The HSBC’s decision to make it less attractive for its mortgage customers to instruct their own solicitor has caused much anxiety within conveyancing practices , with many firms facing the loss of potential work from existing and potential clients.
The question is whether anything can be done to prevent this from happening. Can a customer of HSBC insist on using his or her own solicitor without having to face a financial penalty?
Why freedom of choice is important?
One of the main concerns is conflict. Solicitors have in the past acted for both buyer and lender and though the principles laid down in the recently introduced customer focused regulations ( Core Duties) would suggest ( if strictly applied ) that such a conflict should not be allowed to occur, it seems the Law Society has taken the view that its ‘business as normal’. A decision which we as Conveyancers are of course happy to accept.
However when as in the present case HSBC has entered into a contract with one firm of solicitors and is providing its customers with a financial incentive to use those solicitors the dynamics of the relationship change and the scope for conflict is heightened. How can the panel firm guarantee that it will not put the interests of HSBC before those of its clients? Surely it will not wish to lose what must be quite a lucrative contract with HSBC and therefore the commercial interests must clearly become influential.
What does the law say?
"It has always been the fundamental right of every citizen to be represented by solicitors of his or her choice" (Maltez v.Lewis (1999)).
HSBC may argue that the client has a choice and is not so restricted. This may on the surface be correct, however when as is the case the client has received an offer of mortgage and is not looking to lose this, particularly in the present climate, and knows that if they decide to instruct their local solicitor they may be paying more, surely this all adds up to a rather tight and unreasonable constraint?
The Core Duties 3 & 4 of the Solicitors Practice Code 2007 say a solicitor's agreement with a third party's restriction on client choice could compromise the solicitor's independence and/or amount to a breach of Core Duty 4 where such a restriction may not be in the best interests of a client. As mentioned above one must question whether the solicitors acting under a high value commercial arrangement with the Bank is able, despite its best efforts, to provide unfettered advice to its clients. Surely the very fact it is paid by the Bank and not the client makes this very different from the situation with other lenders where the client pays the fees. The existence of a commercial arrangement between the bank and the solicitors must clearly compromise the solicitors in their dealing with the client.
Parallels with the insurance market
This issue is one which is often encountered in the insurance field when providers of legal indemnity insurance seek to limit the choice of solicitor, when a claim arises, to a member of the insurer’s panel of solicitors. A conflict in these circumstances often occurs if the provider of the indemnity insurance also happens to be the insurer of the defendant against whom the claim is to be brought. In this case the position is clear - the insurer must provide the freedom for the policyholder to choose its own lawyer.
Interestingly The Financial Ombudsman Service has confirmed the above points and also recommended that it is appropriate to use the policyholder's own solicitor in any cases where there is a suggestion of a conflict of interest, or in large and complex matters. In this case if therefore an insurer insists on a panel lawyer, the policyholder may be able to refer the matter to the Financial Ombudsman Service.
It will be interesting to see whether clients with the help of their choice of solicitor look to what has happened in the insurance industry and begin to challenge through the Ombudsman Service the financial disincentives imposed by HSBC on freedom of choice.
HSBC must be taken to task on this policy decision. The scope for conflict is wider and different from the relationship between other lenders and their panel of solicitors who are sanctioned to act on their behalf but with whom there is no commercial arrangement under which money is paid to the solicitor direct.
Solicitors affected by this decision may consider making a complaint relying on Core Duties 3 and 4.
Clients affected may decide to refer the latter to the Ombudsman for investigation though in practice and with the fear of losing a mortgage offer this may not happen.
Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at firstname.lastname@example.org