Impact on solicitors’ undertakings given in property transactions post-Harcus Sinclair v Your Lawyers

26 August 2021

This analysis was first published on Lexis®PSL on 23 August 2021 and can be found here (subscription required).

Lord Justice Smith stated in Briggs v The Law Society [2005] EWHC 1830 (Admin), at para [35]:

‘Undertakings are the bedrock of our system of conveyancing. The recipient of an undertaking must be able to assume that once given it will be scrupulously performed. If property purchasers and mortgage lenders cannot have complete confidence in the safety of the money they put into the hands of a solicitor in the course of a property transaction, our system of conveyancing would soon break down. The breach of an undertaking given by a solicitor damages public confidence in the profession and in the system of undertakings upon which property transactions depend.’

In the financial year 2020–2021 there were 1,062,210 residential property transactions in England and Wales. Each would have involved more than one undertaking. There is no evidence to suggest that non-compliance with undertakings by solicitors is an issue. The ‘brand’ of undertakings is  strong and they remain the ‘bedrock’ of conveyancing. However, the recent decision of the  Supreme Court in Harcus Sinclair LLP v Your Lawyers Ltd [2021] UKSC 32 has caused some questions to be raised around the reliability of undertakings.

There are three ways in which a solicitor or their firm can be required to comply with an undertaking. First, the Solicitors Regulation Authority (SRA) can bring disciplinary proceedings, although they cannot require that the undertaking is met, only sanction for the breach. Second, there may be a contractual claim against the solicitor arising from the undertaking. However, in some cases, this may not be possible because there is no consideration. Finally, the court has the power to enforce undertakings summarily using its inherent jurisdiction over solicitors as officers of the court. The Supreme Court decision makes clear (though the comments were obiter as they were not necessary in view of the court’s decisions on previous issues) that this third jurisdiction does not apply to entities such as LLPs and limited companies regulated by the SRA because they are not officers of the court. The issue does not affect traditional partnerships. The Supreme Court also made clear that, even if an individual solicitor signs undertakings on behalf of their firm, they are acting for a disclosed principle and therefore are not personally liable.

The decision in Harcus Sinclair v Your Lawyers has clearly caused some consternation. The Supreme Court suggested that there was a need to resolve the issue by legislation, but this is likely to be a long way  off,  if it happens at all. In the meantime, it is not yet clear as to what  either the Law Society or the SRA might do to minimise any impact of the Supreme Court decision. The Law Society could provide guidance on the wording of undertakings which would make it more likely  that they are enforceable as a contract. In particular, the wording would cover the consideration issue. It is also possible that the SRA might seek to fill the gap by being more proactive in investigation and enforcement in relation to undertakings by fast tracking such cases to encourage compliance. However, there are steps that firms can take now to address the issue.

The first point is that there is no need to panic. While the availability of the inherent jurisdiction is good to have, in practice, it is rarely used not least because it is expensive. A threat to report to the SRA is less expensive and, in most cases, more effective. The inherent jurisdiction might have  been important in allowing undertakings to develop in the early stages before we had a more complex regulatory framework, but now it is less important. However, there are a few other issues firms should think about.

All firms should have controls around giving undertakings, but the Supreme Court decision is a reminder that there is a need to control the risk around the acceptance of undertakings from other firms. No solicitor should give an undertaking that is not within their control and therefore generally risk of non-compliance is low, but in some cases the impact can be high. Particular caution is need around giving an undertaking which goes beyond the standard undertakings in residential conveyancing. Firms should also consider another aspect of the Supreme Court decision which restricts solicitor’s undertakings to those given essentially as part of their work for clients. In particular, it distinguishes these from undertakings given as part of a solicitor’s business. It is not  yet clear as to whether the SRA will now take the same approach. Firms will need to consider having a system for identifying whether they should accept an undertaking that might be of higher risk to their clients and their firm.

Another prudent step would be to consider amending the firm’s terms of business to make the client aware of the impact of the Supreme Court decision. Alternatively, this can be raised in correspondence at an appropriate stage.

One point canvassed by the Supreme Court was to seek a separate undertaking from an individual solicitor. There is some evidence of firms adopting this approach. However, it is questionable as to whether this has any benefits. The circumstances where a firm does not comply and the individual will would seem to be limited. In any event, the court may be reluctant to exercise its inherent jurisdiction where the individual responsibility is an artificial construct.

FURTHER INFORMATION

If you have any questions about the issues discussed in this article, please contact Iain Miller or a member of our regulatory team.

 

ABOUT THE AUTHOR 

Iain Miller is a Partner in the Regulatory department and specialises in advising law firms and the legal professionals on legal ethics, investigations, and public law matters.  

He is General Editor of Cordery on Legal Services and Editor of its Chapter on Undertakings.  He acted as technical adviser to Your Lawyers in the case before the Supreme Court.

 

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