Undertakings: Your bond is your word

The Supreme Court’s judgment in the case of Harcus Sinclair LLP v Your Lawyers Limited [2021] UKSC 32 is this summer’s essential reading for compliance professionals.

This is not because it says anything new about the topic, rather it reminds us of one of our big compliance issues: solicitors’ undertakings. Specifically, it is this court’s discussion on the extent, and enforceability, of such undertakings which has triggered several compliance conversations.

The brief facts of the case, and the history of its court appearances, are as follows:

·        Harcus Sinclair LLP (HS) and Your Lawyers Ltd (YL) had discussed a non-disclosure agreement in April 2016 in order that information relating to VW emissions litigation could be shared and with a view to collaborating on a group claim.

·        The non-disclosure agreement contained the following provision; HS “undertakes not to accept instructions for or to act on behalf of any other group of claimants” without YL’s permission. In the subsequent court hearings, this became known as the non-compete clause.

·        No agreement on collaboration was agreed, and HS subsequently acted for its own group of claimants and entered into a collaboration agreement with another law firm.

·        In 2017, the High Court ruled that HS was in breach of contract and imposed an injunction on the firm and required it to stop acting for its group of claimants.

·        In 2019, the Court of Appeal overturned the High Court decision on the basis that the injunction was an unreasonable restraint of trade.

·        In 2021, the Supreme Court ruled that the Court of Appeal was wrong to set aside the injunction and that the non-compete clause was reasonable and enforceable. It also considered whether the non-compete clause was a solicitor’s undertaking and whether the courts had jurisdiction to enforce its performance. This consideration has given rise to several queries among the profession.

·        The Supreme Court decided the non-compete clause was not a solicitor’s undertaking given in the course of practice, but that even if it had been a solicitor’s undertaking, the courts had no jurisdiction to enforce it. 

The Supreme Court judgment contains a useful reminder about undertakings which it used to demonstrate that the non-compete clause was not a solicitor’s undertaking.

Understanding an undertaking

The fact a solicitor gives an undertaking does not make it a solicitor’s undertaking; the generally accepted test for the latter is that the undertaking must be given by the solicitor in their capacity. It is the fact it is given professionally which triggers the court’s supervisory jurisdiction.

The Supreme Court indicated that an undertaking will be treated as a solicitor’s undertaking if all, or any, of the following indicators are present: if it is given in connection with a transaction involving a client; if it is given to the court or a third party; if the solicitor is acting on instructions; if the solicitor is acting in a professional capacity as opposed to acting in a personal or business capacity.

Therefore, examples of undertakings given by solicitors in their capacity as solicitor include undertakings to hold money or deeds to another’s order in respect to a property transaction when acting for one of the parties.

Conversely, examples of undertakings given by solicitors, but not treated as a solicitor’s undertaking, include undertakings to hold or pay money in respect to the solicitor’s own office premises; undertakings not to work for clients of a firm when leaving that firm, etc. Because the non-compete clause requested of HS related to a business opportunity, the Supreme Court decided that it was not a solicitor’s undertaking.

There would have been further problems if the clause had been judged an undertaking. Compliance issues arise in respect of enforceability issues and rights of redress. This is because courts have jurisdiction to supervise the conduct of individual solicitors and unincorporated partnerships of solicitors only, because solicitors are officers of the court.

Indeed, this jurisdiction enables the court to force an individual solicitor or unincorporated partnership to honour a solicitor’s undertaking. Thus, if the non-compete clause had been an undertaking and had been provided by a partnership, then the courts would be able to exercise their supervisory powers.

The extent of the court’s jurisdiction has not been considered since 1974, meaning there are now significant gaps in coverage because of later rights to practice in corporate and limited liability form, and because of rights granted to licensed conveyancers to practice law. Neither corporate law firms nor licensed conveyancers are officers of the court, and this excludes the court’s supervisory jurisdiction.  

While it is important to understand this limitation, it seems appropriate to make the point that the Supreme Court’s ruling has not changed the law; it has merely shone a spotlight on a gap in coverage which has been in existence since 1974. This gap means that anyone accepting a solicitor’s undertaking given on behalf of a limited liability partnership or limited company employer, must understand they will not be able to seek certain remedies from the court if the undertaking is not honoured.

Yet there are, and always have been, other remedies available to the recipient of an unhonoured undertaking. Firstly, and undoubtedly of great significance, is that a dishonoured undertaking is likely to be a breach of professional duties. Reporting the incident as a matter of professional misconduct to the Solicitors Regulation Authority (SRA) is an option available to the aggrieved recipient. The SRA considers that unkept undertakings are indicative of potentially unethical behaviour. Our word is our bond, and we are expected to do what we say we will do. Whilst the SRA cannot enforce performance of the undertaking, it can make a disciplinary finding in the event of a breach.

Secondly, an undertaking is enforceable as a contract if there is adequate consideration or the undertaking is given under deed, meaning that civil proceedings can be instigated for specific performance and/or damages.

So, where does this leave us? I would suggest we have been presented with a timely reminder about the need to ensure an appropriate response to the giving and receiving of undertakings.

Action points for compliance

1.      There is no doubt the Supreme Court judgment is causing ripples of concern. Provide relevant colleagues with information about the Supreme Court ruling which explains the points made about the remedies available for breach of undertaking.

2.      Agree and circulate a firmwide policy about the giving of undertakings (if an incorporated practice) or receiving of undertakings from such a practice.

3.      Make a decision about the giving/receiving of individual undertakings and ensure this is communicated to relevant colleagues.

4.      More generally, consider a review of the firm’s undertakings policy, the keeping of registers, etc. When giving an undertaking, make sure the wording and intent is clear and, where possible, includes time limits. When receiving an undertaking, ensure the fee earner has considered how best to protect the client’s interests.

5.      Consider the best practice benefits of having a central record of given/received undertakings (except perhaps for standard property related undertakings) with a policy for sign-off by the firm’s COLP/owners.

6.      Keep this topic under review. The Supreme Court judgment might trigger the following:

a.       A response from the Law Society – perhaps in the form of wording for different types of undertaking;

b.      Legislative changes to address the gap in the court’s supervisory jurisdiction.

            7.  Ensure that any developments are on your compliance radar.

8.      Deliver training to colleagues: refresher training on the following topics is useful – the SRA’s definition of undertakings; regulatory and ethical duties; remedies for breach; limitations; examples of disciplinary action for breach; and the firm’s internal policies and procedures.

Tracey Calvert is a consultant at Oakalls Consultancy Limited oakallsconsultancy.co.uk