Undertakings made by incorporated law firms and LLPs cannot be summarily enforced by the courts, the Supreme Court has decided. This contrasts with undertakings given by individual solicitors or partnerships, where the courts have the power to force them to comply. The Supreme Court’s decision has left a gap in the law which it wants parliament to address.
Undertakings are regularly used by solicitors, particularly in property conveyancing and other transactions. Following the ruling, fears have been raised that the decision could leave clients exposed and law firms at risk of negligence claims if transactions backed by undertakings fail.
The ruling was handed down in Harcus Sinclair LLP v Your Lawyers Ltd. The organisations had entered an agreement to collaborate in class actions relating to the VW diesel emissions scandal. The agreement included a non-compete clause which prevented Harcus Sinclair from acting on behalf of any other claimants without Your Lawyers’ permission.
When Harcus Sinclair started recruiting its own clients for a class action, working with Slater & Gordon, Your Lawyers started an action to enforce the non-compete clause, which it argued was a solicitor’s undertaking.
The Supreme Court upheld Your Lawyers’ non-compete clause but it ruled that it was not a solicitor’s undertaking. The courts have the power to summarily enforce a solicitor’s undertaking as solicitors are deemed to be ‘officers of the court’. However, no legislation has been passed which makes LLPs and other incorporated structures officers of the court.
Iain Miller of Kingsley Napley LLP told Law Society Gazette: “Today’s decision raises an important issue for all those who give and rely on undertakings. Whilst it is still possible to report an LLP to their regulator for failing to comply or bring a breach of contract claim, both will take time. The absence of a summary remedy is significant; not least because solicitors’ undertakings are seen as cast iron.”
James Burgoyne, Divisional Director – Claims & Technical, Brunel Professions said “Professional indemnity insurers will undoubtedly consider the implications of this case carefully, given the routine use of undertakings in many types of transaction. If undertakings given by incorporated law firms are not reliable, it raises implications for the solicitors on the other side of the transaction regarding the risks of proceeding and how these have been explained to their client. As such, it exposes insurers to greater risk – which may be reflected in future premiums. Let us hope that parliament responds to the Supreme Court’s suggestion and acts swiftly to close this loophole.”
Brunel Professions is a leading provider of professional indemnity insurance broking to the legal profession. To find out more call Mark Sommariva on 0203 475 3275.