Ethics FLK2 - Property Practice Flashcards
A solicitor has encountered financial difficulties in their personal life. The difficulties have led the solicitor to enter into an individual voluntary arrangement with their creditors.
What step must the solicitor now take as a matter of professional conduct?
A-The solicitor must notify their bank only.
B-The solicitor must notify their clients.
C-The solicitor must notify the SRA.
D-The solicitor must notify their own debtors.
E-The solicitor must notify their law firm only.
Option C is correct because Paragraph 7.6 of the SRA Code of Conduct for Solicitors, RELs, and RFLs requires a solicitor to notify the SRA if the solicitor is made bankrupt, enters an individual voluntary arrangement with creditors or is subject to a debt relief order.
Option A is wrong because the SRA Code of Conduct for Solicitors, RELs, and RFLs does not require solicitors to report such matters to banks.
Option B is wrong because the SRA Code of Conduct for Solicitors, RELs, and RFLs does not directly require solicitors to report such matters to clients.
Option D is wrong because the SRA Code of Conduct for Solicitors, RELs, and RFLs does not require solicitors to report such matters to their own debtors.
Option E is wrong because the SRA Code of Conduct for Solicitors, RELs, and RFLs does not require solicitors to report such matters to law firms.
A solicitor is instructed by a new client in the purchase of a house. One of the solicitor’s former clients sold the house to its current owner 12 months ago at a much reduced price because the house had been flooded twice in the previous three years. The new client does not know that the house is at risk of flooding.
Which of the following best describes the position with regard to the solicitor’s duty of disclosure?
A-The solicitor can only disclose the risk of flooding to the new client with the former client’s consent.
B-The solicitor must disclose the risk of flooding to the new client because the duty of disclosure takes precedence over the duty of confidentiality.
C-The solicitor has no duty to disclose the risk of flooding to the new client because the information is not material to the retainer.
D-The solicitor can disclose the risk of flooding to the new client because the solicitor owes no duty of confidentiality to the former client following termination of the retainer.
E-The solicitor must disclose the risk of flooding to the new client because this is in the new client’s best interests.
Option A is correct. The solicitor owes a duty of confidentiality to the former client; option D therefore is wrong. Option E is wrong as the duty of confidentiality can only be overridden with the former client’s consent (note that disclosure is not required or permitted by law on these facts). The duty of disclosure does not take precedence; option B is wrong. Option C is wrong as the risk of flooding will have an effect on price and insurability which will affect whether the new client wants to buy the property and so the information is material to the retainer.
A father is selling one of his many properties to his daughter at a substantial undervalue to help her to get a start on the property ladder. They both ask the same solicitor to carry out the conveyancing work for them.
Which of the following best explains who the solicitor can act for?
A-The solicitor cannot act for either as there is a conflict of interest between father and daughter.
B-The solicitor cannot act for either as there is an own interest conflict.
C-The solicitor can act for both as they are ‘competing for the same objective’.
D-The solicitor can act for both as the risk of a conflict of interest is not significant.
E-The solicitor cannot act for the father as selling the property at a substantial undervalue is not in his best interests.
Option D is correct. Paragraph 6.2 provides that you must not act if there is a client conflict or significant risk of a client conflict. Usually, there will be a client conflict in acting for both seller and buyer in a residential property transaction. However, this will not always be the case. On the facts, this is a case where a conflict is unlikely to arise (option A therefore is not the best answer). The solicitor is not personally involved so there is no own interest conflict (option B is wrong). ‘Competing for the same objective’ is not involved – they are not in competition to acquire the property (option C therefore is not relevant). Even if a conflict of interest arose it would not prevent the solicitor acting for both parties – the solicitor could act for one. Option E is wrong, as selling the property, even at an undervalue, would achieve the father’s objective.
A solicitor is acting for the seller in a residential conveyancing transaction. At 5 pm, the solicitor receives a telephone call from the buyer’s solicitors to say that in breach of their agreement, the seller has failed to finish some repairs to the property. Completion is due to take place the following morning and the buyer is threatening to pull out of the transaction unless the repairs are completed. To ensure that the transaction proceeds, the solicitor confirms to the buyer’s solicitor that the seller will carry out the repairs before completion.
The solicitor immediately telephones the seller. The seller’s voicemail message says the seller has been unexpectedly called away on business and cannot be contacted until tomorrow afternoon.
Which of the following best explains the solicitor’s professional conduct position?
A-The solicitor has given an undertaking which is binding upon the solicitor personally.
B-The solicitor has acted dishonestly in making a promise which could not be met.
C-There are no professional conduct issues because the promise was that it would be the client, rather than the solicitor, who would carry out the repairs.
D-There are no professional conduct issues because the telephone conversation was not confirmed in writing.
E-There are no professional conduct issues because the promise was too ambiguous to be construed as an undertaking.
Option A is correct.
Option E is wrong. There is no ambiguity in the solicitor’s statement (and in any event any ambiguity is likely to be resolved in favour of the recipient). It would be construed as an undertaking.
Option D is wrong. The definition of an undertaking makes it clear that it does not matter that the undertaking was given orally.
Option C is wrong. An undertaking ‘on behalf’ of a client is binding on the solicitor personally.
The solicitor may have been foolish in giving the undertaking without speaking to the client first, but their behaviour would not be considered dishonest. Option B therefore is wrong.
Quick Q:
A solicitor has been asked by a seller and buyer of a residential property to act for them both. The buyer is paying market value for the property and the parties are not related to one another.
Is it advisable for the solicitor act for both parties?
No, because there is a conflict of interest or significant risk of one
Option D is the correct answer. Acting for buyer and seller is governed by paragraph 6.2 in the SRA Codes of Conduct and states that, subject to certain exceptions, a solicitor cannot act for both parties if there is a conflict of interest or a significant risk of such a conflict. Acting for a buyer and a seller carries a high risk of conflict of interests where the land is being transferred for value (as is the case here).
Option A is wrong. There are exceptions to the rule that you do not act where there is a conflict of interest and one of the exceptions is where the parties have a ‘substantially common interest’. However, Law Society guidance is that the ‘substantially common interest’ exception does not apply to a property purchase. Although both clients will have a common interest in completing the sale, they also have different interests, since one is buying and one is selling.
Option B is wrong. There are exceptions to the rule that you do not act where there is a conflict of interest and one of the exceptions is where the parties are ‘competing for the same objective”. However, this exception does not apply in a buyer and seller situation.
Option C is wrong. The fact that the buyer is paying market value and the parties are not related makes it more likely there will be a conflict of interest.
Option E is wrong. An ‘own interest conflict’ arises where the solicitor’s duty to act in the best interest of the client conflicts with the solicitor’s own interests. There is no indication on the facts that this is the case.
Quick Q:
A solicitor has a client who wishes to mortgage his house as security for a loan to the client’s business. The house is jointly owned with the client’s wife and they both live in the house. Both the husband and wife want the solicitor to act for them in relation to the mortgage.
What steps must the solicitor take to protect against an allegation by the wife of undue influence by the husband?
The solicitor must follow the principles laid down in Royal Bank of Scotland v Etridge (no 2) and comply with the Code of Conduct for Solicitors.
Option A is the correct answer. If the spouse agrees to the loan and the business subsequently fails, the bank will enforce the security against the matrimonial home. In such circumstances the spouse may seek to have the mortgage set aside on the basis of undue influence. The House of Lords laid down detailed guidelines for solicitors acting in these circumstances Royal Bank of Scotland v Etridge (no 2). This guidance is commonly referred to as ‘the Etridge guidelines’. Therefore one solicitor can advise both borrowers, provided that the Etridge guidelines are followed and the solicitor is satisfied that they can comply with paragraph 6.2 of The Code of Conduct.
The guidelines state:
A lender should insist that the surety attend a private meeting with the bank in which they are informed about their liability, warned of the risks and advised to take separate legal advice.
Quick Q:
A solicitor is acting for the buyer on the purchase of a freehold residential property. The buyer is obtaining a mortgage from a bank (“the Lender”) for 70% of the purchase price. The mortgage is a standard mortgage and the solicitor will use the approved certificate of title.
Which one of the following statements best describes whether the solicitor can act for both the buyer and the lender?
The solicitor can act for both parties because there is no current conflict of interest and the risk of such a conflict arising is not significant.
Option E is the correct answer. The Code of Conduct provides that subject to certain exceptions, a solicitor cannot act for more than one party where there is a conflict of interest of a significant risk of such a conflict. The Law Society has stated that the risk of conflict is high if the mortgage is not on standard terms and if the solicitor does not use the approved certificate of title. As neither of these conditions are present, the risk of conflict is not significant and so the solicitor should be able to act for both parties.
Not correct answer:
A- The solicitor can act for both parties as they are both competing for the same objective.
Because:
Option A is wrong as although the solicitor can act for both parties, this is not the correct reason. They are not both competing for the same objective and so that exception does not apply. It could potentially apply if the solicitor was being asked to act for two buyers who were competing against each other to buy the same property.
Quick Q:
A trainee solicitor working in the conveyancing department of a high street firm has just completed the sale of a large residential property for an elderly and vulnerable client who is now living in a retirement complex.
When the trainee solicitor telephones the client to tell her that the sale is complete, the client says “You’ve been such a tremendous support in explaining all the legal documents to me. I’d like to give you my late husband’s watch. It’s worth quite a lot of money. I’ve got no close family to leave it to and so I would like you to have it.”
The trainee solicitor would like to accept the watch.
Which of the following best describes the appropriate action for the trainee solicitor to take?
Advise the client that she should seek independent legal advice.
Option E is the best answer because the solicitor would like to accept the watch but, on the facts as presented, the client should first seek independent legal advice to protect her interests. This would help to avoid any accusation that the solicitor had obtained the watch by taking unfair advantage of an elderly and vulnerable client. Paragraph 1.2 of the SRA Code of Conduct for Solicitors, RELs and RFLs requires that solicitors do not abuse their positions by taking unfair advantage of clients or others.
Quick Q:
A trainee solicitor in her first seat, Real Estate, is working alone in the office when a teacher comes to reception to ask for some help with a legal issue. The teacher explains that he is accused of delivering lessons whilst under the influence of drugs and alcohol.
The teacher asks the trainee to represent him and to give him some initial advice.
Which of the following best describes the trainee’s position in terms of professional conduct?
The trainee will not be able to advise and represent the teacher as she will not have the required knowledge and competence to deal with his matter.
Option C is the best answer. A first-seat trainee who has only so far dealt with Real Estate is highly unlikely to have the legal knowledge or expertise to deal with the teacher’s matter as described. Paragraph 3.2 of the SRA Code of Conduct for Solicitors, RELs and RFLs requires solicitors to ensure that the service they provide to clients is competent, and Paragraph 3.4 of the same requires solicitors to take account of clients’ attributes, needs and circumstances. Note that the trainee could be competent to advise and represent the teacher under the supervision of another, appropriately qualified and experienced, solicitor, but this is not the scenario presented.
Quick Q:
An estate agent is undertaking a marketing campaign trying to acquire new clients by making targeted face-to-face visits to properties in the area worth over £1 million to see if the owners are willing to sell.
The estate agent contacts a solicitor and suggests that it would be mutually beneficial for the estate agent to recommend to all clients acquired from the campaign that they instruct the solicitor to do the conveyancing work for them. The estate agent suggests that in return they are paid 1% of the solicitor’s conveyancing fees for each client who instructs the solicitor as a result of the recommendation.
The solicitor agrees to the estate agent’s suggestion and they enter into a written agreement to that effect. The agreement provides that every client must be informed of the estate agent’s financial interest in making the recommendation.
Does the agreement breach the SRA Code of Conduct for Solicitors, RELs and RFLs?
Yes, because the estate agent is acquiring the clients by making unsolicited approaches to members of the public.
Key things to remember: the reasoning…
Option E is correct. Solicitors are permitted to enter into fee-sharing arrangements of this kind (as a result option D is wrong). Such agreements must be in writing (Paragraph 5.1(c)) and clients must be informed of the introducer’s financial interest (Paragraph 5.1(a)). However, the solicitor must ensure that clients are not recruited in a way which would be in breach of the Codes if done by the solicitor themselves (Paragraph 5.1(e)). Here the clients are being recruited by cold calling and so the solicitor is in breach of the Code (Paragraph 8.9).
Can a solicitor accept instructions to act on a matter, from a third party?
A solicitor can accept instructions from a third party who is authorised to give those instructions
Quick Q:
A solicitor is acting for the buyer in a protracted residential conveyancing matter. The solicitor receives a telephone call from the seller (who is unrepresented). The seller is becoming increasingly frustrated at the delay and threatens to pull out of the deal. To prevent this, the solicitor says to the seller, ‘My firm promises to pay the deposit of £20,000 to you by 10 am tomorrow.’
Which of the following statements best explains who is liable to pay the £20,000?
Both the solicitor and the firm are liable, because the promise given by the solicitor amounts to an undertaking binding on both the individual and the firm.
Option E is correct. The promise is an undertaking even though the word ‘undertaking’ is not used (option A therefore is wrong). The SRA Glossary definition makes it clear that it is not necessary to include the word ‘undertake’ for an oral or written statement, on which reliance is placed, to constitute an enforceable promise. The undertaking is binding both on the individual and the firm. The fact that the solicitor was motivated by trying to save the deal does not exclude the solicitor from liability.
Integrity meaning
SRA Principle 5 requires you to act with integrity. While someone acting dishonestly can be said to be acting without integrity, the concept of integrity is wider than just acting dishonestly. This means that it is possible to behave without integrity but not necessarily being dishonest.
Integrity is also described as: “useful shorthand to express the higher standards which society expects from professional persons and which the professions expect from their own members”.
Quick Q:
A solicitor has been dealing with purchase of a country estate for a wealthy local businessman. The purchase has now completed. The firm’s senior partner tells the solicitor to telephone the businessman in order to promote the firm’s corporate department in the hope that the businessman will transfer the corporate work arising from his various business interests from his current lawyers to the solicitor’s firm.
Which of the following best explains what the solicitor should do?
Make the telephone call because such a call would not constitute an unsolicited approach to a member of the public.
Option E is correct. Paragraph 8.9 prohibits a solicitor making unsolicited approaches to members of the public. However, a former client is an exception (accordingly, option A is wrong). There is nothing inherent in the making of the call which would place the solicitor in breach of the duty to act with integrity (option B is wrong). Solicitors are able to advertise. Option D is wrong – a solicitor is personally accountable for compliance for with the Code of Conduct.
