The recent SRA Guidance on conflicts has little to say about how the Code of Conduct for Solicitors applies to residential conveyancing. Fiona du Feu, Director of My Compliance Colleague, takes a look.
First, though there is no blanket prohibition on acting for both sides in a conveyancing transaction, that does not mean you have carte blanche to do so.
What is meant by ‘conflict’?
There is no single objective test to determine whether or not there is a conflict of interest; essentially it’s a judgement call. Conflict of interest ‘means a situation where your separate duties to act in the best interests of two or more clients, in relation to the same or a related matter, conflict’ (SRA Glossary). However, the situations in which there will not be a conflict, or risk of one, will be rare, as conveyancing is fraught with such risks. Think of arguments over price, conditions, SARs reporting, the need for indemnity policies and timing issues, for example. While buyers do want to buy and sellers want to sell, that does not mean their interests are wholly aligned.
What is meant by in the best interests of each client?
A client has the right to expect their matter to be dealt with honestly, independently and with integrity. The Principles make it clear that these are all separate requirements, so acting in their best interests must be something in addition. But what? It means that, as their solicitor, there is nothing deflecting you from rigorously pursuing their objective (within the rule of law). Ask yourself this question: is my judgement as to what is in my client’s best interests being influenced by any external factors? Consider:
- the need to achieve billing targets
- the culture of the firm (we’ve always done it this way)
- not wishing to alienate long-standing clients
- the need to attract and retain new ones
Let’s be clear: if you do act, this should only be because of individually reasoned and carefully documented benefits to each of the clients. A client’s best interests do not include either a financial benefit to the firm, or blind adherence to cultural or performance expectations. A note of caution: improved speed of transactions is a frequently-cited rationale, but it’s drawbacks are noted below.
Don’t the exceptions apply? No: acting for both buyer and seller in a standard conveyancing transaction does not fall within exceptions (a) or (b) of paragraph 6.2 of the Code (the ‘substantially common interest’ and ‘competing for the same objective’ grounds).
How do I decide if the firm can act for both sides?
The starting position is that it is difficult to act in the best interests of both clients simultaneously. You must establish that you can, in each case.
1. Assess the risk of a conflict arising. That will depend on the facts—a transfer of equity following a matrimonial settlement is less likely to give rise to a conflict (since the terms are normally agreed or imposed by the court), compared to a normal market-value transaction between unrelated parties.
2. Consider whether your ability to act in the best interests of each client is compromised by:
- any need to negotiate between the parties
- any imbalance in bargaining power
- one party having a particular vulnerability
3. Finally, weigh the risks from both sides of the debate, arriving at a fully-reasoned, documented decision. It should be bespoke to the transaction if it’s to have any credibility, and fully ratified by the COLP.
If you decide, exceptionally, that it is appropriate to act for both parties, consider ensuring that each client:
- is represented by different fee earners within the firm, are of equal status, and separately supervised;
- is effectively informed in writing of the risks and potential consequences (in terms of inconvenience, delay and possible additional costs) if the firm has to cease acting, especially where the transaction is part of a chain;
- understands why you consider there is no conflict (they may disagree); and
- has given that informed consent in writing before the work starts.
- how you will ensure confidentiality and that client/transaction information is not accessed inappropriately;
- managing potential arguments (eg over indemnity policies, by agreeing a contribution level at the outset: include this in the informed consent letter).
COLPs will wish to keep scrupulous records to demonstrate compliance with SRA Code for Firms requirements for:
- having systems and controls 2.1
- record-keeping 2.2
- risk monitoring and management 2.5
In SRA v Mawbey-Shaw a firm routinely acted for both sides in conveyancing transactions (700 over five years), but were unable to show:
- adequate, informed, documented consent on both sides;
- how it was made clear to clients that they could instruct another firm if they preferred;
- how competing confidentiality and disclosure requirements would be met;
- how clients were informed of the practical implications of ceasing to act if a conflict subsequently arose;
- how vulnerability and imbalance of bargaining power had been addressed; and
- consistent records, training or proper systems and procedures.
Significantly, in the Respondent’s view ‘…the main attraction for seller clients of using his Firm was the speed with which it could process the transaction, given that it was acting on both sides of the transaction’. That did not convince the Tribunal: ‘…this appears to have been a generic judgement call, routinely applied to all cases. There is no evidence in support of this…either generally or in individual cases’.
COLPs may, of course, take the view that it is safer to have a blanket policy simply declining to act on both sides.