Mr Edward Watson is acting for Ms Jill Young in a commercial dispute. Ms Young has an outstanding discovery order that she must comply with in two days. She has had several extensions of the order. Ms Young contacts Mr Watson and instructs him to claim legal privilege on 80 of the 100 documents ordered to be disclosed. Ms Young refused to give Mr Watson any details of the basis of the claim but simply said the documents are confidential and that he should just follow her instructions.

(Note: Discovery order is an order requiring a party to disclose information that is essential for the preparation of the requesting party's case and that the other party alone knows or possesses.)

A few months after the 'discovery order' episode, Ms Young contacted Mr Watson concerning the purchase of a property. Ms Young gives Mr Watson $10,000 for the deposit and $5,000 for the disbursements. The day before the deposit is due, Mr Watson contacts Ms Young to inform her that there isn't sufficient money in the trust account for the deposit.

a) What is Mr Watson's ethical position and what advice should he give to Ms Young? (12 marks)

b) What statutory requirement has Mr Watson breached? (3 marks) (DO NOT DISCUSS COMPLAINTS AND DISCIPLINE.)