Chapter 2: Managing Client Relationships

Question 1

Customer Due Diligence: The Basics

Answer 1

Customer due diligence relates to the Money Laundering Regulations 2017 – or MLR. So if the MLR apply, what do you have to do and when do you have to do it?

Well the MLR say that you have to carry out customer due diligence when establishing a business relationship; or carrying out an occasional transaction; or if you suspect money laundering or terrorist financing. This is in Regulation 27 of the MLR.

And what is CDD – what does it mean?

It means identifying your client and verifying their identity. You need to think about this in two ways

first identify the client and secondly verify their identity on the basis of documents, data or information from a reliable source.

Question 2

Identification and Verification

Answer 2

So identifying the client could simply be being told or coming to know the client’s identifying details – their name and address.

Once you’ve identified them you need to verify their identity – so you need to obtain some evidence that supports their claim of identity.

Question 3

Verification can be

Answer 3

Verification can be:

• obtaining original documents – eg a passport and utility bill.

-conducting electronic verification – there is some guidance available from the law society on obtaining electronic verification.

-or it can be obtaining information from other regulated people, so there is a list in the MLR of accepted persons like solicitors and banks etc.

In practice most firms prefer not to rely on information from another regulated person, and prefer to do the verification themselves.

Question 4

Identifying the relevant CCD

Answer 4

Now the practical point here is to identify what your employer’s CDD, or as it’s sometimes known as ‘know your client’, policy is. Law firms will have a policy on this but if you work in-house, the company you work for will most likely have a policy on this too for business and people they enter contracts or do business with.

If you are not sure what your employer’s policy is – ASK

It is very important, particularly in a law firm, to be sure that you are making the correct checks when taking on a new client.

And, although there are some exceptions, the general rule is that you do not act until the correct checks have been carried out.

Question 5

Conflict Check

Answer 5

A conflict check is an SRA requirement.

Basically the Solicitors Regulation Authority’s (‘SRA’) Code of Conduct for Solicitors, Registered European Lawyers and Registered Foreign Lawyers (‘CCS’) and Code of Conduct for Firms (‘CCF’), known as the Codes, at paragraph 6.2 say that you do not act where there is a conflict of interest - so for example you do not act for both sides of a transaction or a dispute.

Question 6

Conflict Check

Answer 6

This is to ensure that you comply with the SRA Principles, particularly Principle 2 (uphold public trust in the solicitor’s profession), Principle 3 (act with independence) and Principle 7 (act in the best interests of each client).

Also, CCF requires firms to have systems in place to ensure they do not breach the rules, so for example they do not act if there is a conflict.

There is no one standard conflict check procedure. Therefore, as a practical point, you need to check you know how your firm carries out a conflict check.

Question 7

The three C’s – client care letter

Answer 7

Then we get to our third C – the client care letter.

The client care letter, or letter of engagement, is basically a letter sent to the client at the beginning of a matter setting out the terms on which the solicitor will carry out the work for the client. The SRA has produced a guidance note on how to write a good client care letter.

Question 8

Client care letter

Answer 8

When in practice, you must read and review your firm’s client care letter.

The client care letter helps to achieve CCS provisions 3 on service and competence and 8 on complaints handling and client information.

Sending a client care letter is NOT a requirement under CCS and CCF but sending a client care letter that includes a lot of the information, particularly that is set out in CCS 8, helps firms demonstrate that they have met the requirements of the SRA Codes.

Question 9

Client care letter – CCS 8.3

Answer 9

CCS provision 8.3 applies to client care letters.

Clients must be informed in writing at the time of engagement about:

· their right to complain about your services and your charges

· how a complaint can be made and to whom

· any right they have to make a complaint to the Legal Ombudsman and when they can make any such complaint.

Since clients need to be informed in writing at the time of engagement about the firm’s complaints procedure, most firms show they have complied with this by including it in their client care letters.

Question 10

Client care letter – CCS 8.6

Answer 10

CCS 8.6 is also important – it says that you must

· give clients information in a way they can understand

· ensure they are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them.

So, you should be giving clients information about who will handle their case, how often you will update them etc.

Question 11

Client care letter – CCS 8.7

Answer 11

Finally, CCS 8.7 is also important – you must ensure that clients receive the best possible information about how their matter will be priced and both at the time of engagement and as their matter progresses, about the likely overall cost of the matter and any costs incurred.

Many client’s complaints arise from them not understanding how they will be charged for a matter – so this is very important.

So, a client care letter is a good way of achieving lots of different requirements of CCS.

Question 12

Summary

Answer 12

So, in this element we have identified the fundamental principles of the 3 Cs in one place.

If you’ve got a new client you need to do CDD, a conflict check and send out a client care letter.

We’ve also looked at:

when to do CDD and what it is,

why a conflict check is carried out, and

which provisions of CCS a client care letter can help satisfy.

As a practical point in practice, you should find out how your firm carries out CDD and does a conflict check and you should also find your firm’s standard client care letter.

Thank you very much for listening.

Question 13

Taking on a new client

Answer 13

• These issues are important whether you work in a law firm or in-house. In-house lawyers need to consider ‘know your client’, the level of service they provide to their in-house client, and whether they are conflicted.
• This element will refer to provisions in the Solicitors Regulation Authority’s (‘SRA’) Principles, the SRA Code of Conduct for Solicitors, Registered European Lawyers and Registered Foreign Lawyers (‘CCS’)​ and Code of Conduct for Firms (‘CCF’)​, (together the ‘Codes’), so have these documents to hand.

Question 14

Taking on a new client

Answer 14

As well as the three Cs, as a lawyer you need to consider whether there are any reasons why you should not take on the new client. In this element we will consider three reasons why you might NOT be able to accept instructions from the client:

• Would you be breaching the law or the Codes?
• Can you deliver the service in a competent or timely manner?
• Are you authorised to act on your client’s behalf?

Question 15

Breaching the law or codes

Answer 15

You cannot accept the client’s instructions if you would be breaching the law.

Principle 1: acting in a way that upholds the constitutional principle of the rule of law, and the proper administration of justice.

Principle 2: act in a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons.

If your client asked you to commit a fraud, for example lie to a lender about how much the client’s property is worth in order to obtain a mortgage, you would not be able to act for the client.

If accepting your client’s instructions would lead to a conflict of interest with another client, you would not be able to act as you would be breaching CCS.

Question 16

Provide a competent service

Answer 16

CCS 3.2: ‘You ensure that the service you provide to clients is competent and delivered in a timely manner.’

Examples where you may be at risk of breaching CCS 3.2 include:

Are you a corporate lawyer being asked to advise on a property matter? If so, you are unlikely to provide a competent service to your client, so you should refer your client to another lawyer.

Are you too busy to be able to provide a service in a timely manner to the client? If so, you should refer the client to another lawyer. This could be someone else in your team.

Question 17

Are you authorised to act on your client’s behalf?

Answer 17

CCS 3.1: ‘You only act for clients on instructions from the client or from someone properly authorised to provide instructions on their behalf. If you have reason to suspect that the instructions do not represent your client’s wishes, you do not act unless you have satisfied yourself that they do. However in circumstances where you have legal authority to act notwithstanding that it is not possible to obtain or ascertain the instructions of your client, then you are subject to the overriding obligation to protect your client’s best interests.’

Question 18

Acting for a married couple

Answer 18

For example, if you are acting for a married couple on a matter you need to be sure that you have authority to act for both spouses. So if your instructions come from one spouse, ensure that you have confirmation in writing from the other spouse that they are happy for you to act on their behalf.

If you have reason to believe that the instructions do not represent the wishes of your client, you cannot act.

Question 19

Are you authorised to act on your client’s behalf?

Answer 19

Let’s look at another example of CCS 3.1:

You attend a meeting with a new client, Jason Shelley. He says he is a director of Libris Limited (‘Libris’). He wants to instruct your firm to advise Libris on the acquisition of Braxton Books Limited for £3 million.

What issues does this give rise to under CCS 3.1? Note down the issues and how you would address them, then check your answer on the next slide.

Question 20

Are you authorised to act on your client’s behalf?

Answer 20

You attend a meeting with a new client, Jason Shelley. He says he is a director of Libris Limited (‘Libris’). He wants to instruct your firm to advise Libris on the acquisition of Braxton Books Limited for £3 million.

There are two issues here:

1) How do we know Jason is a director of Libris?

2) How do we know whether Jason has authority to instruct your firm on behalf of Libris?

1) You need to identify Jason. You should carry out a search at Companies House to check that he is a director of Libris.

2) You need to see evidence that Jason is authorised to instruct your firm on behalf of Libris. A good example would be the board minutes authorising Jason to instruct your firm on the acquisition.

You attend a meeting with a new client, Jason Shelley. He says he is a director of Libris Limited (‘Libris’). He wants to instruct your firm to advise Libris on the acquisition of Braxton Books Limited for £3 million.

There are two issues here:

1) How do we know Jason is a director of Libris?

2) How do we know whether Jason has authority to instruct your firm on behalf of Libris?

1) You need to identify Jason. You should carry out a search at Companies House to check that he is a director of Libris.

2) You need to see evidence that Jason is authorised to instruct your firm on behalf of Libris. A good example would be the board minutes authorising Jason to instruct your firm on the acquisition.

Question 21

Other obligations

Answer 21

Remember also that you must always comply with your ongoing obligations under the SRA’s requirements, which may affect the way you provide advice to your client. These include:

Principle 6: acting in a way that encourages equality, diversity and inclusion.

CCS 1.1: You do not unfairly discriminate by allowing your personal views to affect your professional relationships and the way in which you provide your services.

Question 22

Summary

Answer 22

Remember also that you must always comply with your ongoing obligations under the SRA’s requirements, which may affect the way you provide advice to your client. These include:

Principle 6: acting in a way that encourages equality, diversity and inclusion.

CCS 1.1: You do not unfairly discriminate by allowing your personal views to affect your professional relationships and the way in which you provide your services.

Question 23

Conflicts of interest: Introduction
Introduction

Answer 23

Hello and welcome to this element which takes you through some of the key points on conflicts of interest.

We will be considering:

· the rule that you cannot act if there is a conflict of interest

· the meaning of own interest conflict and conflict of interest

· the exceptions to the rule that you cannot act if there is a conflict of interest and

· the steps you should take to identify conflicts.

Question 24

Conflicts of interest

Answer 24

There are two types of conflicts of interest which the Codes (that is the code of conduct for solicitors (or CCS as we call it) and the Code of Conduct for Firms (or CCF as we call it) are concerned about.

First there is an ‘Own interest conflict’: under section 6.1 of both of the Codes – ‘You do not act if there is an own interest conflict or a significant risk of such a conflict.’

Question 25

Conflicts of interest

Answer 25

Then there is a ‘conflict of interest’: under section 6.2 of both of the Codes – ‘You do not in relation to a matter or particular aspect of it if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it, unless either of 6.2(a) or (b) apply.’

Note that there doesn’t have to be an actual conflict for either type of conflict situation; a significant risk of one arising will be sufficient to trigger these sections.

Question 26

Conflicts of interest

Answer 26

So, there are two types of conflict: own interest conflict and conflict of interest. Both types of conflict are defined in the SRA Glossary.

Let’s look at each in turn.

Question 27

Own interest conflict – CCS/CCF 6.1

Answer 27

Firstly, looking at an own interest conflict, this is defined in the Glossary and it is:

‘any situation where your duty to act in the best interests of any client in relation to a matter conflicts, or there is a significant risk that it may conflict with your own interests in relation to that or a related matter.’

So, it’s really important that the conflict relates to the client’s instruction to you – not some other issue. An example of where the conflict relates to the matter you are instructed on is if you are buying a property from a client and you are instructed on the sale.

Question 28

Own interest conflict – CCS/CCF 6.1

Answer 28

If there is a significant risk of a conflict arising, rather than an actual one having arisen, that is enough to be caught within CCS/CCF 6.1.

Paragraph 6.1 of the Codes states that you cannot act if there is an own interest conflict - there are no exceptions to this. However, these conflicts are very rare.

Question 29

Own interest conflict - examples

Answer 29

Some examples of circumstances when an own interest conflict would arise are in the SRA’s guidance on conflicts of interest and include:

· A financial interest of yours or someone close to you: for example a client asks you to carry out due diligence on a company you or your spouse/partner own shares in.

· A personal or business relationship of yours: for example, you are asked to advise on a claim against a relative of yours, a friend, or someone you are involved with in a financial or business enterprise.

· Your role as an employee: for example a client asks for advice in relation to a dispute involving your employer or a fellow employee.

· Your own conduct as a firm or individual: for example, where the wrong advice has been given to a client or a wrong action taken on their behalf.

Question 30

Conflict of interest – CCS/CCF 6.2

Answer 30

The second category of conflicts, which is less rare than an own interest conflict, is a conflict of interest. Conflict of interest is defined in the SRA glossary as: ‘a situation where your separate duties to act in the best interests of two or more clients in relation to the same or related matters__conflict’.

The most obvious example is where there is a dispute and you are instructed to act for the parties on both sides of the dispute, or you are instructed to act for both the buyer and the seller on a transaction.

This type of conflict is a lot more common than an own interest conflict.

Question 31

Conflict of interest – CCS/CCF 6.2

Answer 31

So, let’s look at the key elements of a conflict of interest, remembering that under SRA Principle 7, we have a duty to act in the best interests of each client.

The key elements of a conflict of interest are:

· the conflict has to arise out of the ‘same or related matters’ – this is not defined but look for the same asset or liability or a reasonable degree of relationship between the assets or liabilities for the conflict to arise.

Question 32

Conflict of interest – CCS/CCF 6.2

Answer 32

· the duties owed to your clients’ conflict – would advising one client to do what is best for it prejudice the course of action you would recommend to another? Or even completely conflict with it?

As with own interest conflicts, if there is a significant risk of a conflict arising, rather than an actual one having arisen, that is enough to be caught within CCS/CCF 6.2.

If you fall within the scope of CCS/CCF 6.2, you cannot act unless you fall within one of two exceptions.

Question 33

SCI exception

Answer 33

There are only 2 exceptions to the rule in CCS/CCF 6.2.

The first one is set out in the Codes at paragraph 6.2(a) and is where:

· the clients have a substantially common interest, defined in the SRA Glossary as:

‘a situation where there is a clear common purpose between the clients and a strong consensus on how this is to be achieved.’

AND

· all of the criteria in 6.2(i) –(iii) are met

Question 34

SCI examples

Answer 34

So, let’s look at some examples of a SCI:

Firstly, two people are buying a house to live in together. They both have a clear common purpose, buying the house. They also both have a strong consensus on how it is to be achieved as they will both have the same interest in there being no problems with the title to the house they buy.

Secondly, two clients instruct you on setting up a business together. The common purpose is setting up the business. To demonstrate a strong consensus, they will need to have agreed the key terms, for example how the business will be owned, and its purpose.

SCI is quite rare in practice and even if you have an SCI you still have to comply with the conditions set out at CCS/CCF 6.2(i)-(iii), which we will look at in a moment.

Question 35

CSO exception

Answer 35

The second exception to the rule in CCS/CCF 6.2 is set out at paragraph 6.2(b) and is where:

· the clients are competing for the same objective, defined in the SRA Glossary as: ‘two or more clients are competing for an objective which, if attained by one client, will make that objective unattainable to the other client or clients.

AND

· all of the criteria in 6.2(i) –(iii) are met.

Question 36

CSO exception

Answer 36

So what is an objective?

Objective is defined in the SRA Glossary as:

• an asset; or
• a contract; or
• a business opportunity

which two or more clients are seeking to acquire or recover through a liquidation (or some other form of insolvency process); or by means of an auction or tender process or bid or offer which is not public.

The CSO exception might be used for example, where two clients are competing to buy a business at an auction or through a tender process. One of the clients winning the action or tender process means that the objective (ie the business) will be unattainable to the other client.

This exception is very rare and is usually only applicable to sophisticated clients.

Question 37

The conditions for SCI and CSO

Answer 37

So, what are the criteria or conditions which also need to apply before the SCI or CSO exceptions to a conflict of interests can apply?

They are set out in paragraph 6.2(i)-(iii) of the Codes and are as follows:

(i) all the clients have given informed consent, given or evidenced in writing, to you acting;

(ii) where appropriate, you put in place effective safeguards to protect your clients’ confidential information; and

(iii) you are satisfied it is reasonable for you to act for all the clients.

Question 38

Steps to take to identify conflicts

Answer 38

We have seen that you cannot act if there is a conflict, either an own interest conflict or a conflict of interests, unless one of the exceptions to a conflict of interests applies (which is rare). So, as a practical point, one of the things you will have to do is take steps to identify whether there is a conflict.

CCF 2.1 says that firms must have in place effective systems to identify conflicts. You will see that a conflict check is something you carry out when you take on a new client.

Question 39

Steps to take to identify conflicts

Answer 39

If you are instructed by a new client you need to find out if you or your firm has acted for or against any of the parties to the transaction or owners of the parties in the past

You here means you personally and you the firm.

Note that there is no standard conflict check, each firm has their own.

Question 40

Summary

Answer 40

· You cannot act if there is a conflict or a significant risk of one.

· There are two types of conflict: an own interest conflict and a conflict of interest.

· An own interest conflict has no exceptions but is very rare.

· A conflict of interests is more common but has two exceptions.

· The exceptions to the rule about not acting where there is a conflict of interests are 1) where there is a substantially common interest between the clients and 2) where the clients are competing for the same objective. In both cases, the three conditions set out in CCS/CCF 6.2 also need to apply.

Question 41

Summary

Answer 41

· The competing for the same objective exception to not acting where there is a conflict of interests is very rare. The substantially common interest exception is rare.

· Firms must have in place effective systems to identify conflicts.

So, we have considered the rule that you cannot act if there is a conflict of interest, the definitions of own interest conflict and conflict of interest and the exceptions to the rule that you cannot act if there is a conflict of interests.

Do remember to go to the primary source and read the provisions in the SRA Code on this to consolidate your knowledge.

Thank you for listening.

Question 42

SRA requirements relating to Conflict of Interest

Answer 42

What are the SRA’s requirements regarding conflicts of interest?

CCS 6.1: ‘You do not act if there is an own interest conflict or a significant risk of an own interest conflict.’

CCS 6.2: ‘You do not act in relation to a matter or a particular aspect of it if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it unless…’

These prohibitions apply to individuals under CCS and also to firms (CCF 6.1 and 6.2).

NB CCS 6.2 goes on to set out two exceptions when it is possible to act if you meet certain conditions.

Question 43

SRA Principles

Answer 43

Why are lawyers subject to this prohibition? Remember the overarching Principles:

Principle 2: You must act in a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons.

Principle 3: You must act with independence.

Principle 4: Act with honesty.

Principle 5: Act with integrity.

Principle 7: Act in the best interests of each client.

Question 44

Why are lawyers prohibited from acting where there is a conflict of interest?

Answer 44

Principle 7: You must act in the best interests of each client.

Imagine you are acting for a company (‘seller’) that plans to sell its business to another company (‘buyer’).

The transaction will involve negotiation on a number of issues: the price, the protections afforded to the buyer etc. The interests of the buyer and the seller will conflict on many aspects.

You will not be able to act in the best interests of both the seller and the buyer on the transaction. You may also have difficulty complying with Principles 2, 3, 4 and 5.

This is why you are prohibited from acting where there is a conflict of interest.

Question 45

Own Interest Conflict

Answer 45

An own interest conflict is defined in the SRA Glossary as:

‘Any situation where your duty to act in the best interests of any client in relation to a matter conflicts, or there is a significant risk that it may conflict, with your own interests in relation to that or a related matter.’

Question 46

Own Interest Conflict

Answer 46

The SRA Guidance on Conflicts of Interest contains examples of circumstances that may give rise to an own interest conflict. These include:

A financial interest of yours or someone close to you: for example a client asks you to carry out due diligence on a company you or your spouse/partner own shares in.

A personal or business relationship of yours: for example, you are asked to advise on a claim against a relative of yours, a friend, or someone you are involved with in a financial or business enterprise.

Question 47

Own Interest Conflict

Answer 47

Your role as an employee: for example a client asks for advice in relation to a dispute involving your employer or a fellow employee.

Your own conduct as a firm or individual: for example where the wrong advice has been given to a client or a wrong action taken on their behalf.

Question 48

Own Interest Conflict

Answer 48

CCS 6.1: ‘You do not act if there is an own interest conflict or a significant risk of an own interest conflict.’

There are no exceptions to this rule.

If you have an own interest conflict, or there is a significant risk that an own interest conflict might arise, you must NOT act.

Question 49

Conflict of Interest

A conflict of interest is defined in the SRA Glossary as:

Answer 49

‘A situation where your separate duties to act in the best interests of two or more clients in the same or related matter conflict.’

The most obvious example is where there is a dispute between two clients or prospective clients. CCS 6.2 will prevent you acting for both sides in a litigation dispute.

CCS 6.2 goes on to set out two exceptions when it is possible to act if you meet certain conditions.

Question 50

Summary

Answer 50

The rules on client conflicts help you comply with Principles 2, 3, 4, 5 and 7.You must not act if there is an ‘own interest conflict’ or a significant risk of an own interest conflict (CCS 6.1). There are no exceptions to this rule. An ‘own interest conflict’ occurs where your duty to act in the best interests of your client conflicts with your own interests. You must not act in relation to a matter if you have a ‘conflict of interest’ or a significant risk of such a conflict (CCS 6.2).A ‘conflict of interests’ occurs where your separate duties to act in the best interests of two or more clients in the same matter conflict. There are two exceptions to the rule in CCS 6.2.

Question 51

Conflicts of interest: exceptions to the general rule

Answer 51

This element will refer to provisions in the Solicitors Regulation Authority’s (‘SRA’) Code of Conduct for Solicitors, Registered European Lawyers and Registered Foreign Lawyers (‘CCS’) and Code of Conduct for Firms (‘CCF’),(together the ‘Codes’),so have these documents to hand.

Question 52

Conflicts of interest: exceptions to the general rule

Answer 52

In this element we will consider the two exceptions to the general rule that you cannot act where there is a conflict of interest:

• Substantially common interest, and
• Competing for the same objective (CCS 6.2).

Remember that there are no exceptions to the rule that you cannot act where there is an own interest conflict (CCS 6.1)

You should have CCS 6.1 and 6.2 and the SRA Guidance on Conflicts of Interest to hand while you complete this element. These documents can be found on the SRA website:

CCS:https://www.sra.org.uk/solicitors/standards-regulations/code-conduct-solicitors/

SRA Guidance on Conflicts:https://www.sra.org.uk/solicitors/guidance/ethics-guidance/conflicts-interest/

Question 53

The Rule in CCS 6.2

Answer 53

CCS 6.2: ‘You do not act in relation to a matter or a particular aspect of it if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it unless:

a) The clients have a substantially common interest in relation to the matter or the aspect of it, as appropriate; or

b) The clients are competing for the same objective,

Question 54

and the conditions below are met, namely that:

Answer 54

(i) all the clients have given informed consent, given or evidenced in writing, to you acting;

(ii) where appropriate, you put in place effective safeguards to protect your clients’ confidential information; and

(iii) you are satisfied it is reasonable for you to act for all the clients.’

Question 55

Substantially Common Interest (‘SCI’)

Answer 55

The SRA Glossary defines substantially common interest as:

‘a situation where there is a clear common purpose between the clients and a strong consensus on how it is to be achieved.’

There are two important elements to the definition:

‘Clear common purpose’: It is arguable that for all commercial deals the clients have a clear common purpose: to get the deal done. Some students think that means the clients have a SCI but this is not the case, otherwise you would have the same firm acting for both the buyer and seller in most deals.

Question 56

Substantially Common Interest (‘SCI’)

Answer 56

You also need a ‘strong consensus’ as to how to achieve that common purpose. To satisfy this element the parties must have already agreed all the key terms of the deal and how it is going to proceed. This means there will be very little, if any, negotiation.

As soon as negotiation is involved, there is a risk that each of the parties’ best interests will differ and, in acting for both, you will not be able to act in each of their best interests. This will often be the reason why the SCI exception does not apply.

Question 57

Substantially Common Interest (‘SCI’)

Answer 57

Examples of where the SCI exception apply include:

Two people are buying a house to live in together. They both have a clear common purpose, buying the house. They also both have a strong consensus on how it is to be achieved as they will both have the same interest in there being no problems with the title to the house they buy.

Question 58

Substantially Common Interest (‘SCI’)

Answer 58

Two clients instruct you on setting up a business together. The clear common purpose is setting up the business. To demonstrate a strong consensus, they will need to have agreed the key terms, for example how the business will be owned, and its purpose.

Remember that in practice SCI is rare. Even if both of the elements in CCS 6.2(a) (clear common purpose and strong consensus) are satisfied, you will also need to satisfy all three elements at 6.2(i) – (iii).

Question 59

Competing for the same objective (‘CSO’)

Answer 59

The SRA Glossary defines substantially common interest as:

‘any situation in which two or more clients are competing for an “objective” which, if attained by one client, will make that “objective” unattainable to the other client or clients, and “objective” means an asset, contract or business opportunity which two or more clients are seeking to acquire or recover through a liquidation (or some other form of insolvency process) or by means of an auction or tender process or a bid or offer, but not a public takeover.’

Question 60

Competing for the same objective (‘CSO’)

Answer 60

An example where this exception could apply is where two clients are competing to buy a business at an auction or through a tender process. One of the clients winning the action or tender process means that the objective (ie the business) will be unattainable to the other client.

In practice this exception only applies to sophisticated clients. In addition to satisfying 6.2(b) you will need to ensure that all the conditions in 6.2(i) –(iii) are also satisfied. Again, this is rare in practice.

Question 61

The Conditions

Answer 61

For either SCI or CSO to apply, the lawyer involved will need to comply with all the conditions in 6.2(i)- (iii) namely:

(i) all the clients have given informed consent, given or evidenced in writing, to you acting;

(ii) where appropriate, you put in place effective safeguards to protect your clients’ confidential information; and

(iii) you are satisfied it is reasonable for you to act for all the clients.

Question 62

SRA Guidance on the Conditions

Answer 62

The SRA Guidance on Conflicts gives useful guidance on how to apply these conditions.

Condition (i):

(i) all the clients have given informed consent, given or evidenced in writing, to you acting;

The SRA Guidance states: ‘What will constitute informed consent will vary according to the circumstances. You must ensure that all the clients have given their agreement with appropriate knowledge and understanding of the situation. If the client is more vulnerable you will need to take this into account when giving them the necessary information.’

If one of the clients is more vulnerable than the other, it might not be in their best interest for you to act for both parties, see also condition (iii) below.

Question 63

SRA Guidance on the Conditions

Answer 63

Condition (ii):

(ii) where appropriate you put in place effective safeguards to protect your clients’ confidential information;

This condition can be a stumbling block to the exception applying. As you know, lawyers have a duty of confidentiality to their client.

The SRA Guidance states: ‘where there is a conflict of interest or a potential one, it is likely that information relevant to the matter cannot be passed by you between clients. This could be because of a lack of consent to disclose it or because it is not in the client’s best interests to do so. In these circumstances you must not act or cease acting - for one or both clients - unless either of the following situations apply…’

Question 64

The SRA Guidance sets out the following situations:

Answer 64

‘First you are a firm and can put effective safeguards in place. This will need to include separate fee earners acting for the clients. The courts have made it clear that …such safeguards require established structural separation within a firm so that confidential information cannot pass from the lawyer acting for one client to the lawyer acting for the other client.

Question 65

SRA Guidance on the Conditions

Condition (ii):

Answer 65

Alternatively, it may not be “appropriate” for effective safeguards to be put in place. This might arise, for example, where your clients consider it desirable for the same lawyer(s) to represent them, and they agree with you which information can and cannot be shared, and therefore that structural safeguards to protect their confidential information are not required.

Question 66

SRA Guidance on the Conditions

Condition (ii):

Answer 66

You will need to ensure that you obtain informed consent from each client that no structural safeguards are needed.’

You can see that in practice condition (ii) can be a stumbling block to the exception applying. It is very rare for clients to agree that effective safeguards to protect their confidential information are not necessary.

Question 67

SRA Guidance on the Conditions

Condition (iii):
* The respective knowledge and bargaining power of the clients

Answer 67

if one client is more vulnerable than the other, then it might not be reasonable for you to act for both of them. You should consider recommending that the vulnerable client obtains their own independent advice. Equally if a company is entering an agreement with an individual, it is likely that the company will be in a stronger bargaining position than the individual. If so, the individual should obtain their own advice.

Question 68

• The extent to which there will need to be negotiations between the clients

Answer 68

if it is likely that there will be negotiations between the clients, you should not act for both of them, as it is likely that there will be a conflict of interest.

Question 69

• Any particular benefits to the clients:

Answer 69

there might be benefits in you acting for both clients. For example if the matter requires specialist knowledge, (for example for an aviation matter, there may be a limited number of solicitors who are competent to advise.) There might also be benefits of speed, convenience or lower cost from one lawyer acting for both clients.

Question 70

Summary

Answer 70

Under CCS 6.2 and CCF 6.2, there are two exceptions where you may be able to act where there is a conflict of interest or a risk of a conflict of interest:where the clients have a substantially common interestin relation to the matter or the aspect of it, as appropriate; orthe clients are competing for the same objective.For each exception you must meet all the following conditions:all the clients must have given informed consent, in writing, to you acting;where appropriate you put in place effective safeguards to protect your clients’ confidential information; andyou are satisfied it is reasonable for you to act for all the clients.In practice the occasions when you will fall within these exceptions are rare.There is no exception to the rule that you cannot act if there is an own interest conflict (CCS 6.1 and CCF 6.1).

Question 71

Carrying out a conflict check

Answer 71

In this element we will consider:

• the requirement to carry out a conflict check, and
• how you carry out a conflict check.

This element will refer to provisions in the Solicitors Regulation Authority’s (‘SRA’) Code of Conduct for Solicitors, Registered European Lawyers and Registered Foreign Lawyers (‘CCS’)​ and Code of Conduct for Firms (‘CCF’)​.

Question 72

As a summary of the rules on conflicts:

Answer 72

There is a prohibition on acting where there is an own interest conflict (CCS 6.1) or a conflict of interests (CCS 6.2).

There are two exceptions in CCS 6.2 to the general rule that you cannot act where there is a conflict of interest:

• substantially common interest, and
• competing for the same objective.

There is no exception to the rule that you cannot act where there is an own interest conflict (CCS 6.1).

Question 73

Requirement to carry out a conflict check

Answer 73

CCF 2.1:

‘You have effective governance structures, arrangements, systems and controls in place that ensure:

(a) You comply with all the SRA’s regulatory arrangements, as well as with other regulatory and legislative requirements, which apply to you’.

Question 74

Requirement to carry out a conflict check

Answer 74

As far as conflicts of interest are concerned, CCF 2.1 means that law firms need to have systems in place to ensure that there are no conflicts in place at the outset of the instruction.

So what do you need to do?

Question 75

Requirement to carry out a conflict check

Answer 75

• Before you take on a new instruction you will need to check whether the work you are proposing to do for the client conflicts with any work your firm is doing for another client or if it conflicts with your own interests.
• If you work for a national or international law firm this will involve checking whether the work conflicts with work your firm is doing for an existing client in another office in this country or overseas.
• You should carry out a conflict check when you take on a new instruction from both new and existing clients.

Question 76

What does a conflict check involve?

Answer 76

A search should be carried out against:

• The client name (and any of its parent or subsidiary companies).
• The client’s company number (and that of its parent or subsidiary companies).
• The names of any counter parties to the matter (for example if the new client is proposing to sell its subsidiary company X to Y, you need to check whether your firm is acting for Y on any matters).

Question 77

The firm’s conflicts checks may also extend to:

Answer 77

• The company name and number of the company being bought, X, in the above scenario.
• The names of directors of the client (including directors names of any parent company and subsidiaries) and of the company being bought to see if the new client and new matter conflicts with any previous clients or matters on which the firm has acted.
• The name of the matter (which would include the name of any target company on these facts).

Each law firm will have their own procedure for carrying out a conflict check.

Question 78

Conflict Check Example

Answer 78

Consider the following example:

Jason Shelly, the managing director of Libris Ltd (‘Libris’), would like to instruct your firm to act for Libris in connection with its acquisition of another company, Braxton Books Ltd (‘Braxton Books’). Braxton Books is a wholly owned subsidiary of Braxton PLC.

Against whom should you carry out a conflict check?

Write down your answer and check it against the next slide.

Question 79

Conflict Check Example

Answer 79

You should carry out a search of Libris at Companies House to identify the directors and shareholders of Libris, its company number, its directors, and any parent company or subsidiary companies.

You should carry out a conflict search against:

• Libris (the potential new client)
• Any parent or subsidiary company of Libris
• The directors of Libris and any parent or subsidiary companies
• Braxton Books
• Braxton PLC
• Any other subsidiaries of Braxton Books or Braxton PLC, and
• The directors of Braxton Books, Braxton PLC or any subsidiaries of those companies.

Question 80

Summary

Answer 80

CCF 2.1 requires law firms to have systems in place to ensure compliance with the SRA’s Regulatory Requirements, including relating to conflicts of interest.You should carry out a conflict check before accepting instructions on a new matter from both new and existing clients. Each firm will have its own conflict of interest policy.As a minimum you should carry out a conflict check against:The name of the client, its parent and subsidiary companies.The name of the counter party, its parent and subsidiaries. The directors of the client and the counter party.

Question 81

Client care: service and competence

Why do law firms send client care letters?

Answer 81

Helping the client understand what you are doing, and why you are doing it is vital in any service business.

For law firms, client surveys point out that, as a profession, solicitors do not always clearly explain what it is they actually do.

In order to treat your client fairly (in accordance with CCS 1.1) it is recommended that firms send their clients a client care letter (also known as an engagement letter, or retainer letter) setting out the terms and conditions on which they are acting.

Question 82

Why do law firms send client care letters?

Answer 82

The SRA does not require firms to send client care letters. However the SRA does require certain information to be set out for the client in writing. Most firms choose to send client care letters to their clients as a good way of demonstrating that they have met the SRA’s requirements.

Most firms will have their own standard forms of client care letters.

Question 83

Competence and Level of Service

Answer 83

The requirements as to the level of service the SRA expects from legal professionals are set out in CCS and apply to all legal professionals, whether they work in law firms, in-house or another setting.

You ensure that the service you provide to clients is competent and delivered in a timely manner (CCS 3.2 and CCF 4.2);

You maintain your competence to carry out your role and keep your professional knowledge and skills up to date (CCS 3.3);

Question 84

Competence and Level of Service

Answer 84

You consider and take account of your client’s attributes, needs and circumstances (CCS 3.4 andCCF 4.2);

Where you supervise or manage others providing legal services: (a) you remain accountable for the work carried out through them; and (b) you effectively supervise work being done for clients (CCS 3.5);

You ensure that the individuals that you manage are competent to carry out their role, and keep their professional knowledge and skills, as well as understanding of their legal, ethical and regulatory obligations, up to date (CCS 3.6).

Question 85

Competence and Level of Service

Answer 85

CCF also places the following obligations on firms:

You ensure that your managers and employees are competent to carry out their role, and keep their professional knowledge and skills, as well as understanding of their legal, ethical and regulatory obligations, up to date (CCF 4.3);

You have an effective system for supervising clients’ matters (CCF 4.4).

Question 86

Good reasons for terminating the client’s retainer

Answer 86

In some circumstances you might feel that you have to terminate your retainer (or relationship) with a client.

There is no specific provision in CCS or CCF dealing with terminating your retainer, however the following are examples of what might be a ‘good reason’ to terminate your retainer with a client:

• you cannot obtain clear instructions (for example each of the two partners from a two-partner firm of accountants give you conflicting instructions);
• to carry on acting for the client would break the law or breach the Codes (for example where there is a conflict of interests); or
• your client has failed to pay its bills. Traditionally, this was not considered a ‘good reason’ to terminate the retainer, but firms have sought to resolve the issue by having a specific contractual agreement in writing with a right to send the client interim bills and a right to terminate the retainer for non-payment of an interim bill.

Question 87

Reasons for terminating the client’s retainer

Answer 87

A lawyer or law firm cannot terminate their retainer with a client on grounds of self-interest as paragraph 1 of CCS and CCF requires you to treat a client fairly.

Principle 7 also requires you to act in the best interests of each client.

Principle 4 and Principle 5 require you to act with honesty and integrity.

Question 88

Summary

Answer 88

• The SRA does not require firms to send client care letters, but it does require certain information to be set out for the client in writing.
• The SRA also has requirements regarding the competence and level of service legal professionals should provide to their clients, set out in CCS 3.2-3.6.
• Most firms choose to send client care letters to their clients as a good way of helping clients understand what they are doing and demonstrating that they have met the SRA’s requirements.

Question 89

Summary

Answer 89

• There is no specific provision in CCS or CCF permitting a lawyer to terminate their retainer with a client. However, good reasons for terminating your retainer include:
• not being able to obtain clear instructions from your client;
• when to carry on acting would break the law or breach CCS or CCF;
• in certain circumstances where your client has failed to pay its bills.
• Lawyers have to comply with CCS 1.1 and Principles 4, 5 and 7. Therefore they cannot terminate their retainer on the grounds of self interest.

Question 90

Client Care: Information requirements

General Information

Answer 90

CCS 8 requires you to give certain information to clients, to ensure they are properly informed. Many firms provide this information in their client care letters.

You give clients information in a way they can understand. You ensure they are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them (CCS 8.6);

Question 91

You ensure that clients understand whether and how the services you provide are regulated

Answer 91

This includes (a) explaining which activities will be carried out by you, as an authorised person; (b) explaining which services provided by you, your business or employer and any separate businesses are regulated by an approved regulator; and (c) ensuring that you do not represent any business or employer which is not authorised by the SRA, including any separate business, as being regulated by the SRA (CCS 8.10);

You ensure that clients understand the regulatory protections available to them (CCS 8.11).

Question 92

General Information

Answer 92

CCS 8.6, 8.10 and 8.11 apply to client care generally. In relation to the client care letter, you need to be transparent in what it is you are going to do for your clients. You also need to ensure that the delivery of this information is ‘timely’. Many firms consider that the best way to achieve this is to provide a suitably detailed client care letter to your client as soon as is practicable after receiving instructions on a new matter. The SRA has produced guidance on how to provide information in a user friendly way.

Question 93

Information on Costs

Answer 93

Costs will be a really important concern for your client so it is no wonder that the Codes deal specifically about the standards concerning costs. There are various obligations setting out the need to be transparent as to the cost of advising the client, particularly the basic obligation of informing them as to how much you are going to or are likely to charge them. You can’t just pluck a figure out of the air! The costs information should be contained within the client care letter and also discussed with the client in order that they understand it.

Question 94

Information on Costs

Answer 94

Information as to likely costs should be provided at the time of engagement and also during the course of the matter as appropriate, and should also be discussed with the client in a way the client can understand.

Transparency is the key issue here in terms of the detail of the information you give in relation to your charges but also in relation to potentially contentious issues such as complaints on a bill.

The standards apply equally to Firms pursuant to CCF 7.1(c).

Question 95

Information on Costs

Answer 95

CCS 8 requires that you:

ensure that clients receive the best possible information about how their matter will be priced and, both, at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of the matter and any costs incurred (CCS 8.7).

ensure that any publicity in relation to your practice is accurate and not misleading, including that relating to your charges and the circumstances in which interest is payable by or to clients (CCS 8.8).

While CCS does not require you to provide information on costs to your client in writing, it does require you to provide ‘the best possible information’ about how their matter will be priced. Most firms consider that the clearest way of doing this is to include the information in the client care letter. This is a good way for firms to demonstrate their compliance with CCS 8.7.

Question 96

Practical Point: Monitor your costs

Answer 96

It is very important to keep track of the costs as you are going along. Sometimes the simplest of jobs can get very complicated.

For example, you may be instructed to collect a debt and issue proceedings. But when you receive a defence from the defendant, it turns into a full-blown litigation case. The costs implications for a claimant are huge. You should be pre-warning such a client that although they may think it’s just a case of suing and collecting the debt, if the debtor wants to fight and has an arguable defence, the proceedings could be a lot more involved and very much more expensive than was originally envisaged – what could have been less than £1,000 in costs can snowball into a projected cost of many thousands.
Pre-warning your client, keeping their expectations realistic and explaining all the possible outcomes of litigation (or any matter) is part of your job.

Question 97

Complaints

Answer 97

Every law firm must have a procedure for dealing with complaints. CCS 8 requires that you:

ensure that, as appropriate in the circumstances, you either establish and maintain, or participate in, a procedure for handling complaints in relation to the legal services you provide (CCS 8.2).

Question 98

You must also inform your client in writing of the complaints procedure at the time of engagement:

Answer 98

you ensure that clients are informed in writing at the time of engagement about: (a) their right to complain to you about your services and your charges; (b) how a complaint can be made and to whom; and (c) any right they have to make a complaint to the Legal Ombudsman and when they can make any such complaint (CCS 8.3).

Law firms commonly include their complaints procedure in the client care letter.

Question 99

Summary

Answer 99

· The SRA requires lawyers and law firms to give clients certain information about the service they are providing. Key provisions include:

· Lawyers must be transparent with their clients. They must give clients information in a way they can understand. They must ensure clients are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them (CCS 8.6).

Question 100

Summary

Answer 100

· Lawyers must give clients the ‘best possible information’ about how their matter will be priced (CCS 8.7).

· Law firms must have a complaints procedure (CCS 8.2).

· Lawyers must inform their clients in writing about their complaints procedure (CCS 8.3).

Question 101

Client Care Letters

When should you send a Client Care Letter?

Answer 101

Firms will send client care letters to their clients at the beginning of a matter.

But the obligations under the Solicitors Regulation Authority’s Code of Conduct for Solicitors, Registered European Lawyers and Registered Foreign Lawyers (‘CCS’)​ do not cease after you have sent out the client care letter; they last throughout the retainer. In other words, there is an ongoing obligation to keep your client informed about all aspects of their matter as it progresses, including a duty to inform the client if any information in the client care letter becomes superseded.

For example, if a costs estimate or the scope of work which was originally set out in the client care letter needs updating, you should ensure the client is updated with the amended details in writing as soon as is practicable.

Question 102

Repeat business

Answer 102

There may be circumstances when it is inappropriate to provide all of the information required by CCS. For example, if the client is an established client and you are carrying out repeat work on agreed terms, the client might not need all the costs information repeated each time a new file is opened.

Some firms, typically, send annual client care letters to established clients and shorter letters once they receive instructions on each new matter.

Question 103

Repeat business

Answer 103

For example, it is common for a property developer to agree to pay their lawyers a fixed fee plus VAT and disbursements for acting on the sale of each house/plot/flat sale in a development. Therefore, a lawyer acting for such a property developer may only need to acknowledge receipt of instructions to act on the sale of a particular house/flat/plot if all the relevant standards in the Codes have already been achieved in the annual client care letter.

Question 104

Contents of a client care letter

Answer 104

In summary, the following are likely to be included in a client care letter:

Confirmation of your client’s instructions and options.

General information on each party’s responsibilities

Costs information.

Explanation of who will be dealing with the matter

Complaints procedure

Question 105

Contents of a client care letter

Confirmation of your client’s instructions and options

Answer 105

This section should contain:

• identification of your client’s objectives;
• an explanation of the issues/options available to them;
• agreement on the next steps; and
• agreement on an appropriate level of service/agree how you will keep the client informed of progress.

Question 106

General information on each party’s responsibilities.

Answer 106

This section should contain:

• an explanation of your responsibilities;
• an explanation of the client’s responsibilities;
• an explanation of anything which may limit the steps you can take on their behalf e.g. a potential conflict with another client; and
• advice to your client that you may be entitled to a lien in respect of their files if there are any unpaid costs (i.e. the right to retain possession of the files until any outstanding costs are paid).

Question 107

Costs information

Answer 107

This section should contain:

• how you will charge the client: eg fixed fee, hourly rates etc;
• if hourly rates, the rates of all the individuals working on the matter;
• intervals at which you will notify the client of the fees on the clock;
• VAT, disbursements and any additional fees;
• any agreed limits on the fees;
• any fee estimate provided by the firm;
• circumstances in which the fee estimate could be exceeded and provision for the firm to notify the client if it anticipates exceeding the fee estimate; and
• payment terms.

Question 108

Explanation of who will be dealing with the matter

Answer 108

This section should contain:

• information about the name and status of the person dealing with the matter and who is supervising them.

Complaints procedure

This section should contain:

• an explanation of how the client can complain if they are unhappy with the service;
• to whom they should complain; and
• details of the firm’s complaints procedure.

Question 109

SRA Guidance on Client Care Letters

Answer 109

The SRA Guidance on Client Care Letters makes the point that it is important that client care letters are easy to understand. Some client care letters are designed to comply with the SRA’s obligations but many can be:

• complicated, with legalistic language, terms and phrasing;
• too lengthy, with dense paragraphs and small font sizes, which makes finding key information difficult for clients;
• focused on generic information, such as terms and conditions, rather than specifics relevant to that client; and

Question 110

SRA Guidance on Client Care Letters

Answer 110

The SRA Guidance sets out a checklist to help lawyers decide whether they need to improve their client care letter. The list includes:

• Do you explain what is going to happen?
• Do you include how much the work is going to cost?
• Do you explain when things are going to happen?
• Do you explain what the client needs to do?

Question 111

SRA Guidance on Client Care Letters

Answer 111

• Do you include contact details?
• Does your letter show a clear purpose?
• Is your letter concise?
• Do you use plain English?
• Do you prioritise information?
• Is your client care letter easy to read?
• Have you considered the needs of vulnerable clients?

Question 112

Summary

Answer 112

A client care letter should be sent to the client at the beginning of a new matter.
A client care letter should contain:
Confirmation of your client’s instructions and options
General information on each party’s responsibilities.
Costs information.
Explanation of who will be dealing with the matter. Complaints procedure.

The SRA Guidance on client care letters makes it clear that the client care letter must be easy to understand and includes a checklist to help lawyers decide whether their client care letters need improving, for example:
Do you explain what is going to happen and when?
Do you explain how much the work will cost?
Is it clear what the client needs to do?Is the letter easy to read?

Question 113

Funding

Answer 113

This element covers how clients can fund legal work.

Question 114

Introduction to funding

Answer 114

Obtaining help with legal matters is generally expensive.

Over the course of your legal studies, you will gain an understanding of the services that solicitors provide in relation to contentious work (civil or criminal litigation) and non-contentious work (such as property and business transactions or assisting in the administration of a legal estate).

Question 115

Introduction to funding

Answer 115

The costs associated with legal work do not stop there. Counsel’s fees, land registry and Companies House charges, document production costs, travel expenses and experts may need to be paid for.

In litigation, a client will also be concerned about the possibility of being ordered to pay an opponent’s costs

Question 116

How are these expenses to be paid for?

Answer 116

That is the subject of this element. You may find this element easier to understand if you already have an understanding of the distinction between solicitors’ charges and disbursements, and of the basic concept of recoverable costs in litigation.

Question 117

Types of funding

Answer 117

Various mechanisms have evolved in order to enable parties to fund legal work. Some are available for any type of legal work. Others relate to particular types of legal work. We will cover the types of funding set out below.

• Private funding
• Professional funding
• Before the event insurance
• Community Legal Service
• Conditional fee agreements
• Damages based agreements
• After the event insurance
• Third party funding

Question 118

Why is this important?

Answer 118

A solicitor has a duty to act in his/her client’s best interests. As part of this, a solicitor is required to draw to a client’s attention any funding options that might be available, and to try to ensure the client ends up with the most appropriate one.

Question 119

Why is this important?

Answer 119

Solicitors are expected to conduct a reasonable and proportionate search to establish whether the client has any funding options, such as ‘before the event’ insurance, which might cover their legal costs, but they are not expected to embark on an exhaustive ‘treasure hunt’ for insurance policies which might include legal expenses cover (see below). The existence of BTE insurance should certainly be raised with a client at the outset of a case, when first obtaining instructions.

Question 120

Private funding

Answer 120

A client may fund legal work through their own private resources.

Many individuals will not have enough money to do this for substantial work, but it is normal for residential conveyancing, or preparing a will (for example).

For many businesses, this is the normal way of funding the vast majority / all of the legal work they need.

This is a funding option for any type of legal work.

Question 121

Professional funding

Answer 121

Legal work might be funded by a trade union or professional organisation. Some unions have their own legal representatives who will provide services to union members. Other unions have formed agreements with law firms for the law firms to provide legal services to their members.

Question 122

Professional funding

Answer 122

Whilst this is in principle available for any sort of legal work, in practice it is most likely to occur in relation to civil or criminal litigation. For example, a union or professional organisation might fund the legal work involved in defending a professional in a claim for professional negligence, or in an employee bringing a claim against their employer.

Question 123

Before the event (‘BTE’) insurance

Answer 123

Before the event (‘BTE’) insurance is taken out before the need for legal work arises. The insurance policy ‘pays out’ to cover the legal work in the event that it is needed. This could include disbursements, depending on the terms of the policy.

Question 124

Before the event (‘BTE’) insurance

Answer 124

BTE insurance policies are often sold in conjunction with other insurance policies. For example, household insurance might include BTE insurance in relation to legal costs incurred in a dispute with a neighbour. Motor insurance might include BTE insurance in relation to legal costs incurred in a dispute following an accident. They often have a financial limit on the cover provided or may stipulate that they will meet only a stated proportion of the costs incurred. BTE premiums tend to be relatively low (often less than 1% of the insurance cover sought) because most policy holders will never have to call on this part of their policy.

BTE insurance policies are often sold in conjunction with other insurance policies. For example, household insurance might include BTE insurance in relation to legal costs incurred in a dispute with a neighbour. Motor insurance might include BTE insurance in relation to legal costs incurred in a dispute following an accident. They often have a financial limit on the cover provided or may stipulate that they will meet only a stated proportion of the costs incurred. BTE premiums tend to be relatively low (often less than 1% of the insurance cover sought) because most policy holders will never have to call on this part of their policy.

Question 125

Before the event (‘BTE’) insurance

Answer 125

Whilst BTE insurance could, in principle, fund any type of legal work, it most commonly relates to litigation.

BTE premiums are not generally recoverable from the other side should the policyholder be successful in the litigation.

Question 126

Community Legal Service (‘CLS’)

Answer 126

CLS used to be known as Legal Aid. It is the provision of public funds to assist in the procurement of legal services for those who could not otherwise afford it.

Question 127

Community Legal Service (‘CLS’)

Answer 127

There are strict constraints on who is eligible. We will consider CLS funding for civil work first, and then consider criminal work. When CLS funding is available, it might relate to providing help / advice, to providing help in relation to limited and specific court hearings / appearances or to actually representing the client in the proceedings generally (or to a combination of these).

Question 128

Eligibility for civil CLS funding

Answer 128

What types of claim can attract civil CLS funding?

There are very few types of civil claim which attract CLS funding. The following represents a sensible way to consider eligibility:

Is the client an individual or a ‘legal person’ (like a company or LLP)?

Civil CLS funding is generally only available to individuals. It is very rare that it would be available to a company.

What types of claim is it?

Most eligible types of claim relate to particular types of children / family disputes, homelessness or domestic violence. The vast majority of civil legal work is not eligible for CLS funding.

Question 129

Eligibility for civil CLS funding

Answer 129

What are the client’s means?

If the client’s income is too high AND/OR the client has too much capital (eg savings) then they will be ineligible.

What are the merits of the client’s position?

If the client’s position is insufficiently meritorious, then they will not receive CLS funded assistance

Question 130

Eligibility for criminal CLS funding

Answer 130

The rules governing eligibility for criminal CLS funding are different. These are explained in an element dedicated to funding of criminal work.

Question 131

Conditional fee agreements (CFAs)

Answer 131

A conditional fee agreement is one way of funding civil litigation. It is a type of ‘no win no fee’ agreement, which means that the solicitor will not get paid unless the case is successful. If the case is successful, the solicitor will be paid the normal fee (or ‘basic fee’) plus a success fee (also known as an ‘uplift’) of up to 100% on top of the normal fee – for example, the success fee might be an extra 25% on top of the normal fee.

Whilst the court will in many cases order an unsuccessful party to pay a successful party’s costs, such as solicitor’s fees and disbursements, the court will not allow a party to recover the success fee from an opponent, so in the case of a claimant, the success fee effectively comes out of the claimant’s damages.

Question 132

Personal injury cases

Answer 132

In personal injury cases, the success fee the lawyer may charge must not exceed 25% of general damages for pain suffering and loss of amenity, and damages for pecuniary loss (other than future pecuniary loss). This is intended to protect the claimants’ damages in personal injury proceedings at first instance.

A CFA will only be lawful, and therefore enforceable, if it satisfies certain conditions, which are beyond the scope of this element.

Question 133

Conditional fee agreements (CFAs)

Answer 133

Note that the CFA is a means of funding the solicitor’s costs. It does not provide an option for funding expert’s fees, court fees or other disbursements (counsel may agree to act on the basis of a CFA, but this is a separate arrangement to the solicitor’s CFA). The client will therefore need to put in place a separate funding arrangement for these.

Question 134

Example (this example does not consider disbursements)

Answer 134

A claimant brings a personal injury claim. The claim is funded by a CFA, which provides for a 50% success fee / uplift.

The solicitor records billable time of £40,000 to bring the claim to trial.

Let’s assume the client wins, and is awarded £300,000 at trial, of which £240,000 relates to future losses. The claimant has won, so it is liable to pay its solicitor the £40,000, plus a 50% uplift (£20,000). However, the success fee may not exceed 25% of the damages excluding damages for future loss. Damages here, excluding future losses, are £60,000, 25% of which is £15,000, so the success fee is capped at £15,000. So the claimant’s solicitor is entitled to £40,000 plus £15,000 - £55,000.

Question 135

Example (this example does not consider disbursements)

Answer 135

If the court also awards the claimant’s its costs, only the £40,000 can be sought from the other side, not the uplift. And the £40,000 will be assessed (see the elements relating to costs), meaning perhaps only £32,000 will be paid by the defendant. So the total recovered from the defendant is £332,000, of which £55,000 is paid to the solicitor, and £277,000 goes to the client.

Question 136

Damages based agreements (DBAs)

Answer 136

A damages based agreement (‘DBA’) is another way of funding civil litigation, and another type of ‘no win no fee’ agreement – the solicitor will not get paid unless the case is successful. Under a DBA, if the case is successful, the solicitor will be paid a proportion of the damages awarded to their client by way of a remedy (rather than getting their charges plus a success fee, as in the case of a CFA).

The maximum amount a lawyer can recover is capped at 25% of the damages (excluding damages for future care and loss) in personal injury cases, 35% of damages in employment tribunal cases and 50% of damages in all other cases. As with CFAs, the DBA will not cover disbursements or opponent’s costs, and separate funding arrangements will be needed for these.

Question 137

Example (this example does not consider disbursements)

Answer 137

A claimant brings a breach of contract claim seeking £120,000, under a DBA which provides for the solicitor to be paid £50% of the damages (the maximum permitted). The claimant is awarded £100,000 at trial, which counts as ‘success’ under the terms of the DBA. The solicitor is entitled to 50% of the damages - £50,000. Note that the client would be able to seek an order that the opponent pays its costs in the normal way, but the court would decide what is recoverable based on the time spent by the solicitor, and in all likelihood the opponent would not be ordered to pay the full £50,000.

Question 138

After the event insurance (ATE)

Answer 138

ATE insurance policies are taken out in order to help the client cover the costs of litigation once a dispute has already arisen. It is one way of funding costs associated with civil litigation.

ATE insurance usually covers the client’s own disbursements and their opponent’s costs and disbursements in the event of losing their case. ATE insurance is often used in conjunction with a CFA or DBA: the CFA / DBA effectively covers the client’s own solicitor’s costs, and the ATE covers the disbursements and opponent’s costs.

Question 139

After the event insurance (ATE)

Answer 139

Whether or not ATE insurance will be available will depend on the merits of the case and the level of cover required, ie whether a particular insurance company is willing to take on the risk and on what terms. It is a more expensive method of providing cover for legal costs than BTE insurance and ATE premiums can exceed 25% of the insurance cover sought.

This insurance policy premium is not recoverable from the other party (with the exception of clinical negligence expert reports).

Question 140

Third-party funding

Answer 140

Again, this relates to civil litigation. This occurs when independent litigation funding is provided by a third party to enable parties to bring their cases to court. Such funding is provided by (for example) banks, private equity firms or hedge funds. In the event that the claim succeeds, the funder receives their money back, plus an uplift.

Question 141

The Association of Litigation Funders

Answer 141

Has created a code of conduct which its members agree to abide by (note that there is no requirement for a litigation funder to be a member of the Association of Litigation Funders). You can read about it at www.associationoflitigationfunders.com. Key features of the code include:

Question 142

Third party funding

Answer 142

• Promotional literature must be clear and not misleading.
• Funders must not to try to take control or conduct of the litigation away from the solicitors / barristers involved.
• Funders must make sure they have sufficient funds in place to meet their funding commitments.

In practice, whilst a growth area, third-party funding is currently generally limited to commercial cases of a high value, and it is not yet suitable for consumer cases, personal injury cases or claims that do not carry a sufficiently high level of damages.

Question 143

Ways of charging a client

Answer 143

How a client pays a solicitor’s charges (considered above) is a slightly different consideration to how a solicitor works out those charges in the first place.

Question 144

Hourly charging

Answer 144

This is the traditional method of charging a client. The client pays for the amount of time the solicitor spends working on the matter.

Question 145

Fixed fees

Answer 145

Alternatively, a solicitor and client might fix a fee for a particular item of work. This is more common for work like residential conveyancing, drafting a will, or representing a client in a very small dispute.

Question 146

Unbundled legal services

Answer 146

The idea of ‘unbundled legal services’ is that a solicitor takes responsibility for a very specific task, such as simply preparing a bundle of documents for court or drafting a single document, rather than representing a client in a matter more generally. This helps keep costs down.

Question 147

Summary

Answer 147

A solicitor has a duty to try to find the best funding option for a client.

Many clients will simply need to pay through their own private resource.

Sometimes, work might be funded by a trade union/professional organisation.

BTE insurance can cover legal expenses in the event that a dispute arises.

CLS (Government) is available on a means-tested basis for some criminal work and very limited categories of civil work.