Thomas Byrne (Meath East, Fianna Fail)
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I am not here to comment on any particular case before the courts as regards solicitors' undertakings and what essentially are allegations of fraud, particularly by solicitors who are namesakes of mine. What is being heard on a daily basis is devastating for the solicitors' profession and public confidence. I have often said that the genuine and rare mistakes of solicitors could be accepted provided the solicitor concerned was honest and confidential. After all, that is why there is professional indemnity insurance. When honesty is in doubt, however, the solicitor has no function in the community. The vast majority of solicitors provide a fantastic service to clients. Often one finds that successive generations of a family will have used the services of successive generations of a family solicitor. The connections are both personal and professional.

Turning to the issue in hand, the system of solicitors' undertakings has to be reviewed in terms of how it currently operates. As matters stand, the banks presumably are worried about it and I trust the Law Society has concerns too. The system of solicitors' undertakings for mortgage lending is a great but relatively recent innovation, as it eliminates the need for a mortgaging bank to have its solicitor acting for it when a borrower is obtaining mortgage facilities in respective of residential lending. Instead, the borrower's solicitor solemnly and personally undertakes to do everything necessary to protect the bank's interest in the mortgage transaction, particularly as regards registering the borrower as the owner of the property and the bank as having the first legal charge on it. The upshot for the borrower was that the cost of the bank's solicitor were eliminated, thereby reducing his or her liability substantially. Residential property transactions could proceed much more smoothly. It is often forgotten that undertakings are personal to solicitors and the solicitor is personally liable for everything he or she undertakes to the bank. This is a significant burden on solicitors, particularly given rising property values. However, the system of solicitors' undertakings was never intended to apply to commercial property transactions.

From my experience as a solicitor and media reports, I understand the system of undertakings thrives in the commercial property lending sector. For what might be massive transactions, many banks accept solicitors' undertakings to stamp and register the interests of borrower and bank without employing their own legal team. The solicitor in this case has no solicitor-client duty to the bank. This is often misunderstood and has implications in the current crisis because it means banks should have no recourse to the compensation fund of the Law Society which is for clients only. I hope this is the view of the society because banks should not be compensated for reckless lending.

In many cases, the process of undertaking in respect of a commercial mortgage is extraordinarily simple. In my direct experience, a borrower could obtain approval for millions of euro in respect of a commercial property and the money would be issued immediately on the bank's receipt from the solicitor of a simple, one-page undertaking signed by the borrower's solicitor. This would be an undertaking to stamp and register the deeds to the mortgaged property. However, the system is totally dependent on the borrower's solicitor. If there is a mistake, the bank will hope there is adequate professional indemnity cover. This may often not be the case in commercial property transactions in the light of their generally high value, despite recent welcome increases in cover required by solicitors. If there is dishonesty, as we have seen, all bets are off.

Of the major banks of which I am aware, one branch attempted to withdraw the facility of solicitors' undertakings in commercial transactions. However, when the bank's customers started to complain about the added costs of the bank's solicitor which they are required to bear, the branch simply dropped the requirement and returned to relying on the borrowers' solicitors' undertakings.

What has really come to light in the media recently is the scandal of solicitors giving undertakings regarding their own borrowings on properties they are buying themselves. It is completely crazy for banks to be lending money on the undertakings of their own borrowers to register the banks' interests. In this case, the banks have only themselves to blame but the implications are very wide.

I know of a minor case in which a solicitor, when buying his family home, asked the bank specifically whether it would be acceptable to give his own undertaking on his borrowings. The bank stated this would be fine as long as he asked another solicitor to witness his signature on the mortgage deed. Happily, I was in the position to oblige my colleague but we were both aware of the absurdity of the bank's position.

From my experience, generally as a country solicitor, I have found that worry about title deeds keeps a lot of clients awake at night. Fears are generally unjustified and often based on conjecture and worry instilled by third parties with a lack of knowledge. However, there are many clients of certain solicitors awake at night owing to justifiable fears about the title deeds to their property and their ownership of it for which they paid and are still paying.

The vast majority of solicitors, 99.9%, are devastated by recent events, but we must learn from experience. I call on the Minister for Justice, Equality and Law Reform to initiate discussions with the Law Society to review the system of undertakings in lending transactions and particularly to bring to an end the system of undertakings as used in commercial property lending transactions which was never intended to be used in these cases and which, ultimately, is the root cause of the current crisis.

Trevor Sargent (Dublin North, Green Party)
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I congratulate Deputy Thomas Byrne on becoming a father recently and wish him, his wife and new daughter Sinéad every success, health and happiness.

Ba mhaith liom leithscéal a ghabháil mar ní féidir leis an Aire Dlí agus Cirt, Comhionannais agus Athchóirithe Dlí bheith i láthair. D'iarr sé orm an freagra seo a thabhairt don Teachta ar a shon.

I stress, as did Deputy Byrne, that I cannot comment on individual cases, especially because the issues raised are linked to a matter before the courts. As the Deputy is no doubt well aware, undertakings are a vital component of conveyancing practice and, in preparing for the completion of a conveyance, it is common for solicitors to give undertakings in relation to certain aspects of the process.

Undertakings may take different forms, depending on who is making them and the subject of the undertaking. For example, a vendor's solicitor may, where a property is being sold subject to a mortgage and the mortgage is to be discharged from the proceeds of the sale, give an undertaking to hold the title deeds on trust or on behalf of the mortgagee and to account to the mortgagee for the amount required to discharge the mortgage on completion of the sale. A purchasers' solicitor will usually give an undertaking to a financial institution to the effect that he or she will ensure the purchaser has a good marketable title to the property, that the documents are executed and that all the title deeds are stamped, registered and lodged with the institution. In addition, the solicitor will generally, pending lodgement of the title deeds with the bank or building society, undertake to hold the deeds in trust for the lending institution.

It is important to understand what in particular constitutes a solicitor's undertaking as distinct from any other type of undertaking. Essentially, the undertaking by a solicitor is a promise or guarantee given by the solicitor in his or her professional capacity to do or undertake to do certain things. As the undertaking is given in the solicitor's professional capacity, it must be honoured by the solicitor. Where a solicitor fails to honour an undertaking, it is considered to be professional misconduct and, as a result, he or she is rendered liable to the Law Society's disciplinary procedures and investigation by the solicitors disciplinary tribunal which is independent of the society. It is appointed by the President of the High Court and includes lay members.

The tribunal has limited judicial powers and its primary function is to establish, by evidence and documents, the facts of a complaint and decide whether misconduct is proved. Where there is a finding of misconduct, the tribunal can impose a sanction on the solicitor which can include a direction to pay restitution to an aggrieved party, or it may refer its finding and recommendation to the President of the High Court who will ultimately decide on the nature of the sanction to be imposed on the solicitor. This can include the striking of the solicitor off the roll. The Minister for Justice, Equality and Law Reform is further strengthening these powers in the Civil Law (Miscellaneous Provisions) Bill 2006 by providing for the better enforcement of orders made by the tribunal.

It should also be noted that, as an officer of the court, the solicitor is subject to the jurisdiction of the court and may be compelled by it to implement the undertaking. Furthermore, it is possible, depending on the facts of the case and the wording of the undertaking, that the court may enforce the undertaking against the solicitor personally.

Given the nature of an undertaking, it is imperative that great care is exercised by a solicitor where the question of giving an undertaking is concerned. The Law Society has issued guidelines to its practitioner members on the giving of undertakings. A number of principles relating to undertakings have been outlined by the society regarding issues such as obtaining an irrevocable authority from a client to give such an undertaking and the inadvisability of giving personal undertakings, unless the solicitor is in a position to honour the undertaking.

The Law Society has also agreed standard forms of undertakings with the Irish Banking Federation to cover a number of issues such as the lending of title documents to a solicitor for inspection only and return to the institution. In so far as the system of banking and making loans available to clients is concerned, the Deputy will appreciate that the Minister for Justice, Equality and Law Reform has no function.

The Financial Regulator is responsible for the prudential supervision of Irish-licensed financial institutions and independent in matters of day-to-day supervision. The regulator has consistently conveyed to lending institutions that mortgage lending policies and practices should be prudent and responsible. The standards accord with best regulatory practice internationally. According to the IMF, our regulatory regime is up to the best international standards. It is in everybody's interests that best practice is followed in the areas referred to by the Deputy. In so far as there are any matters to be reviewed or issues addressed, he can be assured that the responsible Ministers will do so.