Legal Implications of Solicitor's Undertakings in a Personal Injury Case and Their Potential Consequences

Q.1.

Part (i)

This kind of promise is a solicitor’s undertaking. An undertaking is a statement of the solicitor on which the recipient reasonably places reliance that the solicitor or a third party will do something or cause something to be done, or refrain from doing something. Under paragraph 1.3., the solicitor is required to perform all undertakings within time agreed or within reasonable time. This means that the undertaking creates legally binding obligation for the solicitor. In this case, if the solicitor fails to comply with the undertaking, the bank can take legal action to recover the amount promised on behalf of the client after the conclusion of the court case. This can be done by the bank by commencing a claim of specific performance of the undertaking. Another consequence of failure to comply with the undertaking is that such failure can be professional misconduct, which can lead to disciplinary action by the SRA. The courts are likely to enforce the undertaking as against the solicitors. A high standard of conduct when giving and adhering to undertakings is expected from solicitors and breach of undertaking can lead to adverse consequences for the solicitor. Considering that undertakings create legally binding promises and that the firm would be liable for the payment of the 50000 GBP after the conclusion of the case, I would not agree to the arrangement the bank are proposing. The outcome of the personal injury case of the client is uncertain. In the event the client does not obtain damages from the defendant in the case, the firm would still be liable to pay 50000 GBP to the bank even if the client in not in the position to return the money.

Part (ii)

The cheque received from TCL’s solicitors for £95,000 in settlement of the claim includes client money. Client money is defined in paragraph 2.1. of SRA Account Rules as money held or received by the solicitor related to a regulated service delivered to the client, and money received in respect of fees and unpaid disbursements prior to the delivery of bill. In this case, the entire amount of £95,000 is client money since it includes costs of £10,000 inclusive of VAT which are estimated. Client money should be kept in client account, and available on demand to the client. The accounting steps to be taken in this case can be explained on the basis of paragraph 4.3, which is applicable where the solicitors are holding client money, which also includes money that will be used to pay solicitor costs. The steps require the solicitor to give a bill of costs to the client before any money is transferred from the client account to make the payment. In this case, costs also include VAT, and this step must be followed to inform the client through a bill. The solicitors can use the client money for costs provided that they specify the sum in the bill of costs to the client before any such money is used out of the client account.

• Aldermore Bank Plc v Rana [2016] WLR 2209.
• Global Marine Drillships Ltd v William La Bella & Others [2014] EWHC 2242 (Ch).
• SRA, paragraph 2.1 (a).
• SRA, paragraph 2.1 (d).
• SRA, paragraph 2.3.
• SRA, paragraph 2.4.

Part (iii)

A solicitor is prohibited from acting in a matter which involves a conflict of interest or poses a significant risk of the same. The SRA allows solicitors to act for two clients if they have a substantially common interest or are competing for the same objective. This is allowed where the clients have given their informed consent in writing that they would like the solicitor to represent both of them. The solicitors are also required to ensure that they are satisfied that it is reasonable to act for both clients, and that there are effective safeguards for protecting confidential information of the clients. In this situation, the two clients are interested in the same transaction but that does not make it a situation where they have substantially common interest since they have different interests as buyer and seller of the business. However, it would still be possible for the solicitor to act for both parties if the solicitor has obtained written informed consent from them. In Hilton v Barker Booth and Eastwood, the solicitors acting for both the purchaser as well as the developer of a property were held liable for breach of professional duty because they concealed this from the two parties. The solicitor must also be careful that conflict between the two clients may not be existing at present but may be a potential conflict, which can be reasonably foreseen by considering the facts and circumstances of the case. Therefore, the solicitor can agree to the client’s request of representation provided the safeguards in paragraph 6.2 are applied.

Part (iv)

This advice cannot be given by the solicitor to the client. Giving financial advice to clients is a specified activity. Giving such advice is a regulated financial services activity and only firms that are listed on the Financial Conduct Authority (FCA) register can offer such advice to their clients. Law firms and solicitors can give financial advice and investment related advice only if they are listed on the Financial Conduct Authority register. Part 2 of the Financial Services and Markets Act 2000 identifies regulated financial activities and this includes ‘advising, dealing in or managing, arranging deals, safeguarding and administering investments.’ Only if, inter alia, the firm is authorised and regulated by the SRA under Part 20 of FSMA, can it provide such service.

Q.4.

Part (i)

• SRA, paragraph 6.2.
• SRA, paragraph 6.2 (b) (i).
• SRA, paragraph 6.2 (b) (iii).
• SRA, paragraph 6.2 (b) (ii).
• Hilton v Barker Booth and Eastwood [2005] 1 All ER 651.
• Burns v Financial Conduct Authority [2018] 1 WLR 4161.

A clause must be included that regulates the roles and authority of the partners. This clause sets out the specific roles and authorities delegated to the partners and identifies what the partners are authorised to do on behalf of the partnership. Since partners can bind each other by their actions on behalf of the partnership, it is advisable to provide written identification of scope of authority of the partners and this can be done in the partnership agreement itself. For instance, partners may be allowed to enter into contracts on behalf of the company but such powers may be regulated in terms of what kinds of contracts can be entered into individually, in terms of the nature of the contracts and the value of the agreement. This can ensure that the manner in which contracts are entered into on behalf of the partnership so that the partners are aware of the contracts is regulated. Through this clause, the agreement can also specify the procedure to be followed for certain kinds of contracts or specified value of contracts.

The partnership agreement should contain restrictive covenant clause to ensure that partners do not compete with the firm or solicit the firm’s customers after leaving it.

A clause must be included that no partner should take away business opportunities from the firm while they are in the firm. This clause can be structured as a duty for all partners to not compete with the firm while being a partner at the firm.

An indemnity clause can be included to ensure that the individual partners would indemnify each other for losses they cause to the others by breaching the partnership agreement. This will ensure that partners are acting in excess of their authority and if they are, then they are individually responsible for any losses arising out of their conduct.

Part (ii)

There are many benefits of incorporating a partnership, which makes it attractive to business owners. Partnerships are less complex form of organisation of business as compared to companies, but they have a disadvantage in the area of expansion of business and raising of funds. A limited company is a better form of business organisation when the members are interested in expansion. The company can raise capital through shares. A company is a separate legal entity and this also has a number of benefits for the members of the company as well as the company itself. The company has the powers to enter into contracts in its own name and to purchase and hold property in its own name and any rights and responsibilities arising out of such transactions are the rights and responsibilities of the company. Members have no proprietary interest in company property and this safeguards the property of the company as well. The members at the same time have the benefit of limited liability, which means that their liability for the company is limited to the agreed amount and their personal property cannot be made liable. Incorporation also has the advantage of allowing business to be expanded further.

• Karen Borrington and Peter Stimpson, Cambridge IGCSE Business Studies 4th edition (Cambridge University Press 2015).
• Salomon v Salomon Co. [1897] AC 22.
• Macaura v. Northern Assurance Co Ltd [1925] AC 619.

Incorporation also has certain drawbacks. First, incorporated organisation is more complex to form as compared to a partnership. The members have to adopt Memorandum of Association and Articles of Association and they to be sent to the Registrar of Companies. There are many formalities that have to be completed by the members for the purpose of incorporation, which is not the case for partnerships which are less complex and easier to form. The method of incorporation is provided under Companies Act 2006, Section 7, which provides that one or more persons can form a company by subscribing to its Memorandum of Association and complying with the registration process. Thus, there is an entire process of registration to be followed by the members at the time of incorporation. Section 9 provides that the application for registration must be accompanied with a number of documents including statement of capital, proposed officers of the company, address of the company, and the Articles of Association. The registration would depend on the satisfaction of the Registrar of Companies (Section 14, CA 2006). Clearly, the process is complex. However, considering the advantages offered by incorporation, particularly for the purpose of expansion of business, it would be advisable to incorporate if the partners wish to expand their business and also limit their liability.

If the clients do not wish to adopt a complex form such as a company, they can still derive some of the benefits of incorporation, such as, separate legal entity of the firm and the limited liability of the members, by choosing to organise their business through a Limited Liability Partnership. A Limited Liability Partnership can be incorporated under the Limited Liability Partnerships Act 2000. Such organisation combines features of partnership with company, and this provides certain benefits to the partners. A limited liability partnership is a separate legal entity and therefore, the assets and liabilities of the LLP are that of the partnership and not the individual partners. The partners have liability limited, which is a feature of a limited company that ensures that the partner’s are not personally liable for the entity. However, a disadvantage of LLP is that it is not an appropriate vehicle if the partners are looking to expand their business, for which purpose an incorporated entity would be more appropriate form of organisation.

Take a deeper dive into Leadership, Team Development, and Service Excellence with our additional resources.

Part (iii)

The directors are liable for income tax for salary received and dividends given to them by the company. Tax rates applicable to them would depend on their total annual income band. With respect to dividend, the dividend allowance is applicable which means that the first £2,000 of a taxpayer’s dividend income is free of tax. The directors will also be entitled to personal savings allowance which allows them to save £1,000 a year income tax-free.

• Karen Borrington and Peter Stimpson, Cambridge IGCSE Business Studies 4th edition (Cambridge University Press 2015).

Cases

• Aldermore Bank Plc v Rana [2016] WLR 2209.
• Burns v Financial Conduct Authority [2018] 1 WLR 4161.
• Global Marine Drillships Ltd v William La Bella & Others [2014] EWHC 2242 (Ch).
• Hilton v Barker Booth and Eastwood [2005] 1 All ER 651.
• Macaura v. Northern Assurance Co Ltd [1925] AC 619.
• Salomon v Salomon Co. [1897] AC 22.

Books

Borrington K and Peter Stimpson, Cambridge IGCSE Business Studies 4th edition (Cambridge University Press 2015).