The Regulatory Hour Tuesday, 17 November 2015 @mhclawyers

Welcome

Declan Black

Managing Partner

Mason Hayes & Curran

Niall Michel, Partner Topic – Legal Services Regulation Bill: The Impact? Tom Davy, Partner Topic – Solicitors' Undertakings in Practice David Whelan, BL Topic – Enforcement of Solicitors’ Undertakings

Speakers & Topics

Legal Services Regulation Bill: The Impact?

Niall Michel,

Partner,

Mason Hayes & Curran

Innocent, Your Honour

Background – Why do People Hate Lawyers?

• The man on the 46A

• The OECD; the Legal Costs Working Group; the Competition

Authority; the Law Reform Commission; the EU/IMF; the EU

Council

• External pressures; external mandating of reform

• Culminated in Legal Services Regulation Bill 2011

• Passed by Dail in April, 2015; introduced to Seanad

• Will be amended and refined in Seanad

The ‘Non-Impact’

• Still only a Bill

• Solicitors‟ and barristers‟ professions to be retained

• Law Society; Bar Council; King‟s Inns to continue to play roles

• Core principles of professions and relationships with clients

preserved

• Criteria underlying legal charges/basis/notification/collection;

principles regarding award of costs, to be retained

• Professional indemnity insurance

The Impact

• General aims are to promote competition and transparency, and

lower cost, as well as enhance independent complaints-

resolution and unify disciplinary procedure

• Legal practitioners to be subject to independent, external,

regulation, inspection and complaints-resolution (LSRA)

• Law Society/Bar Council/King‟s Inns professional codes to be

subject to external review, oversight, amendment (LSRA)

• Legal practitioners to be bound by new LSRA codes of practice,

setting/improving standards

• Legal practitioners to be subject to professional discipline by a

common, independent, tribunal (LPDT)

• Barristers will be admitted to a new Roll of Barristers to be set

up, maintained publicised by the LSRA

• Legal partnerships between solicitors and barristers, or between

barristers, can be established

• Multi-Disciplinary Practices can be established between

solicitors and others (including barristers, but necessarily

including non-legal professionals)

• Disputes on legal costs to be referred to new body (OLCA)

• Wider section of public will be able to engage barristers directly

The Impact

• Legal professions may be unified

• New profession of conveyancer may be created

• Both solicitors and barristers will be able to become “Senior

Counsel”

• Barristers in employment will be able to represent their

employers in court

• Solicitors and barristers will be able to conduct advocacy for a

client in court at the same time, taking different aspects and

lead, or other, roles

• Neither wigs nor gowns will be required in future

The Impact

• Solicitors and barristers may cross over more easily, without

undue admission requirements being imposed

• Barristers may be allowed to advertise, and in particular,

advertise that they practise as a group of barristers

• No contingency fees; no deduction of fees from awards without

prior written consent; no charging of junior counsel fees as

proportion of senior counsel‟s fees

The Impact

How and When will this be Achieved?

• Setting up the Office of the Legal Costs Adjudicator

• Taxing Master‟s functions

• Chief LCA and sufficient number of LCAs

• Register of Determinations

• Guidelines

• Setting up Legal Practitioners Disciplinary Tribunal

• Replace Solicitors Disciplinary / Barristers‟ Professional

Conduct Tribunals

• Setting up the Legal Services Regulatory Authority

• Broad membership; avoidance of Government control

• Regulate provision of legal services by legal practitioners

• Maintain and improve standards

• Subject to statutory objectives (public and profession-

facing)

• Issue codes of practice on setting/improving standards

• Inspect legal practitioners following complaints, or otherwise

How and When will this be Achieved?

Consult and report on

• Education and training (within 2 years)

• Unification of professions (with 4 years)

• Creation of profession of „conveyancer‟ (when requested by Minister)

• Introduction of Legal Partnerships (within 6 months)

• Introduction of Multi-Disciplinary Practices (within 6 months)

How and When will this be Achieved?

• Deal with complaints of misconduct/inadequate

services/overcharging

• Resolve complaints

• Bring misconduct matters before the LPDT

How and When will this be Achieved?

Conclusions

• The Bill still very much in gestation, and subject to shaping -

opportunity now

• Minister has flagged specific issues such as complaints;

misconduct; inspections; limited liability partnerships; barristers

suing for fees; privilege/confidentiality concerns

• LPs; MDPs and fusion of professions to be further analysed

• Could lead to more competition; choice; flexibility

• More transparency on costs and costs-principles/adjudication

Solicitors' Undertakings in Practice

Tom Davy,

Partner,

Mason Hayes & Curran

– Promise by solicitor in course of practice

– reasonably relied upon

– giving rise to personal liability for the solicitor/firm

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What is an undertaking?

1. How and when can I use undertakings to complete

transactions efficiently?

2. How do I avoid mistakes when giving undertakings?

3. How do we achieve compliance with undertakings

furnished to us?

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3 issues for in-house lawyers as regards undertakings:

“Critical to the proper functioning of the solicitors‟ profession”

Mr. Justice Kearns in ICS Building Society v Lambert ([2014] IEHC 581)

Enable transactions to be completed more quickly and cost effectively

Boom years - inappropriate use of the undertaking system and high

levels of non-compliance - number one cause for complaint to the Law

Society.

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Solicitors' Undertakings in Practice

2009 Regulations introduced to restrict the giving of undertakings to

lenders when the solicitor, or a person closely connected to the solicitor,

has some beneficial interest.

Solicitors (Professional Practice, conduct and Discipline – Secured Loan

Transactions) Regulations 2009 (SI No. 211 of 2009)

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Legislative Changes

2010 Commercial Undertakings Regulations - as and from 1 December

2010

Statutory prohibition on solicitors undertakings to lenders in commercial

property transactions save in the case of a “de minimis” loan transaction

Anything other than a principal private residence or a not-for-letting

holiday home is a commercial property.

Private dwelling can be subject to commercial undertakings regulations

if it forms part of security for commercial loan – the purpose of the loan

is key;

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Legislative Changes

Definition of “Relevant Undertakings” does not include an Accountable

Trust Receipt but does include undertakings to lenders in respect of

commercial property:

• to provide a certificate of title or the title deeds

• to pay any stamp duty or to register title

• to procure the discharge of a commercial mortgage

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Legislative Changes

Enforceable as a contract provided there is a binding contract

No element of professional misconduct as regards the client undertaking

itself

Solicitor may give undertaking to provide reasonable assistance to the

client

If undertaking is on behalf of a client, and is not a solicitors undertaking,

this should be expressly stated in the undertaking.

Bank may require an undertaking from the borrower and/or conditions

subsequent in a facility agreement

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Client Undertakings

In-house Solicitors

Obligations no different to those of solicitors in private practice

Professional personal duty to comply with undertakings - should be

explained to employer

Express authority from the employer to give an undertaking

Do not give an undertaking to do something that is outside that

solicitor‟s control or authority.

State clearly if „undertaking‟ is given only as an agent on behalf of the

employer – drafting clarity is key

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Personal Liability

Exemptions in respect of compulsory professional indemnity insurance for most in-house solicitors employed in the private sector - providing legal services to employer only Broader exemption from professional indemnity insurance for solicitors employed in the full-time service of the State But this does not absolve the in-house solicitor from personal liability Risk of uninsured personal undertaking Arrangements to protect against personal liability – Good practice to obtain an employer indemnity – Best practice not to give solicitors undertaking at all

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Questions to consider:

1. Am I exempt from the requirement to hold professional indemnity

insurance – legal services to employer only?

2. Is the undertaking given on behalf of the employer/company and

clearly stated as such?

3. Do I have the necessary authority to give the undertaking?

4. If a solicitors undertaking is to be given, are arrangements in place to

protect against personal liability?

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• In writing and irrevocable instruction in writing from the client

• Matter of conduct and a matter of contract

• Cannot assign the burden of an undertaking without the express

agreement of recipient of the undertaking. Recipient can assign

unless there is express restriction.

• Ambiguous undertaking generally construed in favour of the recipient

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General Principles

• Undertaking does not have to constitute a legal contract to be

enforceable in conduct

• No limitation period

• Undertaking still binding even if compliance beyond the control of the

solicitor

• Cannot avoid liability by pleading that compliance would be a breach

of duty to his/her client

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General Principles

• Implied term that an undertaking will be performed within a

reasonable time

• Should not seek an undertaking from another solicitor which the first

solicitor knows, or ought to know, should not be given

• Consider whether an undertaking is appropriate and whether the

transaction should be completed without the subject matter of the

undertaking

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General Principles

1. 2010 Regulations – no solicitors undertakings to lenders in

commercial property transactions;

2. In-house solicitors should consider PI insurance, form of undertaking

and, employer indemnity against personal liability;

3. Irrevocable instruction and authority in writing from the client;

4. Ambiguity generally construed in favour of the recipient;

5. Does not have to constitute a legal contract and no limitation period.

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Takeaways

Enforcement of Solicitors’ Undertakings

David Whelan BL

“...a promise made is a debt unpaid, and the trail has its own stern

code.”

Robert W. Service (1874-1958)

David Whelan BL

Three primary methods of holding a solicitor to their undertaking:

1. Invocation of the inherent supervisory jurisdiction of the Courts

2. Commencement of substantive claim at law or in equity (for

damages/injunctive relief based on breach of contract/trust etc)

3. Complaint to the Law Society

Enforcement of Undertakings

Inherent Jurisdiction

Bank of Ireland Mortgage Bank v Coleman [2009] 3 IR 699 -

Authoritative summary of jurisdiction in Supreme Court judgment

Geoghegan J. cited the following cases with approval:

I.P.L.G. v. Stuart (Unrep. HC, Lardner J, 19/3/92) – Held that the

inherent jurisdiction of the Court re solicitors‟ misconduct survived

despite striking down of 1954 Act/provisions of 1960 Act

In re H.A. Grey [1892] 2 QB 440 – Court had a punitive and

disciplinary jurisdiction, not to enforce legal rights, but honourable

conduct

Inherent Jurisdiction

John Fox v. Bannister & Ors [1988] 1 Q.B. 925 – cited by

Geoghegan J as supporting the view that if compensation is to be

paid, it need not necessarily be in the full amount of the sum

covered by the undertaking

Myers v Elman [1940] A.C. 282 – underlying principle of jurisdiction

- the Court has a right and a duty to supervise the conduct of its

solicitors and visit with penalties any conduct of such a nature as to

tend to defeat justice – need not be criminal/dishonest

Udall v Capri Lighting [1988] 1 Q.B. 907 – Geoghegan cited with

approval seven principles relating to the inherent special

jurisdiction. The first principle was that identified in Myers v Elman

above.

Inherent Jurisdiction

1. Jurisdiction compensatory not punitive - retains a disciplinary slant

2. If a person has suffered loss, the Court has power to order the

solicitor to make good the loss occasioned by his breach of duty

3. Failure to implement undertaking is prima facie evidence of

misconduct even if no dishonourable conduct

4. Jurisdiction not ousted by defences that might be available to an

action at law (e.g. Statute of Frauds) – may take into account

5. Discretion as to the relief to be granted

6. If inappropriate to Order performance, Court has discretion as to

whether to order the solicitor to pay compensation

Inherent Jurisdiction

In Allied Irish Bank v Maguire, Peart J. considered the judgment in

Bank of Ireland v Coleman and articulated 11 principles:

1. Court has an inherent jurisdiction re conduct of solicitors, including compliance with undertakings

2. Both punitive and compensatory jurisdiction.

3. Discretionary and unfettered - each case must be considered on its own facts and circumstances

4. Court is concerned to uphold the integrity of the system, and the highest standards of honourable behaviour by its officers - standard higher than required by law generally

5. Order made by the Court can take whatever form best serves the interests of justice between the parties

Inherent Jurisdiction

6. Court must consider the entire undertaking to determine real ultimate purpose

7. Court may order late compliance if reasonably possible

8. Even if compliance is possible, Court may order solicitor to make good any loss occasioned

9. Where compliance not possible, Court may order the solicitor to make good any loss occasioned

10. Carelessness or negligence may be a factor which the Court will have regard to when determining what order may be fair and just.

11. Order ought not be oppressive - gross carelessness/egregious conduct will entitle the Court to order payment of entire sum covered by undertaking

Special Summons Procedure

Bank of Ireland Mortgage Bank v Coleman [2009] 3 IR 699, per

Laffoy J - “The essence of the inherent supervisory jurisdiction is

that it may be invoked in a summary manner.”

Where no existing proceedings, may use special summons under

O.3, r. 21 or O.3, r. 22 RSC.

Summary process may not be operated in such a way as to

perpetrate an injustice on the solicitor Defendant - Danske Bank

A/S v O’Ceallaigh [2011] IEHC 216

Should be confined to simple cases where, in accordance with

established principles, the level of compensation payable is

quantifiable on affidavit evidence before Court

Opposing Applications to Enforce

Case may be adjourned to plenary hearing if Defendant can show that summary determination would be oppressive (e.g. because core issues not sufficiently clear from affidavit evidence)

Jurisdiction is discretionary – open to Court to refuse to make any Order e.g. if dissatisfied with conduct of Plaintiff or persuaded that the breach of undertaking caused no loss. Court can take into account defences at law (laches, failure to mitigate etc.)

Open to Defendants to resist proceedings by disputing, inter alia:

The existence/continued efficacy of the undertaking

That a breach of undertaking has occurred

That the breach has caused any loss

The existence of any other reasons (e.g. “egregious” conduct) for making an award in favour of the Plaintiff

Opposing Applications to Enforce

ACCLM Ltd v Barry & Ors [2015] IECA 224

Undertakings, inter alia, to register charge over property – charge registered over certain units in property not over common area, car parks, easements etc

Court has no inherent jurisdiction to declare solicitor guilty of misconduct for failing to comply with undertaking

Factors which contributed to refusal of relief:

Remedies claimed – Declaration of misconduct

Absence of pre-action letter – No formal call for compliance

Failure to pursue alternative – Borrower willing to assist

Absence of evidence of loss – inability of receiver to sell

Actions of Plaintiff – Complaints to Law Society etc

Compensation

Coleman - per Laffoy J (approved, with some qualification in

Supreme Court)

“the correct measure of the respondent's loss would be the value of

the security which it should have obtained but did not obtain”

Geoghegan J – Agreed with Laffoy J that Court must consider

undertaking as a whole in exercising discretion re Order to be

made

Disagreed with suggestion that part of an undertaking could not be

enforced if the original purpose of the transaction could still

potentially be achieved – can still calculate loss arising e.g. from

inability to enforce security earlier due to failure to perfect

Compensation

Regardless of whether undertaking can still be complied with, Court may make an award of compensation for any loss arising from breach

Compensation may extend to full amount advanced to borrower or may be confined to value of security which plaintiff should have obtained but did not

In AIB v Maguire & Ors [2009] IEHC 374 Peart J Ordered defendants to repay the Bank all sums paid to borrowers on foot of loan, plus interest

In BOI v Coleman [2009] 3 I.R. 699 the undertaking had been performed by the time of the appeal. The Supreme Court remitted the case to the High Court for assessment of compensation (e.g. Arising from the Bank‟s inability to act on its security sooner). Full amount of loan will not be awarded if Bank acted carelessly on an overvaluation, unless misled by fraud of Defendant

Action at Law

Plenary proceedings under inherent jurisdiction are appropriate

where case is not clear or simple

In involved or complex cases which are issued as plenary

proceedings remedies at law may also be pursued – breach of

contract/ fiduciary duty/trust , negligence, conversion etc

If undertaking given by Defendant re subject matter of intended

action, unusual not to rely on same at least in part

If an undertaking is given by a solicitor in the context of extant

proceedings, an application to enforce same may be made by

motion in those proceedings

Complaint to Law Society

A Guide to Good Professional Conduct for Solicitors (3rd Ed. p. 48)

– A solicitor will be required to honour the terms of a professional

undertaking as a matter of conduct – failure to comply with

undertaking may amount to unprofessional conduct

Law Society has the power to enforce undertakings as a matter of

conduct (3rd Ed, p. 50)

Disciplinary process will not normally be proceeded with where

there is an action before the courts, until their determination.

(O'Callaghan, The Law on Solicitors in Ireland, p145)

Solicitor struck off by President of the High Court in February 2015

for failure to comply with undertakings to banks in relation to

property transactions for clients

Source Material/Further Reading

Solicitors’ Undertakings and the Valuation of Loss in a Falling

Market, Purcell, Commercial Law Practitioner, vol. 18, 2011 at 181

Solicitors Negligence and Liability, Flenley & Leech, 2nd Ed, 2008

Irish Conveyancing Law, Wylie, 3rd ed. 2005

Cordery on Solicitors , 9th Ed. 1995

The Law on Solicitors in Ireland, O’Callaghan, 1st Ed. 2000

David Whelan BL, Room 3.12, Distillery Building, Church St.,

Dublin 7. DX 818196, dwhelan@lawlibrary.ie

Direct Line: (01) 8172395, Mobile: (086) 3106285

Niall Michel Partner Mason Hayes & Curran t: +353 1 614 5014 m: + 353 86 827 9301 e: nmichel@mhc.ie

@mhclawyers

Contact Details

Tom Davy Partner Mason Hayes & Curran t: +353 1 614 5001 m: + 353 87 903 8665 e: tdavy@mhc.ie

@mhclawyers

Contact Details

Thank you For any queries on upcoming events, please contact events@mhc.ie @mhclawyers