Undermining undertakings

The move from regulating individuals to regulating entities means threatens to make undertakings less effective than in the past and so recipients need to take extra care, explains Iain Miller of Bevan Brittan. Bevan Brittan is a Legal Futures Associate

Miller: undertakings may have to be given by individuals in future

Few solicitors make it to qualification without having drummed into them the importance of complying with undertakings. This is hardly surprising, as undertakings play a central role in a solicitor’s practice.

As Lady Justice Smith observed in Briggs and another v The Law Society [2005] EWHC 1830 (Admin): “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 in 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.”

Enforcing an undertaking

There are three ways in which an undertaking can be “enforced” against a solicitor. First, disciplinary proceedings can be brought against the solicitor. In more serious cases, this would be by the Solicitors Regulation Authority (SRA) bringing disciplinary proceedings in the Solicitors Disciplinary Tribunal. In less serious cases, the SRA has the power to reprimand a solicitor or to fine him or her up to £2,000 (these powers are contained in section 44D of the Solicitors Act 1974 as introduced by the Legal Services Act 2007 (LSA) and are likely to come into force during 2010). Whilst either the SRA or the tribunal can discipline a solicitor for not complying with an undertaking, they have no direct power to direct the solicitor to comply with the undertaking.

Second, the recipient of the undertaking can invoke the Senior Court’s inherent supervisory jurisdiction over solicitors to compel the solicitor to comply or if that is no longer possible to pay compensation. Finally, an ordinary action can be brought against the solicitor for specific performance or damages for, normally, breach of contract. It may be that on the facts of a particular case such a cause of action does not arise.

These latter two enforcement methods overlap. Solicitors are, of course, aware of the disciplinary consequences of failing to fulfill an undertaking. The role of the court in invoking its inherent jurisdiction to direct compliance with undertakings is slightly more arcane. This jurisdiction does however raise some interesting issues in the post-LSA world.

The inherent jurisdiction

The court’s inherent jurisdiction to enforce undertakings arises from its jurisdiction over solicitors as officers of the court. It is a jurisdiction which is exercised, not for the purpose of enforcing legal rights but for the purpose of enforcing honourable conduct on the part of the court’s own officers (see James Fox v Bannister King & Rigbeys [1987] 1 All ER 737 at page 740). The inherent jurisdiction over solicitors can be exercised summarily, but only in clear cases (see Geoffrey Silver & Drake v Baines [1971] 1 All ER 473 at page 474).

However, it is not necessary for the action to be determined summarily and a claimant can maintain at trial a case that relies upon both the inherent jurisdiction of the court and an underlying private law claim (see Stuart v Goldberg and others, Arthur Marriott QC sitting as a deputy High Court judge, 22 January 2001). Many of the earlier undertaking cases were brought by originating summons (now CPR part 8) as they were summary in nature. However, it may now be procedurally better for a claimant to bring a CPR part 7 claim and and apply for summary judgment under CPR part 24 or summary relief under this jurisdiction if the facts are clear. In Fox v Bannister King and Rigbeys [1987] 1 All ER 737, the Court of Appeal distinguished the “summary” nature of the jurisdiction from “summary judgment” under what was then RSC order 14. Any application may therefore need to be wide enough to encompass both concepts.

An important element of the inherent jurisdiction is that it has a disciplinary slant, although it is primarily compensatory. Failure by a solicitor to comply with an undertaking will be regarded by the court as misconduct on his part. Where a solicitor is still able to perform the undertaking, then he or she is likely to be directed by the court to do so. Failure to comply with the court’s order may lead to contempt proceedings (see Re A solicitor [1966] 3 All ER 52). The court still retains its inherent jurisdiction to discipline a solicitor, which includes the power to strike a solicitor off the roll. Where it is no longer possible for the undertaking to be performed, then the solicitor can be directed to pay compensation. However, the Court ultimately has a discretion as to whether it will make an order against the solicitor and in exercising that discretion it will have regard to whether the Claimant has an underlying action in law and the conduct of the solicitor (see Udal v Capri Lighting [1987] 3 All ER 262 at page 269, which provides a useful summary of earlier cases).

An undertaking does not inevitably bind a solicitor’s partners. It would only do so if given as part of a solicitor’s practice and the other requirements of section 5 of the Partnership Act 1890 are also met (see Udal). Where a solicitor practices through an LLP or similar corporate body, then the question of whether the corporate body is bound will be determined on the established principles of agency.

The obligations that fall upon a solicitor when he or she gives an undertaking are unique amongst the legal professions. Licensed conveyancers also give undertakings but they are not subject to the court’s supervisory jurisdiction. This is not an academic distinction. Many undertakings do not involve consideration (or at least arguably do not) and are not therefore directly enforceable by a recipient by a normal private law claim in contract.

Of course, with solicitors, recipients, including lenders, do not need to be overly concerned about these matters as long as the undertaking is given in the course of practice. It may well be the case that solicitors have maintained their role in commercial and conveyancing transactions because of their ability to give undertakings which can be relied upon.

Undertakings and entity regulation

The court’s inherent jurisdiction in relation to solicitors is, of course, directed at a solicitor as an individual. It does not sit well with the new framework of entity regulation introduced by the LSA. The LSA introduces alternative business structures (ABSs), which are bodies licensed to provide legal services by a licensing body. In such a regulatory landscape, it made sense to regulate all existing solicitors’ practices as entities as well and as a consequence to move away from individual regulation. This change to the regulatory regime was introduced by the SRA last year.

However, this move to entity regulation undermines the power of a solicitor’s undertaking. An entity giving an undertaking will still be subject to disciplinary proceedings if they fail to comply. However, unless the undertaking was given personally by a solicitor within a practice, then it is less likely that an individual solicitor will be subject to the court’s inherent jurisdiction to enforce compliance. In short, recipients, particularly lenders, will need to be more careful to ensure that the undertakings are properly binding on the entity.

As an alternative, the recipient could insist that any undertaking is given personally by a solicitor within the organisation. This may be a simpler and more effective solution. In such a scenario, solicitors would fulfill a specific role within a firm, as the person who will ensure undertakings are fulfilled.

In the post-LSA world, there has been much speculation as to whether the legal professions would wither as there is no longer a need to have separate legal professions. It would be ironic if the ancient role of solicitors as officers of the court ultimately saved it in the 21st century.

Iain Miller is head of the London commercial litigation team at Bevan Brittan and acts in relation to all aspects of professional conduct and discipline

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