Extended feature: Ian Quayle examines “the bedrock of our system of conveyancing” – undertakings, what they are, and how they should be approached
Undertakings are seen as a cornerstone of the conveyancing process, and the ability to rely on an undertaking from a conveyancer of the seller is a critical aspect of the completion process.
As Lord Justice Briggs said in the case of Briggs & Another v Law Society v the SRA [2005] EWHC 1830:
“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.”
The Conveyancing Protocol specifically, and the conveyancing process, generally relies on undertakings that can safely be relied upon.
An undertaking is a commitment by a solicitor or conveyancer or a person employed by a solicitor or conveyancer to do something or not do something. Failure to comply with an undertaking as well as creating vulnerability for the client on whose behalf the undertaking has been given to a breach of contract claim can also generate disciplinary action being taken against the individual giving the undertaking and the organisation that employs that individual.
An undertaking is defined as:
- An oral or written statement of an intention to do something or refrain from doing something (the word undertaking need not be included);
- Made on behalf of you or the firm you work for;
- To someone who reasonably relies on it (i.e. a client or the conveyancer on the other side of a transaction)
The SRA glossary states an undertaking is:
“A statement, given orally or in writing, whether or not it includes the word undertake, or undertaking to someone who reasonably places reliance on it, that you or a third party will do something or cause something to be done, or refrain from doing something”.
The Council of Licenced Conveyancers defines an undertaking as:
“An unequivocal declaration of intention, addressed to someone who reasonably places reliance upon it. It need not be in writing, nor contain the word ‘undertake’ to be enforceable.”
Each definition contains components that need to exist for an enforceable undertaking to be present. Factors which are relevant when distinguishing an undertaking from an unenforceable promise include:
- A benefiting party cannot assume everything is an undertaking – there is a considerable difference between a solicitor stating they will return a phone call and forgetting and failing to transfer money on completion day when managing a property transaction
- The reliance placed on the statement by the benefiting party is more important than the solicitor’s intent when making the announcement
- If a timeframe has been agreed, it is more likely an undertaking exists
An older case worthy of mention is Global Marine Drillships Limited v William La Bella and Others [2014]. Although not a conveyancing case, it generates some interesting and relevant points.
The claimant had intended to purchase a deep-sea oil drilling vessel with funding from JP Morgan. The bank required standby letters of credit and insurance as security for the loan. The first defendant informed the claimant he could obtain these letters for a fee. The second defendants were Mr La Bella’s solicitors, Landmark, which had been created by the third defendant, Miss Yildiz.
It was agreed the claimant would transfer £7million to Landmark to enable it to affect the requisite insurance. Miss Yildiz gave an undertaking to use the money for insurance, failing which it was to be returned to the claimant. This undertaking was made on behalf of Landmark personally.
After the monies were transferred, Mr La Bella insisted Miss Yildiz deposit the monies into certain bank accounts. Mr La Bella threatened Miss Yildiz in emails and in person, stating he would report her to the Law Society.
Yielding to these threats Miss Yildiz subsequently transferred £5 million from Landmark’s client account to another account as requested by Mr La Bella. Mr La Bella failed to obtain the credit letters. After cancelling the contract with Mr La Bella, the claimant requested the return of the £7 million. Unfortunately, the account the £5 million had been transferred into turned out to be that of a car dealership in Norwich. Most of the monies were never recovered. Landmark was only able to transfer back £2 million of the funds.
The claimant maintained the £5 million had been paid to the car dealership without authority and in clear breach of undertaking.
The Court held that there had been a breach of undertaking as none of the funds were used for the purpose stated, namely purchasing insurance. Not surprisingly, the trial judge Mr Justice Newry stated that the fact Mr La Bella became aggressive and applied pressure to Miss Yildiz was no defence.
More recent case law reveals other issues. For example, Greenpine v Howard de Walden and Greenpine v Charles Russell Speechlys illustrate when a solicitor’s words do not constitute an undertaking.
In this case, the defendant solicitor told the client “we will complete on receipt of funds”. The court ruled that an enforcement of undertaking is a quasi-disciplinary matter, so it was appropriate to take the definition of “undertaking” from the glossary in the Solicitors Regulation Authority Handbook (2012).
The trial judge explored how the claimant would have reasonably understood the statement in the context of which it was given. He held that there was no particular pressure to complete and, in his view, the defendant was merely being polite when answering a question about the completion dates. The use of the word “will” did not turn the statement into an undertaking.
The above case illustrates the fine line between a polite comment and an undertaking.
As we shall see in order to create a degree of protection solicitors and conveyancers should ensure:
- That undertakings are given only when intended
- Undertakings given are carefully monitored
- Caution is exercised when accepting undertakings and in particular the status of the fee earner is considered
- If an undertaking is received ensure the recipient fee earner is aware of what to do in the event of non-compliance
- Records are retained as to when undertakings are relevant to a transaction – when undertakings have been given, and when they have been discharged
First of all, take a step back when an undertaking is given. It is all well and good to accept an undertaking but ask yourself – “Can this undertaking be complied with? If it cannot then what is the point in accepting it? Who is providing the undertaking and is it safe to rely upon it?”
If there is a breach there are a number of remedies available:
- Reporting the breach to the person who provided the undertakings professional body as possible professional misconduct.
- Assuming consideration has been provided for the undertaking civil proceedings can be brought for breach of contract seeking damages and potentially specific performance.
- Where an undertaking has been provided by a solicitor the supervisory jurisdiction of the High Court enables an application to be made for summary judgment compelling the solicitor involved to comply with the undertaking.
The above leads us nicely to explore the case of Harcus Sinclair LLP (Harcus Sinclair) v Your Lawyers Ltd (Your Lawyers) [23.07.21] which involved Your Lawyers’ appeal against a decision of the Court of Appeal that the non-compete clause within a non-disclosure agreement between them was unreasonable as a restraint of trade the Supreme Court’s examination of the enforcement of solicitors’ undertakings given on behalf of incorporated law firms, such as LLPs and limited companies.
The facts of this case are not relevant for the purposes of this article but some of the points made by the Supreme Court are useful.
Although the comments of the Supreme Court are obiter the case highlights the potential lack of protection provided by undertakings given by LLPs or other incorporated entities (rather than individual solicitors). Whilst it is open to the recipient of a breached undertaking from an incorporated legal practice to report that practice to the SRA or bring a breach of contract claim, both remedies will take time to bring to conclusion.
They will also be considerably slower than an application to the court to enforce an undertaking under its supervisory jurisdiction that would have been open to the recipient if the undertaking had been given by an individual solicitor who of course amongst other things is an officer of the court.
We can learn the following some of which is hardly novel but some of which has serious ramifications for conveyancers.
The courts have jurisdiction to supervise the conduct of solicitors as officers of the court, and exercise this jurisdiction to enforce undertakings given by solicitors in the course of their practice.
The Supreme Court considered whether the clause within the NDA was a solicitor’s undertaking which was binding as a matter of professional conduct, and concluded that the undertaking in question was purely contractual and not a solicitor’s undertaking in the regulatory sense.
The Supreme Court did, however, conclude (albeit obiter) that:
- Incorporated legal practices authorised to provide legal services were not officers of the court. This is because the authorising legislation has not made them so, and because the court has yet to recognise any incorporated body as one of its officers, confining itself to the recognition of individuals.
- Had the undertaking in this case been given as a solicitor’s undertaking, it would not have been enforceable against Harcus Sinclair as an LLP nor against the solicitor who signed it – even though he was subject to the court’s jurisdiction. This is because he did not give it in his personal capacity, but only on behalf of Harcus Sinclair.
- An undertaking given only for and on behalf of a solicitors practice, operating as an LLP or a limited company (and not by the providing solicitor in their individual capacity) will not, on the current state of the law, be capable of enforcement against the incorporated body by way of the court’s supervisory jurisdiction.
The Supreme Court accepted that it would have been open to it to extend the court’s supervisory jurisdiction in respect of solicitors to cover undertakings given by incorporated law firms (beyond those given by individuals and members of unincorporated legal practices).
It concluded that the issue may be better dealt with by legislation. It did, however, point out that those dealing with incorporated law practices would probably not know that the undertakings they received were not subject to the court’s supervisory jurisdiction.
In the meantime, I suggest two approaches:
The cautious approach
An undertaking in a conveyancing transaction should be a personal undertaking from an individual solicitor within the firm acting for the other side.
A TA13 should be signed personally by a solicitor, licenced conveyancer, or member of the Chartered Institute of Legal Executives.
Where an undertaking cannot be provided by a solicitor the client should be warned of the risk of non-compliance. Clients need to be asked if they are happy to proceed on the basis of the risk remember the concept of informed consent.
An alternative approach
Where the seller’s conveyancer will not comply with the approach above or cannot do so undertake a risk assessment in connection with the undertaking required. What is the risk of non-compliance? What are the consequences of non-compliance? Is the firm providing the undertaking carrying sufficient indemnity cover the meet any claim?
If there are real concerns about compliance with an undertaking, the client relevant to the undertaking should be warned.
What information can the seller provide to mitigate risk?
Provision of redemption figures.
Confirmation that redemption monies have been sent.
Confirmation of receipt of redemption monies by lenders.
Watch out for undertakings in connection with the removal of notices on the title.
When giving undertakings
Specify the corporate entity on whose behalf the undertaking is given. As before, be cautious about the wording of undertakings, to minimise the chance of regulatory censure in the event that matters do not proceed as intended or contemplated when the undertaking is given.
You should also create a precedent bank of undertakings commonly given by your firm and avoid oral undertakings or drafting written undertakings in stressful situations. If giving an oral undertaking, ensure the wording is confirmed in writing at the first opportunity.
Practice Points
- An undertaking from a solicitor generates additional protection for the recipient and solicitors are officers of the court and so a breach of undertaking can be enforced against the solicitor.
- An undertaking from a licenced conveyancer or from a member of the Chartered Institute of Legal Executives has the potential to lead to sanction from the relevant professional body.
- Employees of law firms are subject to the regulatory jurisdiction of the relevant professional body.
- A limited company or LLP although legal persons cannot be officers of the court meaning the court has no inherent jurisdiction to ensure compliance.
- Remember when giving an undertaking to be as specific as possible and be careful if using the term reasonable when defining tasks or timescales.
