What future for undertakings?

ARTICLE

What future for undertakings?

Unquestioning respect for a solicitors’ undertaking has been shaken by the recent Supreme Court decision in in Harcus Sinclair LLP and another v Your Lawyers Ltd [2021] UKSC 32.

The most immediate result of this judgment is confirmation that solicitors’ undertakings provided by LLPs are not summarily enforceable by the court. Given the important role of solicitors’ undertakings in transactional matters, this gave the Supreme Court cause for concern and expressed the hope that Parliament would “consider the lacuna that this judgment has confirmed”. In the meantime, not many solicitors will be willing to step up and provide personal undertakings to bolster consumer confidence, and so it may be that the market will have to find other ways to fill the gap.

The case brings into focus questions regarding the nature and enforceability of solicitors’ undertakings as well as the Court’s inherent jurisdiction to supervise solicitors. The decision simply confirmed that the inherent jurisdiction over solicitors as Officers of the Court does not extend to control the conduct of SRA authorised bodies through which solicitors practise or indeed by extension to Licensed Conveyancers.

The background to the case was a nondisclosure agreement in a group litigation matter where in return for confidential information a non-compete clause was signed by Harcus Sinclair LLP. The court held that this particular type of restriction was not an unreasonable restraint of trade or contrary to the public interest and then went on to consider whether the noncompete clause amounted to a solicitor’s undertaking.

The Court considered two questions:

(i) the subject matter of the undertaking and whether what the undertaking requires the solicitor to do (or not to do) is something which solicitors regularly carry out (or refrain from doing) as part of their ordinary professional practice; and

(ii) the reason for the giving of the undertaking and the extent to which the cause or matter to which it relates involves the sort of work which solicitors regularly carry out as part of their ordinary professional practice.

If both questions could be answered affirmatively then the undertaking was likely to be a solicitor’s undertaking.

The subject matter of the undertaking in this case was a promise not to compete with another law firm and that was held not to involve the type of work which solicitors undertake not to do as part of their ordinary professional practice. Solicitors are not in practice not to work. However, it was difficult to conceive of circumstances where such a non-compete undertaking could be given on behalf of a client.

Further, the reason for the undertaking was to advance business interests of the parties rather than that of any client and that was not part of their ordinary professional practice.

As Harcus Sinclair had thus given the undertaking in a business capacity rather than a professional capacity, the clause was held not to be a solicitor’s undertaking.

Although it was not necessary for the court to go on and decide whether the court would have enforced had the non-compete clause been a solicitor’s undertaking the court went on to explain that the inherent supervisory jurisdiction over solicitors as Officers of the Court would apply only to undertakings given personally and not where given on behalf of an authorised body by whom the solicitor is employed.

Neither LLPs nor incorporated bodies are recognised as Officers of the Court so as the law stands the obligation in this case was enforceable by proceedings in the usual form rather than the summary procedure that is possible where the inherent disciplinary jurisdiction is invoked.

Furthermore, and more troubling is that enforcement against the solicitor would not have been successful where the undertaking had been given on behalf of Harcus Sinclair and not in a personal capacity.

Whilst a breach of undertaking amounts to professional misconduct that can be the subject of regulatory sanction that remedy has not been automatically available over recent years and this decision may somewhat justify that position taken by the SRA and may also give rise to a claim for breach of contract. In the case of undertakings entered into with, or on behalf of, LLPs and other incorporated law firms there is a new realisation that there is no prospect of a regulatory remedy or summary relief from the court if difficulties are encountered. Consideration will need to be given where monetary obligations are involved as the loss of protection will be a concern for solicitors and their clients and insurers alike.

Solicitors are familiar with the obligations that go with any undertaking and the need to ensure terms are clear and within the control of the person giving the undertaking but may need now to recognise that enforcement will be a matter for resolution by the courts. Traditionally, the jurisdiction of the court has been regarded as a particularly effective remedy because solicitors as Officers of the Court are able to rely on an application to the court without separate proceedings to request the court to enforce against a solicitor under its inherent jurisdiction. The sanction for breach has been sufficient to ensure undertakings can be safely used to perform an essential role in the transaction process for generations of solicitors.

As a consequence of the judgement practitioners need now need to review their internal policies and procedures for giving and receiving undertakings and perhaps more importantly consider the explanation of risk to clients where it is necessary for an undertaking to be accepted in the course of a transaction.

In recent years it has become commonplace for undertakings to be written under the signature of the organisation for whom the solicitor is working. It seems unlikely that a solicitor employed within an incorporated practice or LLP, whether or not they are a partner or director, will be willing to give a personal undertaking even if pressed to do so.

If enforcement must rely upon proceedings before the court then in matters where money is not produced on time, there could be significant delay or disruption to transactions.

It may not be a forgone conclusion that the indemnity insurance of the party in breach will be engaged as it may need to be decided whether or not a solicitor has been negligent in giving or accepting the undertaking or its breach.

Steps therefore now appear to be necessary to give clients clear information as to the nature and type of the risks attaching to the exchange of any undertaking between solicitors. It is not easy to know at this stage what alternative ways of dealing will be adopted in the areas of work where reliance upon solicitors’ undertakings is pivotal especially in the event that clients decline to accept the risk. Clarification by way of guidance for residential conveyancing is to be expected.

Alternatively the adoption of the commercial practice in larger transactions of recent years where the transfer of funds takes place direct between clients may be hastened thus avoiding what appear to be inherent risks of fraud and cybercrime when transfers are made into and out of solicitors’ client accounts. Contract changes will no doubt follow this decision as efforts are made to avoid the type of undertaking that was required in the Harcus case.

The law would require reform to ensure that clients are fully protected when undertakings are given by solicitors or their organisations. It seems unlikely that the regulators will be moved to step up and support an extension to the court jurisdiction and instead will prefer to leave the market to adjust thus leaving the position in flux at this time. ■

Michael Garson

Immediate Past Chair Standards and Ethics Committee