1. Conduct issues and Conveyancing PDF

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Conduct Issues and Conveyancing Acting for a Seller and a Buyer

 Overview: Highly unlikely that a solicitor could act for both. This will almost certainly be a breach of 6.2 (conflict of interests) to which the exceptions in 6.2 (a) and 6.2.(b) will NOT apply. Bear in mind duty of confidentiality and disclosure. Principle 7 – Always start by saying we have a duty to act in the client’s best interest. So, apply it to the facts (ie names of the parties). CONFLICT  6.2 - provides that a solicitor must not act if there is a client conflict or a significant risk of a client conflict.  “Client conflict” is defined Handbook Glossary (p189) as “any situation where you owe separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties may conflict”.  Example of conflict is where buyer should be advised to renegotiate purchase price after adverse survey – advice would be detrimental to the seller.  Generally residential transactions will be ok.  Where 6.2 applies, you can only act in a situation where 6.2 (a) or 6.2 (b) applies.  6.2 (a) - provides that it may be possible to act for two clients with a “substantially common interest” in relation to a matter, or aspect of it.  A “substantially common interest” is defined in the Handbook Glossary as “a situation where there is a clear common purpose in relation to any matter or a particular aspect of it between the clients and a strong consensus on how it is to be achieved.  It could be argued that a seller and buyer in a property transaction do have a substantially common interest, in that they both wish for the property to be successfully conveyed, however it is unlikely that there will be a “strong consensus on how it is to be achieved” e.g. the parties are likely to have opposing views on terms of the contract.  Also, if it’s heavily negotiated then unlikely to be common interest. Also note any unequal bargaining powers.  SRA 2011 indicated that buyer/seller do NOT have common interest.  6.2 (b) – Provides that it may be possible to act where the clients are competing for the same objective. (WILL NOT APPLY)  Competing for the same objective defined in SRA glossary as - which if attained by one client makes it unattainable to the other client.  ‘Objective’ defined as asset, contract or business opportunity.  Would not apply.  Might only be possible where land is being gifted or transferred between related parties. ❖ If we decided under substantially common interest, then go through the

Conduct Issues and Conveyancing exceptions (even if they don’t apply).  Conditions are under 6.2 (i-iii)  (i) all clients have given informed consent, given or evidencing in writing to you acting  SRA states that informed applies to ‘sophisticated clients’ such as large companies with in-house legal advisors.  (ii) Safeguards are put in place to protect client’s confidential information; AND  Safeguards include - separate floors, password protection, separate computer networks. Information barriers (aka Chinese walls)  (iii) you are satisfied that it is reasonable for you to act for all the clients.  Even if the above two applies, make the point that we could NOT act because it’s not reasonable given the complexity and risk. CONFIDENTIALITY AND DISCLOSURE ❖ 6.3 – must keep affairs of current and former clients confidential unless disclosure is required OR permitted by law OR client consents.  For example, if you become aware that there’s something wrong with the property, you would have to keep that confidential. ❖ 6.4 – when acting for a client must make them aware of all information material to the matter. Unless the following exceptions apply;  Disclosure prohibited by legal restrictions  Client gives informed consent  Solicitor has reason to believe that serious physical or mental injury will be caused to client if info disclosed.  Information contained in privileged document that solicitor has knowledge of only because it’s been mistakenly disclosed.  Must return papers to originating solicitor. DO NOT READ.  If none of these exceptions apply, and we don’t inform the buyer that the building is dodgy, we would breach principle 7 (best interest) and principle 5 (Act with integrity). Firm would be liable and loses reputation. ❖ 6.5 - Solicitor cannot act where client has adverse interest to current or former client for whom confidential material to that matter is held unless exceptions met.  Material = (a) relevant to client’s matter (b) of more than inconsequential interest to the client (i.e. will the decision affect the client’s decision making?).  Adverse interest = Relationship between two respective clients, so the one the firm is considering acting and a current or former client. Previous codes – relationship = “adverse” where client to whom firm owes duty of confidentiality is/likely to become opposing party in a matter to the client who is owed the duty of disclosure. E.g. clients litigate/opposing sides of negotiation.

Conduct Issues and Conveyancing

Acting for a Borrower and Lender

❖ Possible to act if:  Effective measures in place to ensure no risk of disclosure  Informed consent given  Overview – it is possible to act for both, though this is largely dependent on whether the terms of the mortgage are “standard” or negotiable.  6.2 - provides that a solicitor must not act if there is a client conflict or a significant risk of a client conflict.  “Client conflict” is defined by the Handbook Glossary (p189) as “any situation where you owe separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties may conflict”.  There is a risk of a client conflict arising when acting for a lender and buyer as there is the potential that we may have to negotiate on matters of substance between them, for example the terms of the mortgage, resulting in our duty to act in both parties best interests conflicting.  Where 6.2 is breached, you can only act in a situation where 6.2 (a) or 6.2 (b) applies.  6.2 (b) – Provides that it may be possible to act where the clients are competing for the same objective. (WILL NOT APPLY)  Competing for the same objective defined in SRA glossary as - which if attained by one client makes it unattainable to the other client.  ‘Objective’ defined as asset, contract or business opportunity.  Does not apply; the buyer and the lender are not “competing for the same objective”.  6.2 (a) -provides that it may be possible to act for two clients with a “substantially common interest” in relation to a matter, or aspect of it, providing the safeguards at para 6.2 (i-iii) are met.

 A “substantially common interest” is defined in the Handbook Glossary as “a situation where there is a clear common purpose in relation to any matter or a particular aspect of it between the clients and a strong consensus on how it is to be achieved.  It is possible that a lender and borrower will have a substantially common interest because both parties will have a common interest in wanting to ensure that the property is taken free from defects which may adversely affect the value of the property, has good title, and is sellable in the future.  HOWEVER, it is unlikely that you can act for both client’s under 6.2 unless the mortgage is on the standard terms of the lender. This is because if the mortgage is not on standard terms, it is an inevitable corollary that the parties will need to negotiate. The difficulty is thus:

Conduct Issues and Conveyancing

 i) all clients have given informed consent, given or evidencing in writing to you acting  SRA states that informed apples to ‘sophisticated clients’ such as large companies with in-house legal advisors.  (ii) Safeguards are put in place to protect client’s confidential information; AND  separate floors, password protection, separate computer networks. Information barriers (aka Chinese walls)  (iii) you are satisfied that it is reasonable for you to act for all the clients.  6.2 para (c) requires you to be “satisfied that it is reasonable for you to act for all the clients and that it is in their best interests”. It is unlikely for acting for both clients in such a scenario to be in their best interests. Acting for joint buyers

 Usually acceptable provided no conflict of interest exists/likely to arise.

Acting for Joint Borrowers (E.g. Husband and Wife) – Consider Undue Influence

 Overview: Be mindful of the steps you need to take to protect against undue influence where co-owners seek a mortgage. If a co-owner has been subject to undue influence and a mortgage is defaulted upon, that mortgage may be able to be set-aside by the co-owner who was subject to undue-influence.  RBS v Etridge [2001] 4 All ER 449 – provided detailed guidance as to what solicitors should do when acting where a husband and wife who seek to use coowned property as security. The solicitor should: 1. Explain to the wife why the solicitor has become involved  i.e. to protect against a risk of undue influence. 2. Explain that, if necessary, the lender will rely on the solicitor’s involvement to counter a suggestion that the wife has been unduly influenced. 3. Obtain confirmation from the wife that she wishes the solicitor to act, and advise as to the legal and practical implications of the transaction. 4. The advice will depend on the facts of each case, but should include:  An explanation of the nature of the documents and practical consequences of signing them.  A warning as to the seriousness of the risks involved. 5. The solicitor must then check if the wife wishes to proceed and if the wife is happy for the solicitor to write to the lender to confirm that matters have been explained to her. 6. The solicitor should check that the following financial information has been made available from the lender, and refuse to make confirmation until they are received:  The purpose for which the loan is being made available;  The current amount of the husband’s indebtedness;

Conduct Issues and Conveyancing   

Mortgage Fraud

(See Law Society Practice Note – should be provided to you or it may be in your real estate workshop pack)

The amount of the current overdraft facility; The amount and terms of the new facility; and A copy of any written application made by the husband for the facility. 7. The solicitor’s discussion with the wife should take place at a face-to-face meeting in the absence of the husband, and the advice should be given in non-technical language. 8. It is not for the solicitor to veto the transaction , but if the solicitor thinks that the transaction is not in the wife’s best interests, he should give reasoned advice to that effect. Ultimately, the decision is one for the wife. 9. If it is ‘glaringly obvious’ that the wife is being ‘grievously wronged’, the solicitor should decline to act.  Where individuals misrepresent information about themselves in order to obtain a mortgage, or a larger mortgage than they otherwise could obtain.  Where an individual either: o Fails to disclose information which he has a legal duty to disclose or o Falsely represents information, either explicitly or implicitly. o They commit an offence of Fraud under the Fraud Act 2006.  The value of a mortgage obtained through fraud is the proceeds of crime.  Under the Proceeds of Crime Act 2002, a solicitor risks committing a money laundering offence if they acquire, use, have possession of, enter into an arrangement with respect to, or transfer this criminal property. Steps to Protect Your Firm from Mortgage Fraud – Due Diligence  Verify the identity of the client: o You should take steps to identify your client and any beneficial owners of the property. You should ensure that the information given to you corresponds with the information on any mortgage documents/bank accounts relating to the transaction. o This is required in most cases by Regulation 7 of the Money Laundering Regulations 2007.  If you have suspicions, check the identity given to you against a register of deaths or a list of known fraudsters.  Where the client is a company, conduct a search of the Companies Register to find out the names and addresses of the directors and the shareholders, which can be cross referenced with the names of those connected with the client.  Ideally, meet the Client: o Reg 14(2) of The Money Laundering Regulations 2007: where a solicitor has not met a client face to face, a solicitor must undertake “enhanced due diligence”.  This involves obtaining further information to establish the client’s identity, and taking steps such as ensuring the first payment from the client is from a bank account in the client’s name.

Conduct Issues and Conveyancing

Contract Races

 Be wary that fraudsters may pose as solicitors: o Occasionally fraudsters will make up solicitor’s firms, and use fake letter heads on correspondence etc. o Use the “Find a Solicitor” database or the Directory of Licensed Conveyancers to check on the identity of the other parties’ solicitor.  Consider any inconsistencies with a previous retainer:  E.g. if you do a conveyance of a modest family home and then a few years later instruct you to buy an expensive holiday home, where has the money come from?  Ask questions particularly with regards how the client is funding their purchase.  Where a seller enters into the conveyancing process with two or more prospective buyers at the same time. Buyers are competing with each other, winner – buyer who is ready to exchange contracts first.  Solicitor and firm are required to comply with 1.4. They must not mislead others either by their own acts or omissions or allowing or being complicit in the acts or omissions of the seller.  In the old codes, seller’s solicitor under the old codes was required to “inform all buyers immediately of the seller’s intention to deal with more than one buyer”.  No mention of this, but para 1.4 is likely to mean that solicitor should still comply with the notice requirement.  Where solicitor acting for seller, must explain to his client that he is required to comply with para 1.4.  Buyers sellers should both be warned of the time and expense incurred by the losers. Seller should be warned of the danger of losing all prospective buyers, if a race is commenced.  If seller wants to proceed with contract race, seller’s solicitor should then disclose this to solicitor acting for each buyer.  If seller refuses to allow solicitor to notify all prospective buyers of the contract race, solicitor cannot disclose race to prospective buyers as he has duty of confidentiality to client under para 6.3.  If he considers that 1.4 would be breached by non-disclosure, he MUST decline to act.  Solicitor must not accept instructions to act for both seller and any of the buyers in a contract race as there will be a conflict of interest (6.2)  “Client conflict” is defined Handbook Glossary (p189) as “any situation where you owe separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties may conflict”.  Where 6.2 applies, you can only act in a situation where 6.2 (a) or 6.2 (b) applies.  6.2 (a) - provides that it may be possible to act for two clients with a “substantially common interest” in relation to a matter  A “substantially common interest” is defined in the Handbook Glossary as “a situation where there is a clear common purpose in relation to any matter or a particular aspect of it between the clients and a strong consensus on how it is to be achieved.

Conduct Issues and Conveyancing

 6.2 (b) Competing for the same objective defined in SRA glossary as - which if attained by one client makes it unattainable to the other client.  ‘Objective’ defined as asset, contract or business opportunity.  In commercial property cases, it may be possible to act, as clients have a conflict of interest but are competing for the same objective. Particularly where clients are sophisticated users of legal services and effective safeguards such as information barriers can be put in place. As this will make it more likely that the conditions are met.

Undertakings

 Undertakings are promises by a solicitor to do something, cause something to be done, or refrain from doing something  When given, these are binding on the solicitor.  If the solicitor fails to comply with the undertaking, they will be: o Personally, liable for completing the undertaking. o In breach of O11.2 of the Code.  Definition: o Provided by the Handbook Glossary (p239). o An undertaking is:  A statement  Given orally or in writing – it is not necessary for an undertaking to be written down.  Whether or not it includes the word “undertake” or “undertaking” – it is not necessary to say “I undertake” to make an undertaking binding.  Made by or on behalf of you or your firm.  In the course of practice  OR by you outside the course of practice, but as a solicitor.  To someone who reasonably places reliance on it, that you or your firm will do something, or cause something to be done, or refrain from doing something.  1.3 o Requires a solicitor to “perform all undertakings given by you within an agreed timescale or within a reasonable amount of time”. ❖ A solicitor is not obliged to give or accept undertaking. But there will be situations in conveyancing where a solicitor will be asked to give an undertaking on his client’s behalf. Eg., undertaking rom seller’s solicitor that he will discharge his client’s mortgage over the property. ❖ In which case, Law society has agreed standard wording for undertaking. But must always read over it to ensure it’s appropriate for the circumstance.  Failure to honor undertaking = professional misconduct.  If given orally, it’s best to confirm or record in writing so there can be no doubt as to the consent.

Conduct Issues and Conveyancing  Once given and recipient ahs relied upon it, can be withdrawn ONLY by agreement.

Dealing with non-solicitors

 Where a solicitor undertakes to perform an act that is outside a solicitor’s control, and that act does not occur, they will still be in breach of the undertaking. The fact the solicitor could not perform it is no defense o Consider the wording of the undertaking. E.g. use “reasonable endeavors” to complete a task.  Can deal with licensed conveyancers as if they were a fellow solicitor.  Unqualified persons  Legal Services Act 2007 makes it an offence for unqualified person to property contract, transfer or charge.  Do not take undertaking from unqualified person as it will be unenforceable.  So, if seller represented by unqualified person, then buyer’s solicitor must require seller to produce signed form DS1 (receipted mortgage) rather than accept an undertaking for the discharge.  If acting for the lender, and the borrower is represented by unqualified person  The solicitor acting for lender is not under obligation to do work for the buyer which buyer’s solicitor would normally do, don’t have to give them additional assistance. But must bear in mind, the lender client’s interest in obtaining good title to property is paramount.  Buyer or seller is not represented at all  Solicitor under a duty to act in best interests of his client (Principle 7) but to act with integrity (Principle 5) and not to take advantage of third parties (para 1.2).  Where principles conflict, introduction of SRA codes state that those which safeguard wider public takes precedence. So, if opponent provides badly drawn documentation, solicitor should tell them to seek legal advice.

Conduct Issues and Conveyancing...