The Law Society’s Ethics Committee recently released the following Professional Conduct Ruling as guidance for the profession. For your convenience, I’ve listed the ruling below but it can also be found in our Professional Conduct Rulings Database.
Date: April 28, 2016
Cite as: 2016 SKLSPC 2
Code Chapter: 4.01(6); 6.02(11)
Code Heading: The Lawyer as Advocate; Responsibility to Lawyers and Others
Classification: Undertakings and Trust Conditions; Effect of Limitation Periods on Trust Conditions or Undertakings
Practice Area: Real Estate
Lawyer X represents the builder of a residential property, Client B. Lawyer Z represents the purchaser of said property, Client P.
Around the time of closing, Lawyer Z advised that there was still landscaping and clean-up work to be done at the property and both lawyers negotiated and agreed that Lawyer X would hold $5,000 as a holdback, and that Client P would authorize the release of the holdback, when Client B completed the seasonal work that it was “contractually obligated to perform.”
A few months later, Lawyer X advised that the seasonal work was complete and asked for authorization to release the holdback.
Lawyer Z responded that Client P was having an inspection done and once informed of the result, Lawyer Z would advise.
Shortly after, Lawyer X again advised that the seasonal work was completed and requested authorization to release the holdback.
Lawyer Z responded that certain work was not done to Client P’s satisfaction and that Client P had hired someone else to do the work.
A few months later, Lawyer Z forwarded invoices for work that Client P had outside contractors perform, including moving an incorrectly placed sewer line and proposed Client P receive a certain amount from the $5,000 holdback. Lawyer Z received no response.
Lawyer X responded requesting authorization to release the holdback two more times. Lawyer X received no response.
Then, Lawyer X requests evidence that the sewer line was incorrectly place by Client B. She received no response.
Almost a year later, Lawyer Z suggests that Client B commence an action in Small Claims for the $5,000 and then Client P would counter claim for the amount spent to remedy the work. Lawyer Z received no response.
A few months later, Lawyer X advised of their position that if Client B were in breach of the purchase agreement, then Client P had a two-year limitation period within which to take legal action against Client B. They believe that the limitation period began to run at the earliest, when the holdback was agreed to and at the latest, when the third party contractor was hired. In either case, their position was that the two-year limitation period had expired and that unless Lawyer Z could provide a Statement of Claim issued on or before the date when the third party contractor was hired, the claim was statute barred and the holdback should be released.
Lawyer Z did not agree with Lawyer X’ position and believes that if lawyer X released the holdback, Lawyer X would be in breach of Lawyer X’ undertaking.
The Ethics Committee considered whether Lawyer X would be in breach of the undertaking regarding the holdback, should Lawyer X release the holdback to Client B.
The Committee determined that:
The trust conditions and/or undertakings should have been better defined at the time they were accepted. Since a lawyer is bound by the conditions as they are written, Lawyer X is bound by the undertaking to hold the funds until Client P authorizes the release.
Lawyer X sought the authorization of Client P to release the holdback throughout the course of the transaction. This demonstrates acknowledgment of the undertaking obligations not to release the funds without prior consent of Client P. The potential limitation period, valid or not, does not release Lawyer X from those obligations.
Therefore, Lawyer X would be in breach of the undertaking, if Lawyer X were to release the funds.