer’s lawyer must ensure that they have the money in place for the seller before registering the transfer of title.

The buyer’s lawyer ensures that the seller’s lawyer gives “undertakings” or promises to do particular things such as ensuring that any interests on the land which may attach to the land (such as writs, caveats/interests, and mortgages) are removed so that the buyer will receive “clear title” to the land they are purchasing.

Rule 6.02(11) and accompanying Commentary state the following:

The lawyer must not give and undertaking that cannot be fulfilled and must fulfil every undertaking given and honour every trust condition once accepted.

Undertakings should be written or confirmed in writing and should be absolutely unambiguous in their terms.

The person to whom the undertaking is given is entitled to expect that the lawyer giving it will honour it personally.

If a lawyer is unable or unwilling to honour a trust condition imposed by someone else, the subject of the trust condition should be immediately returned to the person imposing the trust condition, unless its terms can be forthwith amended in writing on a mutually agreeable basis.

Please see Rule 6.02 (11) for additional commentary.

In 2010, Law Society Complaints Counsel presented a helpful webinar, Breach of Trust Conditions, that is still available on the CPD website. There are also numerous Professional Conduct Rulings available in our Professional Conduct Rulings database (search keyword trust condition) if you require further guidance.