Risk and Error Management: When is an undertaking a solicitor’s undertaking?

The Supreme Court’s decision in Harcus Sinclair LLP v Your Lawyers Ltd [2021] UKSC 32 on 23 July 2021 regarding the requirements for a solicitor’s undertaking is fairly unsurprising, but it could have some risk and insurance implications for lawyers and their firms on a number of fronts.

The court’s decision related to the provision by Harcus Sinclair of a non-compete undertaking to Your Lawyers, in order to receive confidential information about that company’s clients, in anticipation of the two firms collaborating in litigation and representing Your Lawyers’ clients.

Ultimately, the non-compete undertaking was found by the court not to be a solicitor’s undertaking. This was largely because if a firm — as opposed to a solicitor personally — gives an undertaking, it has to be “in the course of practice.” It was decided that the tendering of this non-compete undertaking was not in the course of practice.

Along with the primary decision, obiter, the court observed that even if the non-compete undertaking had been a solicitor’s undertaking, the court lacked the special jurisdiction it has in respect of solicitors to compel personal compliance against an LLP or limited company. The court opined that it only had jurisdiction to compel personal compliance with a solicitor’s undertaking, over solicitors, as officers of the court.

Implications for LLP or limited companies

This decision has clarified what was not explicitly apparent to many before. It is now clear that for any undertaking by an LLP or limited company, the only remedy for non-compliance is legal proceedings seeking specific performance and/or damages. The courts have no jurisdiction to order personal compliance.

While there appears to have been no cases to date where this consideration has caused a practical difficulty in enforcement, or insurance coverage, the question that needs to be considered is: Does this case affect a firm’s insurance coverage or the offer and acceptance of undertakings? There are a number of scenarios worthy of consideration.

Conveyancing undertakings

In relation to conveyancing, the Law Society’s Code for Completion by Post does not specifically address this issue. The code defines the seller’s solicitor as: “the solicitor purporting to act for the party named as the seller in respect of the contract, or purported contract, that the buyer has entered into in order to acquire the property.” Notwithstanding the use of the word “solicitor,” in the singular, it has been practice for undertakings not to be given in a personal capacity.

It is arguable that a client is getting a lower level of security when an LLP or limited company gives the implied undertaking imposed by the code because the second remedy noted above is not available. To date, this appears not to have caused any actual difficulty in relation to enforcement in solicitors’ negligence cases. Nonetheless, if an LLP or limited company undertaking is all that is offered or accepted in these circumstances, firms might consider discussing the potential limitations of this approach with their clients and obtain informed consent to the approach.

It should be remembered that if things go wrong, the firm relying on the undertaking may end up in a similar position to the buyer’s solicitor in Dreamvar (UK) Ltd v Mischon de Reya and others [2018] EWCA Civ 1082, seeking discretionary relief for breach of trust, following the “sale” of a property by an imposter. Given the position adopted in Dreamvar (discussed in a previous briefing) firms should consider the gap that may exist between the extent of their liability to their client for breach of trust, and the security offered by the undertaking provided.

The impact may also be felt in relation to the speed with which a court remedy can be obtained. That could potentially be useful in relation to a property sale or purchase that has gone wrong, but where completion of the transaction might be preserved.

However, in practical terms, where a clear undertaking has been given and breached, insurers are often looking to minimise losses, by ensuring the transaction proceeds. Though possible, there is not likely to be a difference, in most situations, so long as insurers are notified promptly of a situation as it arises.

There also remains the option of complaining to the Solicitors Regulatory Authority (SRA), as breach of an undertaking is misconduct. SRA can impose sanctions on, and encourage compliance by, an incorporated firm and individuals at the firm.

Given that the court’s ruling affects lenders, it may well be that the UK Finance Mortgage Lenders’ Handbook is amended, which would result in a change of practice.

Litigation undertakings

In some court proceedings, judges require, or parties request, undertakings to be given. Whether these are firm or individual undertakings has not been a concern until now. However, given the spotlight on this issue, judges may think about this matter more often, and before giving a personal undertaking, individual solicitors may need to consider their capacity to perform the undertaking.

Capacity

LLP partners may be in a difficult position in giving personal undertakings, if they do not have power within their firm structure to ensure the undertaking is performed. Employed solicitors also may not have thought about this before. However, their power to deliver, for example on a monetary undertaking, has always been subject to the risk that discharging the undertaking does not lie fully within their power. This may be the case if they are not authorised to execute transactions on the firm’s financial system.

Insurance

Some firms have asked whether insurance cover might be affected. In the absence of a specific claim, it is not possible to give a considered view, but it would be expected that a solicitor’s undertaking, given by an LLP member or solicitor personally, whether employee or partner of a firm, would fall within the scope of civil liability in the course of private legal practice. Therefore, it would attract cover under the firm’s professional indemnity policy, subject to the terms of the policy. In the future, firms may find that underwriters will ask questions about the firm’s approach.

Conclusion

Firms should review their policies on undertakings, and who can give them and in what capacity, in light of the new focus on this area.

Whatever course is adopted, to minimize their own potential liability exposures, firms advising clients relying upon undertakings should ensure that their clients are aware of the legal implications of different entities giving undertakings.

A useful summary of the case is available here.