Under scrutiny

Undertakings are defined by the Solicitors Regulation Authority (SRA) as: “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.”

A serious offence

Breaching an undertaking is a serious offence and is professional misconduct. Two recently reported disciplinary decisions demonstrate the seriousness of breaching an undertaking. In the first case, SRA 057403 Waugh & Musgrave, a law firm was fined for what was described by the SRA as a “fundamental and prolonged failure” to honour an undertaking provided during a property transaction. The undertaking was to submit a transfer of title and notification of the change to HM Land Registry in a timely manner. This did not happen, and the SRA imposed a fine as a deterrent to the firm and others. It made the following point: “Undertakings play a significant role in conveyancing matters. It is a reasonable expectation that a member of the public would expect any solicitor engaged in related transactions to have clear understanding of this fact and be able to execute their duties according to the undertaking in a timely manner.”

In the second case, SRA 117423 Munn, a solicitor was found to have committed numerous breaches in undertakings he had given to investors in property development deals. His breaches caused substantial losses. The SRA said that the individual solicitor’s conduct had an impact on the profession’s standing: “Being able to place reliance on [a] solicitor’s undertaking is a fundamental tenet of the legal profession.” Consequently, and to avoid a referral to the Solicitors Disciplinary Tribunal, he agreed to remove himself from the roll of solicitors and not to apply for readmission for two years.

Property risks

Undertakings are not exclusively limited to property practice, but they are most often associated with conveyancing. Undertakings are crucial when exchanging contracts and at completion of a transaction, and they are also used to deal with other aspects of the transaction.

In the case of Briggs v The Law Society [2005] EWHC 1830 (Admin), the significance of undertakings was explained in the following way: “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 into 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.”

Every firm providing property services must recognise, manage and mitigate the risks associated with undertakings to avoid accusations of misconduct. Important points to bear in mind include:

• a solicitor’s undertaking can be given both by a solicitor or on behalf of a solicitor or solicitor’s law firm (non-solicitor employees can give a solicitor’s undertaking)
• an undertaking can be given orally or in writing
• the terms of an undertaking may be contained in more than one document
• an ambiguous undertaking is generally construed in favour of the recipient
• the giver of an undertaking cannot unilaterally withdraw from it once the recipient has relied on it
• an undertaking has to be performed within a reasonable time – if there is any delay, the giver must keep the recipient informed
• an undertaking is binding even if it is something outside your control, and
• a solicitor, and the firm, will be held personally liable to honour an undertaking given “on behalf of” anyone, unless such liability is clearly disclaimed in the undertaking itself.

How to comply

A failure to perform an undertaking is likely to be indicative of a failure to comply with the ethical principles in the SRA Standards and Regulations. In the SRA Code of Conduct for Solicitors, paragraph 1.3 (repeated in the Code of Conduct for Firms), this is explicitly addressed: “You perform all undertakings given by you, and do so within an agreed timescale or if no timescale has been agreed then within a reasonable amount of time.”

The firm’s managers and the compliance officer for legal practice should ensure that there are systems in place to manage the risks, including:

• a policy that explains who can give and who can accept undertakings;
• procedures to ensure that the giving of undertakings are documented
• a central register of all undertakings, which is monitored regularly
• training for all staff, both admitted and unadmitted
• enhanced use of case management systems to record undertakings
• supervisory oversight (including a register of any breaches of undertakings that have occurred), and
• file reviews to check that the firm’s policies and procedures in relation to undertakings are being complied with.