Conduct issues

Question 1

True or False:
Generally, a solicitor should not act for both the seller and the buyer in a property transaction

Answer 1

True

Question 2

What is Principle 7 of the SRA principles?

Answer 2

We must act in the best interests of each client

Question 3

Which part of the SRA codes supports Principle 7?

Answer 3

Paragraph 6.2 - A solicitor cannot act if there is a client conflict or significant risk of such conflict

Question 4

How does the SRA define Client Conflict?

Answer 4

a situation where your separate duties to act in the best interests of two or more clients conflict

Question 5

If the SRA codes do not explicitly prohibit a solicitor from acting for both the seller and the buyer, why is it generally advised not to do so?

Answer 5

Because there is often a significant risk of client conflict, of which would directly breach paragraph 6.2 of the SRA Codes

Question 6

Who assesses the risk of a conflict?

Answer 6

The firm

Question 7

What should solicitors bear in mind when considering the risk of Client Conflict?

Answer 7

1. Complexity - the more complex the transaction, the greater the risk of conflict
2. The likelihood of negotiations - The more likely negotiations are, the greater the risk of conflict
3. The bargaining power of the parties and any particular vulnerability of a party - More difficult to act in the best interests of both if one has greater bargaining power

Question 8

When can a solicitor act for 2 parties even when paragraph 6.2 of the SRA code is breached?

Answer 8

If there is a substantially common interest between the clients or if they are competing for the same objective

Question 9

How is a substantially common interest defined by the SRA?

Answer 9

A situation in which there is a clear
common purpose between the clients and a strong
consensus on how it is to be achieved

Question 10

True or False:

A solicitor can act for a seller and buyer if they are competing for the same objective

Answer 10

False. A seller and buyer cannot compete for the same asset

Question 11

True or False:
A solicitor can act for joint buyers

Answer 11

True, however, the solicitor must have regard as to whether a conflict of interest exists.

Question 12

Generally, is it acceptable for a solicitor to act for a borrower and lender?

Answer 12

It is unlikely to be acceptable, unless the mortgage is on standard terms (the terms are non-negotiable)

Question 13

Why is it generally unacceptable to act for both a borrower and lender? Give an example

Answer 13

Because there is a significant risk of a conflict of interest. For example, if the contract is negotiable, the lender will want a higher interest rate, whereas the borrower will want a lower one.

Question 14

Give an example of a conflict between the duty of confidentiality and disclosure in relation to a borrower and lender

Answer 14

Recommended: If a borrower tells you that they will breach the terms of the mortgage but does not agree to tell the lender, then the duty of confidentiality trumps the duty of disclosure. Therefore, you must inform the lender that you must withdraw as their solicitor due to a conflict of interest.

Question 15

What is it called when co-owners seek or obtain a mortgage?

Answer 15

Joint borrowers

Question 16

What is the risk in acting for joint borrowers?

Answer 16

The presence of undue influence

Question 17

Can a solicitor act for joint borrowers?

Answer 17

Yes, but they must be mindful of the steps needed to protect against undue influence

Question 18

What is the effect of undue influence on joint borrowers?

Answer 18

Whoever was unduly influenced to enter into the contract has the right to void the contract if they so choose

Question 19

True or False:
RBS v Etridge only applies to the wife

Answer 19

True

Question 20

What is the guidance provided by RBS v Etridge for solicitors when dealing with a husband and wife that seek to use a co-owned property as security?

Answer 20

The solicitor should speak with the wife face to face without the husband. Advice should be given in non-technical language.

Question 21

Following the guidance in rbs v ertridge, what are the 8 steps a solicitor should take to ensure that the wife is not being unduly influenced by her husband?

Answer 21

1. Explain why you are involved, e.g. to protect against undue influence
2. Explain that, if necessary, the lender will rely on the solicitor’s
   involvement to counter a suggestion that the wife has been unduly
   influenced.
3. Obtain confirmation from the wife that she wishes for the solicitor
   to act and give advice on the implications of the transaction
   4.Advice should include;
   An explanation of the nature of the documents and the
   practical consequences of signing them.
   A warning as to the seriousness of the risks involved.
   An explanation is that the wife has a choice whether to
   proceed or not and the choice is hers and hers alone.
4. The solicitor must then check if the wife wishes to proceed and if
   the wife is happy for the solicitor to write to the lender to confirm
   that matters have been explained to her.
5. The solicitor should check that the following financial information
   has been made available from the lender, and refuse to make
   confirmation until they are received:
   The purpose for which the loan is being made available;
   The current amount of the husband’s indebtedness;
   The amount of the current overdraft facility;
   The amount and terms of the new facility; and
   A copy of any written application made by the husband for
   the facility.
6. It is not for the solicitor to veto the transaction, but if the solicitor
   thinks that the transaction is not in the wife’s best interests, they
   should give reasoned advice to that effect. Ultimately, the decision is
   one for the wife.
7. If it is ‘glaringly obvious’ that the wife is being ‘grievously
   wronged’, the solicitor should decline to act.

Question 22

What is mortgage fraud?

Answer 22

When someone misrepresents info about themselves to obtain a mortgage or to get a larger mortgage than they should.

Question 23

Under the Fraud Act 2006, when does someone commit fraud?

Answer 23

When they do not disclose info that they have a legal duty to disclose, or, falsely represent info

Question 24

Under the Proceeds of Crime Act 2002, a solicitor risk committing a money laundering offence if they do what?

Answer 24

Acquire, use, have possession of, enter into an arrangement regarding, or transfer criminal property

Question 25

What are the steps a solicitor must take to protect the firm from mortgage fraud?

Answer 25

1. Verify the identity of the client
2. Meet the client
3. Use the “Find a Solicitor” database or the Directory of Licensed Conveyancers to check the identity of the other party’s solicitor
4. Consider any inconsistencies with a previous retainer, e.g. if you help purchase a modest family home, then years later client instructs you to purchase an expensive mansion, question where there money has come from
5. Ask questions, especially about how the client is funding the purchase

Question 26

What is a contract race?

Answer 26

A contract race is when a seller enters the conveyancing process with 2 or more prospective buyers at the same time. The buyers compete and whoever is ready to exchange contracts with the seller first is the winner.

Question 27

What is the best practice when acting for a seller initiating a contract race?

Answer 27

Assuming the seller gives consent to disclose the information, immediately inform all buyers of the contract race, warn the seller that they may lose the buyers and inform the buyers of the terms of the race if they choose to enter

Question 28

What do you do if a seller refuses to let you inform the buyers that they are entering into a contract race?

Answer 28

Consider the SRA code to not abuse your position by taking unfair advantage and that you must not mislead other. Under consideration evaluate whether this situation breaches these codes. If so, then you must decline to act for the seller.

Question 29

Can a solicitor act for both the seller and buyer in a contract race?

Answer 29

No, this would be a conflict of interest

Question 30

Is a conflict of interest present if a solicitor acts for multiple buyers in a contract race?

Answer 30

Yes

Question 31

Can a solicitor act for multiple buyers in a contract race?

Answer 31

The solicitor may be able to act for multiple buyers on the basis that the buyers are competing for the same objective. However, the solicitor must make sure that;
All the clients must have given informed consent in writing
There are effective safeguards to protect the client’s confidential information
They are satisfied it is reasonable for them to act for
all the clients.