UK: Solicitors´ Undertakings

Last Updated: 1 May 2001
Article by Julian Aylmer

An undertaking is an unequivocal declaration of an intention addressed to a third party with the intention that it should be relied upon. Hundreds of undertakings are given quite properly every day as a means of facilitating the execution of transactions - in particular conveyancing transactions. However, because of their almost absolute nature and their independence of any contractual relationship, there is huge scope for things to go wrong. The cases that reach the courts almost all concern undertakings given either on the borderline or well outside the scope of a solicitor's practise.

Enforcement of undertakings can arise under the High Court's supervisory role over solicitors for misconduct; the court has the power to order solicitors to fulfil the terms of an undertaking or pay compensation to the recipient. The jurisdiction is discretionary in nature and will only be exercised if the undertaking was given by the solicitor in his capacity as a solicitor. Alternatively, a claim can be brought by ordinary action, commonly made on the basis that the undertaking is enforceable as a contract.

In order for it to bind the firm of solicitors an act must be "for carrying on in the usual way of business"1 . What constitutes this is a question both of fact and of appearance -whether on the facts represented, a reasonably careful and competent recipient would have concluded that there was an underlying transaction of a kind which was part of the usual business of a solicitor even if, in fact, no such transaction existed.

Many of the cases that reach the courts involve undertakings to repay a loan from the third party to a client of the solicitor. The courts do not consider this to be in the usual or normal course of the business of a solicitor unless , as part of his business, there is a fund from which he can draw. It is not in the usual course of business of the solicitors to pledge their own credit or give bare guarantees.

In Ruparel v Awan & Dhaliwal 2 , enforcement was sought under the court's supervisory jurisdiction. Ruparel was owed a substantial amount of money from a Mr Sayed and his company. In order to stave off insolvency proceedings, a friend of Sayed took an assignment of Ruparel's rights and agreed to pay a compromised amount to Ruparel by instalments. The defendant solicitors were connected to Sayed through his associate, Mr Farrell, who played football with a friend of Mrs Dhaliwal's husband at weekends. Mrs Dhaliwal gave an undertaking to Ruparel to pay the instalments due, Farrell having promised to put her in funds to meet those payments. Mrs Dhaliwal paid one instalment of £10,000 but failed to make the others. She also gave a second undertaking to repay a further loan made by Ruparel to Sayed's company in connection with a property development venture.

The judge found that as a matter of fact there was absolutely no element of actual or contemplated work or services on the part of Mrs Dhaliwal in her capacity as a solicitor in respect of either undertaking. Accordingly, he found that they were unenforceable under the court's supervisory jurisdiction.

Ruparel argued that he reasonably believed that each undertaking was given in connection with a transaction in which the defendant firm was acting as solicitors. He gave evidence of representations allegedly made to him by Sayed suggesting that the defendants were acting in the underlying transactions. The representations, if made at all, were untrue.

The judge held that the "appearance" argument was only relevant to the issue of whether "innocent" partners were bound; whether the partner giving the undertaking was acting in his capacity as a solicitor was a pure question of fact. Where the giver of an undertaking himself represented he was acting in an underlying transaction, the supervisory jurisdiction could be invoked. In this case, however, the representation came not from the solicitor but from Sayed. That was not sufficient and the claim was dismissed.

This judgment helpfully clarifies the limits of the court's supervisory jurisdiction over solicitors. In consequence of those limits, claimants are more likely to bring their claims under the general law. Had Ruparel done so, that might have resulted in a different outcome.

In Langley Holdings Limited v Seakens 3 the court considered the scope of the practice of a solicitor in the context of section 10 of the Partnership Act 1890, which imposes liability on partners for loss arising out of any wrongful act or omission of any partner acting in the ordinary course of their business.

The defendant was the partner of a solicitor, Mr Marsom. Mr Marsom, and a Mr Wanless, owned a company called Portland. Wanless and Marsom held out, through Portland, to the claimant's owners, the hope of incredible profits - for an investment of $500,000 the claimant was to be paid after 30 days $1m per week for the next 42 weeks!

In pursuance of this venture, the claimant forwarded $250,000 to the defendant's firm's Jersey account on Marsom's undertaking not to release it to Portland until an investment programme had payment out of the whole sum without these events having occurred. Did the wrongful payment out arise other than in Marsom acting in the ordinary course of business of the firm? The court accepted that a firm of solicitors can hold money not belonging to a client providing that they do so in connection with their practice as solicitors. The question was therefore whether Marsom held the claimant's money in connection with his practice as solicitor for Portland. The judge held that it was the intended transaction for which the money would be held for payment to Portland that was relevant. After examining the facts he concluded that there was no genuine underlying transaction in contemplation. Marsom's acceptance of Langley's money was not in the ordinary course of the business of a solicitor's firm. Accordingly the defendant was not liable for the breach of his partner, Marsom's, undertaking.

Overall these two cases are favourable to solicitors and their professional indemnity insurers. They are unlikely to have any significant impact on the large number of conventional undertakings that are given quite properly by solicitors. They do however highlight the difficulties faced by claimants in pursuing solicitors where, in reality, the undertaking given has no connection with the practice of the firm.


1 Partnership Act 1890 s5

2 Ruparel v (1) Awan (2) Dhaliwal (2001) unreported ChD 21/11/2000

3 Langley Holdings Ltd v Seakens (2001) unreported QBD 19/10/2000

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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