PCR 2- Undertakings, POCA etc PDF

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Professional Conduct and Regulation 2 Undertakings Para 1.3 SRA Codes of Conduct - 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. ○ Undertaking - means 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. ○ i.e. an enforceable promise. ● Necessary to smooth the path of a transaction. ● If undertaking is oral, solicitor should ensure that an attendance note recording the undertaking is placed on the client’s file and that it is confirmed in writing as soon as possible. Breach of an undertaking: ● Where a solicitor gives an undertaking, the terms of that undertaking will be personally binding on the individual solicitor. ● = if breached, the solicitor may be sued personally by the recipient. ● The solicitor will also breach the Code of Conduct and will be disciplined by the SRA or the Solicitors Disciplinary Tribunal. ● The solicitor’s firm may also be disciplined for a lack of supervision. ● = an obligation on firms and solicitors to keep records that show compliance with the Codes of Conduct. Terms of the undertaking: Any ambiguity in the wording of the undertaking is likely to be interpreted against the ● party that gave it. ● Undertakings remain enforceable against a solicitor even if it cannot be performed without the cooperation of their client or a third party. ○ = should avoid giving undertakings which are wholly reliant on the action/inaction of a third party. ○ e.g. solicitor may provide that they will use ‘reasonable endeavours’ to ensure documents not in their possession are forwarded. ● Undertakings on behalf of a client are still enforceable against a solicitor ○ It is possible for a solicitor to give an undertaking ‘on behalf ’ of a client and exclude personal liability, but in order to do so the SRA’s guidance in a previous Code of Conduct provided that the solicitor must clearly and expressly disclaim personal liability, or make it clear that he is simply informing the other side of his client’s intentions - likely to remain the same in future Codes of Conduct. ○ Should get express authority from the client before making an undertaking. Change of circumstances: ● An undertaking will remain binding upon the solicitor if the circumstances change so that it is impossible to fulfil it, either wholly or partially. ● However, the recipient may agree to its variation or discharge.

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Where an undertaking is given which is dependent upon the happening of a future event and it becomes apparent that the future event in question will not occur, good practice will be to notify the recipient of this.

Enforcement: ● The court ○ The court is able to enforce an undertaking against a solicitor as an officer of the court. ○ Where an undertaking has been breached, an aggrieved party may seek compensation for any loss (e.g. Udall v Capri Lighting Ltd). ● The SRA and Solicitors Disciplinary Tribunal ○ The SRA/Legal Ombudsman/Solicitors Disciplinary Tribunal do not have the power to enforce an undertaking. ○ However, any breach of an undertaking may be considered a breach of professional conduct, or result in a complaint about the services provided by a solicitor which may lead to sanctions against the solicitor concerned. Liability of Others: ● Para 1.3 of the Code of Conduct for Firms covers undertakings given by solicitors, non-admitted staff, and also undertakings given by anyone held out by the firm as representing the firm = usually strict procedures about who can make undertakings. Money Laundering and the Proceeds of Crime Act 2002 Money Laundering Regulations 2017 ● Money laundering is the process whereby the proceeds of crime are changed so that they appear to come from a legitimate source. ● Solicitors who undertake relevant business must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692). ● Under the 2017 Regulations, firms must appoint a nominated officer, who will receive internal reports concerning money laundering and must consider whether to report the matter to the NCA. ● Solicitors also carry out due diligence to verify the identity of their clients. ● A solicitor must identify any ‘beneficial owner’ where the beneficial owner is not the client. Proceeds of Crime Act 2002 ● The Proceeds of Crime Act 2002 makes it an offence to become involved in money laundering. ● s.327 - it is an offence to conceal, disguise, convert or transfer criminal property, or remove criminal property from England and Wales, Scotland or Northern Ireland. Arrangements: ● A person commits an offence under s.328 of the Proceeds of Crime Act 2002 where he becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

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s.328 does not apply to steps taken in litigation (Bowman v Fels). A solicitor does not commit an offence under s.328 if he makes an authorised disclosure to the firm’s nominated officer as soon as is practically possible prior to the transaction taking place, and the authorisation of the nominated officer or the NCA is obtained to complete the transaction. ‘Overseas’ defence ○ A solicitor will not commit an offence under s.328 where the criminal conduct occurred outside of the United Kingdom and was not unlawful in the country where it happened. ○ However, this defence is not available (subject to certain exceptions) where the offence would carry a sentence of imprisonment for 12 months or more were it to be carried out within the United Kingdom. An individual convicted under s.328 may receive a maximum sentence of 14 years’ imprisonment.

Acquisition, Use or Possession ● A person commits an offence under s.329 if he acquires, uses or has possession of criminal property. ● Adequate consideration defence ○ Applies if there was adequate consideration for acquiring, using and possessing the criminal property, unless the individual knew or suspected that those goods or services might help to carry out criminal conduct. ○ This defence applies where professional advisers, such as solicitors, receive money for or on account of costs, including disbursements. Failure to disclose ● A person commits an offence under s.330 if: (a) he knows or suspects, or has reasonable grounds to know or suspect, that a person is engaged in money laundering; and (b) the information comes to him in the course of a business in the regulated sector; and (c) the information may assist in identifying the money launderer or the location of any laundered property; and (d) he does not make an authorised disclosure as soon as is practicable. ● Objective test: The court will consider, based on the information available to the solicitor at the time, whether he should have known (or at least suspected) that money laundering was occurring - i.e. solicitor can’t just turn a blind eye. Information obtained by the solicitor must be of some use to the authorities - if they ● cannot identify the money launderer or location of the laundered property then solicitor may not breach s.330. ● Authorised disclosure defence - solicitor will have a defence if he makes an authorised disclosure to the firm’s nominated officer as soon as practically possible. ● ‘Overseas’ defence also available. Tipping off ● Two offences that must be avoided under s.333A: ○ Disclosing a suspicious activity report (s.333A(1)) ○ Disclosing an investigation where it may prejudice it (s.333A(2)).

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Are a number of defences outlined in s.333A.

Note - s.335 Appropriate consent Financial Services Key acts: ● Financial Services and Markets Act 2000 (FSMA 2000) ● The Financial Services Act 2012, which extensively amends the FSMA 2000. s.19 & s.21 FSMA ● s19 FSMA - ‘No person may carry on a regulated activity in the UK unless authorised or exempt’ (the ‘General Prohibition’). ● Authorised persons are persons with permission granted by the appropriate regulator (the FCA) under FSMA 2000. ● A further offence is that of making an unauthorised financial promotion under s.21. ○ s.21 outlines that a solicitor who is not authorised by the FCA is unable to make a financial promotion. ● Breach of either of these provisions could result in the commission of a criminal offence. ● Breach of s.19 could also render unenforceable any resulting agreement which has as a party to it the person who contravened s.19, or made with an authorised person carrying on a regulated activity. The four tests re. s.19 ● The definition of a ‘regulated activity’ is set out in s.22 of FSMA 2000 and has been substantially amended by the Financial Services Act 2012. ● In order to determine if an activity is regulated there are four tests: ○ Are you in business? ■ Look for the word ‘client’ - no matter where you are you are in business. ○ Is there a specified investment, or does the specified activity relate to information about a person’s financial standing or the setting of a specified benchmark? ○ Is there a specified investment activity? ○ Is there an exclusion?

Specified investment: These include: (a) company stocks and shares (but not shares in the share capital of open-ended investment companies or building societies incorporated in the UK); (b) debentures, loan stock and bonds; (c) government securities, such as gilts; (d) unit trusts and open-ended investment companies (OEICs), which are similar to unit trusts, but use the structure of a company rather than a trust; (e) insurance contracts; (f) mortgages - only that relate to a dwelling place - cannot be a rental property.

(g) home reversion/home purchase plans; (h) deposits. Investments that will not be relevant include: (a) interests in land; (b) certain National Savings products e.g. national savings certificates. Specified investment activities: ● In relation to specified investments, these include (but are not limited to): (a) dealing as agent; (b) arranging; (c) managing; (d) safeguarding and administering; (e) advising; (f) lending money on/administering a regulated mortgage contract. Exclusions: Introducing exclusion: ● Works if you introduce a client to someone else - not always useful but may be if the work is way beyond your expertise. The Authorised Third Party (ATP) exclusion: ● If you do something more than merely ‘introduce’ the client to an ATP, you could be ‘arranging’ or even ‘ dealing as the client’s agent’. ● However, these will be excluded under RAO 2001, arts 22 and 29 if the transaction is entered into with or through an ATP on the advice given to the client by the ATP. ● You cannot rely on this exclusion if you receive from any person other than the client any pecuniary reward (e.g. commission) or other advantage, for which you do not account to your client, arising out of his entering into the transaction. ● This exclusion will not apply if the transaction relates to an insurance contract. The execution-only client exclusion: ● Applies where the client, in his capacity as an investor, is not seeking and has not sought advice from the solicitor as to the merits of the client’s entering into the transaction. ○ (Or if the client has sought such advice, the solicitor has declined to give it but has recommended that the client seek such advice from an authorised person). ● There is the same restriction in respect of commissions and contracts of insurance as ATP. Trustees or personal representatives: ● The exclusion applies to arranging, managing, safeguarding and advising fellow trustees and/ or beneficiaries. It also applies to lending money on, or administering a regulated mortgage contract. ● = The solicitor would actually have to be the trustee or personal representative for this to be an exclusion; simply acting for such a party is not enough.

The ‘professional/necessary’ exclusion: ● There is an exclusion if the activity is performed in the course of carrying on any profession or business and may reasonably be regarded as a necessary part of other services provided in the course of that profession or business, i.e. where it is not possible for the other services to be provided unless the regulated activity is also provided. ● Examples of where this exclusion may apply include: in acting on the acquisition of a company, giving advice on the merits of buying it and arranging for the acquisition of its shares; or, in probate work, arranging for the sale of all of the assets to pay IHT. ● Note: this exclusion does not apply if the activity is remunerated separately from the other services. The takeover exclusion: ● Applies to a transaction to acquire or dispose of shares in a body corporate (other than an OEIC): (a) the shares consist of or include 50% or more of the voting shares in the body corporate; and (b) the acquisition or disposal is between parties each of whom is a body corporate, a partnership, a single individual or a group of connected individuals. ● It is possible to add the number of shares being acquired by a person to those already held by him in order to determine whether the 50% limit has been achieved. ● Even if the above criteria are not met, e.g. the number of shares acquired is less than 50%, but the object of the transaction may nevertheless reasonably be regarded as being the acquisition of day-to-day control of the affairs of the body corporate, the exclusion still applies.

s.327 Exemption Under s.327, the general prohibition in s.19 of the FSMA 2000 will not apply to a regulated

activity carried on by a firm of solicitors if the following conditions are met: (a) the firm must not receive from a person other than its client any pecuniary or other advantage arising out of the activity for which it does not account to its client; (b) the manner of providing ‘any service in the course of carrying on the activities must be incidental to the provision’ by the firm of professional services, i.e. services regulated by the SRA. (c) the firm must carry out only regulated activities permitted by the DPB, i.e. the SRA. (d) the activities must not be prohibited by an order made by the Treasury, or any direction made by the FCA under s.328 or s.329; (e) the firm must not carry on any other regulated activities

Financial Promotions s.21 Summary: Financial promotions 1. There are four questions: (a) Are you in business? (b) Do you make an invitation or inducement? (c) Is there a specified investment? (d) Is there a specified investment activity? 2. There are two special exemptions for professional firms: (a) real-time promotions; (b) non-real-time promotions. 3. Other exemptions include: (a) one-off promotions; (b) introducers; (c) trustees, PRs; (d) takeover of body corporate. Prep Task 1 (a) Your client, Karron plc has been sued by Lima Beana Ltd for £1.8m damages. You negotiate a settlement with Lima Beana Ltd’s solicitors (LRA Jurgen & Co) under which Karron plc will pay £1.4m in full and final settlement of the claim. Karron plc has not yet put you in funds but says that it will drop off a cheque. LRA Jurgen & Co has informed you that before their client will stop the next stage in the court proceedings, you must confirm to them by close of business today, that you “will transfer the settlement funds to the LRA Jurgen & Co Client Account within the next three working days”. 1. Risks ● s.1.3 SRA Codes of Conduct - 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. ● Where a solicitor gives an undertaking, it is personally binding on them = can be

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sued by the recipient even if undertaking is made on behalf of client. = If you make an undertaking to transfer the settlement funds and Karron does not deliver the cheque then you will be personally liable for the £1.4m + possible breach of code of conduct.

2. Reduce/eliminate risks of undertaking/any alternative? ● Say that you will use ‘reasonable endeavours’ to ensure money is transferred. ● Don’t give absolute deadlines in respect of money you don’t have, only for money you have.

(b) In court, the judge handling a case you are dealing with expresses surprise that a particular document is not available. You think that the document is in your office. You undertake to produce it that afternoon. 1. Risks ● Don’t know if you have the document, ‘the afternoon’ a vague deadline. ● If it is not in your office, you are liable to the judge - may be sued personally (pay a fine). Solicitor has breached the Code of Conduct = may be disciplined by the SRA or the Solicitors Disciplinary Tribunal. 2. Reduce/eliminate risks of undertaking/any alternative? ● ‘Reasonable endeavours’ ● Most practical thing to ask for an adjournment, call the office and see if the document is there - get clarification that it is there, and say you will use your best endeavours to search for the document and if it is there you will courier it asap. (c) You are negotiating the renewal of a lease on behalf of your client, a company that owns the freehold to the property. You know that your client’s board is keen for the lease to be granted as soon as possible. The tenant asks for part of the premises to be redecorated as a condition for agreeing to the new level of rent. You state that “on behalf of my client, I can undertake that my client will complete the redecoration before the new lease is completed”. You have no specific instructions on this point but the client’s estate manager has previously told you that the property’s decoration badly needs updating. 1. Risks ● No authorisation from the client. ● You will be bound to redecorate the apartment if the client does not agree to - firm would have to honour undertaking. 2. Reduce/eliminate risks of undertaking/any alternative? ● Talk to the client and confirm their position before giving an undertaking = just should not give an undertaking at all → have to be resilient enough to

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resist pressure. Put term as an obligation in the contract instead of giving an undertaking.

(d) You are acting for the buyer of a property which is subject to a fixed charge. The seller’s solicitor writes to you in the following terms prior to completion of the sale: “Our client undertakes to discharge the charge from the proceeds of sale”. 1. Risks ● Proceeds of sale might not cover it - however if they don’t then the solicitor is liable. ● Need some certainty on the time frame - wording would usually be on completion. 2. Reduce/eliminate risks of undertaking/any alternative?

(e) The deadline for serving a witness statement on the other party to litigation was yesterday. You have not been able to get a signed copy from your client. You receive a telephone call from the opposing solicitor, who is furious that the statement was not served on time, and who threatens to issue an urgent application to the court. To calm him down you tell him not to worry and that you will serve the statement by 10 am tomorrow. 1. Risks ● You are liable if you don’t serve the notice by 10am tomorrow 2. Reduce/eliminate risks of undertaking/any alternative? ● ‘Reasonable endeavours’ ● Give a more general statement - e.g. I’ll talk to my client, I’ll get an update. ● Communicate to client the situation. Workshop Flow chart in w/s guide is key Open book exam Annotate flow chart - need clear succinct documents that you can refer to. Go through flow charts in order. Can always assume the general incidental test is met - if the firm’s income was generated mostly from investment stuff then the firm would just get regulated Scope rules set out some guidelines If they are hinting at takeover exclusion they will always do it in the context of a private limited company and give you share percentages

PCR Assessment ● 2hrs - 30 MCQs ● Open book - can annotate notes ● Date: Friday 19 June ● Marked out of 100 - contr...