LAWPRO has received numerous inquiries from lawyers who, after giving undertakings, were either left holding funds for longer than anticipated or while the parties were in an unexpected dispute or later realized they cannot deliver what they agreed to.

The following is a list of suggestions and considerations when drafting undertakings to avoid potential issues.

Language:

Ensure that the undertaking or agreement is in writing

Use clear, plain language that is specific

Basic information:

Is the undertaking revocable or irrevocable?

Is the undertaking that of the lawyer personally or on behalf of a client without personal liability of the lawyer? (if the later, state it)

Is the undertaking given on a “best efforts” basis only?

Who is it addressed to?

• Specific person or firm/institution
• General

How long will the funds be held? Ensure compliance with Law Society of Ontario rules:

• Trust funds related to legal services¹ must not be held in trust beyond a minimally reasonable time after the legal services have been performed²
• Misuse of trust funds may be subject to discipline

Conditions:

Specify the reason(s) for holding funds in trust

Lawyers should only undertake matters that are entirely in their control to fulfil e.g., obtaining a discharge of a mortgage after obtaining a discharge statement and having the funds to satisfy the amount to pay off the obligation, or agreeing to deliver something as part of discoveries. Lawyers are reminded that there is no LAWPRO coverage (Part III, Exclusion f of your LAWPRO Policy) for any matter that the lawyer undertakes that is beyond their control to fulfil (Rule 7.2-11 of the Rules of Professions Conduct) i.e., payment of monies if they do not have sufficient client funds in trust or delivery by a third-party.

Confirm if funds will be held in an interest-bearing trust account

Set out clear objective criteria for when funds are to be paid out. Lawyers often report being unsure if the conditions have been met as the parties cannot agree, so it is wise to include objective conditions or those based on a third party’s action or confirmation

Clearly outline requirements for release of funds

• Does the client or anyone else need to be informed in advance?
• Is signed consent required by the client or a third party?

Specify who receives the funds and method of delivery

Consider making the undertaking to hold funds conditional on receiving the funds contemplated

Is there any due diligence required to confirm how to satisfy the undertaking prior to giving the undertaking? (e.g. interest or other costs that might be added to the payout that were not anticipated and for which the amount held may not be sufficient, or are the actions contemplated confirmed or subject to change?)

Default:

Include a default provision if conditions are not met or time expires

Suggested clause: “In the event that the condition(s) for the release of the funds is(are) not realized or the time for holding the funds has expired, and/or if anyone of the parties and/or a third party objects to the lawyer paying out the funds in accordance with the lawyer’s understanding of the undertaking/agreement, the parties agree that the lawyer holding the funds may apply to the court to pay the money into court, which upon payment of the funds into court the liability of the lawyer in respect of the funds is extinguished, and that the expense of the motion to do so be paid out of the funds held in trust as part of the disbursement of the funds into the court.”

Consider including a provision to permit the use of the funds in trust to cover the cost of responding to any claim made against the lawyer for the release of the funds, pertaining to the funds, or to provide any information about the funds over and above a set periodic status statement, including the lawyers time where the lawyer is not negligent or involved in wrongdoing

Fees:

State your fee for additional accounting, if any

State when such fee, if any, starts accumulating (i.e., after XX days)

An additional fee could encourage clients to resolve their issues before they start incurring fees for the funds to continue to be held in trust

Amendments:

Include a clause on how the undertaking may be amended or revoked (typically in writing)

Specify who must consent and how changes are to be documented

Acknowledgment:

Ensure the client reviews the agreement or undertaking in advance

Is ILA required or is a waiver of ILA to be included?

Have the parties acknowledge in writing that they understand the intent and terms of the undertaking and that they agree to the terms and conditions of the undertaking

Recordkeeping and Time Tracking:

Enter any deadlines or conditions of the undertaking into your tracking and recording system

Ensure other appropriate individuals in your firm are aware of relevant terms, conditions and timelines contained in the undertaking

Track when the undertaking is fulfilled

The Law Society of Ontario states that “Lawyers and paralegals must fulfil every undertaking and honour every trust condition once accepted. This duty applies to any professional or practice-related promises the licensee may give.”

Lawyers should consider reporting a claim to LAWPRO if they are sued or threatened with a claim over funds held in trust and avoid taking steps on their own.
A clearly written and objective agreement or undertaking will avoid uncertainty and issues in the future.

NOTE & DISCLAIMER: This checklist may not be complete and should be carefully reviewed and adapted to your specific circumstances. Its suitability will depend upon a number of factors, such as the specific needs and preferences of your client. It is provided by LAWPRO for your consideration and use when you draft your own documents. It may need to be modified to correspond to current law and practice. This checklist does not establish, report, or create the standard of care for lawyers. The material is not a complete analysis of any of the topics covered, and readers should conduct their own appropriate legal research.

¹See r. 3.2-7.3 of the Rules of Professional Conduct; r. 3.02(6) of the Paralegal Rules of Conduct; s.8(2) para. 3 of the By-Law 9.
²See s. 8.1 of By-Law 9

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