Solicitors' Undertakings: will the lacuna in the law undermine the smooth and efficient transaction of legal business

Solicitors undertakings are a vital tool in legal practice to ensure the smooth running of litigation and transactional matters.

They have been described in the past as the "bedrock" of the conveyancing system. The Supreme Court's decision in Harcus Sinclair LLP v Your Lawyers Ltd [2021] UKSC 32[i] may therefore give practitioners who rely heavily on solicitors' undertakings significant cause for concern.

The framework underpinning solicitors' undertakings

Solicitors are officers of the court. As such, they are subject to the court's inherent supervisory jurisdiction. That means the court can compel solicitors to comply with undertakings they have given. The recipient of an undertaking can apply to the court for it to be enforced summarily without the need to commence a separate action. Courts have been willing to exercise this power without pleadings, disclosure or formal evidence. Failure to implement a solicitors' undertaking is prima facie regarded as misconduct[ii].

Solicitors' undertakings can be useful in many different contexts. Most notably they have been woven into the modern system of conveyancing (via the Law Society's Code for Completion by Post), in which numerous undertakings are given and received by the conveyancers on both sides of the transaction.

Not every undertaking given by a solicitor will be a "solicitor's undertaking". The mere fact that it is given by a solicitor does not make it so. The generally accepted test is whether the undertaking is given by the solicitor in his or her "capacity as a solicitor". For example, an undertaking by a solicitor to pay money in relation to the lease of the solicitor's office space is unlikely to be a "solicitor's undertaking"; whereas an undertaking to hold money to another's order in relation to a transaction on which the solicitor is instructed almost certainly would be.

The decision in Your Lawyers Ltd

The case concerned a term in a non-disclosure agreement between two firms of solicitors, that were contemplating entering into a formal collaboration agreement to promote/progress group action claims against Volkswagen (in relation to the well-publicised VW emissions scandal).

In return for Your Lawyers Ltd sharing certain confidential information about its client base, Harcus Sinclair LLP agreed "not to accept instructions for or to act on behalf of any other group of Claimants in the contemplated Group Action" without the express permission of Your Lawyers Ltd.

The questions before the Supreme Court included:

1. was this an enforceable contractual term (or an unlawful restraint of trade);
2. was it a solicitor's undertaking; and
3. if so, was it enforceable as a solicitor's undertaking against Harcus Sinclair LLP (and the individual lawyer)?

On the first issue, the court concluded the term was not an unlawful restraint of trade and was enforceable as a contractual term. This was a point which turned on the facts of the case.

On the second issue, the court found the term was not a solicitor's undertaking because the subject matter of the undertaking was a business arrangement between the firms rather than a professional matter; the non-compete undertaking had nothing to do with legal advice (and agreeing to not act for certain clients did not involve any legal activity).

It is useful to note that the Supreme Court sought to provide further guidance on how to determine if an undertaking was a solicitors' undertaking. It held that there were two questions which were helpful to consider when determining whether an undertaking is given by a solicitor in their "capacity as [a] solicitor":

1. What is the subject matter of the undertaking? Does it require the solicitor to do (or not do) something which solicitors regularly carry out (or refrain from doing) as part of their ordinary professional practice.
2. What is the reason for giving the undertaking? To what extent does the cause or matter to which it relates involve the sort of work which solicitors regularly carry out as part of their ordinary legal practice.

On the facts, the undertaking was not a solicitors' undertaking. Applying the first question, the court found that the subject matter of the undertaking was a promise not to compete with another law firm. That did not involve the sort of work which solicitors undertake not to do as part of their ordinary professional practice. Applying the second question, the reason the undertaking was given was the furtherance of the parties’ business interests. This too was not the sort of work which solicitors regularly carry out as part of their ordinary professional practice.

In addition, the court found (obiter dicta) that even had the undertaking been a solicitors' undertaking, it could not be enforced (on the facts of this case) against the solicitor who signed the non-disclosure agreement (containing the undertaking). This is because the undertaking was not given by the solicitor in his personal capacity, but on behalf of the LLP; he signed the agreement as the agent of his disclosed principal, and therefore incurred no personal liability under it.

Are solicitors' undertakings enforceable against incorporated bodies?

The most relevant part of the judgment for law firms is the court's decision on the third issue; which is of significant interest and may cause some surprise. Again, the court's conclusions were obiter dicta (in light of its conclusions that the undertaking was not a solicitors' undertaking). In short, the court declined to find that LLPs (and other incorporated bodies) are subject to the court's inherent jurisdiction to hold solicitors to their undertakings.

Lords Briggs, Hamblen and Burrows (who together gave the leading judgment) noted that the court's inherent supervisory jurisdiction rests on solicitors' status as officers of the court (which has its origins in the development of the profession in the 13th century). Under relatively recent legislation, solicitors can carry out legal services via limited companies and LLPs. Management and ownership of corporate bodies carrying out legal services is now open to unqualified persons. The statutory instruments that created these new vehicles for providing legal services are silent as to whether they were subject to the court's inherent supervisory authority or not.

The court considered not only whether the inherent supervisory jurisdiction applied to regulated law firms including LLPs and limited companies, but also whether that jurisdiction could and should be extended so as to apply to all such bodies. The court did not rule out the possibility that the statutes could be interpreted purposively in this way. However, it declined to make a ruling on this point for three reasons: first, because its decision would have been obiter; second, because the court considered that a decision would be better made in a case with submissions from the Law Society and any other interested regulatory bodies; and third, because the court suggested the question " is probably better dealt with by legislation than by the courts, because of the availability of procedures for consultation which the court lacks."

Commentary

The case highlights the considerable uncertainty surrounding whether an undertaking given in the course of legal practice can be summarily enforced as a solicitor's undertaking by the recipient. The court made it clear that the undertaking given in this case –by a solicitor for an on behalf of an LLP - would not have been enforceable against the LLP or the solicitor, even if it had been a solicitors' undertaking.

It is clearly unsatisfactory for there to be different rules which apply to the enforcement of an undertaking given by an unincorporated partnership on the one hand and incorporated bodies on the other. The court itself expressed concern about "whether those dealing with incorporated law firms, and with solicitors’ LLPs in particular, are sufficiently aware that undertakings given by them are not currently buttressed by the court’s supervisory jurisdiction."

There is significant risk that solicitors will continue to rely on undertakings in circumstances where the court's inherent jurisdiction does not afford the protection they expect. This could lead to claims against firms where solicitors have unwittingly relied on undertakings given by incorporated bodies. However, it is important to note that although summary enforcement may not be available, there remains the possibility of enforcing the undertaking by bringing a claim for breach of contract. That process is inevitably going to be slow and costly. A more useful tool to encourage compliance may well be the threat of a report to the SRA.

In the short term, the court suggests that the lacuna may be addressed by ensuring that a relevant undertaking is given by a solicitor personally, as well as or in the alternative to an incorporated body. However, that supposes that a solicitor will be willing to give that undertaking. Equally, a solicitor may not have the power within their incorporated body to ensure compliance. The solution is therefore unsatisfactory. Practitioners should be alive to these issues, and consider modifying their practice, unless and until Parliament addresses the lacuna by amendment to the current legislation.