Legal Blog

Undertakings

It does not take a legal scholar too much effort to conclude that, when a lawyer gives an undertaking, the lawyer should honour that undertaking. Refusing to honour an undertaking is not only a breach of a lawyer’s professional duties, it is a breach of contract, a contract on which someone else has relied. That breach did not seem to bother the lawyer involved in Hyrco v. Miller Estate & Ferro 2014 ONSC 6676.

Loans

Miller was injured in a motor vehicle accident in February 2003 and retained the lawyer to put forward her claims for accident benefits (AB) and tort damages. In addition, Miller retained the lawyer to act for her to obtain compensation for injuries arising from a slip and fall.

Miller needed money and her former common law spouse, the plaintiff, was willing to assist. Between October 2003 and July 2004, the plaintiff loaned Miller an aggregate of $40,000 and received seven letters of undertaking from the lawyer. The lawyer undertook to repay the plaintiff upon settlement of Miller’s claim. In each case, the undertaking referenced the final amount to be repaid, the last one being $40,000.

After July 2004, the lawyer gave no further undertakings, but the plaintiff continued to advance further loans to Miller. The plaintiff testified that he did not consider it necessary to ask for further written undertakings because Miller represented to him that she had advised the lawyer of the further loans as they were being advanced.

By October 2005, the loan amount had increased to $63,000; by May 2008, the amount was up to $90,000. The ultimate loan amount was $117,500, but we were not informed of the final advance date.

By the time of the summary judgment motion, the plaintiff was a 79 year old man confined to a wheelchair and living in a nursing home due to a 2011 stroke.

Compliance

So how did the lawyer honour his undertaking?

– August 2006, the lawyer receives $20,000 as an advance payment on the tort claim. He pays Miller and himself for fees.

– March 2007, the lawyer settles the AB claim and receives $93,000. He pays Miller and himself for fees.

– June 6, 2008, the lawyer settles the tort claim and receives $425,500. He pays Miller, some of Miller’s creditors, and himself for fees.

– August 31, 2012, after the plaintiff had served the lawyer with the statement of claim in the action, the lawyer settles the slip and fall claim and receives $120,000. He pays Miller, some creditors, and himself for fees.

In short, the lawyer received $658,500 in total and paid himself $163,000 for fees and $24,000 as a repayment of a loan from him to Miller. How much did he pay to the plaintiff? Nothing.

Issue

The plaintiff sued for $117,500 but reduced his claim to $100,000 plus interest and costs to stay within the simplified rules. Miller died in 2011; the plaintiff joined Miller’s estate, but the estate was penniless.

The lawyer ultimately acknowledged that perhaps he ought to have honoured his undertaking; accordingly, by the time of the summary judgment motion, but not at the time of the statement of defence and affidavit of documents, he agreed that he had to pay $40,000 plus interest. He did not agree to pay the remaining $60,000 because, he claimed, he never undertook to do so. The judge had to decide whether, when the lawyer breached his undertaking (again and again), it was reasonably foreseeable that the plaintiff would make further loans that would not be recoverable.

Why?

Why did the lawyer not honour his undertaking? If he were merely negligent (e.g. he forgot about the undertaking), we can understand it; it does not absolve the lawyer from liability, but all lawyers make silly mistakes at some time in their career, some mistakes costly and some not. That is why we carry insurance. However, if the lawyer simply refused to honour the undertaking knowing full well about it, that is an entirely different matter. We cannot understand how a lawyer knowingly breaches an undertaking. It seems that our lawyer’s actions fell within the latter category.

When asked why he did not fulfill his obligations, he responded, “Well, I don’t believe it’s a personal undertaking because that infers that I consciously made a promise to do something to do it.” Yeah, well duh. That is exactly what he did.

This was also not a situation in which a lawyer undertakes to do something and believes it is not a personal undertaking, but, rather, is an undertaking given on behalf of a client. This was a personal undertaking; the lawyer had the money, not the client.

The fact that the lawyer advanced further money to himself and Miller, after the lawyer had been sued for breach of his undertaking, was the height of gall. As was once stated, “Have you no shame?”

Foreseeable

The plaintiff testified that had he been told of the settlements, he would not have loaned further money and would have recovered any additional money, which he had advanced in excess of $40,000, while there was still money available for repayment.

The lawyer argued that the plaintiff chose to rely on Miller’s representations that she informed the lawyer of the additional loans and that she would tell him when the case settled. The plaintiff made the decision to accept the representations and had to live with that decision. He could have protected himself by getting further undertakings from the lawyer and chose not to do so.

The judge held that it was reasonably foreseeable that the plaintiff would rely on the lawyer’s promise to pay him from any settlement and that the plaintiff would continue to lend Miller money until settlement. It did not matter that the lawyer was not informed about the additional loans because the plaintiff was entitled to rely on the initial undertakings that he be made aware of any settlement. Finally, it was reasonably foreseeable that a breach of the undertaking would mean that the plaintiff would not be aware of the settlement and not be able to take steps to recover his money.

The lawyer argued that the foreseeability test for negligence differed from the remoteness test for breach of contract. The judge would have none of that argument, and rightly so; the jurisprudence has indicated that, although different words are used, the concepts are, in essence, the same.

Finally the judge commented on two aggravating factors. First, the lawyer was quite content to pay himself while refusing to pay the plaintiff. Second, lawyers are “officers of the court and have a position that makes them especially worthy of trust.” Accordingly, the conduct of lawyers is held to a higher standard than that of laymen.

Costs

The judge stated, “…there appears to be no satisfactory explanation as to why Mr. Ferro did not honour his undertakings as required by Rule 6 of the Rules of Professional Conduct. His explanation during his examination as to why he failed to honour his undertakings was somewhat shocking.” The judge did not merely order substantial indemnity costs; she ordered full indemnity costs. We agree.

 

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.