Auckland Standards Committee 3 of New Zealand Law Society v W HC Auckland CIV-2010-404-005509

[2011] NZHC 659

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SUPPRESSION ORDERS EXIST IN RELATION TO ASPECTS OF THIS JUDGMENT: SEE PARAGRAPH [76].

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-005509

BETWEEN  AUCKLAND STANDARDS COMMITTEE 3 OF NEW ZEALAND LAW SOCIETY

Appellant

ANDW Respondent

Hearing:         25 November 2010

Counsel:         D C S Morris and M A Treleaven for the Appellant

K A Muir and C M Moody for the Respondent

Judgment:      11 July 2011

JUDGMENT OF DUFFY J

This judgment was delivered by Justice Duffy on 11 July 2011 at 3.30 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar
Date:

Solicitors:    Cook  Morris  Quinn  P  O  Box  1295  Shortland  Street  Auckland  1140;  and New Zealand Law Society (Auckland Branch) P O Box 4417 (DX CX10008) Shortland Street Auckland 1140 for the Appellant

Morgan Coakle P O Box 114 (DX CP20504) Shortland Street Auckland 1140 for the Respondent

AUCKLAND STANDARDS COMMITTEE 3 OF NZ LAW SOCIETY v W HC AK CIV-2010-404-005509 11

July 2011

[1]     This is an appeal against a decision of the New Zealand Lawyers and Conveyancers Tribunal (the Tribunal) dismissing two charges brought against W, a law  practitioner,  by  the Auckland  Standards  Committee  (the  Committee).    The appeal is opposed.

[2]      The  appeal  raises  issues  as  to  when  a  law  practitioner  will  be  held accountable under the  professional  standards of his  profession  for breaching an undertaking that he has given to a fellow law practitioner.

The charges against W

[3]      W initially faced three charges.  The charges applied to conduct that occurred while the Law Practitioners Act 1982, the former legislation regulating law practitioners‟ conduct,  was  in  force.    Accordingly,  they  were  laid  under  the provisions of that Act.   W accepts that the Tribunal has jurisdiction to hear and determine such charges.   At the conclusion of the evidence, the Committee was given leave to withdraw the second charge. The remaining charges were:

(a)       Charge one: misconduct in his professional capacity (s 112(1)(a)); and

(b)Charge three: negligence or incompetence in his professional capacity of such a degree as to tend to bring the profession into disrepute (s 112(1)(c)).

As the charges were laid in the alternative, there could be a finding against W on one charge only.

Facts

[4]      The relevant facts are fully set out at [4]-[17] of the Tribunal‟s decision.  In short, in early 2006 there was an ongoing contractual dispute over payment between a developer, D Ltd, and its head contractor, CCG Ltd.  W acted for D Ltd, and Mr R acted for CCG Ltd.  CCG Ltd claimed it was entitled to payment of $91,003.64 for works which had been certified for payment by the project engineer; whereas D Ltd contended that an advance payment of $100,000 that it had made to CCG Ltd was

sufficient to cover this payment.  By 10 January 2006, work stopped on the project and the parties‟ respective solicitors attempted to see if the matter could be resolved. D Ltd had threatened to terminate the contract with CCG Ltd and to engage another contractor.

[5]      On 10 January 2006, Mr R emailed W to advise that CCG Ltd was prepared to meet with D Ltd to discuss a resolution, but that before this could happen the disputed payment had to be paid to CCG Ltd.  W advised Mr R that D Ltd would not accept this proposal.  Instead, W undertook to hold $91,003.64 in his trust account until a satisfactory resolution was reached.

[6]      While the Tribunal considered that the undertaking needed to be viewed in the context of the entire communication from W to Mr R, the Committee submitted that the focus need only be on the sentence that created the undertaking.  I consider it necessary, therefore, to set out the entire communication (emphasis added):

Thanks for your email.   I have advised my client to make all future communications through our firm.  However, I am instructed that Mr Sellick of your client continues to phone mine, the most recent being this morning. Please accordingly advise him to cease such communication as well.

My client is not prepared to pay the 91,003.64 as a condition of the meeting, and  treats  such  condition  as  further  evidence  of  your  client‟s  continued efforts to frustrate the contract and delay resolution issues.

In  the  meantime,  I  advise  and  undertake  that  my  client  has  paid  the

91,003.64 into my trust account which I hold pending satisfactory resolution of this matter.  My client‟s position is that payment claim and consequently your notice, are defective.   My client will accordingly defend any legal proceedings issued for its recovery.  It will also treat suspension of works, following on as it does from your client‟s repeated failures to perform the contract, as unlawful and as a repudiation of the contract, for which my client will be entitled to cancel and appoint a new contractor.

I  note  that  my  client  has  already  issued  a  default  notice  under  clause

14.2.1(a) of the contract which expires on Friday 13 1 06.

My client accordingly puts yours on notice that it will cancel the contract and appoint a new contract at 5.00 pm on Friday 13 1 06 unless your client meets with mine beforehand and a resolution is reached to my client‟s satisfaction at that meeting.  I look forward to hearing from you.

[7]      D Ltd and CCG Ltd later met, but nothing was resolved between them.

[8]      Then   CCG   Ltd   commenced   summary   judgment   proceedings   in   the District Court  for  recovery  of  payments  it  alleged  were  due  to  it.    Summary judgment was refused.  Following the release of this decision, Mr R wrote to W; but a copy of this communication is no longer available.  On 22 May 2006, an associate of W‟s firm responded to Mr R:

You have misinterpreted [W‟s] email of 10 January 2006 and have not put it

in context of correspondence between our respective firms.

This firm did not give an open undertaking.  The undertaking was given in the context of my client proposing a meeting between our respective clients before 13 January 2006 to resolve the matter.  Your client refused to meet before that time and as indicated in [W‟s] email, a new contractor has now been appointed to complete the works. Accordingly the matter has now been resolved to our client‟s satisfaction.

My client has been informed by the new contractor that your client has contacted it and advised it that if it took on the work it would be breaking the law.  If your client continues to interfere with the completion of the works and my client‟s contractual relationships with third parties in relation to the works any additional costs or losses resulting will be included in any counterclaim against yours.

[9]      The Tribunal concluded that this letter clearly put Mr R‟s firm on notice that W no longer considered himself bound by the undertaking.  Neither Mr R nor any other representative of CCG Ltd responded to the letter.

[10]     Between March 2006 and February 2008, the $91,003.64 held in W‟s trust account was paid out.  Thus, it seems that the funds were released both before and after W had received Mr R‟s letter, and W‟s associate had responded by asserting that the undertaking had expired.

[11]     Later, CCG Ltd issued proceedings in the High Court.   They came before Lang J on 4 June 2008.  On that day, counsel for D Ltd was given leave to withdraw, and the matter proceeded on an undefended or default basis.   CCG Ltd obtained judgment in the High Court by default in the sum of $298,004.63, together with interest of $197,857.12, being a total of $495,861.75.

[12]     On 28 May 2008, D Ltd had been placed in receivership, which may explain why it did not oppose the High Court proceedings.   On 28 August 2008, it was placed in liquidation.  D Ltd took no steps to appeal the High Court‟s judgment.

[13]     Mr Connor, who by then was acting for CCG Ltd, wrote to W indicating that as a “satisfactory resolution of the matter” had been achieved by the High Court judgment, he was seeking to have the funds that were held on W‟s undertaking released to him.  W resisted payment, indicating that the undertaking had long since expired.  This led to Mr Connor, on behalf of CCG Ltd, making the complaint that resulted in the charges before the Tribunal.

The Tribunal’s decision

[14]     At  [18]  of  its  judgment,  the Tribunal  noted  that  W  had  conceded,  after obtaining expert opinion on the matter, that he had unintentionally breached his January 2006 undertaking. The Tribunal framed the issue as follows:

Is this particular breach of this particular undertaking so serious as to meet the legal tests for professional misconduct in terms of the first charge? Alternatively does this breach represent negligence on the part of the practitioner of such a degree as to bring the profession as a whole into disrepute, in terms of Charge 3?

[15]     Before the Tribunal, the Committee submitted that it was enough to focus on the one sentence in W‟s  communication of referring to the undertaking.   It argued that that sentence expressed a clear and unambiguous undertaking, which W subsequently breached when he paid funds out of his trust account without there being a “satisfactory resolution” for both parties.   The thrust of the Committee‟s argument was that once a breach of an undertaking was established, W‟s conduct satisfied the requirements of the first and third charge laid against him.

[16]     W had called a practitioner, Mr Christopher Darlow, to give expert evidence. Mr Darlow described the events as a “particularly unusual case of an undertaking”. Mr Darlow‟s evidence was that:

Although, on a simple reading of the undertaking, there had been a breach, there were significant mitigating circumstances which ought to be taken into account, namely that:

(a)       The undertaking was provided gratuitously;

(b)      The recipient of the undertaking did not rely upon it or act any way to its detriment in response to the undertaking;

(c)       There was no element of personal gain to the practitioner;

(d)       The practitioner genuinely believed that the undertaking was “spent” once the January meeting had occurred and no agreement had been reached.

[17]     W submitted that there was no question of the breach of the undertaking in any way indicating indifference to or abuse of the privileges of legal practice.  In this way, W‟s conduct was contrasted with other decisions involving disciplinary proceedings against law practitioners where the practitioner‟s personal interests had conflicted with his duties and there had been ongoing and deliberate failure to meet obligations owed to others.

[18]     W  further  submitted  in  relation  to  the  third  charge  that  the  failure  in honouring the undertaking was not “of such degree as to question [W‟s] competency and has not and will not lower the standards of the legal profession”.  He contended that the public would not think less of W or the legal profession as a whole if the circumstances of the giving and breach of the undertaking were known.

[19]     The Tribunal‟s  attention  was drawn to  established law (Pillai v Messiter [No 2] (1989) 16 NSWLR 197) to the effect that a mere act of negligence was not sufficient to find professional misconduct; and that a mere error or misjudgement would not lead to a lowering of the standing or reputation of the profession as a whole in the eyes of the public.

[20]     The Tribunal had issued its decision on 10 August 2010 and its reasons on

10 September 2010.

[21]     The Tribunal found that W had breached r 6.07 of the Code of Professional Conduct as at 2006.  This rule required practitioners to honour an undertaking given in the course of legal proceedings, or in the course of practice; and applied whether the undertaking was given by the practitioner personally, or by a partner or employee in the course of practice.  The Tribunal noted W‟s acknowledgement to it that he had been “imprecise” in his drafting of the undertaking as he had expected it would only have effect for a matter of days.

[22]     The Tribunal then considered, and distinguished, previous cases in which a breach of an undertaking was in issue.  These cases involved deliberate breaches on three occasions in circumstances where the practitioner was indifferent as to the truth of his communications with the party relying on the undertaking and the breach had harmful consequences for this party.   In contrast, W‟s  undertaking appeared to be one that W might have thought that he had honoured.  In this regard, the Tribunal considered that when the undertaking was read in the context of the rest of the communication, the intent behind W‟s undertaking was readily understood.  Further, W‟s breach of the undertaking had no harmful consequences for CCG Ltd.  W had written to CCG Ltd‟s solicitor advising that he considered he was no longer bound by the undertaking and for two years CCG Ltd had done nothing to enforce the undertaking.

[23]     These distinguishing features caused the Tribunal to conclude that W was not indifferent to his responsibilities and privileges as a legal practitioner; and as such, the evidence did not reach the standard of proof required to establish the first charge of professional misconduct.

[24]     Regarding  the  third  charge,  the Tribunal  stated  that  “[a]gain,  we  do  not consider that the evidence met the standard required in terms of the public perception of the legal profession”.  The Tribunal concluded by stating that it did “not consider that the opinion of the public about the standards of the legal profession would be lowered taking into account full knowledge of the circumstances and context in which the giving of this undertaking arose”.

Appellate principles

[25]     The parties agree that this appeal should be determined in accordance with the law expressed in Austin, Nichols & Co Inc v Stitching Lodestar [2007] NZSC

103; [2008] 2 NZLR 141. In this decision, the Supreme Court reiterated the importance of appellants‟ rights of appeal being properly respected by the appellate Court. The judgment makes it clear at [5] that when dealing with general rights of appeal, the appellate Court has “the responsibility of arriving at its own assessment of the merits of the case”. At [16] there is the firm reminder that:

Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment.

[26]     Austin, Nichols makes it clear that in respect of general rights of appeal, there is no legal principle that requires deference to be given to the Tribunal.   If the appellate Court reaches a different view on the merits and therefore considers that the decision under appeal is wrong, the appellate Court must act on its view.  At [6] the judgment leaves no room for doubt that “wrong” means no more than the appellate Court taking a different view on the merits:

If the appellate court‟s opinion is different from the conclusion of the tribunal appealed from,  then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.

This is so even when the decision turns on a value judgment and has originated from a specialist tribunal.

Discussion

[27]     The difficulty with the Tribunal‟s decision is that it does not identify the legal principles that it applied in reaching its conclusions.  Regarding the first charge of professional misconduct, the Tribunal has identified features of W‟s case that it considered set W apart from cases where a breach of an undertaking was deemed professional misconduct.  However, the Tribunal does not go on to detail why these differences should have led to a different outcome.

[28]     When it comes to the third charge of negligence or incompetence that brings the profession into disrepute, the Tribunal gives no reasons for its conclusion.  By implication, the way in which it linked its conclusion to the reasoning for the first charge with the word “again” suggests that the same distinguishing features applied to  the  third  charge,  indicating  that  the Tribunal  applied  the  same  methods  and reasoning to the third charge as it did to the first.

[29]     The importance of a tribunal expressing reasons for its decision is clear from

Lewis  v  Wilson  &  Horton  [2000] 3 NZLR 546. A helpful summary of the

observation of the Court of Appeal on this point can be seen from the observation in the head note to the decision:

It is desirable for Courts to give reasons for their decisions, for the purposes of preserving the openness of the administration of justice, the assessment by a Court of supervisory jurisdiction of the lawfulness of decisions, and to provide a discipline for the Judge to guard against wrong or arbitrary decisions. Whether there should be a general rule that Judges must give reasons for decisions is a matter the Court could not consider in this case but would wish to do so at an early opportunity (see paras [79], [80], [83], [85]).

See also R v Awatere [1982] 1 NZLR 644 and R v MacPherson [1982] 1 NZLR 650.

[30]     It is unhelpful when a tribunal fails to articulate the principles it has applied in order to reach its decision.  Such omission makes it more difficult to assess how the tribunal has reached its conclusion and whether it is correct. The approach I have taken, therefore, following Austin, Nichols, is to assess the legal merits of the case.

[31]     The legal  principles  relevant  to  ascertaining whether a law practitioner‟s conduct constitutes professional misconduct or negligence or incompetence likely to bring the profession into disrepute are well established: see Complaints Committee of the  Canterbury  District  Law  Society  v  W  [2009] 1 NZLR 514; Complaints Committee (No 1) of the Auckland District Law Society v C [2008] 3 NZLR 105; and Bhanabhai v Auckland District Law Society (2009) NZAR 282. Furthermore, these authorities show that a charge of professional misconduct is a different type of charge from negligence under s 112(1)(c). For example, in Complaints Committee of the Canterbury District Law Society v W it was said at [79]:

The Court‟s view in C [Complaints Committee No 1 of the Auckland District Law Society v C] was that the Pillai test is only descriptive of the degree of conduct required to establish “professional misconduct”, and it does not assist   in   determining   what   degree   of   negligence   is   required   under [s 112(1)(c)] when relating to bringing or tending to bring the profession into disrepute. We agree with that view.

[32]     Consequently, each alternative charge must be assessed separately.  The first step in this appeal is to identify the respective legal tests for each charge and then to apply these to the facts.

[33]     Complaints Committee (No 1) of the Auckland  District Law Society v C provides a clear statement for the test for professional misconduct.  At [31] it found that professional misconduct was wider than intentional wrongdoing.   It reviewed the  existing  authorities  and  approved  Kirby  P‟s  formulation  set  out  in  Pillai  v Messiter (No 2).

[34]     In Complaints Committee (No 1) of the Auckland District Law Society v C, a full Court reviewed the existing authorities on what constitutes professional misconduct. At [31] it referred with approval to the test adopted by Kirby P in Pillai v Messiter at 200:

The words used in the statutory test („misconduct in a professional respect‟) plainly go beyond that negligence which would found a claim against a medical practitioner for damages: Re Anderson, (at 575). On the other hand gross negligence might amount to relevant misconduct, particularly if accompanied by indifference to, or lack of concern for, the welfare of the patient: cf Re Anderson (at 575). Departures from elementary and generally accepted standards, of which a medical practitioner could scarcely be heard to say that he or she was ignorant could amount to such professional misconduct: ibid. But the statutory test is not met by mere professional incompetence or by deficiencies in the practice of the profession. Something more is required. It includes a deliberate departure from accepted standards or such serious negligence as, although not deliberate, to portray indifference and an abuse of the privileges which accompany registration as a medical practitioner.

[35]     The  full  Court  concluded  from  this  and  similar  statements  from  other authorities that professional misconduct is not limited to intentional wrongdoing (at [31]-[32]) and that it also encompassed gross negligence (at [33]):

While intentional wrongdoing by a practitioner may well be sufficient to constitute professional misconduct, it is not a necessary ingredient of such conduct. The authorities … demonstrate that a range of conduct may amount to professional misconduct, from actual dishonesty through to serious negligence of a type that evidences an indifference to and an abuse of the privileges which accompany registration as a legal practitioner.

However, a mere error of judgement or negligence simpliciter does not constitute professional   misconduct:   see   Complaints   Committee   of   Canterbury   District Law Society v W at [65].

[36]     Other factors that the full Court in Complaints Committee (No 1) of the Auckland District Law Society v C identified in their formulation of professional misconduct were first, that the assessment of whether this has occurred is determined from the nature of the conduct and not from its consequences (at [32]); and secondly, the reasons why a practitioner has acted in this way are “more properly for the penalty phase” (at [67]).

Negligence or incompetence under s 112(1)(c)

[37]     In Complaints Committee of Canterbury District Law Society v W, the Court formulated  the  appropriate  test  for  negligence  that  brings  the  profession  into disrepute.    In  doing  so,  it  referred  to  s  106(1)(c),  the  equivalent  provision  of s 112(1)(c);  with  the  only  difference  being  that  s  106  was  applied  by  District Disciplinary Tribunals, whereas s 112 was applied by the New Zealand Disciplinary Tribunal.  For convenience, I shall substitute references to s 106 with s 112.

[38] The Court concluded that each of the four available disciplinary charges in s 112 were intended to capture different kinds of conduct and that there was no hierarchy of seriousness as between the charges. Nor were each of the paragraphs to be considered relative to the others: see [80]. No attempt was made to outline exhaustively the considerations relevant for determining negligence under s 112(1)(c). Instead, the Court set out some factors that it considered were of no help in this regard: see [81]. In Complaints Committee (No 1) of Auckland District Law Society v C, the Court set out the test it proposed to apply in the case before it (at [82]):

We do think it is relevant to consider whether the conduct falls below what is to be expected of the legal profession and whether the public would think less of the profession if the particular conduct was viewed as acceptable.

[39]     I draw the following general points from these authorities: first, “[n]o gloss should be placed on the statutory test” in s 112(1)(c).  Secondly, the use of epithets such as “reprehensible” are unhelpful.  Thirdly, and of particular importance here, the outcome or consequences of the subject conduct are irrelevant.

[40]     As at 2006, when W gave his undertaking, the provisions of r 6.07 of the

Code of Professional Conduct provided:

Every practitioner has a professional duty to honour an undertaking, written or oral, given in the course of legal proceedings or in the course of practice; and this rule applies whether the undertaking is given by the practitioner personally or by a partner or employee in the course of the practice.

[41]     Some appreciation of the importance of undertakings for the legal profession is  required.     A  helpful  discussion  of  the  law  of  undertakings  is  found  in Duncan Webb‟s  Ethics Professional Responsibility and the Lawyer at 15.6.   The author provides examples of how undertakings can free up or allow progress to be made in circumstances that may otherwise cause delay to the parties.  Undertakings have this effect because they are understood to be able to be relied on by those affected.  This has meant that they are not approached in a technical legal manner; rather, they are to be approached and honoured according to their substance and intention: see Re W P Roberts (1856) 26 LT (OS) 239; applied in Fellingham v Rooke   HC   Auckland   A1105/86,   18   November   1987,   Thorp   J,   and   in National Westminster Finance New Zealand Ltd v Bryant [1989] 1 NZLR 513. In the latter judgment, at 516, Smellie J referred with approval to a passage of Fellingham v Rooke:

There are, in my view, two rules of construction bearing on the interpretation of the correspondence which created the undertakings given by Mr Muller. The first is that, being documents of a commercial nature and intended to facilitate the completion of commercial dealings, they should if possible be given commercial significance: Attorney-General v Barker Bros Ltd [1976]

2 NZLR 495. The second is that undertakings given by solicitors should be construed having regard to their substance and intention, not in a technical or

legalistic  fashion.  The  case  generally  cited  for  this  principle  is  Re  WP

Roberts (1856) 26 LT (OS) 239. In that case it was suggested that an undertaking given by a solicitor‟s clerk to the clerk of a Magistrates‟ Court had  been  more  extensive  than  the  occasion  required.  The  decision  as reported in the Law Times (Old Series) was in the following words:

„It is of great importance that these undertakings given by one professional man to another should be given and fulfilled optima fide. It is clear that this undertaking   was   given   with   full   means   of   knowledge   of   all   the circumstances; and there is no pretence for saying that any undue advantage

was taken of Mr Roberts. It is not creditable to attempt to resist payment

under such circumstances by raising nice points of law.‟

[42]     Another rule of construction is that where an undertaking is ambiguous, it will   generally   be   construed   in   favour   of   the   recipient:   see   Templeton Insurance Brokers v Penningtons [2006] EWHC 685 (Ch) at [8]:

I must have in mind the ordinary principles of interpretation of contracts but there is also a special principle that applies to the interpretation of solicitor‟s undertakings  discussed  by the  Court of Appeal  in  Reddy  v  Lauchlan  ... “[A]n ambiguous undertaking is generally construed in favour of the recipient”.   Lewis J went on to refer to interpretation calling into play an examination of the context of the undertaking.  It should be noted that this submission relies on the supposition that there is some ambiguity to be resolved.

[43]     In Countrywide Banking Corporation Ltd v Kingston [1990] 1 NZLR 629, Wylie J found that the type of defences that could be raised in civil proceedings between parties, such as waiver of performance and estoppel, were not available to resist the exercise of the Court‟s supervisory jurisdiction to enforce an undertaking. Wylie J approved Re Hilliard (1845) 14 LJQB 225, where Coleridge J rejected a defence of absence of consideration.

[44]     There is no doubt that  strict adherence to  undertakings has  always  been required.   In Ethics, Professional Responsibility and the Lawyer (2nd ed, 2006), para 15.9.17, Professor Duncan Webb describes the rationale for this rule as follows:

The reasons for the rule, which requires the strict adherence to undertakings, are pragmatic. Undertakings are common throughout legal practice and the continued efficient working of legal practice requires that such undertakings be honoured regardless of other supervening circumstances. The additional reason for the strict application of the rule is to main the legal profession‟s integrity. Members of the profession must be seen as wholly trustworthy in that, once they have undertaken a particular course of action, they can be depended on to act accordingly. That the duty to honour undertakings is strict means even when a lawyer has erred or made an oversight, circumstances have changed radically, or for the lawyer to adhere to the undertaking will cause hardship, the lawyer must still adhere to the promises made.

[45]     In  Bhanabhai  v Auckland  District  Law  Society,  it  was  recognised  that  a breach  of  an  undertaking  will  not  automatically  be  regarded  as  professional

misconduct: “[w]hile a breach of an undertaking will, generally, be regarded as professional misconduct, that result does not automatically follow.”

Application of the legal principles to present case

[46]     I deal first with the charge of professional misconduct under s 112(1)(a).  The Committee submits that the Tribunal was wrong to conclude that W‟s breach of the undertaking did not portray negligent indifference.  It also submits that the Tribunal allowed  factors  that  are  more  relevant  to  mitigation  of  penalty  to  influence  its decision on liability.

[47]     W‟s  evidence  to  the  Tribunal  was  that  he  thought  when  he  wrote  the undertaking that the reference to a “satisfactory resolution” meant a resolution to be reached by the parties at their pending meeting on 13 January 2006.  He also stated that he believed the funds had been released following a satisfactory resolution of the dispute for his client.  I take this to be a reference to D Ltd‟s purported cancellation of the contract with CCG Ltd.  He went on to say that at the time the funds were released,  he  did  not  believe  that  he  was  breaching  the  undertaking,  but  since receiving advice from Mr Darlow, he now accepted that he had done so.

[48]     W‟s evidence was that before he released the funds in 2006, he sought advice from two solicitors in his firm, who considered that the undertaking was no longer binding.  He did not receive Mr Darlow‟s advice to the contrary until some two years after  the  breach  had  occurred  and  after  CCG  Ltd  had  complained  to  the Auckland District  Law  Society.    By  then,  W  had  informed  his  insurers  of  the complaint, and the solicitors engaged to act for W had sought Mr Darlow‟s opinion.

[49]     W was asked more than once in cross-examination how he understood the undertaking:

Question:  Having read that rule [rule 6.07] and the commentary to it do you accept that ... it was your professional duty to hold the $91,000 until satisfactory resolution of the matter?

Answer:    As I told you before ... I believed at the time that I was obliged to hold it until satisfactory resolution at the meeting on 13 January

2006, that‟s what I thought.

Question:  Maybe I could ask the question another way.  What do you now understand your undertaking to be?

Answer:    Again I‟ve answered that question previously.  As a result of the advice I‟ve received I was obliged to hold it until whatever satisfactory resolution is.

The impression I gained from reading the transcript was that W was unshaken on this matter.

[50]     Similarly, the Tribunal, having had the opportunity of seeing and hearing W give evidence, appears to have accepted this evidence.  At [30] the Tribunal referred to W‟s  acknowledgment that the undertaking was “imprecise” and opined that W was perhaps more casual because he intended the undertaking to operate for a brief period of time.   At [32] the Tribunal expressed some sympathy for W‟s view.   It found that W might have thought he had honoured the undertaking because when it was read in the context of the entire communication, W‟s  intent as to its meaning was “more readily understood”.   Further, the letter written by W‟s  associate on

22 May 2006 is consistent with W‟s view that the undertaking was intended to apply

for a brief period only.

[51]     Although the Tribunal made no express findings, the reasons it gave and the outcome it reached indicate that the Tribunal found W to be a credible and reliable witness. This is consistent with the impression I gained from the material.

[52]     Given W‟s evidence on his initial understanding of the undertaking, does his conduct  amount  to  professional  misconduct?    I consider  that  it  does  not.    The evidence is not consistent with an intentional or deliberate breach of an undertaking. Nor do I understand this to be the Committee‟s contention.  Their submissions focus on whether W‟s conduct evidences gross negligence, indifference, and abuse of the privileges of his profession.  I consider that his conduct does not reach this level.

[53]     The Tribunal considered that W‟s initial view had some substance.  Thus, the

Tribunal did not see this as a breach of a clear-cut undertaking.

[54]     Before releasing the funds, W consulted with two other solicitors in his firm, who both thought that the undertaking had expired.  Though they were incorrect, this

shows that W was not acting casually or indifferently when he considered releasing the funds.

[55]     W‟s actions here are not consistent with serious negligence or indifference, as taking the trouble to consult other members of the profession before acting evidences a thoughtful and considered approach.  Whilst the approach was wrong, that does not make it negligent, particularly to the level required to establish professional misconduct.

[56]     This interpretation is supported by the evidence that Mr R took no further steps when he received the letter of 22 May 2006 from W‟s firm rejecting the suggestion the undertaking was ongoing.  His conduct suggests some uncertainty on his part as to the undertaking‟s duration.

[57]     All these factors suggest to me that there was room for honest error.  Whilst I acknowledge that a breach of an undertaking will usually amount to professional misconduct, there are enough unusual features here that make this case an exception to this general rule.   I am satisfied that W‟s conduct does not constitute gross or serious negligence.  Nor does it portray indifference to and abuse of the privileges accompanying registration as a legal practitioner.  This is not a case of professional misconduct. The Tribunal was right, therefore, to dismiss this charge.

[58]     I now turn to consider if W‟s conduct constitutes s 112(1)(c) negligence.

[59]     As indicated at [28] of this judgment, the Tribunal‟s approach to this question is unclear.  Whilst I do not wish to speculate as to its reasoning, the Tribunal‟s use of the word “again” suggests that it applied the same reasoning to the two inquiries.  If this is the case, I consider that to be the wrong approach.  They each entail different methods of proof.  While a degree of subjectivity is required to find misconduct in a professional capacity under s 112(1)(a), I consider that the s 112(1)(c) inquiry has an objective focus. The statutory test requires an objective assessment of:

(a)       Whether W has been negligent or incompetent in his professional capacity; and

(b)If so, is it of such degree as to tend to bring  the profession into disrespect?

[60]     I have already referred to the importance of undertakings for the profession and for members of the public who from time to time have to rely on a practitioner‟s undertaking.    Mr Webb  has  described  undertakings  as  “one  of  the  most  useful devices of the law” because recipients are entitled to automatically accept them as reliable.  For this reason, the law has rejected a technical and legalistic approach to undertakings and has instead required them to be honoured optima fide.  It is also why any ambiguity is to be construed in favour of the recipient, and why defences that  are  available  in  contract  and  other  common  law  disputes  are  not  readily available to resist the enforcement of an undertaking.

[61]     The special treatment the law reserves for undertakings emphasises their special role.   There is nothing unduly harsh or unfair to law practitioners in this approach. As Coleridge J recognised many years ago in Re Hilliard at 226:

[T]here is no hardship on the attorney in enforcing them; he is never compelled to enter into them; if he does, he should secure himself by an arrangement with his client, and he must be taken to know the legal consequences of his own act.

This background informs the inquiry to be carried out under s 112(1)(c).

[62]     W has acknowledged that the undertaking was imprecise.   When asked in cross-examination how he might have drafted the undertaking to reflect his understanding, W gave this response:

In the meantime I advise that I undertake my client has paid the $91,000 in my  trust  account  which  I  hold  pending resolution of  this  matter  to  my client‟s satisfaction at the meeting on 13 January 2006.

W accepted that the form of the undertaking he had given differed from this.

[63]   Here, an imprecise undertaking has been gratuitously issued by a law practitioner who failed at the relevant time to appreciate the true import of what he was binding himself to do.   This, in turn, has led him to breach his undertaking. Whilst I accept that the undertaking was not clear cut and that the breach resulted

from an honest error of interpretation, it seems to me that none of these facts carries any weight regarding the charge of negligence under s 112(1)(c).  Rather, they are subjective factors that explain how the breach occurred.  Such factors have little, if any, relevance to the objective assessment required under s 112(1)(c).

[64]     Regarding the first question, whether W has been negligent or incompetent, I consider the context in which the undertaking was given to be relevant.  W intended this  undertaking  as  a  means  to  overcome  the  obstacle  CCG  Ltd‟s  demand  for payment was posing to it meeting with D Ltd.  From the perspective of W‟s client, the sooner work commenced the better.  Thus, W needed to find a way of getting the parties to meet as soon as possible and was working under some pressure.   This circumstance may have caused W to draft the undertaking hurriedly.  W explained that he intended the undertaking to be in effect for a short length of time, and that this was why it was drafted imprecisely.  I reject this excuse.  The need for certainty of meaning is just as important in urgent cases.  Moreover, recipients of undertakings of short duration need to be able to rely upon them just as much as do recipients of longer term undertakings.

[65]     The terms of the undertaking given were not complex, lengthy or unduly difficult;  nor  was W‟s  intention  difficult  to  express.   As  can  be  seen  from  his evidence, had he given more thought to its language, he could have easily clearly expressed his intent.  As it was, W drafted the undertaking so imprecisely that he failed to understand its true meaning.   I consider that to draft an undertaking this imprecisely constitutes negligence or incompetence.

[66]     I now turn to the second question, whether W‟s negligence or incompetence would diminish the public‟s view of the profession.   The tenor of r 6.07 and the settled law on undertakings lead me to conclude that members of the public would expect practitioners to prepare precise, clear undertakings, whose meaning was at least understood by the practitioner responsible for drafting them.  Members of the public would not expect practitioners to draft undertakings that did not represent their intent.   Such persons would also expect practitioners to honour their undertakings, rather than to dispute their meanings.   Furthermore, given the high levels of reliance placed on undertakings, members of the public would not expect

that practitioners could later avoid honouring their undertakings on the ground that they were issued in haste or under pressure, such that the practitioner has mistakenly expressed himself or herself as to its terms. Thus, W‟s actions do not accord with the expectations that I attribute to reasonable members of the public.  I consider that they would see his conduct as falling short of those expectations.

[67]     How then would such persons view the legal profession, if they saw that the profession viewed W‟s errors and omissions as acceptable in the circumstances?  I consider that they would think much less of the legal profession.    The trustworthiness, integrity and standing of the profession would be diminished if a practitioner  were  to  be  permitted  to  say,  “I  should  not  have  to  honour  this undertaking, because even though I drafted it, it does not say what I intended it to say”.  This would be no better than permitting practitioners to avoid honouring their undertakings by reliance on fine legal points.  I consider that if the profession were to view W‟s conduct as acceptable, it would lead to serious loss of public confidence in the profession when it came to reliance on undertakings, and in general.   The public would be entitled to assume that much of what the legal profession said about undertakings was nothing but fine and flowery language, and that when the call came for them to be acted on, they were not as reliable as the profession made them out to be.  As the profession publicly presents undertakings as having an elevated and special status, it is necessary for the profession to scrupulously honour them.

[68]     The fact that Mr R did not demur when he received the letter from W‟s firm in May 2006 cannot assist W.  The law is clear that defences of acquiescence and estoppel   are   not   available   to   resist   the   enforcement   of   undertakings;   and, accordingly, I consider they should also not be available as defences against disciplinary charges for the breach of an undertaking.

[69]     Further, for the same reasons, the fact that the recipient did not rely on the undertaking is not relevant when it comes to determining W‟s guilt.   Nor is the absence of personal gain a relevant factor.  These matters are consequential upon the breach, but they bear no relation to the nature of W‟s conduct in committing the breach.

[70]     I  acknowledge  that  the  Tribunal,  which  has  specialist  knowledge  and experience, found that the opinion of the public would not be lowered, taking into account  full  knowledge  of  the  circumstances  and  the  context  in  which  the undertaking arose.   Its findings on charge three are set out at [37] of its decision. However, the Tribunal has not articulated the legal test it applied to reach their view, or any other reasons to support its conclusion.   This absence of reasons makes it difficult to assess the finding, and leads me to conclude that this is an occasion where the Tribunal‟s specialist knowledge can have little bearing on my decision, as it is not clear whether they followed a method that is particular to this specialist knowledge.

[71]     Furthermore, the Tribunal, in focusing on the circumstances and context of this breach and how these might influence public opinion on the standing of the profession, has looked at the matter too narrowly.  I consider that the breach must be assessed from a broader perspective which takes into account the well settled law on practitioners‟ undertakings and the special important role which that law attributes to them.  Once the breach is viewed from this broader perspective, I consider that for it to  go  unremarked  by  those  responsible  for  regulating  the  profession  would necessarily diminish the standing of the profession in the eyes of the public.

[72]     It follows that the Tribunal was wrong to dismiss the charge against W for negligence under s 112(1)(c).  In reaching this view, I do not dismiss the mitigating factors identified by Mr Darlow.  I accept that W has committed an honest mistake while acting under difficult and pressing circumstances.   However, viewed objectively, his error constitutes negligence or incompetence in his professional capacity  that  has  been  of  such  degree  as  to  tend  to  bring  the  profession  into disrepute.

Result

[73]     The appeal is  dismissed on the charge of professional misconduct  under s 112(1)(a).

[74]     The  appeal  is  allowed  on  the  alternative  charge  of  negligence  under s 112(1)(c).  I find all particulars of that charge proved.  W is guilty of negligence or incompetence in his professional capacity that has been of such degree as to tend to bring the profession into disrepute.

[75]     I refer the matter back to the Tribunal for the imposition of penalty and the issue of costs before the Tribunal.

[76]     The parties have leave to file memoranda on the issues of costs and name suppression.  Until the question of name suppression had been heard and addressed, the present suppression of W‟s name and other identifying material will remain in force

Duffy J