Conflicts
of interest, as outlined within the SRA handbook is an important issue that we
as conveyancers must consider at the forefront of every undertaking of
instruction by potential clients to a transaction. The SRA handbook outlines
two different types of conflict which shall be detailed below.
Georgie Harrington, trainee solicitor with MJP Conveyancing will seek to
discuss the contentious topic of acting for both the buyer and seller to a conveyancing
transaction, a matter that holds a very high risk of conflict within a firm.
Investigating the potential difficulties and whether it is ever considered good
practice.
‘Conflict’ for the purposes of our understanding, is
something that compromises your, or your firm’s, ability to act in the best
interests of each of the clients. For example, one is not able to
recommend the best course of action for one client if it in turn prejudices, or
has the potential to, affect the interests of the other client to the firm.
The two types
of Conflicts of Interests:
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The first type of conflict is that of an ‘Own Interest
Conflict’. The nature of this conflict arises where your duty to act in the
best interests of any client conflicts with your own interests. This could
include a financial or personal interest for example. The second type of
conflict arising more commonly in the practice of conveyancing is the ‘Client
Conflict’ held in Outcome 3.5.
This is whereby the solicitor owes separate
duties to act in the best interests of two or more client’s in relation to the same
or related matters and these duties conflict or there is a significant risk of
the duties conflicting.
Acting for the
Buyer and Seller:
A common client conflict within the conveyancing field
occurs from the scenario where a conveyancer to the firm takes instruction to
act for both the buyer and the seller of a property.
The SRA does not make these circumstances impossible
under the rules; we know this because of the existing exceptions contained in
Outcomes 3.6 and 7.
Examples include where the transfer of land is a gift
between the parties or it is between family members or such like. There may be
such a close connection between the parties to enable their interests to so
closely relate it would be disproportionate to instruct a further solicitor on
the matter. Chapter 14 of the Code explains that a ‘substantial common
interest’ between the clients must be clear and the achievable outcome evident,
with the conflict being secondary to the common interest. Of course here, the
clients must first be agreeable and aware of the risks involved. Furthermore, a
situation may exist where the parties know the solicitor well and do not want
for anyone else to act on their behalf. With all this in mind, it is ultimately
down to the acting solicitor to decide whether a client conflict is likely to
arise, the significance of the common interest if any, and whether it is
reasonable in taking the risk. This in turn raises the question ‘at what point
is it reasonable to undertake the risk based purely on the understanding that
the client’s share a common interest?’
In light of making this decision, the solicitor must
take into consideration certain factors such as the likelihood of making
negotiations between the two parties and whether this would create an imbalance
between the interests. For example, where negotiation of price comes into
question, there is a significant risk that negotiation will not benefit the
best financial interests of at least one of the client’s. As we well know,
negotiations are simply not limited to that of monetary requirements. The
parties to a transaction are often faced with the discussion of insurance
policies, what fixtures and fittings are to be included in the sale price,
agreeable completion dates and so on. Moreover, the solicitor must consider any
situations, necessary action or advice that would put one of the parties in a
vulnerable position. For example where there is an existing exchange or
completion deadline or where a survey flags up an important issue, the
solicitor is obliged to advise on what is most beneficial under such
circumstances. This advice may not be effective as it is simply conflicting or
may in turn expose one client to vulnerability.
A firm, in compliance
with the Outcomes to the SRA must consider and put in place such behaviours
that will limit the risks of a conflict arising. Adhering to these behaviours
will evidence that a solicitor has complied with the overlying Principles to
the Code of Conduct. If subsequent to entering into the client-solicitor
relationship with both the parties, a conflict or risk of such arises or even
where the existing conflict becomes relevant, the acting solicitor is obliged
to cease to act for one of the parties. He may continue to act for the other
party to the transaction if this does not affect the confidentiality of the
former party.
In consideration of the above, whilst the SRA
Code of Conduct enables the possibility to act for the buyer and seller of a
property, the practice is not one to be recommended. In circumstances it may be
considered desirable for the practicality of the prospective clients, however
in balance of this against the capability of a conflict to arise, I determine
it trifling. Be it better for a firm to comply with behaviours and practices to
avoid these conflicts than to enter into an agreement where the risk is so
dependent upon matters out of our hands
MJP Conveyancing 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 davidpett@m-j-p.co.uk
