conveyancing conflicts task force report · strategy document dealing with conveyancing stated -...

Conveyancing Conflicts Task Force Report

1. Executive Summary

2. Introduction and Terms of Reference of the Task Force

3. Background 3.1 Regulations 3.2 Legislation 3.3 Guidelines & Practice Notes 3.4 Summary of Background

4. Current Situation in Ireland 4.1.1 Summary of the Effect of Regulations, Legislation and Guidelines 4.1.2 Voluntary Transactions 4.2 Adherence to and Enforcement of Current Regulations, Legislation and Guidelines

5. Research Methodology 5.1 Consultation 5.1.1 Consultation with Profession 5.1.2 External Consultation 5.1.3 Internal Consultation 5.2 Research 5.2.1 Rules, Regulations and Legislation for Solicitors and Lawyers in Ireland

and Other Common Law Jurisdictions 5.2.2 Guidelines and Practice Notes Relating to Conflicts in Ireland

and Other Jurisdictions 5.2.3 Jurisprudence Around Conveyancing Conflicts in Ireland and Other Jurisdictions 5.2.4 Academic Papers 5.2.5 Civil Law Jurisdictions

6. Results of Consultation 6.1 Results of Consultation with Profession 6.2 Results of External Consultation 6.3 Results of Internal Consultation

7. Results of Research 7.1 Results of Research in Ireland and Other Common Law Jurisdictions 7.1.1.1 Ireland – Rules, Regulations and Legislation 7.1.1.2 Ireland – Guidelines and Practice Notes 7.1.1.3 Ireland – Jurisprudence 7.1.2.1 England & Wales - Rules, Regulations and Legislation 7.1.2.2 England & Wales - Guidelines and Practice Notes 7.1.2.3 England & Wales – Jurisprudence 7.1.3.1 Scotland – Rules, Regulations and Legislation 7.1.3.2 Scotland - Guidelines and Practice Notes 7.1.4.1 Northern Ireland – Rules, Regulations and Legislation 7.1.5.1 Canada – Rules, Regulations and Legislation 7.1.5.2 Canada - Guidelines and Practice Notes 7.1.5.3 Canada – Jurisprudence 7.1.6.1 States of Australia 7.1.6.1.1 Victoria – Rules, Regulations and Legislation 7.1.6.1.2 Victoria - Guidelines and Practice Notes 7.1.6.1.3 Victoria – Jurisprudence 7.1.6.2.1 New South Wales – Rules, Regulations and Legislation 7.1.6.2.2 New South Wales - Guidelines and Practice Notes 7.1.6.2.3 New South Wales - Jurisprudence 7.1.6.3.1 Western Australia – Rules, Regulations and Legislation 7.1.6.3.2 Western Australia - Guidelines and Practice Notes 7.1.6.3.3 Western Australia – Jurisprudence

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7.1.6.4.1 Queensland – Rules, Regulations and Legislation 7.1.6.4.2 Queensland - Guidelines and Practice Notes 7.1.6.5 Federal Court of Australia – Jurisprudence 7.1.7.1 New Zealand – Rules, Regulations and Legislation 7.1.7.2 New Zealand – Jurisprudence 7.1.8 Conclusions on Research on Common Law Jurisdictions 7.2 Results of Research in Civil Law Jurisdictions 7.2.1.1 Germany 7.2.1.2 France 7.2.1.3 Spain 7.2.1.4 Italy 7.2.1.5 Austria 7.2.1.6 Norway 7.2.1.7 Denmark 7.2.1.8 Sweden 7.2.1.9 Czech Republic 7.2.1.10 Estonia 7.2.1.11 Slovenia 7.2.1.12 Slovak Republic 7.2.1.13 Hungary 7.2.2 CCBE Codes of Conduct 7.2.3 Conclusions on Research on Civil Law Jurisdictions 7.3 Academic Papers and Articles

8. The Context in Which the Task Force Conducted its Review

9. Conclusions 9.1 Voluntary Transfers 9.2 Transfers for Value 9.3 Matters Applicable to Both Voluntary Transfers and Transfers for Value

10. Recommendations

11. Appendices Appendix 1 Part 1 Proposed Draft Conveyancing Conflict of Interests Regulation Appendix 1 Part 2 Proposed Draft Guidelines Appendix 2 Membership of Conveyancing Conflicts Task Force Appendix 3 Part 1 Members of Profession from Whom Submissions were Received Appendix 3 Part 2 Internal Law Society Committees and Committee Members from

Whom Submissions were Received Appendix 3 Part 3 External Persons and Organisations from Whom Submissions were Received Appendix 4 Acknowledgements Appendix 5 Acknowledgements

CONTENTS

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1 Conveyancing Conflicts Task Force Report

1 EXECUTIVE SUMMARY

The Task Force was set up by the Council:

“To review the Society’s existing guidance and regulations relating to solicitors acting for both vendor and purchaser in conveyancing transactions (including voluntary transactions) and to examine also the systems in other jurisdictions with a view to making any recommendation for change considered appropriate”.

The Task Force was comprised of solicitors of varying practice backgrounds, experience and expertise and was chaired by an independent chairperson. The issue of the same solicitor acting for both sides in a conveyancing transaction is complex. This is evidenced by the fact that the Law Society has deliberated on this matter and has taken a number of iterative steps regarding same over a number of years. The issue, however, continues to be a live one for the profession and there is a lack of clarity about the enforceability of the guidelines that are not part of the Society’s regulatory regime.

The context in which the Task Force carried out its work was against a background of significant change in the social and economic life of Ireland, in the practice environment for solicitors and their clients, and in the business world generally.

The topic of conflicts affects large and small firms, urban and rural firms alike, as was noted in the report on conflicts of interest of the Canadian Bar Association in 2008 which observed that: “This is not a “big firm” issue any more than it is a

“legal aid”, “big city” or “small town” issue. Collectively lawyers and their clients are experiencing difficulties with the conflicts rule. The need to find workable solutions is evident.”

This was confirmed by the submissions received by the Task Force.

The Solicitors Regulation Authority, a statutory body independent of the Law Society of England & Wales, in its strategy document dealing with conveyancing stated - “Any transaction involving the acquisition of rights over

land is very likely to involve negotiations on behalf of a client/clients and therefore there is an inherent risk of conflicts of interest in this type of work. Our experience tells us that conveyancing is one of the key areas of work associated with improper management of conflicts of interests to the detriment of consumers.”

To best inform its deliberations and to ensure an all inclusive approach, the Task Force undertook an extensive consultation process. The views and suggestions of members of the solicitors’ profession - both individually and through their representative Bar Associations - were sought. Internally, various Law Society committees were invited to input to the review process. Externally, a range of relevant interested parties and stakeholders were also

invited to participate in the process.

The Task Force would like to record its thanks to the profession for the many submissions received and to the parties who made themselves available to meet with it.

As part of its remit the Task Force researched the situation in other jurisdictions and carried out an analysis of the regulatory regime, judicial and academic commentary impacting on the issue under review. Full details of the extensive materials reviewed are set out in this report.

The review confirmed that every other common law jurisdiction and most civil law jurisdictions have in place a prohibition, in principle, on the same solicitor acting for both parties to a conveyancing transaction. Similar to Ireland, many of these jurisdictions then proceed to permit a limited number of exceptions, subject to certain conditions. Having analysed and considered the relevant material, the Task Force however, was not convinced of the robustness of the reasoning behind the various exceptions and considered that the existence of such exceptions may have been influenced more by particular interests rather than an objective assessment as to risks, appropriateness etc.

The Task Force separately considered voluntary transfers and transfers for value.

In relation to voluntary transfers there appears to be a perception that such transfers constitute a low risk. Many jurisdictions therefore allow an exception for such transfers. On closer analysis, the dangers associated with such transactions became clear to the Task Force. There may be inherent difficulties in such cases as recognised by judicial commentary and by the Law Society’s own guidelines. The case for the continuation of this exception was significantly undermined by the findings of the HSE/UCD report instancing abuse of the elderly in Ireland, which study showed that 94% of financial abuse of the elderly is carried out by family members. It further showed that there was a 91% instance of house ownership among elderly Irish people. The different types of financial abuse of the elderly identified in the report included their being forced or misled “to sign over ownership” of a home or property against their will.

From submissions made to the Task Force it appears that many elderly people divest themselves of their property during their lifetime and that they tend to do so to children or other family members other than for full value.

Given the divergent interests that require protection in such cases it seemed that different legal advice would invariably be given to a donor than to a donee in most voluntary transfer situations and, accordingly, the Task Force did not see how one legal advisor could give independent or impartial advice to both parties to a transaction, or be seen to do so.

The Task Force also considered the situation regarding transfers for value.

Among the issues considered in its deliberations were –· whether residential conveyancing should be

Conveyancing Conflicts Task Force Report 2

differentiated from commercial conveyancing – it decided that it should not;

· whether landlord and tenant transactions should be included in any proposed recommendations – it decided that they should;

· whether a de minimis rule is needed with reference to the value of the property – it decided that the value of the property should not be a consideration;

· whether accessibility / remoteness of location should be a determining factor – it decided that it should not.

The Task Force noted the observations of Professor Wylie in his book “Irish Conveyancing Law” on the question of the same solicitor acting for both vendor and purchaser. Professor Wylie points out that the Courts tend to discourage the same solicitor acting for both parties in the same transaction because of the danger of that solicitor facing a conflict of interest. He notes that, if there is a conflict of interest, there is then a conflict of duties which a solicitor should take care to avoid. Moreover, he points to the fact that a solicitor who acts for vendor and purchaser in the same transaction thereby fixes the purchaser with notice of everything of which he has acquired knowledge as solicitor for the vendor and thus deprives the purchaser of the defence that he/she was a bona fide purchaser for value without notice. The issue of the same solicitor acting for both parties in a conveyancing transaction has drawn comment from the judiciary. In the High Court case of Cadden v Caffrey (1994) Mr Justice Costello stated:

“I have come across a number of cases in which a solicitor has acted for both vendor and purchaser and I am aware that this practice is not prohibited by the Law Society. I wish to say that this practice is highly undesirable and is one that should be looked at again by the Law Society”.

On appeal in the Supreme Court Mr Justice O’Flaherty stated that:

“The case was complicated to some extent (as was noted by the trial judge) by the fact that the same solicitor acted for both parties. The trial judge found this to be undesirable and he wished that the Law Society should change their rules in that regard. We have not been told whether in fact any change has been brought about and I pass from making any further comment on this matter except to endorse what the trial judge had to say”.

In the Supreme Court appeal case of Carroll v Carroll (1999) Ms Justice Denham questioned the independence of the legal advice given by a solicitor acting for both parties in a conveyancing transaction.

In a recent unreported case Mr Justice Kearns, President of the High Court, remarked, in making an assessment on damages, where there had been a settlement on the issue of liability, that -

“The difficulty in this case was compounded because both sides of this transaction were within the four walls of the offices of …” [the solicitors’ firm].

The President went on to say he was not suggesting that anything was done that was sinister or anything of that sort by the partners in the practice.

Taking the results of its research into account, the Task Force concluded that, in the case of voluntary transfers and transfers manifestly below market value, there should be a total prohibition on a solicitor acting for both sides in a conveyancing transaction, subject only to one limited exception. This exception is recommended in recognition of the special statutory treatment afforded to the transfer into joint names of the family home and shared home in line with the Family Home Protection Act 1976 and the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010.

Having completed its review, the Task Force concluded that transfers for value and voluntary transfers should be treated on the same basis. It therefore recommends an outright prohibition on one solicitor or firm acting for both vendor and purchaser in transactions for value, with two exceptions:

1. Where both parties are associated companies (within the meaning of Section 432 of the Taxes Consolidation Act 1997) or, where one party comprises one or more individual persons and the other is/are a company or companies, the parties are associated by virtue of ownership by the individual(s) of the entire issued share capital of the company/companies.

2. Where both parties are “Qualified Parties” (to be defined with reference to paragraphs (c) and (d) of the definition of qualified investors in the Prospectus (Directive 2003/71/Ec) Regulations 2005 (S.I. No. 324/2005)) and certain conditions as set out in the draft rule appended to this report are complied with.

The wording of these exceptions is drawn from existing statutory provisions. They can be interpreted based on objective criteria and empirical evidence. They do not require subjective judgement calls on the part of a solicitor. In arriving at these conclusions the Task Force made a conscious decision to disallow any differentiation based on the relative wealth or status of individuals.

Whilst the focus of the Task Force was on ensuring the probity and integrity of the conveyancing system it has, throughout its review, been conscious of the cost implications (if any) of its recommendations. To put any costs issue associated with mandating separate solicitor representation in context, the following points should be noted:

· the fee for separate representation is a “once-off” cost - not a recurring cost,

· that where a solicitor does act for two clients in a voluntary transfer at present, there is a duty on the solicitor to refer one of them for independent legal advice and that there is already a cost for that independent advice,

· that any higher cost for obtaining separate independent representation for both parties is justified by the knowledge and assurance that each party


has their own solicitor and there is no possibility of conflict of interest arising, thus ensuring the probity and integrity of the transaction.

The Task Force believes that the proposed rule will improve the protection for clients and solicitors against the possibility of any question of conflict of interest arising. It will bring greater certainty and clarity for solicitors and clients undertaking property transactions and overall it will underpin confidence in the conveyancing system in Ireland.

2 INTRODUCTION AND TERMS OF REFERENCE OF THE TASK FORCE

Further to a Law Society of Ireland Council decision a Task Force was established to review the current regulations for solicitors acting for both parties in a conveyancing transaction.

The President appointed the Task Force members as detailed in Appendix 2.

The terms of reference initially set by the Council for the Task Force in November 2010 were as follows:

“To review the Society’s existing guidance and regulations relating to solicitors acting for both vendor and purchaser in conveyancing transactions and to examine also the systems in other jurisdictions with a view to making any recommendations for change considered appropriate.”

Following the first Task Force meeting, it was agreed that there was also the possibility of risk associated with the conveyancing work surrounding voluntary dispositions and it was considered that the weight of jurisprudence in this area strongly suggested that a consideration of voluntary transactions was pertinent to any discussion of conflicts in conveyancing work. At the request of the Task Force, the matter was referred back to the Council, which readily approved the expansion of the terms of reference to include voluntary dispositions. Amended terms of reference subsequently issued as follows:

“To review the Society’s existing guidance and regulations relating to solicitors acting for both vendor and purchaser in conveyancing transactions (including voluntary transactions) and to examine also the systems in other jurisdictions with a view to making any recommendations for change considered appropriate.”


3 BACKGROUND

The Society has been cognisant of concerns expressed from time to time by various parties, including the judiciary, regarding the practice of the same solicitor acting for both sides in a conveyancing transaction – concerns not only about any monetary loss that might result from such practices, but also about reputational damage to the profession. In addition, there have been judicial comments in cases before the Courts over the years querying the desirability or the appropriateness of a solicitor acting for both parties.

The issue of conflicts has been dealt with on an iterative basis by the Law Society over a period of years as can be seen from the following regulations, legislation and guidelines issued by the Society. As far back as 1997, for example, a motion had come before the Council of the Law Society that in a non-voluntary conveyance a solicitor should be prohibited from acting for both parties. At that time, the motion was opposed and was adjourned generally.

The social, economic and practice environment for solicitors and their clients has, however, seen significant changes over the past decade. In seeking to consider how the profession might move forward in the future, the Task Force reviewed the existing regulations, legislation, guidelines and practice notes.

3.1 REGULATIONS

Following review at different stages, the Law Society issued regulations that put three aspects of matters relating to solicitors acting for both sides in a transaction on a statutory footing:- 3.1.1 In 1996 Council debated the question of the same solicitor acting for the builder and purchaser of a new dwelling. This practice had been the source of a number of complaints to the Law Society. The motion passed by Council was “That this Council resolves, in exercise of the powers conferred on it by the Solicitors Acts, 1954 to 1994, to make regulations relating to solicitors acting on behalf of both developer and purchaser in a conveyancing transaction.” Regulations were drafted and S.I. 85 of 1997 introduced a statutory prohibition on solicitors acting for both vendor/builder and purchaser of a newly constructed residential property.

3.1.2 Throughout 2009 and 2010 the Law Society and the profession became aware of difficulties that PII insurers had in continuing to insure solicitors’ undertakings to lending institutions in commercial property transactions. This was as a result of an increase in claims and in notifications of claims by solicitors in the practice area of commercial conveyancing. At its meeting in May 2010, Council debated the following motion – “That this Council approves the Solicitors Professional Practice, Conduct and Discipline – Prohibition on Commercial Undertakings) Regulations 2010.”1 It discussed the text of the regulations

1 Report on Law Society Council meeting held on 16 July 2010, Law Society Gazette, Aug/Sep 2010, p.50.

as drafted which included a proposed prohibition on the giving of commercial undertakings, together with the substantial response from the profession to the Society’s consultation on the proposed prohibition. There was general agreement that, in principle, undertakings in relation to commercial properties should be prohibited. Council noted that many solicitors who had engaged in the consultation process had expressed a strong view that the regulations should be extended to include a prohibition on solicitors acting for both borrower and lender in relation to the same transaction, because of the inherent conflict of interest. As this point had not formed part of the original consultation process, it was agreed to adjourn the matter and revert to the profession for their views on this item. The adjourned motion, with accompanying draft regulations as amended to include a prohibition on solicitors acting for both borrower and lender in commercial conveyancing transactions, was again discussed by Council at its meeting in July 2010. A number of Council members spoke in opposition to the proposed prohibition on solicitors acting for both borrower and lender, arguing that the measure was disproportionate, impractical and unnecessary and that, if ‘ethical barriers’ were properly adhered to, clients would be adequately protected. A majority of Council members spoke in support of the proposed regulations and, following a lengthy debate, the Council overwhelmingly approved the regulations as drafted. S.I. 366 of 2010, signed on the 22nd July 2010, introduced two statutory prohibitions, one on the giving of commercial undertakings to lending institutions, and the other on solicitors acting for both borrower and lender in commercial property transactions.

3.2 LEGISLATION

3.2.1 Section 3(6) of the Multi-Unit Developments Act 2011 provides that, with regard to the negotiation of the contract for the transfer of the common areas in a multi-unit development, the owners’ management company shall have legal representation and shall not be represented by the same solicitor or firm of solicitors as the developer or other person owning the common areas, and the reasonable costs of such representation shall be discharged by the developer or other person owning the common areas.

3.3 GUIDELINES AND PRACTICE NOTES

During the past twenty-five years or more, various technical practice committees of the Society have also published guidelines and other forms of guidance to solicitors on the topic of conflicts of interest:-

3.3.1 Conveyancing Committee practice note, Gazette December 1983, “Mortgagees’ solicitors and their borrowers – Conflict of Interest”

3.3.2 Conveyancing Committee practice note, Gazette May 1986, “Mortgagees’ solicitors and their borrowers – Conflict of Interest – Follow-up”

3.3.3 Conveyancing Committee practice note, Gazette December 1986, “Mortgagees’ solicitors and their


borrowers – Conflict of Interest – Clarification”The above three practice guidelines have since been superseded by S.I. 366 of 2010 as set out at paragraph 3.1.2 above.

3.3.4 On 18th April 1997, the Council of the Law Society considered the motion – “That this Council approves the terms of a draft Statutory Instrument circulated herewith in relation to a prohibition against solicitors acting for both vendor and purchaser in the sale, transfer or lease of any land except in voluntary transfers where the parties have been advised in writing of the desirability of taking independent legal advice.” It was noted that, of the twenty-six submissions received, many from bar associations, twenty-two were strongly, or on balance, opposed to the motion. The preponderance of views included a belief that the practice was justified in certain circumstances and that the matter should be dealt with by guidelines. The motion was adjourned generally2.

3.3.5 Conveyancing Committee practice note, Gazette December 2001, “Voluntary Transfers”

3.3.6 Conveyancing Committee practice note, Gazette November 2003, “The Presumption of Undue Influence”

3.3.7 On 23rd November 2004, Mr Justice Quirke wrote to the Law Society following his judgment in the case of Murray & Whelan v. O’Donnell Dalton and Hogan in October of that year. Judge Quirke noted that the Law Society’s guidelines said that as a general principle a solicitor should not act for both vendor and purchaser, but did not prohibit the practice provided there is no conflict actual or perceived between vendor and purchaser and the parties come within four specific exceptions set out in the guidelines. He said that it would be helpful if the Society were to require that where solicitors decide to act for both parties on the grounds that they come within the four exceptions they should in every instance adopt mandatory practices of the kind he had referred to in his judgment. He also said it would be helpful if the Society were to stress the fact that solicitors acting for both parties have a particularly onerous obligation not only to comply strictly with the practice but also to record each step of the transaction for the benefit of each client. Judge Quirke expressed the view that it would be in the interest of all parties (and in particular solicitors) in these circumstances that procedures should be introduced, adopted and enforced that openly demonstrate that all stages of the transaction are at arms length. He said that the most important requirement should be that these procedures are recorded at all stages and records maintained to protect all parties. Ultimately, the matter was referred to the Society’s Conveyancing Committee to draft procedures and guidelines.

In February 2006, the Conveyancing Committee indicated that, far from it being able to draft guidelines for solicitors to act for both sides, the committee had concluded that, for reasons of confidentiality, it would appear to it to be inappropriate for a firm to attempt to represent both

2 Report on Council meeting held on 18 April 1997, Law Society Gazette, July 1997, p.27.

sides. It referred the matter back to the Registrar of Solicitors and to the Guidance & Ethics Committee so that a decision could be made on whether or not to refer the matter to Council with a view to the Society introducing a prohibition on acting for both sides.

3.3.8 Registrar of Solicitors and Conveyancing Committee practice note, Gazette December 2005, “Acting for both vendor and purchaser in the sale and purchase of new houses and apartments: notice to all practising solicitors”

3.3.9 Guidance and Ethics Committee practice note, Gazette November 2006, “Purchasers’ solicitor’s fee paid or subsidised by builder: conflict of interest?”

3.3.10 There had been concern for some time that some solicitors’ firms did not recognise that a special duty of care is owed to vulnerable clients and that, in order to ensure their interests were protected when disposing of property assets, they should be represented by a different firm to the one representing the purchaser. The Law Society’s Council at its meeting in July 2009 debated the motion “That this Council approves regulations to prohibit solicitors acting on both sides of a conveyancing transaction where one party is vulnerable.”3 It was put to the Council that some clients, particularly vulnerable transferors, only took a short-term view of their circumstances and should, in such instances, be protected from themselves. It was proposed that regulations were necessary to ensure that vulnerable clients were separately represented. Some Council members expressed the view that solicitors should simply be prohibited from acting on both sides of a transaction in all circumstances, but other Council members disagreed with such a broad prohibition. It was agreed that there was a real difficulty in assessing what constituted vulnerability and that the regulations would need to be closely defined. It was also agreed that, while the regulations might create issues for solicitors, they would also protect solicitors in circumstances where they were being pressured to act on both sides of a transaction. Council approved in principle the making of regulations prohibiting solicitors from acting on both sides of a conveyance or transfer where one of the parties is vulnerable and the Society’s Guidance & Ethics Committee was asked to draft regulations giving effect to the motion for further consideration. That committee brought draft regulations to Council in May 2010 but Council rejected the regulations and asked the committee to proceed with guidelines in this area rather than statutory regulations. The Guidance & Ethics Committee brought draft guidelines to the Council for approval at its meeting in September 2010 when it debated the motion “That this Council approves guidelines for solicitors when acting for vulnerable clients in property transactions in the form attached.”4 The background to the motion was outlined and reference was made to relevant case law where the judiciary had expressed concerns about solicitors acting for both parties in property transactions, particularly where one party might be regarded as vulnerable. It was stated that the motion sought to address a significant issue of

3 Report on Law Society Council meeting held on 17 July 2009, Law Society Gazette, Aug/Sep 2009, p.41.4 Report on Law Society Council meeting held on 24 September 2010, Law Society Gazette, November 2009, p.48.


public interest. The Council approved the guidelines and agreed that they should be issued to the profession in the form of a practice note.

3.3.1 1The Guidance & Ethics Committee practice note, “Firms should not act on both sides of property transactions where one party is vulnerable” were published in the January/February Gazette 2011.

3.4 SUMMARY OF BACKGROUND

The substantive issue however of one solicitor acting for both parties to a transaction not having been resolved, the Council set up the current Task Force to do an in-depth review and make recommendations.

The Task Force was, from the beginning, aware of the challenges and the complexities involved in striving to make workable recommendations. That the matter did not lend itself to an immediate solution is apparent from the different approaches to this issue that have been taken by members of the Law Society at various stages of review over past years as outlined above, and how such approaches, taken by various groups, have, of themselves, changed from time to time as circumstances and events occurred.

While it is clear that the Law Society has reviewed this area quite frequently and has introduced both regulations and guidelines, it remains a live issue for the profession. It is therefore very timely that this Task Force would look at the matter again. The Task Force is aware that this discussion is taking place in the context of a substantially changed society, due, amongst other factors, to the increased mobility of clients and solicitors and indeed the vastly changed property market. As stated by Lord Justice Millett in the case of Mothew –v- Bristol & West Building Society,

“The collapse in the property market which accompanied the recession at the beginning of the present decade caused mortgage lenders to suffer serious losses. Unable to recover their advances from the borrowers or by the enforcement of their security they have sought to recover them from the valuers or solicitors on whose valuations or advice they had relied. … Believing that the common law rules of causation and remoteness of damage might not enable them to recover the whole amount of their loss they have turned to equity and alleged breach of trust or fiduciary duty.”5

5 [1996] EWCA 533

4 CURRENT SITUATION IN IRELAND

4.1.1 SUMMARY OF THE EFFECT OF CURRENT REGULATIONS, LEGISLATION AND GUIDELINES

The outcome of the various steps taken by the Law Society adverted to earlier is that:· A solicitor is prohibited by law from acting for

the vendor/developer and the purchaser of a new residential property or a residential property in the course of construction

· A solicitor is prohibited by law from acting for a borrower and lender in the same commercial property transaction

· There are ethical guidelines issued by the Law Society advising that a solicitor should not, as a general rule, act for both sides in a conveyancing transaction at arm’s length, followed by a list of exceptions to the general principle that permit a solicitor to act for both parties in certain circumstances

· There are also various recommendations in the form of practice notes issued by different technical committees of the Law Society such as practice notes on the dangers associated with - acting for both borrower and lender in the one

transaction, - acting for both sides in voluntary transfers, - the presumption of undue influence, - firms acting for both sides in property transactions

where one party is vulnerable,and other related matters.

The burden is, essentially, left with the practitioner to decide whether there is a conflict of interest or not in given circumstances and as to whether or not one of the parties is a vulnerable person.

In contrast, the most recent legislative initiative regarding property has meant that, by law, an owners’ management company must have legal representation when entering into a contract for the transfer of common areas in multi-unit developments and must be represented by a separate firm of solicitors to that representing the developer6.

4.1.2 VOLUNTARY TRANSACTIONS

The Law Society’s own guidelines and practice recommendations reinforce the legal position that there is a presumption of undue influence in the area of voluntary transfers. There are fairly detailed and specific guidelines on what precautions a solicitor acting for both parties might take so that a donee is in a position to rebut this presumption. Issues such as means, mental capacity and vulnerability all come into play.

4.2 ADHERENCE TO AND ENFORCEMENT OF CURRENT REGULATIONS, LEGISLATION AND GUIDELINES

The Task Force wished to consider how the Law Society currently exercises its regulatory function of monitoring compliance by the profession with existing statutory

6 Section 3(6) of the Multi-Unit Developments Act 2011


regulations in relation to conflicts of interest. It was cognisant of the remarks made by Mr Justice Quirke in correspondence to the Law Society as to, not alone the introduction of appropriate procedures, but also as to their enforcement. The Task Force noted that S.I. 85 of 1997 introduced a statutory prohibition on solicitors acting for both vendor/builder and purchaser of a newly constructed residential property. It consulted the Society’s Regulation of Practice Committee which indicated that its investigating accountants regularly report breaches of this statutory instrument and that the usual response from the solicitor by way of mitigation was that the purchaser insisted the solicitor act.

The Society’s Complaints and Client Relations Committee also indicated that it still receives complaints about solicitors acting for both developer/vendor and purchaser in the sale and purchase of new dwellings, despite the fact that it is over fifteen years since this practice was made the subject of a regulatory prohibition, and that such solicitors seek to excuse their actions by saying that both the vendor and purchaser insisted that the solicitor act for both sides.

Following enquiries by the Task Force, the Regulation of Practice Committee confirmed that copies of the relevant statutory instruments were re-circulated to its investigating accountants by way of reminder to them to check solicitors’ practices for compliance with the regulations.

The Task Force welcomes this proactive approach by the Regulation of Practice Committee.

Having reviewed the current regulations, guidelines and the responses received from the Society’s regulatory committees regarding ongoing instances of non-adherence to same, concerns as to the issue of possible conflict of interests and the risks to both practitioners and clients arising from them appear to be well founded. The Law Society decision therefore that the question of potential conflicts of interest in conveyancing matters would again be fully researched and reviewed under the auspices of an independent chairperson is, as stated earlier, timely. The Task Force’s deliberations have been guided by viewing the role of the Law Society in the matter as one of setting standards for practice and issuing guidance to the profession that can be readily understood, effectively applied by all solicitors, and which can be monitored and enforced effectively by the Law Society.

5 RESEARCH METHODOLOGY

The modus operandi adopted by the Task Force was to consult widely with the profession and other relevant interested parties and jurisdictions through meetings, website notices and printed media, emails, telephone calls, etc.

5.1 CONSULTATION

5.1.1 CONSULTATION WITH PROFESSION

The Task Force used a two-pronged approach by consulting solicitors both on an individual basis and collectively through bar associations. The following communications were issued with accompanying background materials consisting of the terms of reference of the Task Force and copies of existing regulations and guidelines, and members were invited to make submissions to the Task Force:

· An electronic bulletin was sent to all solicitors signed up for electronic communication from the Society;

· A notice was posted as a “news item” in the members’ area of the Law Society’s website;

· A notice in similar terms was published in the August/September 2011 issue of the Law Society Gazette;

· A letter was sent to Presidents and Secretaries of twenty-eight bar associations throughout the country asking them to canvass their members with a view to collating submissions or making group submissions.

5.1.2 EXTERNAL CONSULTATION

The Task Force also contacted the following interested parties, briefing them with the background materials mentioned above and inviting submissions:1. Bar Council of Ireland2. Law Reform Commission3. Consumers Association of Ireland 4. National Consumer Agency 5. Elder Abuse National Implementation Group 6. Solicitors for the Elderly Ireland 7. Chambers Ireland (association of Chambers of

Commerce)8. Property Registration Authority9. Irish Tax Institute10. Society of Chartered Surveyors11. Irish Farmers’ Association12. Irish Creamery Milk Suppliers Association13. Irish Bankers’ Federation14. Bank of Ireland15. Allied Irish Banks plc16. Irish League of Credit Unions17. ISME18. IBEC19. Professional indemnity insurers20. Solicitors’ Disciplinary Tribunal

Contact was made with the Solicitors’ Disciplinary Tribunal for the purpose of seeking specific information on how the Tribunal deals with complaints about conflicts of interest made directly to it by members of the public and those referred to it by the Law Society.


The Task Force also invited some of the above parties, together with solicitors in both private practice and corporate practice, to meet with it in order to obtain a more complete understanding of their submissions.

5.1.3 INTERNAL CONSULTATION

As part of its wide consultative research process the Task Force consulted with certain regulatory and technical committees of the Law Society:· Regulation of Practice Committee – a regulatory

committee· Complaints and Client Relations Committee – a

regulatory committee· Professional Indemnity Insurance Committee – a

regulatory committee· Conveyancing Committee – a technical practice

committee.

The Task Force collated the responses received.

5.2 RESEARCH

The Task Force conducted research in the following areas:· Rules, regulations and legislation for solicitors and

lawyers in Ireland and other common law jurisdictions· Guidelines and practice notes relating to conflicts in

Ireland and other jurisdictions· Jurisprudence around conveyancing conflicts in

Ireland and other jurisdictions· Academic papers and reports· Civil law jurisdictions

5.2.1 RULES, REGULATIONS AND LEGISLATION FOR SOLICITORS AND LAWYERS IN IRELAND AND OTHER COMMON LAW JURISDICTIONS

The Task Force considered the position in the following common law jurisdictions:IrelandEngland & Wales Scotland Northern Ireland CanadaAustralia (states of Victoria, New South Wales, Western Australia and Queensland)New Zealand.

5.2.2 GUIDELINES AND PRACTICE NOTES RELATING TO CONFLICTS IN IRELAND AND OTHER JURISDICTIONS

The Task Force considered relevant guidelines and practice notes relating to conflicts of interest in conveyancing matters in Ireland and the above named jurisdictions.

5.2.3 JURISPRUDENCE AROUND CONVEYANCING CONFLICTS IN IRELAND AND OTHER JURISDICTIONS

The Task Force considered the available jurisprudence in the following common law jurisdictions:IrelandEngland & Wales

CanadaAustralia (Federal Court; states of Victoria, New South Wales, Queensland, and Western Australia)New Zealand.

5.2.4 ACADEMIC PAPERS AND REPORTS

The Task Force considered academic papers from the following jurisdictions and authors:

Ireland:· Extract from The Law on Solicitors in Ireland, Patrick

O’Callaghan, 2000, (Chapter 6 – Conflicts of Interest)

· Extract from Irish Conveyancing Law, Prof. JCW Wylie, 3rd Ed., (Role of Professional Persons, Para.s 1.34 - 1.38)

· “Avoiding Professional Negligence in Conveyancing”, Brian Gallagher, Law Society of Ireland Gazette, December 2002, pp 10-15 (notice)

· “Conflict of Interest: The Solicitor’s Duty in an Impossible Situation”, Dr Ciaran Craven, Quarterly Review of Tort Law, Clarus Press, Vol. 1, Issue 1, Winter 2005/6, pp 29-34

England & Wales:· Extracts from Conflicts of Interest, Charles Hollander

Q.C. & Simon Salzedo, 2008, 3rd Ed., (Chapter 1 – Conflicts of Interest: the Principles; Chapter 2 – Existing Client Conflicts: the fiduciary obligation; Chapter 3 – The Double Employment rule; Chapter 4 – Managing Conflicts by Contract; Chapter 5 – Perception of impropriety as a test for conflicts; Chapter 6 – The Obligation to Disclose Information; Chapter 7 – Information barriers; Chapter 12 – Solicitors)

· Extract from The Solicitors’ Handbook 2009, Andrew Hopper Q.C. & Gregory Treverton-Jones Q.C., 2009, 2nd Ed. (The Solicitors’ Code of Conduct 2007, Rule 3)

· Extracts from Solicitors’ Negligence and Liability, William Fenley & Tom Leech, 2008, 2nd Ed. (Chapter 4 – Breach of Fiduciary Duty; Chapter 9 – Conveyancing)

· Extract from Cordery on Solicitors (Rule 3 – Conflict of Interests; Rule 4 – Confidentiality and Disclosure)

· “Conflicts and Confidentiality (1) and (2)”, Jane Jarman, Solicitors’ Journal, 2006, Vol. 150, 1560-1561; 1597-1598

· “Inconsistent Fiduciary Duties and Implied Consent”, The Law Quarterly Review, Vol. 122, January 2006, pp 1-8

· “Questions of Ethics”, Law Society of England & Wales Gazette, 2006, Vol. 103, Part 26, p31

· “Code of Conduct – conflicts of interest and conveyancing”, Nick Gurney-Champion, The Law Gazette, December 2010


· “Professions – Conflict of Interest”, Property Law Bulletin, Sweet & Maxwell, 2005, Vol. 26, Part 1, p4

Scotland:· Extract from Law, Practice and Conduct for Solicitors,

Alan Paterson & Bruce Ritchie (Chapter 7 – Conflict of Interest)

· Scottish Solicitors Discipline Tribunal, Journal of the Law Society of Scotland, 2007, Vol. 52, Part 6, p45

· Webster and Webster “Professional Ethics and Practice for Scottish Solicitors”, 3rd Ed., 1996

Australia (New South Wales)· “Conflict of Interest – Practical Aspects”, Jennie

Pakula, Law Society of New South Wales website

· “Ethics and Conflict of Interest and Duties”, Virginia P. Shirvington, Law Society of New South Wales, April 2006

· “Riley Solicitors Manual”, Law Society of New South Wales (Chapter 7 – Conflict Between Current Clients)

Australia (Victoria)· Extracts from Final Report on The Regulation of

Conveyancing Services in Victoria, June 2005, The Allen Consulting Group

· Extract from Government Response to Allen Consulting Report on Conveyancing, January (re licensed conveyancers)

Australia (Western Australia)· Law Reform Commission of Western Australia, Review

of the Criminal and Civil Justice System in Western Australia, Project No 92 (1999).

Canada· Canadian Bar Association Task Force Report on

Conflicts of Interest, Conflicts of Interest: Final Report, Recommendations & Toolkit”, August 2008

5.2.5 CIVIL LAW JURISDICTIONS

The Task Force also reviewed the position in civil law jurisdictions to assess how they dealt with the issue of conflict of interests and to examine whether there are any comparisons to be drawn. The main countries examined, being some of the countries that Ireland might be most familiar in dealing with, included:-GermanyFrance Spain ItalyAustriaNorwayDenmarkSwedenCzech RepublicEstoniaSloveniaSlovak RepublicHungary.


6 RESULTS OF CONSULTATION

6.1 RESULTS OF CONSULTATION WITH

PROFESSION

The Task Force is very heartened by the willingness shown by practitioners to participate in the consultation process. A common thread in the submissions received was a concern for the protection of clients and also for the protection of solicitors and an overall concern that the integrity of the profession as a whole and the conveyancing system/process be protected.

Submissions received from the profession welcomed the review of the topic.

Of the submissions received, where a definitive opinion was expressed as to the desirability or otherwise of introducing a prohibition on the same solicitor acting for both parties in conveyancing transactions, there was a majority in favour of introducing such a prohibition in both voluntary transactions and in transactions for value as set out below:-

Voluntary TransactionsIn favour of a prohibition 53.2%Against a prohibition 21.8%Satisfied with present position 25%

Transactions for ValueIn favour of a prohibition 65.7%Against a prohibition 14.6%Satisfied with present position 19.7%

The issue of costs was raised as a matter to be considered. This is dealt with in the Conclusions section of this report.

Of those who thought that there should be a prohibition on acting on both sides of a transaction the majority felt that, in today’s society, it was clearly required that each solicitor acting, not only be genuinely independent, but also must be seen to be genuinely independent and that it would thus be in the best interest of the profession to have a transparent, outright prohibition.

In addition it was argued that there is an inherent conflict in acting on both sides in a matter and that the independence of the solicitor could be questioned.

Others felt that the insurance industry might intervene and insist on separate representation in any event.

Reservations were expressed about the adequacy of information barriers e.g. in the area of unequal bargaining powers/status as between solicitors in a firm, and a perceived lack of independence.

Concerns were also expressed about solicitors being pressurised to act on both sides and many would welcome a prohibition as a clear reason for being able to refuse to do so without giving offence to clients.

Of those that opposed the introduction of a prohibition,

one of the recurring reasons put forward by them was that to prohibit acting on both sides of a transaction, once proper informed consent had been obtained and proper information barriers had been maintained, was unnecessary and unduly prohibitive.

The view was expressed that solicitors were unwilling to suggest separate representation as it meant advising the client to attend a different firm and that this could lead to losing immediate and future business.

It was suggested in some submissions that the area of voluntary transactions could be improved by better guidelines and regulation and also the provision of precedents. Evidence of the client being told to obtain independent advice could be easily produced along with a note of whether the client accepted or refused this advice, and if the client accepted it, a confirmation of what advice they received should be obtained. All verification should be in writing and held in case of a later dispute.

Additional points made in opposing a prohibition included that, in family situations, for example, the “family solicitor” was sensitive to family matters and could deal with both parties and that, in commercial transactions, the client is sophisticated and well aware of the decisions they are making.

Some solicitors felt that it was acceptable for a firm to act on both sides of a transaction provided that information barriers were erected. In relation to both voluntary transactions and transactions for value, some solicitors suggested that the appointment of a conflict officer within the firm would be a good way to manage the situation.

6.2 RESULTS OF EXTERNAL CONSULTATION

The external organisations that made submissions or met with the Task Force welcomed the review and expressed their appreciation of having been consulted.

Those organisations that favoured the introduction of a prohibition on the same solicitor acting for both parties submitted that it was important to have independent legal representation in all transactions for reasons that included the following:-

· Confidence that the solicitor is acting in the client’s best interest

· Independence and impartiality· Confidentiality· Transparency· Reducing the risk of negligence actions per se· Avoiding the effective reversal of the burden of proof

in negligence actions · Possibility of not detecting potential financial abuse if

separate solicitors are not acting· Parties may not be of equal standing and this could

lead to exploitation of the weaker party· Evidence that the most common form of financial

abuse was inter-family


Evidence was provided7 that, in relation to the elderly, financial abuse was the most frequent type of reported mistreatment. The different types of financial abuse included -· being forced to give over money or property· forced/misled to sign over ownership of home or

property· forgery

A further submission to the Task Force referred to the current “Guidelines for Property Transactions involving Vulnerable Clients” which were published in the January/February 2011 issue of the Gazette and sought that such guidelines be made mandatory.

The point was also made that the Guidelines should emphasise the higher levels of duty required of a solicitor when acting for a vulnerable client and the fact that the definition of a vulnerable client be clarified to include those who have capacity to make decisions but who may be under the influence of a third party in addition to a client whose capacity to give instructions and make decisions may be at issue.

Those organisations not in favour of introducing a prohibition and who wished to be able to instruct the same solicitor/firm of solicitors to act for both parties in a conveyancing transaction submitted the following reasons for their approach:-

· Relevant firm’s or individual solicitor’s prior knowledge of a particular title,

· Knowledge of history of corporate and tax structure, etc

· Efficiency of deal execution - improved delivery timelines

· Skill set or specialism - submitted that introducing a regulation which could essentially prohibit the use of a certain solicitor or firm for a particular transaction would create an unjust balance in the market between the users of legal services.

· Cost – concern that separate representation would lead to an increase in costs

· Information barriers would be sufficient to prevent inappropriate passing of confidential information.

Additionally, the size of the legal services market in Ireland was referred to. The point was made that, due to a relatively small legal market, only a limited number of firms have built up a core speciality in an area of law and, as a result, do their utmost to hire the best people in the market in that discipline. It was submitted that introducing a regulation which could essentially prohibit the use of a certain solicitor or firm for a particular transaction would create an unjust balance in the market between the users of legal services.

In summary –

· The thrust of the submissions by those seeking to introduce a prohibition on acting for both sides

7 Abuse and Neglect of Older People in Ireland, HSE, UCD, NCPOP, November 2010

in a conveyancing transaction appears to be an overriding desire to ensure that fair and independent representation be available to both parties so as to ensure that no exploitation of either could occur. They submitted that the only way this could be achieved was by means of mandatory separate legal representation.

· The thrust of the submissions by those not in favour of introducing a prohibition on acting for both sides in a conveyancing transaction appears to be a concern to ensure efficiency, choice of solicitor with the required skills and knowledge of the history of the client’s business, tax and corporate structure. They submitted that a prohibition is not necessary as confidentiality is protected by the use of information barriers.

PII ISSUES

The focus of PII insurance in recent years has been on undertakings in commercial conveyancing transactions. It is more difficult to ascertain the extent to which acting for both sides is a PII issue because insurers generally do not maintain data in respect of conflicts. Conflict of interests is not in itself a head of negligence for claims recording purposes. Claims are not logged as “conflict of interest” cases, and are likely to be listed under general heads of practice such as “conveyancing “, “probate”, “litigation”, etc.

It is only when processing claims of negligence that the issue of conflict of interests and a solicitor acting for both vendor and purchaser arises. When it arises as an issue, it becomes the focus of attention for any compensation claim. While the act of alleged negligence might have certain monetary consequences or might even have been defendable, it appears that once the issue of the same solicitor acting for both sides arises, this compounds the problem for the insurer and for the solicitor. Insurers indicated that the same solicitor acting for both vendor and purchaser arises as an issue mainly in three categories of transaction – · family transfers, · sale or transfer of pubs, and · sale or transfer of agricultural land being re-zoned.

They stated that, from research and from experience, they could say that the fact of the same solicitor acting for both sides has changed both the monetary value of claims and the possibility of defending them. The effect has been to reverse the burden of proof – that burden appears to shift in these cases from the client having to prove negligence to the solicitor having to prove there was no negligence. The experience of the insurers, based on their desire to limit costs in these cases, has been to settle these claims.

The view expressed by the insurers, taking account of the judicial comment to date, appears to be that the use of ethical barriers would have limited impact on judicial decisions and consequent awards where errors occur and the issue of conflict arises. This view of the insurers does not appear to be impacted by the size of the solicitors’ firm.

While it is currently a claims handling problem, it has not yet become a major underwriters’ issue, but may do so in the future.


6.3 RESULTS OF INTERNAL CONSULTATION As indicated at paragraph 4.2 above, the responses received from the Regulation of Practice Committee and the Complaints and Client Relations Committee confirmed instances of non-compliance by solicitors with S.I. 85 of 1997 as a live issue. Both committees said they still receive reports and complaints about solicitors acting on both sides of the sale/purchase of new dwellings some fifteen years after the introduction of the statutory prohibition on this practice. Pressure from clients appears to be a factor influencing the solicitors’ decisions to act on both sides.

The submission from the Society’s Regulation of Practice Committee was based on a review of those claims on the Compensation Fund above a certain threshold, where solicitors acted for clients in situations where they appear to have had a conflict of interests. The committee reported that in carrying out this exercise it became clear that the issue of conflicts of interest affects solicitors not just in conveyancing matters, but also in probate matters, both in conveyancing transactions in connection with estates and in other transactions in relation to estates. The committee also confirmed that, in the course of considering claims on the Compensation Fund, it has encountered many solicitors acting in conflict of interest situations that have resulted in substantial claims on the Fund.

In reply to the invitation for a submission, the PII Committee responded to the effect that the committee’s regulatory function in relation to PII does not really expose members of the committee to considering issues arising from conflicts of interest.

The submissions received from individual members of the Conveyancing Committee mirrored the responses received from the profession generally i.e. some favoured an outright prohibition, some favoured maintaining the status quo, and others favoured a limited prohibition.

7 RESULTS OF RESEARCH

The research undertaken to date has shown that other jurisdictions, whilst acknowledging the desirability of ensuring independent legal representation for each party, have not as yet comprehensively or conclusively dealt with the matter by an outright prohibition on one solicitor or firm acting for both vendor and purchaser in all conveyancing transactions. Just as Ireland has tried to deal with these issues on an iterative basis, other jurisdictions have also considered them to varying degrees. It was noted that, in some jurisdictions, the rules in this area also cover other areas of conflict such as not acting for a previous client and a current client in a current transaction, and not acting in a current transaction where there is a conflict between a solicitor and the solicitor’s own client. This summary deals only with conflicts arising from acting for both vendor and purchaser, which was the remit of the Task Force.

7.1 RESULTS OF RESEARCH IN IRELAND AND OTHER COMMON LAW JURISDICTIONS

7.1.1.1 IRELAND – RULES, REGULATIONS AND LEGISLATION See Sections 3.1 and 3.2 above.

7.1.1.2 IRELAND - GUIDELINES AND PRACTICE NOTES

See Section 3.3 above.

7.1.1.3 IRELAND - JURISPRUDENCE

McMahon & Others –v- McElroy8

In a conveyancing transaction for value, the Vice-Chancellor said in his judgment -

“I have never seen a case which illustrates more forcibly the evils which result from the same solicitor being employed for both seller and buyer.”

Meara –v- Rogers9

Regarding a property transaction for value and the issue of specific performance, the Master of the Rolls in part of his judgment commented -

“I cannot abstain from saying what often has been said and commented upon, that the general rule is, that one solicitor ought not to act for both parties.”

Timothy Haverty –v- Joseph Brooks and John Joseph Brooks10

In a conveyancing transaction for value McLoughlin J. stated in relation to a question of undue influence –

8 V.C.COURT, 18699 The Irish Jurist 185710 Irish Reports 214 1970


“I do emphasize that this is another example of the undesirability of one solicitor acting for both parties in a transaction of this kind”.

Cadden –v- Caffrey11

In a case arising out of a conveyance for value, Mr Justice Costello said in his High Court judgment –

“I have come across a number of cases in which a solicitor has acted for both vendor and purchaser and I am aware that this practice is not prohibited by the Law Society. I wish to say that this practice is highly undesirable and is one that should be looked at again by the Law Society. I am not saying that that fact has contributed to what happened in this case, but it does illustrate the undesirability of this practice.”

Mr Justice O’Flaherty noted in his ex tempore Supreme Court judgment12 on appeal that -

“The case was complicated to some extent (as was noted by the trial judge) by the fact that the same solicitor acted for both parties. The trial judge found this to be undesirable and he wished that the Law Society should change their rules in that regard. We have not been told whether in fact any change has been brought about and I pass from making any further comment on this matter except to endorse what the trial judge had to say.”

Carroll & Carroll -v- Carroll13

In this case, which involved a voluntary transfer, Mr Justice Barron in his judgment commented on the final ground of appeal i.e. that the donor in the transaction the subject of the court proceedings had received independent legal advice from the solicitor who had acted for both donor and donee. He referred to the principles set out by Farwell J. in Powell –v- Powell14, which principles had been approved by Mr Justice Budd in Gregg –v- Kidd15 -

“(1) A solicitor who acts for both parties cannot be independent of the donee in fact; and

(2) to satisfy the Court that the donor was acting independently of any influence from the donee and with the full appreciation of what he was doing it should be established that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person. Further, the advice must be given with a knowledge of all relevant circumstances and must be such as a competent advisor would give if acting solely in the interests of the donor.”

Barron, J said –

“Accepting these principles, there can have been no independent advice given by Mr. Joyce since at best

11 High Court, 19th January 199412 Supreme Court, 20th May 199613 Supreme Court, 21st July 1999; [1999] 4 IR, 24114 [1900] 1 Ch. 24315 [1956] IR 183

he was acting for both parties. … Here his duty was to advise the donor to obtain independent advice …”

The judgment of Ms Justice Denham in the same case referred to the question of independent legal advice –

“Although it was submitted that Mr. Joyce was the family solicitor on the evidence he appears to have been predominantly that of Thomas Carroll Junior. The legal advice relied upon was given by Mr. Joyce. Mr. Joyce was engaged and paid by Thomas Carroll Junior. It was Thomas Carroll Junior’s name which was on the file. …”

Sean Murray & Bernadette Whelan –v- James O’Donnell, Thomas Dalton & Michael Hogan16

Particular note of the role of the Law Society was made by Mr Justice Quirke in his judgment in this case and in his subsequent correspondence with the Society in which he states that he would expect the Society to draft guidelines to the profession on issues such as conflicts of interest.

In his ex tempore judgment delivered on 7th October 2004, Mr Justice Quirke commented –

“As the firm of solicitors acting on behalf of the vendor and the purchaser of the property (and indeed the building society as mortgagor (sic) which was providing finance for the purchase of the property) the defendants had potentially conflicting interests in the transactions concerning the sale and purchase of the property.”

Further on in his judgment he continued –

“I note, with some uneasiness, that solicitors are permitted by the Law Society to act on behalf of both vendor and purchaser in transactions of this kind. Conflicting interests are bound to arise in such circumstances and I have no doubt whatever that the duty upon a solicitor who is acting on behalf of both parties in the circumstances which have arisen in this case is particularly onerous, such a solicitor is under an obligation to explain carefully and in the greatest possible detail to both the vendor and the purchaser what is involved in the transaction and in particular he is under a duty to identify with precision the property which is to be transferred and the title of that property together with any limitations upon that title and any risks attendant upon the transfer and upon the transaction generally.

Furthermore, solicitors acting in such circumstances have a particularly onerous obligation to comply strictly, fully and in detail with accepted practice in relation to the investigation of title and the transfer and registration of that title.

This includes a strict obligation to record each step of the transaction for the benefit of each client and indeed for their own benefit and in their own interests.

16 Ex tempore High Court judgment delivered 7th October 2004


Since the Law Society is apparently prepared to permit this practice (notwithstanding the potentially conflicting interests to which I have referred) I think it would be helpful if the Law Society would draw up and publish strict guidelines to be applied by solicitors who choose to act on behalf of both vendor and purchaser in transactions involving the transfer of property and indeed, perhaps, in other transactions also. It would also be helpful if such guidelines were rigidly enforced by the Law Society.”

Mr Justice Quirke subsequently wrote to the Law Society on 23rd November 2004 commenting on the Society’s then existing guidelines on conflicts -

“… I’m not sure that the chapter on “conflict of interest” from the Society’s Guide to Professional Conduct addresses the issue to which I was referring. To some extent the chapter highlights the difficulty as I perceived it.

It seems to me that whilst the Society recommends that “…As a general principle…” solicitors should not act for both vendor and purchaser, it permits that practice in 4 exceptional circumstances “…provided there is no conflict actual or perceived between the vendor and purchaser before or during a transaction…” (See para. 3.3).

The Society therefore, clearly considers that it is undesirable “…as a general principle…” that solicitors should act for both vendor and purchaser but does not prohibit the practice “provided there is no conflict, actual or perceived…” between vendor and purchase and the parties come within the exceptions (a) to (b) [sic] referred to in chapter 3 of the Society’s Guide.

It seems to me that, having regard to the facts of the Murray case it might be helpful if the Society were to require that where solicitors decide to act for both vendor and purchaser on the grounds that they come within the category of exception referred to in paragraph 3.3 of chapter 3 of the Society’s Guide they should in every instance adopt mandatory practices of the kind to which I have referred at page 18 and thereafter in the ex tempore judgment enclosed.

I think it would be helpful if the Society were to stress the fact that solicitors acting for vendor and purchaser in such circumstances have a particularly onerous obligation not only to comply strictly with accepted practice but also, in particular, to record each step of the transaction for the benefit of each client.

It seems to me to be greatly in the interest of all parties (and in particular the Society’s members) that where members act for both vendor and purchaser the procedures should be introduced, adopted and enforced which openly demonstrate that all stages of the transaction are “at arm’s length”. Perhaps the most important requirement should be that these procedures are recorded at all stages and records maintained to protect all parties.

I do not have the slightest doubt that the Society has

considered such practices and procedures in great detail and with great care and I know that it has an admirable record in matters of this kind.

It seems to me however that the facts of the case in question might have highlighted an area where further advances can be made. …”

7.1.2.1 ENGLAND & WALES – RULES, REGULATIONS AND LEGISLATION

In 2011 the Solicitors Regulation Authority (SRA) produced a Handbook setting out the standards and requirements expected to be achieved and observed by the regulated legal community. The Legal Services Board (LSB) approved the Handbook on the 17th June 2011 and it came into effect on the 6th October 2011.

The basis of regulation in England and Wales has now moved to Outcomes Focused Regulation (OFR). The accompanying SRA Code of Conduct17 to the Handbook sets out outcomes focused conduct requirements for consideration and Principles18 on how best to achieve the right outcomes for clients taking into account how each firm works and its client base.

Chapter 3 of the SRA Code of Conduct deals with Conflict of Interests.

According to the Code of Conduct -

“Conflicts of interests can arise between inter alia two or more current clients (“client conflict”)

If there is a conflict, or a significant risk of a conflict between two or more current clients, you must not act for all or both of them unless the matter falls within the scope of the limited exceptions”

As the Code of Conduct is now based on OFR the decision on whether to act in these limited exceptions is to be based on “the best interests of each of the clients concerned and, in particular, whether the benefits to the clients of you acting for all or both of the clients outweigh the risks.”

The Code of Conduct goes on to set out the systems and controls that should be put in place to enable any potential conflicts of interests situations to be identified before setting out the Prohibition on acting in conflict situations wherein it is stated -

“You do not act if there is a client conflict, or a significant risk of a client conflict, unless the circumstances set out in Outcomes 3.6 and 3.7 apply”

Outcomes 3.6 and 3.7 set out the exceptions where a solicitor may act, with appropriate safeguards, where there is a client conflict -

17 Law Society of England & Wales – Extract from SRA Handbook, l6 September 2011 SRA Code of Conduct 201118 Law Society of England & Wales – Extract from SRA Handbook, 16 September 2011 SRA Principles


“O (3.6) Where there is a client conflict and the clients have a substantially common interest in relation to a matter or a particular aspect of it, you can only act if:

(a) you have explained the relevant issues and risks to the clients and you have a reasonable belief that they understand those issues and risks;

(b) all the clients have given informed consent in writing to you to act;

(c) you are satisfied that it is reasonable for you to act for all the clients and that it is in their best interests; and

(d) you are satisfied that the benefits to the clients of you doing so outweigh the risks;

O (3.7) where this is a client conflict and the clients are competing for the same objective, you only act if:

(a) you have explained the relevant issues and risks to the clients and you have a reasonable belief that they understand those issues and risks;

(b) the clients have confirmed in writing that they want you to act, in the knowledge that you act, or may act, for one or more other clients who are competing for the same objective;

(c) there is no other client conflict in relation to the matter;

(d) unless the clients specifically agree, no individual acts for, or is responsible for the supervision of work done for, more than one of the clients in that matter; and

(e) you are satisfied that it is reasonable for you to act for all the clients and that the benefits to the clients of you so doing outweigh the risks.”

Finally the Code refers to certain indicative behaviours outlining that if a solicitor had acted in the following way that it may tend to show that the Outcomes had been achieved and the Principles had therefore been complied with. The following indicative behaviours could be applicable to conveyancing transactions -

“IB (3.3) declining to act for clients where you may need to negotiate on matters of substance on their behalf, for example negotiating on price between a buyer and seller of a property;

IB (3.4) declining to act where there is unequal bargaining power between the clients, for example for a seller/buyer where a builder is selling to a non-commercial client;

IB (3.5) declining to act for clients under Outcome 3.6 (substantially common interest) or Outcome 3.7 (competing for the same objective) where the clients cannot be represented even-handedly, or will be prejudiced by lack of separate representation;

IB (3.6) acting for clients under Outcome 3.7 (competing for the same objective) only where the clients are sophisticated users of legal services;

IB (3.7) acting for clients who are the lender and borrower on the grant of a mortgage of land only where

(a) the mortgage is a standard mortgage (i.e. one provided in the normal course of the lender’s activities, where a significant part of the lender’s activities consists of lending and the mortgage is on standard terms) of property to be used as the borrower’s private residence

(b) you are satisfied that it is reasonable and in the clients’ best interests for you to act; and

(c) the certificate of title required by the lender is in the form approved by the Society and the Council of Mortgage Lenders.”

The Code also refers to indicative behaviour whereby acting in the following way, may tend to show that the Outcomes have not been achieved and therefore the Principles have not been complied with -

“IB (3.11)acting for two or more clients on a conflict of interests under Outcome 3.6 (substantially common interests) where the clients’ interests in the end result are not the same;

IB (3.12) acting for two or more clients in a conflict of interests under Outcome 3.6 (substantially common interest) where it is unreasonable to act because there is unequal bargaining power;

IB (3.13) acting for two buyers where there is a conflict of interests under Outcome 3.7 (competing for the same objective), for example where two buyers are competing for a residential property;

IB (3.14) acting for a buyer (including a lessee) and seller (including a lessor) in a transaction relating to the transfer of land for value, the grant or assignment of a lease or some other interest in land for value.”

7.1.2.2 ENGLAND & WALES - GUIDELINES AND PRACTICE NOTES

The Solicitors Regulation Authority, a statutory body independent of the Law Society of England & Wales, on the 19th April 2011 published a draft supervision and enforcement strategy for conveyancing; this was last updated on the 29th November 201119.

This Strategy sets out how the Authority will engage with firms who undertake conveyancing work with a view to identifying and responding to evidence of practice that is inconsistent with the Principles, achievement of the Outcomes in the new SRA Code of Conduct and compliance with the Rules in the new Handbook.

The area of conflict of interests is specifically dealt with by the draft Strategy published by the Solicitors Regulation Authority.

19 Law Society of England & Wales – Draft Supervision and enforcement strategy for conveyancing, 29th November, 2011


The strategy noted that –

“Any transaction involving the acquisition of rights over land is very likely to involve negotiations on behalf of a client/clients and therefore there is an inherent risk of conflicts of interest in this type of work. Our experience tells us that conveyancing is one of the key areas of work associated with improper management of conflicts of interests to the detriment of consumers.”

Particular high risk areas are listed as:

· acting for buyer and seller; · acting for two buyers in a contract race; · acting for buyer and lender where the lender asks a

firm to go beyond standard instructions; · the potential conflict between your duty of disclosure

and your duty of confidentiality when acting for buyer and lender.

The only advice provided is that firms providing these conveyancing services are expected to assess these and other conflict risks, and ensure appropriate systems are in place for the effective identification and mitigation of these risks.

The SRA have identified the use of a variety of regulatory tools to address the conveyancing-related risks firms face. These tools may involve

· desk-based reviews; · on-site visits, including interviews; · use of formal investigative powers, including requests

for documentation and attendance of individuals at formal interview;

· obtaining, in some cases, documents or information from third parties, including law enforcement agencies;

· mystery shopping; and · thematic visits.

The following information details what the SRA are going to do and the actions they intend to take to address identified risks, for example -

Risk Regulatory tools

Acting for a buyer and seller where there is a conflict or a significant risk of a conflict of interests. For example, acting for an elderly, vulnerable client selling their property to their child for whom you also act.

Desk-based engagement with firm to address complaints of conflict in conveyancing transactions. Consideration as to why the complaints arose and a request for documentary evidence to assess the systems and controls a firm has in place to identify conflicts and a review of the firm’s policy on conflicts.

7.1.2.3 ENGLAND & WALES - JURISPRUDENCE

English case law on the question of conflicts of interest in conveyancing transactions includes the following:

Moody –v- Cox & Hatt20

The duty to disclose information was considered by Scrutton L.J. in this case –

“....It may be that a solicitor who tries to act for both parties puts himself in such a position that he must be liable to one or the other whatever he does. The case has been put of a solicitor acting for vendor and purchaser who knows of a flaw in the title by reason of his acting for the vendor, and who if he discloses that flaw in the title which he knows as acting for the vendor, may be liable to an action by his vendor, and who, if he does not disclose the flaw in the title, may be liable to an action by the purchaser for not doing his duty as solicitor for him. It will be his fault for mixing himself up with a transaction in which he has two entirely inconsistent interests ...”

Spector –v- Ageda21

Similarly in Spector –v- Ageda, Megarry J. stated -

“A solicitor must put at his client’s disposal not only his skill but also his knowledge, so far as is relevant; and if he is unwilling to reveal his knowledge to his client, he should not act for him. What he cannot do is act for the client and at the same time withhold from him any relevant knowledge that he has.”

Mortgage Express Limited –v- Bowerman & Partners22

A further view surfaced in this case in which a solicitor acting for a mortgage lender and a borrower became aware that the vendor in the transaction was purchasing the property at a price significantly lower that the valuation before simultaneously selling it onto the borrower. The court felt it was the duty of the solicitor to pass this information on to the lender even if it affected the borrower’s interest. Sir Thomas Bingham M.R. expressed the principle in these terms -

“A client cannot expect a solicitor to undertake work he has not asked him to do and will not wish to pay him for such work, but if in the course of doing the work he is instructed to do the solicitor comes into possession of information which is not confidential and which is clearly of potential significance, to the client, I think the client could reasonably expect the solicitor to pass it on, and feel understandably aggrieved if he did not.”

Bristol & West Building Society –v- Baden Barnes Groves23

The judgment in Mortgage Express was further examined

20 (1917) 2 Ch. 7121 (1973) Ch. 3022 (1996) 2 A.E.R. 83623 (2000) Lloyd’s Rep


in this case, in which Chadwick J. stated - “In my view, the words “if in the course of doing the

work he is instructed to do” reflect an important and significant qualification to the solicitors’ duty to disclose information relevant to the lending risk. A solicitor is obliged to disclose information which comes into his possession in the course of doing the work which the lender has instructed him to do; but he is not obliged to disclose information which has come into his possession independently of any work which the lender has instructed him to do including, for example, information which has come into his possession as a result of earlier transactions in which he has been retained by the borrower.”

He added that the notion of duty of disclosure and how it may affect a solicitor in a matter where there is a conflict of interests had been summed up by the principle set out in Moody –v- Cox

“.... if a solicitor is unwise enough to undertake irreconcilable duties it is his own fault, and he cannot use his discomfiture as a reason why his duty to either client should be taken to have been modified”

Clarke Boyce –v- Mouat24

The decision of the Privy Council on the 4th of October 1990 in this case was heard by way of appeal from the Appeals Court in New Zealand. Mr. Clarke Boyce acted on behalf of a client and that client’s mother. Mr. Clarke Boyce was aware that a previous solicitor had refused to act but was not aware as to reasons why.

The High Court in New Zealand found for the defendants. The Appeals Court overturned that and found for the plaintiff. An Appeal against that decision was then made to the Privy Council in England.

The solicitor had spent approximately forty to fifty minutes at an initial meeting with both clients and had one of the clients sign an acknowledgment that stated inter alia -

“notwithstanding your advice I should obtain independent legal advice in relation to the matter, I record and hereby instruct you that I do not wish to do so”.

The High Court found that the client’s mother:- “… knew the type of transaction that she was about

to embark upon and that having decided to support and trust her son, she did not expect or require any legal advice as to the wisdom of her entering into the transaction. In the circumstances, Mr. Boyce was not negligent in what he did in this regard”.

The Privy Council made it clear that they relied upon the Court of first instance in relation to the facts of the case and the Council referred to already decided decisions which provided that an Appellate Court should be slow to interfere with findings of fact in the Court below it.

24 [1994] 1 A.C. 429

The Privy Council found:-

“There is no general rule of law to the effect that a solicitor should never act for both parties in a transaction where their interests may conflict. Rather it is the position that he may act provided that he has obtained the informed consent of both to his acting. Informed consent means consent given in the knowledge that there is a conflict between the parties and that as a result, the solicitor may be disabled from disclosing to each party the full knowledge which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interest of the other”.

The Court did observe that there will be circumstances in which it is impossible, notwithstanding such disclosure, for any solicitor to act fairly and adequately for both and it is suggested that this would arise where one client sought advice on a matter which would involve disclosure of facts detrimental to the interests of the other client. The Privy Council found that the plaintiff/respondent was fully aware of what she was doing and had rejected independent advice and therefore there was no duty on the solicitor to refuse to act for her. Having accepted instructions, he carried out these properly and was neither negligent nor in breach of contract in acting or continuing to act for her after she had rejected his suggestion that she obtain independent legal advice. The Judgment of the Appellate Court was given by Lord Jauncey of Tullichettle and stated -

“When a client in full command of his faculties and apparently aware of what he is doing seeks the assistance of a solicitor in the carrying out of a particular transaction, that solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice as to the wisdom of the transaction. To hold otherwise would be to impose an intolerable burden on solicitors”.

Mothew (T/A Stapley & Co) –v- Bristol & West Building Society25

The main judgement is given by Lord Justice Millett. He considered the concept of fiduciary duty and stated;

“… a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single minded loyalty of his fiduciary”.

He continued;

“A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other.

A fiduciary must act in good faith in the interests of each and must not act with the intention of furthering the

25 [1996] EWCA 533


interests of one principal to the prejudice of the other.

“he must serve each as faithfully and loyally as if he were his only principal. Conduct which is in breach of this duty need not be dishonest but it must be intentional. An unconscious omission which happens to benefit one principal at the expense of the other does not constitute a breach of fiduciary duty, though it may constitute a breach of the duty of skill and care and this is because the principal which is in play is that the fiduciary must not be inhibited by the existence of his other employer and would serve in the interest of his principal as faithfully and effectively as if he were the only employer”.

In discussing further the duties of a fiduciary he stated;

“the fiduciary must take care not to find himself in a position where there is an actual conflict of duty so that he cannot fulfil his obligations to one principal without failing in his obligations to the other…….If he does he may have no alternative but to cease to act for at least one and preferably both. The fact that he cannot fulfil his obligations to one principal without being in breach of his obligations to the other will not absolve him from liability”.

Prince Jeffery Bolkiah –v- KPMG26

This matter involved an accountancy firm acting initially for the plaintiff and then for a Task Force investigating the affairs of the plaintiff, the accountancy firm having ceased to act for the plaintiff two months earlier.

Lord Justice Millett stated

“In my view no solicitor should, without the consent of his former client, accept instructions unless, viewed objectively, his doing so will not increase the risk that information which is confidential to the former client may come into the possession of a party with an adverse interest”.

Lord Justice Millett stated that it is otherwise where the Court’s intervention is sought by an existing client -

“… for a fiduciary cannot act at the same time both for and against the same client and his firm is in no better position. A man cannot without the consent of both clients act for one client when its partner is acting for another in the opposite interest. His disqualification has nothing to do with the confidentiality of client information and is based on the inescapable conflict of interest which is inherent in the situation”.

In dealing with the issue of information barriers, Lord Millett said that an effective barrier -

“needs to be an established part of the organisational structure of the firm, not created ad hoc and dependant on the acceptance of evidence sworn for the purpose by members of staff engaged on the relevant work”

26 (H.L. (E.)) [1999] 2 A.C. 222

Young –v- Robson Rhodes27

Laddie J. commented in this case on the statement made by Lord Millett on information barriers in the Bolkiah Case as follows -

“The crucial question is “will the barriers work?” if they do, it does not matter whether they were created before the problem arose or are erected afterwards. It seems to me that all Lord Millett was saying was that Chinese Walls which become part of the fabric of the institution are more likely to work than those artificially put in place to meet a one off problem.”

Hilton –v- Barker Booth & Eastwood28

In this case the firm of solicitors acted on behalf of the plaintiff and a developer in relation to the purchase of a site for the development and sale on from the plaintiff to the developer contrary to the Solicitors Practice Rules 1990 which contained an unqualified prohibition on the same firm acting for both sides “if a conflict of interest exists or arises” or if the seller is selling or leasing as a builder or developer. This was a freestanding prohibition which could not be waived even by informed consent.

The House of Lords considered a solicitor’s duty to his client and stated that a solicitor’s duty is primarily contractual and its scope depends on the expressed and implied terms of his retainer. It is a relationship in which the client reposes trust and confidence in the solicitor and it is a fiduciary relationship. The solicitor’s duty of single minded loyalty to his client’s interest and his duty to respect his client’s confidences do have their roots in the fiduciary nature of the solicitor client relationship. The solicitor’s duty of single minded loyalty to his client very frequently makes it professionally improper and a breach of his duty to act for two clients with conflicting interest in the transaction. Lord Justice Millett quotes Richardson J. in Farrington vs. Rowe McBride & Partners29 as follows -

“A solicitor’s loyalty to his client must be undivided. He cannot properly discharge his duties to one whose interests are in opposition to those of another client. If there is a conflict in his responsibilities to one or both, he must ensure that he fully discloses the material facts to both clients and obtains some form of consent to his so acting……and there will be some circumstances in which it is impossible, notwithstanding such disclosures, for any solicitor to act fairly and adequately for both”.

Lord Justice Millett found that there was an obligation on the solicitors, not alone to tell the purchaser that they could not properly act for both Vendor and Purchaser and that he should seek legal advice from other solicitors starting afresh, but a bare refusal to act without clear advice about going to a new solicitor would not have been sufficient to discharge their duty.

27 (1999) 3 A.E.R. 524 28 (H.L. (E.)) [2005]1WLR 56729 [1985] I NZLR 83


Lord Cozens Hardy MR quoted Millett LJ in the case of Mortgage Express Limited –v- Bowerman & Partners30 as follows:-

“A solicitor who acts for both the purchaser and a mortgage lender faces a potential conflict of duty. A solicitor who acts for more than one party to a transaction owes a duty of confidentiality to each client, but the existence of this duty does not affect his duty to act in the best interests of the other client”.

7.1.3.1 SCOTLAND – RULES, REGULATIONS AND LEGISLATION

The following is a summary of the rules published by the Law Society of Scotland in respect of conflicts of interest in conveyancing transactions:

Solicitors (Scotland) Practice Rules 1986The 1986 Rules constitute the first written set of regulations issued by the Law Society of Scotland in relation to the area of conflicts of interest. The guiding principle for the rest of the rules is set out in rule 3, which states:

“A solicitor shall not act for two or more parties whose interests conflict.”

Rule 3 is augmented by rule 5, which prohibits any solicitor from acting for …”both seller and purchaser in the sale or purchase or conveyance of heritable property, or for both landlord and tenant, or assignor and assignee in a lease of heritable property for value or for lender and borrower in a loan to be secured over heritable property;…”

The prohibition applies so as to disallow a solicitor acting on both sides at any stage in the foregoing transactions.

The following exceptions to rule 5 are permitted:Subject to no dispute arising or there being no reasonable expectation of a dispute arising, then, a solicitor may act for both parties where:(a) The parties are associated companies, public

authorities, public bodies, or government departments or agencies;

(b) The parties are connected with one another within the meaning of section 839 of the Income and Corporation Taxes Act 1988;

(c) The parties are related by blood, adoption, marriage or civil partnership, one to the other, or the purchaser, tenant, assignee or borrower is so related to an established client; or

(d) Both parties are established clients or the prospective purchaser, tenant, assignee or borrower is an established client; or

e) There is no other solicitor in the vicinity whom the client could reasonably be expected to consult; or

(f ) In the case of a loan to be secured over heritable property, the terms of the loan have been agreed between the parties before the solicitor has been instructed to act for the lender, and the granting of the security is only to give effect to such agreement.

30 (1996) 2 A.E.R. 836

Exceptions (b) to (f ) above do NOT apply where the vendor or landlord of residential property is a builder or developer.

In order to rely on the above exceptions, the solicitor must inform the clients accordingly and is prohibited from advising one party on material commercial conditions of the transaction, where he has already advised the other party on these matters.

Rule 4 prohibits a solicitor from acting where the employer or principal employer of that solicitor is also a party to that transaction. This prohibition does not apply in circumstances where there is no dispute between the parties and none is likely to arise and,

(a) the parties are associated companies, public authorities, public bodies, or government departments or agencies;

(b) the parties are connected with one another within the meaning of section 839 of the Income and Corporation Taxes Act 1988.

1989 Code of Conduct (now the Solicitors (Scotland) (Standards of Conduct) Practice Rules 2008)Paragraph 6(1) provides - “Solicitors must not act for two or more clients in matters where there is a conflict of interest between the clients or for any client where there is a conflict between the interest of the client and that of the solicitor or the solicitor’s practice.”

7.1.3.2 SCOTLAND - GUIDELINES AND PRACTICE NOTES

Law Society of Scotland Guidance Notes on Conflict of Interest (2008)When does a “conflict” arise? There are three elements to be considered:(1) If the solicitor would give different advice to different

clients about the same matter, there is a conflict between them, even where the parties are agreed about the course of the transaction;

(2) If the solicitor’s acting on behalf of one client would have an adverse impact on a matter he is dealing with for another client, there is a conflict, even if the matters are apparently unrelated;

(3) If the solicitor is unable to disclose information to one client because of a duty of confidentiality to the other client, there is a conflict of interest.

In relation to the exceptions to rule 3, as set out in rule 5, the following guidance is given:

· Category (c) (related persons) – It is unwise to stray beyond the forbidden degrees of marriage.

· Category (d) (established client) – “Established client” is defined as being a person the solicitor or his firm has acted for on at least one prior occasion. The Professional Practice Committee is of the view that this can be a continuing matter and must be something for which the solicitor has opened a file and for which the client could be charged a fee, even if he has not, in fact, been charged a fee and may never be charged one.

· Category (e) (no other solicitor in vicinity) – This is


interpreted by the Professional Practice Committee as being limited to isolated and rural communities.

· In relation to the issue of the client being informed of the solicitor acting for both parties under one of the exceptions, the Guidance Notes stipulate that notice must be given to the clients in writing and they, in turn, must give “informed” consent.

· “At any stage” is interpreted strictly by the Professional Practice Committee.

7.1.4.1 NORTHERN IRELAND – RULES, REGULATIONS AND LEGISLATION

The rules and regulations in Northern Ireland on conveyancing conflicts can be summarised as follows:

1. A solicitor cannot act for a vendor and purchaser (or a lessor and lessee) on a transfer of land for value at arm’s length.

2. A solicitor cannot act for a builder and a developer.

3. A solicitor cannot act for a purchaser/lessee of land in a transfer at arms length where he (or his firm) is instructed to negotiate the sale.

4. A solicitor cannot act for a lender and a borrower in a secured loan transaction; EXCEPT:

a. He is retained by the borrower before he receives instructions from the lending institution, and;

b. Where the terms of the security documents are standard and not subject to alteration/negotiation. He can act for both in relation to a further charge.

5. Exceptions to the prohibition on acting for vendor and purchaser:

a. Provided no conflict of interest arises, and; b. That the parties are associated companies, and; c. That the parties are related by blood, adoption or

marriage and; d. That both parties are established clients and both

parties have been informed in writing that:- i The solicitor is acting for both parties; ii No conflict of interest appears to the solicitor at

the time of the receipt of instructions; iii In the event of such a conflict of interest

arising, the solicitor will be unable to continue to act for either party in the transaction;

e. The consideration is less than €3,000; f. One of the parties is the Northern Ireland Co-

Ownership Housing Association.

6. Exceptions for builders/developers: i No conflict ii Purchaser is an associated company of the

vendor/lessor or a director or partner or related by blood, adoption or marriage to such director or partner, or;

iii The purchaser is the solicitor himself, or; iv The purchaser is an employee or partner of the

solicitor or his firm and both parties have been informed in writing that;

•Thesolicitorisactingforbothpartiesand; •Noconflictofinterestappearstothesolicitorat

the time of receipt of instructions; •Intheeventofsuchaconflictofinterestarising,

the solicitor will be unable to continue to act for either party in the transaction.

7. There is an absolute prohibition on a solicitor acting for the purchaser in a transfer for value at arms length or for a lessee on a grant of a lease for value at arms length where the solicitor is practising in a joint property selling practice and is instructed to negotiate the sale.

8. There is provision to deal with the situation of a vendor paying the purchaser’s costs of purchase or mortgage or making a contribution thereto. The vendor’s solicitor is under a duty to inform the purchaser in writing or whatever solicitor the purchaser has instructed that the purchaser is entitled to instruct any solicitor of his choice. A solicitor who acts in breach of the regulations for both vendor and purchaser is deemed to have committed an act of professional misconduct unless he shall before acting have communicated with the purchaser forms of letter under the HomeCharter scheme.

7.1.5.1 CANADA – RULES, REGULATIONS AND LEGISLATION

Chapter five of The Canadian Bar Association Code of Professional Conduct 2009 covers impartiality and conflict of interest between clients.

It opens with a statement that “The lawyer shall not advise or represent both sides of a dispute and, except after adequate disclosure to and with the consent of the clients, preferably after receiving independent legal advice, shall not act or continue to act in a matter when there is or is likely to be a conflicting interest.

The lawyer may act in a matter which is adverse to the interests of a current client provided that:

(a) the matter is unrelated to any matter in which the lawyer is acting for the current client: and

(b) no conflicting interest is present.”

A conflicting interest is defined as “ an interest which gives rise to substantial risk that the lawyer’s representation of the client would be materially and adversely affected by the lawyer’s own interest or by the lawyer’s duties to another current client, a former client, or a third party”.

The reasoning behind the rule is that a client or client’s affairs may be seriously prejudiced unless the lawyer’s judgment and freedom of action on the client’s behalf are as free as possible from compromising influences.

The duties to other current clients, former clients and third persons which may give rise to a conflicting interest include, but are not limited to, the duties and loyalties of the lawyer or a partner or professional associate of the lawyer to another client, whether involved in the particular matter or not, including the obligation to communicate information.


Before a lawyer accepts employment from more than one client in the same matter, the lawyer must advise the clients that the lawyer has been asked to act for both or all of them, that no information received in connection with any matter from one can be treated as confidential so far as any of the others is concerned and that, if a dispute develops that cannot be resolved, the lawyer cannot continue to act for both or all of them with respect to the matter and may have to withdraw completely.

The Code advises that the lawyer should guard against acting for more than one client where, despite the fact that all parties concerned consent, it is reasonably obvious that a contentious issue may arise between them or that their interests, rights or obligations will diverge as the matter progresses.

The Code also recommends, although it is not a requirement, that the client be advised to obtain independent legal advice, especially if the client is less sophisticated or more vulnerable than the other.

A lawyer or two or more lawyers practising in a partnership or association should not act for or otherwise represent both lender and borrower in a mortgage or loan transaction.

However, a lawyer may act for or otherwise represent both lender and borrower in a mortgage or loan transaction if

1. the lawyer practises in a remote location where there is no other lawyer whom either party could conveniently retain for the matter

2. the lender is selling real property to the borrower and the mortgage represents part of the purchase price

3. the lender is a bank, trust company, insurance company, credit union or finance company that lends money in the ordinary course of business

4. the consideration for the mortgage or loan does not exceed $50,000.00; or

5. the lender and borrower are not at “arm’s length” as defined in the Income Tax Act (Canada).

The rules specifically refer to a conveyancing matter where a lawyer is asked to represent both vendor and purchaser. The rules state that in such an instance the lawyer should recommend that each party be separately represented but do not go as far as prohibiting the practice.

7.1.5.2 CANADA - GUIDELINES AND PRACTICE NOTES

The Canadian Bar Association Task Force recommends using a “substantial risk principle” when assessing a conflict. It advises that there is a conflicting interest when there is a substantial risk that a client would be materially and adversely affected by the lawyer’s duties to another client, a former client, or a third person. This is, essentially, the definition of “conflict of interest” that came from the R –v- Neil case as set out below. Other than this guideline, the situation in Canada is governed by the 2009 rules.

7.1.5.3 CANADA - JURISPRUDENCE Three major court cases involving conflicts of interest in Canada are as follows:

R –v- Neil31

Although this case relates to a trial on criminal charges, the general rule (that a lawyer may not represent one client whose interests are directly adverse to the immediate interests of another current client, even if the two matters are unrelated) applies, unless both clients consent after receiving full disclosure (and preferably independent legal advice) and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other.

Reference is also made to the general duty of loyalty and, referring to the case of Ramrakha –v- Zinner32, Harradance J.A., concurring, observed -

“A solicitor is in a fiduciary relationship to his client and must avoid situations where he has, or potentially may, develop a conflict of interests ..... the logic behind this is cogent in that a solicitor must be able to provide his client with complete and undivided loyalty, dedication, full disclosure, and good faith, all of which may be jeopardized if more than one interest is represented.”

He noted that the duty of loyalty was similarly expressed by Wilson J.A. in Davey –v- Wooley, Hames, Dale & Dingwall33 as -

“The underlying premise ..... is that, human nature being what it is, the solicitor cannot give his exclusive, undivided attention to the interests of his client if he is torn between his client’s interests and his own or his client’s interests and those of another client to whom he owes the self same duty of loyalty, dedication and good faith.”

MacDonald Estate –v- Martin34

This case dealt with the question as to whether a law firm should be disqualified from continuing to act in a litigation matter by reason of a conflict of interest and referred to the generally accepted rule that a lawyer must not advise or represent both sides of a dispute and, save after adequate disclosure to and with the consent of the client or prospective client concerned, he should not act or continue to act when there is or there is likely to be a conflicting interest. The appeal to the federal Supreme Court of Canada from the Court of Appeal for Manitoba was to determine the appropriate standard to be applied in deciding whether a disqualifying conflict of interest exists. It was held that the “probability of mischief” standard, which was the traditional English test, is not sufficiently high to satisfy the public requirement that there be an appearance of justice.

A conflicting interest is defined as one which would be

31 2002 SCC 70, (2002) 2 S.C.R.63132 (1994) 157 A.R. 279 (C.A.)33 (1982) 35 O.R. (2d) 599 34 (1990) 3 S.C.R. 1235


likely to affect adversely the judgment of the lawyer on behalf of or his loyalty to a client or prospective client or which the lawyer might be prompted to prefer to the interests of a client or prospective client.

R –v- McClure35

This case dealt with solicitor client privilege in the area of criminal law and, other than general comments on the confidentiality of client information, added nothing new to the area of conflicts of interest in conveyancing transactions.

Strother –v- 3464920 Canada Inc36

This matter dealt with the scenario where a client sued a lawyer and law firm for breach of fiduciary duty and breach of confidence after the lawyer took a financial interest in a second client in the same line of business, i.e. a ‘solicitor and own client’ conflict. While it does not specifically address conflicts in the area of conveyancing or property, it touches on the general area of conflicts of interest and explores the extent of the fiduciary duty of a lawyer to a client.

The judgment of Mr Justice Binnie noted that fiduciary duties provide a framework within which the lawyer performs the work and may include obligations to go beyond what the parties expressly contracted for in the retainer. He also stated that fiduciary responsibilities include the duty of loyalty, of which an element is the avoidance of conflicts of interest.

7.1.6 STATES OF AUSTRALIA

7.1.6.1.1 VICTORIA – RULES, REGULATIONS AND LEGISLATION

According to the Professional Conduct and Practice Rules 2005 the provision of legal services will not be prohibited where a conflict of interest may occur -

1. where no material conflict of interest has arisen, and2. where a practitioner reasonably believes that the

likelihood of a material conflict of interest arising is unlikely.

The Rules however go on to state -

“A practitioner must avoid conflict of interest between two or more clients of the practitioner.

A practitioner who, or whose firm intends to act for a party, to any matter where the practitioner is also intending to accept instructions to act for another party to the matter must be satisfied, before accepting an engagement to act, that each party is aware that the practitioner is intending to act for the others and consents to the practitioner so acting in the knowledge that the practitioner: (a) may, thereby, be prevented from

35 (2001) 1 S.C.R. 44536 (2007) 2 S.C.R. 177, 2007 SCC 24

(i) disclosing to each party all information relevant to the matter within the practitioner’s knowledge; or

(ii) giving advice to one party which is contrary to the interests of another; and

(b) will cease to act for all parties if the practitioner would, otherwise, be obliged to act in a manner contrary to the interests of one or more of them.

If a practitioner who is acting for more than one party to any matter determines that the practitioner cannot continue to act for all of the parties without acting in a manner contrary to the interests of one or more of them, the practitioner must immediately cease to act for all the parties.

A practitioner must not act where the practitioner is acting or intending to act:

(a) for both vendor and purchaser in connection with a contract for the sale of land or a transfer of land for value at arm’s length

(b) for both vendor and purchaser in connection with the contract for the sale of a business at arm’s length

(c) for both lessor and lessee in connection with the lease of land or an agreement for the lease of land for value at arm’s length

(d) for both financier and borrower in connection with the loan of money or provision of finance or an agreement to lend money or provide finance; or

(e) for both purchaser of land and lender of money or provider of finance intended to be secured by a mortgage of that land

unless and until the practitioner obtains the written acknowledgement and agreement of each party.”

7.1.6.1.2 VICTORIA - GUIDELINES AND PRACTICE NOTES

The Allen Consultancy Group Report on the Regulation of Conveyancing Services in Victoria states that any actual or potential conflicts of interest should be disclosed to the customer including when a conveyancer is acting for both parties to a transaction but does not either recommend such practice or suggest it should be prohibited.

Section 49 of the Conveyancers Act 2006 deals with conflicts of interests regarding licensed conveyancers; it states

“(1) Before or at the time a licensee is retained by a client, the licensee must disclose to the client any actual or potential conflict of interest that the licensee has in relation to any transaction relevant to that client.

(2) If, while acting for a client, an actual or potential conflict of interest arises in relation to any transaction relevant to the client, the licensee must immediately disclose that conflict of interest to the client.

(3) A disclosure under subsection (1) or (2) must be in writing and in the prescribed form (if any).

(4) For the purposes of this section, a licensee has a potential conflict of interest in respect of a transaction if the licensee or an associate of the licensee


(a) is acting, or will act, for more than one party to the transaction; or

(b) is, or will be, a party to the transaction; or (c) pays or receives, or is to pay or receive, a

commission in respect of the transaction.”1.1.1.1.3 7.1.6.1.3 VICTORIA - JURISPRUDENCE

Council of the Law Institute of Victoria –v- A Solicitor37

In this case before the Supreme Court of Victoria, Tadgell J. considered the issue of a solicitor acting for more than one party to a conveyancing transaction giving rise to a present and a potential conflict of interest. His Honour noted the following historical aspect of conflict of interest -

“The law has long frowned upon a solicitor’s double dealing as between one client and another. In 1673 an attorney was committed and removed from the Roll after it was provedthat he had been an ambidexter, viz after he was retained by one side he was retained on the other side.”

His Honour also noted that, as early as 1866, Sir John Stuart VC had conceded in Minton –v- Kirkwood38 that -

“…it would be too much to say that the same firm of solicitors may not, in some cases, properly attend to the interests of both clients.”

Tadgell J’s commented on this -

“This, however, is a generalisation. Although a solicitor may without impropriety act for clients on either side of a transaction, he always runs the risk if he does so that he may be required to stand up for one side against the other. That he cannot faithfully do for either of them, or for himself, so long as he continues to act for both.”

Yunghanns & Ors –v- Elfic Pty Ltd & Ors (No. 2)39

This case before the Supreme Court of Victoria Commercial Division dealt mainly with confidentiality of information and privilege in the context of a shared interest / joint venture. A Chinese wall scenario was used where a different lawyer in the firm acted for each company.

In the course of her judgment, Ms Justice Warren referred to the observations of Gillard J., the trial judge in an earlier related matter of Younghanns & Ors –v- Elfic Limited40, in response to the suggestion that the difficulties in continuing to act for both sides could be avoided by the erection of Chinese Walls, that –

“The Great Wall of China is the most famous boundary in the world and as an impenetrable line, was a dismal flop.”

and on the particular facts of the case regarding the

37 (1993) 1 VR 36138 (1866) LR IEQ 449 at p45439 (2000) VSC 11340 Younghanns & Ors –v- Elfic Limited, unreported, delivered 3 July 1998

Chinese wall that was proposed –

“… I think that the more apt description to describe the suggested arrangements is a Dutch dyke; a good barrier to water but involving the ever present risk of seepage leading to a leak.”

Spincode Pty Ltd –v- Look Software Pty Ltd & Ors41

This case, while looking at the question of possible misuse of confidential information in a litigation matter by solicitors acting against a former client, also touched on the fiduciary duty of loyalty. Brooking, J. stated that –

“… The entitlement to the undivided loyalty of a fiduciary whom one has retained is said to find its expression in a duty not to place oneself in a position in which the fiduciary owes a duty to a client which is inconsistent with the duty owed to another client.”

Village Roadshow Limited –v- Blake Dawson Waldron42

This Supreme Court of Victoria case looked at a conflict of interest situation in the context of whether a practitioner may act for a party with an interest adverse to a former client. Byrne, J cited the view expressed by Lord Millett in the Prince Jefri Bolkiah case (above), as apparently adopted by Brooking, J in the Spincode case (also above), that – “Once it appears that a solicitor is in receipt of

information imparted in confidence, the burden shifts to the solicitor to satisfy the Court on the basis of clear and convincing evidence that all effective measures have been taken to ensure that no disclosure will occur.”

7.1.6.2.1 NEW SOUTH WALES – RULES, REGULATIONS AND LEGISLATION

The Statement of Ethics from the Law Society of New South Wales contains inter alia a statement that as individuals engaged in the profession and as a profession -

“We avoid any conflict of interest and duties.”

The Revised Professional Conduct and Practice Rules 1995 (NSW) further go on to state that practitioners should deal with their clients “free of the influence of any interest which may conflict with a client’s best interests.”

Rule 9.2 deals specifically with acting for more than one party and states -

“A practitioner who intends to accept instructions from more than one party to any proceedings or transaction must be satisfied, before accepting a retainer to act, that each of the parties is aware that the practitioner is intending to act for the others and consents to the practitioner so acting in the knowledge that the practitioner:

41 (2001) VSCA 24842 (2003) VSC 505


(a) May be thereby, prevented from –

(i) Disclosing to each party all information, relevant to the proceedings or transaction, within the practitioner’s knowledge, or,

(ii) Giving advice to one party which is contrary to the interests of another: and

(b) Will cease to act for all the parties if the practitioner would, otherwise, be obliged to act in a manner contrary to the interests of one or more of them.”

Whereupon Rule 9.3 follows with a direction that -

“If a practitioner, who is acting for more than one party to any proceedings or transaction, determines that the practitioner cannot continue to act for all the parties without acting in a manner contrary to the interests of one or more of them, the practitioner must thereupon cease to act for all parties.”

7.1.6.2.2 NEW SOUTH WALES - GUIDELINES AND PRACTICE NOTES

In its 2006 report on Ethics and Conflicts of Interest and Duties43, the Law Society of New South Wales referred back to a memorandum (referred to as the “Loxton Memorandum”44) that it had sent to all its members in 1975 which had stated:

“It must be acknowledged that, in any conveyancing transaction, there is, from the outset, an inherent conflict of interest in regard to the making of the bargain and in the various procedural steps thereafter which, when seen in the light of strict principle, cannot be resolved if the one solicitor represents both parties...In such situations where there is a real conflict of interest between the parties or a likelihood of a real conflict of interest a solicitor must not act for both parties no matter how small the conflict may seem to the solicitor to be. In many cases it would be difficult to determine when the inherent conflict becomes a real conflict.”

7.1.6.2.3 NEW SOUTH WALES - JURISPRUDENCE

Thompson –v- Mikkelsen45

In this case, Wooten J. stated -

“It seems to me that the practice of a solicitor acting for both parties cannot be too strongly deprecated”

and that the client “..is entitled to assume that (the solicitor) will be in a

position to approach the matter concerned with nothing (in mind) but the protection of his client’s interests against (those) of the other party. He should not have to

43 “Ethics and Conflicts of Interest and Duties – Law Society of New South Wales, April 2006, p.1844 16th May 1975 issued over the signature of the then president of the Law Society, Alan Loxton 45 Supreme Court of New South Wales, 3 October 1974, unreported

depend on a person who has conflicting allegiances and who may be tempted either consciously or unconsciously to favour the client or simply to seek a resolution of the matter in a way which is least embarrassing to himself.”

Therefore it must always be remembered that the possibility of favouring one client may arise even if the parties appear to have the same result in mind.

Commonwealth Bank of Australia v Smith46

In this 1991 case, the full court of the Federal Court, Davies, Sheppard and Gummow JJ, said of the practice of one solicitor acting for both sides -

“We pause to say that various courts in a number of jurisdictions have decried the practice of the one solicitor acting for both vendor and purchaser... It is an undesirable practice and it ought not to be permitted”.

Government Insurance Office of New South Wales –v- Manettas and Others47

In this negligence case, the solicitor acted for two companies which bought properties for development, and also acted for the finance provider and for the three guarantors of the loan, one of whom was a long standing client of the firm who, unlike the other two guarantors, offered his own property as security for the loan. A partner of the firm gave a false certificate to the lender wrongly stating that he had explained the loan documents to the guarantors and that he was not the solicitor for the lender.

The Court found the solicitor’s firm negligent in failing to advise properly as to the nature of the guarantees and in not explaining the loan documents.

This case also resulted in proceedings in the Disciplinary Tribunal against the solicitor who was found guilty of professional misconduct.

7.1.6.3.1 WESTERN AUSTRALIA – RULES, REGULATIONS AND LEGISLATION

Rule 14 of the Legal Profession Conduct Rules 2010 issued pursuant to the Legal Profession Act 2008 states -

“(1) A practitioner and the practitioner’s law practice must avoid conflicts between the duties owed to two or more clients of the practitioner of the law practice.

(2) A practitioner must not provide, or agree to provide, legal services for a client if -

(a) the practitioner or the practitioner’s law practice is engaged by another client in the same or a related matter: and

(b) the interests of the client and the other client are adverse: and

(c) there is a conflict or potential conflict of the duties to act in the best interests of each client.

46 (1991) 42 FCR 390 47 Supreme Court of New South Wales, Commercial Division, 5 June 1992, unreported


(3) Subrule (2) does not apply if – (a) each client is aware that the practitioner or the

practitioner’s law practice is also providing legal services to each other’s client; and

(b) each client has given informed consent to the practitioner or the practitioner’s law practice providing the legal services to each client: and

(c) an effective information barrier has been established to protect the confidential information of each client.”

7.1.6.3.2 WESTERN AUSTRALIA - GUIDELINES AND PRACTICE NOTES

Part 6 of the Ethical and Practice Guidelines48 issued by the Law Society of Western Australia provides some general advice in dealing with conflicts of interest including on acting for two parties to the same matter. The Guidelines advise that –

6.1 “All practitioners should familiarise themselves with the law relating to conflicts of interest and be ever alert to avoid placing themselves in a position of conflict.”

The Guidelines also caution as follows –

6.4 “Although it is often difficult to inform a client that one is prevented from accepting instructions, it is invariably better to do so at the inception to avoid the inevitable embarrassment, risk exposure and greater inconvenience of having to remove oneself in the middle of a transaction (or litigation) when costs have already been incurred and the matter has reached an advanced stage.”

7.1.6.3.3 WESTERN AUSTRALIA - JURISPRUDENCE

Newman –v- Phillips Fox49

This case deals with confidentiality of information, specifically with lawyers in possession of confidential information relating to a former client becoming employed by a law firm acting against a former client. Steytler, J. noted that there was a significant body of authority which suggests that, in a case such as this, the knowledge of those joining a new firm should not automatically be imputed or attributed to other lawyers in that firm. However, he said that this was not the only thing to be considered. He noted that American courts that had previously held that there was an irrebuttable presumption of shared confidences, now regard such a presumption to be rebuttable. He held that the court could intervene unless satisfied that there is no risk of disclosure. The question of whether or not sufficient measures are put in place to prevent the flow of confidential information is also relevant. In this regard, he noted that American courts have in some cases approved the use of Chinese walls, and expressed himself as loath to suggest that a wall of that kind can never suffice to discharge the burden on the lawyers in a given case. However, in his assessment of the information barriers proposed in this case, he expressed the opinion that there is always a risk of inadvertent disclosure notwithstanding the

48 Issued on 7th September 201049 (1999) WASC 171

best intentions of the lawyers or the impeccable standing of both of the firms concerned.

7.1.6.4.1 QUEENSLAND – RULES, REGULATIONS AND LEGISLATION

Rule 8 of the Legal Profession (Solicitors) Rules 2007 deals with acting for more than one party and states -

“A solicitor must avoid any conflict of interest between two or more clients of the solicitor or of the solicitor’s law practice.

A solicitor who, or whose law practice intends to act for a party to any matter where the solicitor or the solicitor’s law practice is also intending to accept instructions to act for another party to the matter must be satisfied, before accepting a retainer to act, that each party is aware that the solicitor is intending to act for the others and consents to the solicitor so acting in the knowledge that the solicitor:

8.3.1 may, thereby, be prevented from

(a) disclosing to each party all information relevant to the matter within the practitioner’s knowledge; or

(b) giving advice to one part which is contrary to the interests of another; and

8.3.2 will cease to act for all parties if the solicitor would, otherwise, be obliged to act in a manner contrary to the interests of one or more of them.

8.4 If a solicitor who is acting or whose law practice is acting for more than one party to any matter determines that the solicitor or the solicitor’s law practice cannot continue to act for all of the parties without acting in a manner contrary to the interests of one or more of them, the solicitor or the solicitor’s law practice must immediately cease to act for all the parties.

8.5 A solicitor must not act where the solicitor or the solicitor’s law practice is acting or intending to act:

8.5.1 for both vendor and purchaser in connection with the contract for the sale of land or a transfer of land for value at arm’s length

8.5.2 for both vendor and purchaser in connection with the contract for the sale of a business at arm’s length

8.5.3 for both lessor and lessee in connection with the lease of land or an agreement for the lease of land for value at arm’s length

8.5.4 for both financier and borrower in connection with the loan of money or provision of finance or an agreement to lend money or provide finance; or

8.5.5 for both purchaser of land and lender of money or provider of finance intended to be secured by a mortgage of that land unless and until the solicitor or the solicitor’s law practice obtains a satisfactory written acknowledgement from each party of the receipt of information as to the basis on which the


solicitor acts, and after first fully informing that party in writing concerning the potential disadvantages to that party of the solicitor so acting.”

8.7 A solicitor must not act in any matter or transaction for value at arm’s length relating to land for a person or entity carrying on business as a builder, developer or subdivider where the solicitor is acting or is intending to act for any other party contracting with that person or entity in the course of that business in relation to the land.”

7.1.6.4.2 QUEENSLAND - GUIDELINES AND PRACTICE NOTES

There are guidelines50 available for Queensland solicitors wanting to establish and maintain information barriers (“Chinese walls”). These guidelines may enable a law practice to act in a new matter where the law practice has relevant information, but that information is confidential to a former client and so cannot be used without consent. Without the guideline measures, acting in these circumstances would involve a conflict of interest.

7.1.6.5 FEDERAL COURT OF AUSTRALIA - JURISPRUDENCE

Stewart –v- Layton51

This case concerned the position of a solicitor who acted for two parties in a conveyancing transaction where the purchaser was a developer who experienced financial difficulties and where the vendor had contracted to purchase another property for which she would need the proceeds of sale to complete, being unwilling to obtain bridging finance. The trial judge, Foster, J. in a finding affirmed on appeal, upheld the vendor’s action for breach of fiduciary duty against her solicitors. “..Despite that fact that the [solicitor] acted at all stages

with the best of intentions towards the vendor he, nevertheless, committed a breach of his fiduciary duty towards her as her solicitor, which breach was rooted in the fact that he continued to act for both parties in a conveyancing transaction after a conflict of duties arose. In his strenuous endeavour to fulfil both duties, he failed properly to fulfil his duty to the [vendor].”

The full court of the Federal Court of Australia considered the case on appeal and Jenkinson J. held that the solicitor was under a duty - “… to communicate to the vendor client knowledge which

he had which she required to enable her to play her part in the successful consummation of the transactions in which he was acting as her solicitor”

and that the information which he received as to the purchaser’s financial difficulty was -

“plainly of a kind which his duty obliged him forthwith to communicate to her.”

50 Information Barrier Guidelines (LIV & LSNSW) adopted by QLS Council, issued in 200651 (1992) 111 ALR 687

Bureau Interprofessional Des Vins De Bourgogne –v- Red Earth Nominees Pty Ltd52

This Federal Court matter once again looks at a situation where two solicitors who previously acted for the respondents had moved to another firm that represented the applicants in that dispute and it was claimed they possessed confidential information. The court considered the specific information barriers that had been proposed by the solicitors in this particular case for the protection of client information and considered conflicts of interest in that context. Byrne, J., in holding on the facts that the applicants had discharged the burden of proof on them of proving that no information had already been imparted, then considered whether the proposed measures to protect confidential information were sufficient to show there was no real risk of future disclosure of the confidential information acquired by the solicitors. In this particular case, the court distinguished the facts from those in Newman –v- Phillips Fox and the Bolkiah case, and concluded that the measures put in place by the firm were indeed sufficient.

7.1.7.1 NEW ZEALAND – RULES, REGULATIONS AND LEGISLATION

Pursuant to sections 94 and 95 of the Lawyers and Conveyancers Act 2006, the New Zealand Law Society, with the approval of the Minister of Justice, produced the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

The Rules in relation to conflicts of interest between clients are quite general.

Under the heading Independent Judgement and advice it is stated -

“The relationship between lawyer and client is one of confidence and trust that must never be abused.

The professional judgement of a lawyer must at all times be exercised within the bounds of the law and the professional obligations of the lawyer solely for the benefit of the client.

A lawyer must at all times exercise independent professional judgement on a client’s behalf. A lawyer must give objective advice to the client based on the lawyer’s understanding of the law.”

Under the heading Conflicting Duties at Chapter 6 it is stated -

“6.1 A lawyer must not act for more than one client on a matter in any circumstances where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of the clients.

6.1.1 Subject to the above, a lawyer may act for more than one party in respect of the same transaction or matter where the prior informed consent of all parties concerned is obtained.

52 (2002) FCA 588


6.1.2 Despite rule 6.1.1, if a lawyer is acting for more than one client in respect of a matter and it becomes apparent that the lawyer will no longer be able to discharge the obligation owed to all of the clients for whom the lawyer acts, the lawyer must immediately inform each of the clients of this fact and terminate the retainers with all of the clients

6.1.3 Despite rule 6.1.2, a lawyer may continue to act for one client provided that the other clients concerned, after receiving independent advice, give informed consent to the lawyer continuing to act for the client and no duties to the consenting clients have been or will be breached.

6.2 Rule 6.1 applies with any necessary modifications whenever lawyers who are members of the same practice act for more than one party.

6.3 An information barrier within a practice does not affect the application of or the obligations to comply with rule 6.1 or 6.2.”

7.1.7.2 NEW ZEALAND - JURISPRUDENCE

Clark Boyce v Mouat53

The High Court in New Zealand found for the defendants. The Appeals Court overturned that and found for the plaintiff. An Appeal against that decision was then made to the Privy Council in England. See paragraph 7.1.2.3 above.

Russell McVeagh McKenzie Bartleet & Co –v- Tower Corporation54

This is a conflict of interest case dealing with a firm acting for potential bidders for a company for which it had acted previously.

The court noted that moral and ethical obligations do not necessarily equate to legal duties enforceable by the Courts, including fiduciary ones. Although the concepts of Chinese walls and cones of silence leave much to be desired, the Court felt that internal control measures may in some circumstances be appropriate and sufficient to ensure protection of confidential information.

They also commented on the fact that, as the New Zealand legal profession was relatively small and access to expert advice in some areas was limited, conflict situations may arise and in those situations the Courts should not restrict access further by imposing control or sanctions not required in the overall interests of justice.

7.1.8 CONCLUSIONS ON RESEARCH ON COMMON LAW JURISDICTIONS

Having reviewed the rules, regulations and practice notes and having met with representatives of neighbouring jurisdictions, it appeared to the Task Force that the provisions regarding conflicts are similar in all common law jurisdictions examined, i.e. there is a general prohibition

53 (1994) 1 A.C. 429; (1993) 3 WLR 102154 (1998) 3 NZLR 641, 1998 NZLR LEXIS 604

on the same solicitor acting for both vendor and purchaser, accompanied by a number of exceptions to said rule.

Particular points arose in certain jurisdictions –

Scotland · the Scottish Law Society adjudicates on applications

for waivers from the application of the general rule that the same solicitor would not act on both sides

· this heavy administrative burden on the Law Society should, in the view of the Task Force, be avoided in this jurisdiction

· the system of waivers calls for a subjective approach, whereas the preference of the Task Force is for objective tests

England & Wales· this jurisdiction is embarking on a regime of Outcomes

Focussed Regulation (OFR)· it remains to be seen how solicitors will adapt in

practice to OFR · it was not apparent to the Task Force how OFR would

provide clarity/guidance for solicitors on issues such as conflict of interests

Northern Ireland· the master insurance policy approach will influence

future development. · in its PII newssheet of September 2011, the Law

Society’s PII and Risk Management Committee Chairman stated –

“If the claims experience continues to deteriorate in

relation to particularly conveyancing matters, the Committee will need to consider much harder options such as a total future ban on acting for both parties in any sort of conveyancing transaction: ...”

7.2 RESULTS OF RESEARCH IN CIVIL LAW JURISDICTIONS For the purpose of completeness, the Task Force also looked at the position in some civil law jurisdictions in the area of conveyancing conflicts. Contact was made through the auspices of the CCBE (Council of Bars and Law Societies of Europe) with the information officers of the CCBE in the thirteen civil law jurisdictions listed below. The various jurisdictions were asked to respond to the following set of questions:-

1. Are there general principles applicable to lawyers about conflicts of interest in property transactions?

2. In relation to the three main types of property transactions that the Task Force is looking at:-

· Is the same lawyer prohibited from acting for both vendor and purchaser of residential property?

· Is the same lawyer prohibited from acting for both vendor and purchaser of commercial property?

· Is the same lawyer prohibited from acting for both the giver of a gift of property and the receiver of a gift of property, i.e. in a voluntary transfer of property, where no money is paid for the property?


3. If the answer to any of the above questions is “yes”:· Are there any permitted exceptions to the rule? · If so, what are those exceptions?· Are information barriers or ethical barriers accepted

as sufficient protection for the clients?

4. Are there any sanctions against lawyers who breach any rules about conflicts of interest in property transactions?

5. Are there any sanctions against lawyers who breach any rules about confidentiality, independence, etc?

Summaries of the replies received from the 13 jurisdictions are listed below:-

7.2.1.1 GERMANY

The same lawyer is prohibited from acting for both vendor and purchaser of residential property, commercial property, and for both the giver and recipient of a gift of property, i.e. in a voluntary transfer. There are no permitted exceptions to the rule. Information barriers or ethical barriers are not accepted as sufficient protection for the clients.

In general, § 43a IV BRAO (The Federal Lawyers’ Act) prohibit a lawyer from representing conflicting interests.

§ 3 BORA (Rules of Professional Practice) prohibits a lawyer from acting for a new party if he has previously acted for or advised another party in the matter, if there is a conflict of interests, or if he has been seized of the matter in any other professional way. The prohibition on representing conflicting interests applies to all activities of a Rechtsanwalt, including representation in property cases. An agreement of the client cannot override this prohibition.

The above prohibition also applies to all Rechtsanwälte in joint practice or through shared office premises, regardless of the legal or organisational set-up. In this latter case however, sentence 1 does not apply where, in a particular case, the clients involved in a case presenting a conflict of interest have expressly agreed, following comprehensive information, to be represented by the Rechtsanwalt, and where this is not against the interests of the proper administration of justice. Information shall be provided in writing, as well as the declaration of agreement.

A conflict of interests arises if the representation of the interests of one client could harm the interests of another client. Furthermore, the conflicting interests have to evolve out of the same facts or circumstances and belong to the same case.

The Lawyers’ Disciplinary Court may impose sanctions on a Rechtsanwalt for breach of duty. If the Rechtsanwalt violates § 43 or § 45 BRAO, this will not only have disciplinary consequences (§ 113 BRAO), but will also render the contract invalid. Consequently, the Rechtsanwalt receives no fee. If the lawyer has already received his fee, it can be reclaimed by the client on grounds of unjust enrichment. The Rechtsanwalt is also liable to the client for damages.

The Rechtsanwalt also risks breaching the German Criminal Code by representing conflicting interests and is liable to imprisonment for 3 months to 5 years.

7.2.1.2 FRANCE

French lawyers have to respect a general principle regarding conflict of interests. There is no specific obligation regarding property transactions. The relevant general provisions are the articles 4 and 7 of the National code of conduct (“Règlement Intérieur National de la Profession d’avocat”). It is worth noting that a substantial part of the legal aspects of real property transactions are mainly dealt by notaries in France.

Article 4 provides that a lawyer may not advise, represent, or defend more than one client in the same case if there is a conflict between the interests of his clients or, unless with the agreement of the parties, if there is a serious risk of such conflict.

Unless with the written agreement of the parties, a lawyer must not act for both sides when a conflict of interests arises, when there is a risk of a breach of confidentiality or when the lawyer’s independence is at risk.

A lawyer can not accept a case from a new client if there is a risk of breach of confidentiality regarding the information given by a former client or when the knowledge of a case from a former client could favour the new client.

There is a conflict of interests in non litigation cases when the lawyer who has the obligation to give comprehensive, loyal advice without reservation to his clients cannot do so without compromising the interests of one or several parties;

Article 7 regarding the drafting of legal documents adds a specific obligation concerning the conflict of interests. A lawyer is a drafter (“rédacteur”) of legal documents, when he drafts, alone or in collaboration with another professional, a legal document on behalf of one or several parties, assisted or not by lawyers, and gathers the signatures required for this legal document. A lawyer who is the sole drafter of a legal document, must make sure that the balance of the interests of the parties is respected. When he is working on behalf of only one party, he must inform the other party about the advisability of getting advice and the assistance of a lawyer.

French lawyers can be subject to disciplinary proceedings if they breach general rules of their professional ethics such as, conflict of interests, independence and confidentiality. The main sanctions are: caution, reprimand, temporary suspension for less than three months and removal from the bar.

7.2.1.3 SPAIN

There are general principles applicable to all lawyers acting for their clients about conflicts of interest, including in property transactions.

The same lawyer is prohibited from acting for both vendor


and purchaser of residential property, commercial property and in voluntary transactions, when the interests of both parties conflict.

There are apparently currently no exceptions to the above rule. The Spanish CCBE has confirmed that a client’s waiver is being considered and could be introduced in future regulations. Its view is that Spanish courts would probably consider that a consent given by a misinformed client is null.

There are sanctions against lawyers who breach any rules about conflicts of interest in property transactions or who breach any rules about confidentiality, independence, etc.

7.2.1.4 ITALY

The Italian Lawyers’ Code of Conduct does not contain any specific provisions regarding conflict of interest in property transactions. Italian lawyers, however, are subject to general rules on conflict of interest. The relevant provision is Article 37:

“A lawyer has the obligation to refuse to provide legal services if there is a conflict between the interests of his clients or if it could interfere with the carrying out of other assignments, also non professional”.

A conflict of interest subsists also when:· the provision of legal services may breach the

confidentiality regarding information given by former clients, or

· the knowledge of a case from a former client could unduly favour the new client, or

· the lawyer’s independence may be affected or limited.

The prohibition on representing conflicting interests applies also to lawyers participating in the same law firm or professional organisations (e.g., associations or companies) or practising in the same premises.

The general rule on conflict of interests applies to residential and commercial transactions and to voluntary transfers. It is worth noting that assisting both husband and wife is allowed to lawyers in family matters [this has been clarified as meaning separation and divorce by mutual consent], but lawyers are not permitted to represent any of them in future disputes of any kind between them.

There are no permitted exceptions to the conflict of interest rule. [It has been clarified that allowing lawyers assist both husband and wife in separation or divorce by mutual consent is considered to be a specific regime rather than an exception itself. It has been introduced by the legislator to give relevance to the mere potential conflict of interest and applies only to disputes between (ex) husbands and wives.]

Italian lawyers can be subject to disciplinary sanctions for breach of their professional duties, such as conflict of interests, independence and confidentiality. Once again, general rules apply and sanctions vary according to the gravity of the offence. The main sanctions include caution,

reprimand, temporary suspension for a period between two months and one year and disbarment.

7.2.1.5 AUSTRIA

Austrian law does not provide for specific rules concerning conflicts of interest in property transactions. Lawyers in Austria are, however, bound by general rules laid down in the Austrian Law for the profession of lawyers (RAO). According to Article 10 (1) RAO, they are obliged to abstain from representing a party and also from giving advice if they represented the opposing party in the same or a related matter in the past. In the same way lawyers are not allowed to give service or advice to both parties in legal proceedings. Furthermore, the Austrian Lawyer’s Code of Conduct stipulates that a lawyer has to refrain from acting on behalf of all parties immediately as soon as a conflict of interest arises. These provisions are applicable in general and therefore also in cases concerning property transactions.

According to the prevailing legal opinion on the provisions mentioned above, there is an exception to the above rule in that lawyers in Austria are not prohibited from acting for both parties in contracts for property transactions as far as they are able to protect the interests of both parties to the same extent. However, if a conflict of interests does arise a lawyer always has to abstain from representing or advising both parties to the contract. This conclusion is applicable to residential and commercial transactions and to voluntary transfers.

With regard to the general rules applicable to lawyers, Article 1 of the Austrian disciplinary statute for lawyers provides that a lawyer who culpably breaches his professional duties or who affects the reputation of his profession commits a disciplinary offence. Accordingly, a violation of Article 10 (1) RAO or the Austrian Lawyer’s Code of Conduct will create a disciplinary offence and will be followed by disciplinary proceedings which may also lead to disciplinary sanctions. Disciplinary sanctions are provided for in Article 16 of the disciplinary statute. Depending on the gravity of the offence they may include written reprimands, fines or even suspension or deprivation of the right to practice as a lawyer.

7.2.1.6 NORWAY

Legal practice in Norway is regulated in the Courts of Law Act, Chapter 11. Under the provisions of Section 224 of the Courts of Law Act the Norwegian Bar Association has developed Rules of Conduct for advocates, which is to be found in the Regulations for Advocates, Chapter 12.

Section 3.2 of the Rules of Conduct for Advocates contains the rules regarding conflicts of interest:

“3.2 Conflicts of interest

3.2.1 An advocate must refrain from undertaking an assignment if this may give rise to a risk that the advocate’s duty of loyalty, discretion or his independence could be disturbed.


3.2.2 (Double representation) An advocate must not in the same case, counsel, represent or act on behalf of two or more clients if the clients have conflicting interests in the case or there is a clear risk to this effect. The advocate may nevertheless undertake joint assignments for two or more clients with conflicting interests in one and the same case with a view to finding a solution. If he has represented or represents one or more of the clients, information to this effect should be given. Before the advocate undertakes an assignment of this nature, the clients should be informed in advance of the potential conflicts that are present. If the joint assignment does not lead to a solution of the case, the advocate cannot represent any of the parties in the further handling of the case.

3.3.3 (Client collision) [this has been clarified as meaning a type of client conflict] Outside the same case, an advocate can only accept assignments for one client against one of the advocate’s other clients if the latter does not object and if it is clear that there is no reason for concern because of the different nature of the assignment or the nature of the client. The advocate shall inform both parties about this.

3.3.4 (Assignments against former clients) An advocate

must exercise care before accepting assignments against a former client. The advocate must refrain from undertaking assignments if the advocate’s knowledge about the circumstances of a former client may be used in a prejudicial manner to the advantage of the new client or might inflict injury on the interests of the former client.

3.2.5 When an advocate practices law in a company or with community of office with other advocates, the rules about conflicts of interests are applicable to the community and to its participants.

Clause 3.2.6 says that all the above mentioned clauses (3.2.1 - 3.2.5) are applicable to all lawyers within a law firm, office fellowship or other similar fellowships. Hence, for instance, if one lawyer in a firm or fellowship is prevented from acting due to a conflict of interest then all lawyers in the firm or fellowship will be prevented from acting for the same reason.

The rules regarding conflict of interests are general rules and are applicable to all kinds of legal practice and assignments, whether residential property, commercial property or voluntary transfer of property. The rules have to be considered in each case, separately and individually.

If the Disciplinary Committee or the Disciplinary Board finds that a lawyer has behaved in violation of any of the rules in the Code of Conduct the lawyer may be issued criticism, reprimand or warning, a warning being the strictest sanction.

7.2.1.7 DENMARK

There are general principles applicable to lawyers about conflicts of interest in property transactions in Denmark.

The same lawyer is prohibited from acting for both vendor and purchaser of both residential and commercial property. The position is less certain in relation to voluntary transfers of property. There is a permitted exception to the above rule, i.e. if the parties agree on all parts of the agreement.

Information barriers or ethical barriers are not accepted as sufficient protection for the clients. There are sanctions against lawyers who breach any rules about conflicts of interest or confidentiality, independence, etc in property transactions.

7.2.1.8 SWEDEN

There are no general principles applicable specifically to lawyers about conflicts of interest in property transactions.

7.2.1.9 CZECH REPUBLIC

There are no specific conflict of interest rules related to property transactions, but there are general rules of conflict of interests.

The Act on the Legal Profession provides - A lawyer shall be obliged to refuse to provide legal services ifa) he has provided his legal services in the same or a

related case to someone else whose interests are contrary to the interests of the person requesting the provision of legal services,

b) a person whose interests are contrary to the person requesting legal services has been provided legal services in the same or a related case by a lawyer with whom the lawyer practices law jointly or, in the case of an employed lawyer, by a lawyer who is his employer, or by a lawyer who is an employee of the same employer,

c) he possesses information on another or earlier client which may bear unlawful benefits for the person applying for the provision of legal services,

d) he, or a person close to him, has participated in the proceedings, or

e) the interests of the person requesting legal services are contrary to the interests of the lawyer or a person close to the lawyer.

7.2.1.10 ESTONIA

There is no specific regulation regarding conflicts of interest in property transactions. The Code of Conduct stipulates in general that an attorney may not advise, represent or act on behalf of two or more clients in the same matter if there is a conflict between the interests of those clients. An attorney may not provide legal services to a client if there exist circumstances that affect or may affect the attorney’s ability to observe the requirement to act in the best interests of client and act only in the interests of the client (conflict of interest), unless the attorney has notified his client of such circumstances and the client does not desist from demanding provision of legal services by the attorney. An attorney may not accept


an assignment from a person seeking legal advice if a conflict of interest arises. An attorney should terminate the contract if the circumstances arise that would have excluded the acceptance of assignment on the basis of conflict of interest. An attorney may render legal services to several persons in the same matter, provided that there is no conflict of interest. Among other things, there is no conflict of interest when all clients agree and require that the attorney shall render legal services to other clients in the same matter. Should there arise any dispute in that matter later on, the attorney shall not render legal services to any of the aforesaid clients.

General regulations apply in relation to a breach of the rule on conflict of interests, or breach of confidentiality, independence, etc – the client may have a claim for breach of contract and disciplinary sanction may apply to the attorney.

7.2.1.11 SLOVENIA

There are no specific principles for property transactions in Slovenia, but there is a general rule that, if a lawyer acted for both or more parties in a transaction, he shall refuse to act for either of them in case of a subsequent dispute between them.

A lawyer is not prohibited from acting for both parties in residential, commercial or voluntary transactions as long as there is no dispute between them.

There are no specific sanctions for property transactions, but generally applicable sanctions would apply for breach of conflict of interest rules or breach of confidentiality, independence, etc.

7.2.1.12 SLOVAK REPUBLIC

There are no general principles focused on property transactions enshrined in the laws governing the legal profession. The sole provisions on conflict of interests are as follows:

Act on Legal Profession:The lawyer is obliged to refuse provision of his legal services, if: a) he has already provided legal services in the same matter or in any matter thereto related to any other person whose interests are opposed to those of the entity seeking legal services. Rules of Professional Procedure:Lawyers practising their profession as members of the grouping [Sec. 12(1), items b) through e) of the Act] shall refrain from acting for any clients whose interests are in conflict, or if there is a threat that in the course of representation such a conflict of interest might arise.

The following observation was included in the response received from the Slovak Republic - (In practice there are cases when one lawyer acts for

two parties, especially if they are family and having a second lawyer would be expensive and could actually lead to creation of conflicts. It means that if the parties

have mutual interest, e.g. parents wish to give a property to their son so that he can found a family and he wishes to receive the property for the same purpose there is actually no conflicting interest. Once they start to disagree, the lawyer must refrain from representing them and each of them must find another lawyer.)

7.2.1.13 HUNGARY

There are no specific rules in Hungary on conflict of interest in property transaction cases. Article 6-7 of the Act on Lawyers (Act XI of 1998) and Article 5 of the Code of Conduct of the Hungarian Bar contain the relevant general rules.

However, there is a special rule (Article 5.14 of the Code of Conduct of the Hungarian Bar) which is also applicable to property transactions. If the other party is not represented by a lawyer, the lawyer who is drafting the contract should consider both the vendor’s and the purchaser’s interest (i.e. not only his/her client’s interest but also the other party), and as such act as an independent lawyer thus representing the interest of both parties, regardless of who gave the original instruction to the lawyer. In this case the lawyer is not allowed to represent any of them in legal disputes arising from the contract unless the other party was represented by another lawyer when concluding the contract.

The same lawyer is not prohibited from acting for both vendor and purchaser of residential property, commercial property or in voluntary transfers of property. Article 37 of the Act on Lawyers provides that, in the case of a breach of the rules on conflicts of interest, breach of confidentiality, etc the lawyer commits a disciplinary infraction which is punishable by reprimand (depending on the seriousness of the conflict of interests and the harm/damage caused), fine or expulsion from the bar association.

7.2.2 CCBE CODE OF CONDUCT

The following extract from the charter of core principles of the European legal profession and code of conduct for European lawyers provides in relation to conflict of interests as follows:- “3.2. Conflict of Interest 3.2.1. A lawyer may not advise, represent or act on behalf

of two or more clients in the same matter if there is a conflict, or a significant risk of a conflict, between the interests of those clients.

3.2.2. A lawyer must cease to act for both or all of the clients concerned when a conflict of interests arises between those clients and also when ever there is a risk of a breach of confidence or where the lawyer’s independence may be impaired.

3.2.3. A lawyer must also refrain from acting for a new client if there is a risk of breach of a confidence entrusted to the lawyer by a former client or if the knowledge which the lawyer possesses of the affairs of the former client would give an undue advantage to the new client.

3.2.4. Where lawyers are practising in association,


paragraphs 3.2.1 to 3.2.3 above shall apply to the association and all its members.”

7.2.3 CONCLUSIONS ON RESEARCH ON CIVIL LAW JURISDICTIONS

It can therefore be seen from the replies received from the thirteen civil law jurisdictions that many of them have drawn in whole or in part on the core principles in the CCBE Code of Conduct. It can also be seen that, with the exception of Italy and Germany, the jurisdictions considered have rules in place similar to those in many common law jurisdictions. They provide for -· a general rule prohibiting a lawyer acting for both

sides where there is a conflict of interest, · but allowing the lawyer to act for both sides where

there has been notification to the two parties and their agreement has been obtained, and

· the lawyer ceases acting for both if a conflict emerges during the transaction.

The Task Force has therefore concluded that the rules relating to conveyancing conflicts in the civil law jurisdictions examined do not differ in any material way to those in the common law jurisdictions that the Task Force has reviewed.

7.3 ACADEMIC PAPERS AND ARTICLES

A perusal of the academic papers outlined at paragraph 5.2.4 above, shows that they reflect universal concerns about the situation where one solicitor acts for two parties.

In their 2006 book, Law, Practice and Conduct for Solicitors,55 Paterson and Ritchie state that perhaps the paramount ethical obligation in practice for legal professionals in the 21st century is the duty not to act when a conflict of interest exists.

In their view it is not just the conflicting interests of the clients that is the problem; it is the conflict between the underlying ethical and fiduciary duties which the lawyer owes to the different clients which pose the enduring difficulties in this area.

They also quote from the Professional Conduct for Scottish Solicitors (Law Society of Scotland 1995) wherein conflict is defined as –

“where facts are disclosed to a solicitor on behalf of one client which may be prejudicial if disclosed to another client without the authority of the first, there is almost certainly a conflict of interest.”

However they feel that this only goes some of the way to defining a conflict and suggest that –

“perhapsthe most straightforward definition is that if the ordinary solicitor acting with ordinary care would give different advice to different clients about the same matter, there is a conflict of interest between them. In

55 Law, Practice and Conduct for Solicitors, 2006, Alan Paterson and Bruce Ritchie

a similar vein, if either client could reasonably take exception to what the other has asked you to do, you probably have a conflict ...... when all is said and done the critical test is whether the solicitor can adequately discharge all duties to his or her respective clients equally.”

The various papers stress the need for independence and impartiality on the part of the solicitor. As Webster and Webster put it in their book “Professional Ethics and Practice for Scottish Solicitors”56

“A client must at all times be able to look at his solicitor to obtain advice which is independent and impartial and is seen to be so. If the same solicitor acts for both parties, each client is deprived of his right to be independently advised.”

Shirvington57 refers to the Statement of Ethics issued by the Law Society of New South Wales which states –

“A practitioner (which includes a law practice) has a conflict of interest when the practitioner serves or attempts to serve two or more interests which are not able to be served consistently or honours or attempts to honour two or more duties which cannot be honoured compatibly and thereby fails to observe the fiduciary duty owed to clients and to former clients.”

Charles Hollander Q.C. and Simon Salzedo in their book Conflicts of Interest58 state that a professional who acts for two clients at the same time will normally owe fiduciary duties to both, the most notable feature of which is an obligation of loyalty. Where the professional is asked to act for two clients with conflicting interests at the same time, the fiduciary obligations of loyalty owed to each will clash and there is a client conflict. The professional who accepts instructions from both will then be in breach of the fiduciary duty to one or both clients and will be unable to carry out his obligations to both.

Hollander and Salzedo also consider the situation where the professional will in certain types of cases need to be alert to issues of undue influence as this may affect his obligations when there is a potential conflict. This situation could arise where the professional is acting for two clients between whom there was a conflict, unknown to the professional or not, and it is contended that the consent given by one client to the professional acting for both is vitiated by undue influence between the two clients.

For many years solicitors have been cautioned about the risks of acting for more than one party. Chapter 7 of Riley59 Solicitors Manual dealing with conflicts of interest states –

“There are a variety of examples of situations where conflicts may arise in the basic conveyancing scenario.

56 Webster and Webster “Professional Ethics and Practice for Scottish Solicitors”, 3rd Ed., 199657 Ethics and Conflict of Interest and Duties, Virginia P. Shirvington, Law Society of New South Wales, April 200658 Conflicts of Interest, Charles Hollander & Simon Salzedo, 3rd Edition, 2008 59 Dal Pont, G. E. & Riley, Frank, 2005


The lawyer may, for instance, know of a flaw in the title of property, which should be brought to the purchaser’s attention at the expense of the vendor. It may also be, more generally, that the lawyer has close family and commercial ties with one of the parties, and is tempted to favour that party.”

Patrick O’Callaghan in his book entitled The Law on Solicitors in Ireland60 considers the matter of conflicts of interests from an Irish perspective. He notes that the area of conflicts of interest between the interests of the solicitor, his respective duties to a client or clients and each of his client’s interest is one of the most complex areas of practice for a solicitor. A solicitor may appear to represent the interest of two parties who possess a unity of interest, however, subsequently, a divergence may occur between their interests. He notes that –

“where a solicitor lawfully accepts a joint retainer for two clients, then the interaction of fiduciary duties owed to each client gives rise to the following principles concerning the solicitor’s behaviour towards one client in connection with his retainer by another client in the same matter. He must firstly act in good faith for each of his clients. Secondly, he must not be consciously inhibited in the performance of his duties to the first client by the existence of his retainer to the second client. This is the altered duty of loyalty owed by the solicitor to his client, given the existence of two retainers. Thirdly, the solicitor must not put himself in a position where he is unable to perform the tasks he has undertaken for each of his clients. In addition to the above, a solicitor is subject to the usual rules relating to fiduciary duties owed to each client.”

Professor Wylie in his book Irish Conveyancing Law61 points out that the courts tend to discourage the same solicitor acting for both parties in the same transaction, because of the dangers of that solicitor facing a conflict of interest. He notes that, during the course of most transactions, several potential conflicts may arise and it may prove extremely difficult for one solicitor to hold the balance fairly between the various parties.

He gives the example that such matters as fixing the terms and conditions of the contract for sale or drafting the assurance involve numerous decisions which necessarily tend to favour one party at the expense of the other and, if one solicitor acts for both parties, he may find himself unavoidably drawn into a position where the interest of one of the clients conflicts with the interest of his other client.

Professor Wylie also points out that, if there is a conflict of interest, there is then a conflict of duties which a solicitor should take care to avoid. Moreover, he goes on to explain, a solicitor who acts for vendor and purchaser in the same transaction thereby fixes the purchaser with notice of everything of which he has acquired knowledge as solicitor for the vendor and thus deprives the purchaser of the defence of bona fide purchaser for value without notice.

60 The Law on Solicitors in Ireland, Patrick O’Callaghan, 200061 Irish Conveyancing Law, J.C.W. Wylie, 2011 Edition.

Wylie also notes that the Guide to Professional Conduct of Solicitors in Ireland62 published by the Law Society, sets out the general principle that a solicitor should not act for both parties in a transfer of property for value at arms length although it is acknowledged that exceptions may arise in certain circumstances, provided there is no actual or perceived conflict between the parties.

Professor Wylie refers to the Supreme Court case of Carroll –v- Carroll63. In this case the plaintiff succeeded in having a conveyance of a public house by a father to his son set aside. The court was satisfied that the relationship between the donor and the donee gave rise to a presumption of undue influence and the defendant had failed to rebut that presumption. The solicitor, who acted for both parties but had been originally engaged by the donee, had not in the court’s opinion given adequate independent advice to the donor. The solicitor was not aware that the property being transferred was the sole asset of the donor and so he could not advise him fully on the consequences of his action. Nor did he know of the donor’s relationship with his daughters and the assurances he had given to them that their home would always be there for them. In addition, there was no evidence that the solicitor had read over the transfer with the donor which was an important factor in determining if the donor had been acting of his own free will.

Professor Wylie cited the above case as an example of where difficulties may arise where a solicitor acts for both parties in a voluntary transaction. He noted that, in this matter, Barron J. accepted the following principles that had been put forward by Farwell, J. in Powell –v- Powell64-

“1. A solicitor who acts for both parties cannot be independent of the donee in fact;

2. To satisfy the court that the donor was acting independently of any influence from the donee and with a full appreciation of what he was doing it should be established that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person. Further, the advice must be given with knowledge of all relevant circumstances and must be such as a competent advisor would give if solely acting in the interests of both.”

The Carroll –v- Carroll case was also cited by Brian Gallagher in his article on avoiding professional negligence in conveyancing.65 Mr Gallagher noted that, while this case dealt with a voluntary transfer, it could also apply to all conveyancing transactions. The article quotes Mr Justice Barron’s statement in the case that - “A solicitor or professional person does not fulfil his

obligation to his client or patient by simply doing what

62 Guide to Professional Conduct of Solicitors in Ireland , Law Society of Ireland, 2nd Edition, 200663 (1999) 4 IR 24164 [1900] 1 Ch. 24365 Brian Gallagher, “Avoiding Professional Negligence in Conveyancing”, Law Society of Ireland Gazette, December 2002, pp 10-15


he is asked or instructed to do. He owes such person a duty to exercise his professional skill and judgment and he does not fulfil that duty by blindly following instructions without stopping to consider whether to do so is appropriate. Having done so he must then give advice as to whether or not what is required of him is proper.”

Mr Gallagher comments that –

“As solicitors, we must appraise ourselves of all relevant circumstances and we must give advice, and not merely carry out instructions. If someone asks us to push them over a cliff it would clearly be wrong to do so.”

Shirvington66 noted that the position in relation to conflicts of interest was put by Wooten J. in Thompson –v- Mikkelsen67 as - “A client is entitled to assume that his solicitor will

be in a position to approach the matter concerned with nothing in mind but the protection of his client’s interests against those of the other party. He should not have to depend on a person who has conflicting allegiances and who may be tempted either consciously or unconsciously to favour the other client or simply to seek a resolution of the matter in a way which is least embarrassing to himself ”

She further remarked that, in the case of In Council of the Law Institute of Victoria –v- A Solicitor68 in the Supreme Court of Victoria, Tadgell J. considered the question of a solicitor acting for more than one party to a conveyancing transaction giving rise to a present and a potential conflict of interest and had noted the following historical aspect of conflict of interest -

“The law has long frowned upon a solicitor’s double dealing as between one client and another. In 1673 an attorney was committed and removed from the Roll after it was proved that he had been an ambidexter, viz after he was retained by one side he was retained on the other side.”

and that His Honour had also noted that, as early as 1866, Sir John Stuart VC had conceded in Minton –v- Kirkwood69 that -

“it would be too much to say that the same firm of solicitors may not, in some cases, properly attend to the interests of both clients.”

She noted that Tadgell J’s comment on the earlier case had been - “This, however, is a generalisation. Although a solicitor

may without impropriety act for clients on either side of a transaction, he always runs the risk if he does so that he may be required to stand up for one side against the

66 Ethics and Conflict of Interest and Duties, Virginia P. Shirvington, Law Society of New South Wales, April 200667 NSW Supreme Court, 3rd October 1974, unreported 68 (1993) 1 VR 36169 (1866) LR IEQ 449 at p454

other. That he cannot faithfully do for either of them, or for himself, so long as he continues to act for both.”

The issue of informed consent when dealing with an exception to the general prohibition on one solicitor acting for both parties has been dealt with in a number of articles and, indeed, judgments.

In her articles on conflicts and confidentiality, Jane Jarman70 reviewed the then new rules on conflicts in England & Wales and, in that context, dealt with the issue of informed consent.

“It is necessary” she wrote “to draw all the relevant issues to the attention of the clients before agreeing to act, or where already acting, when the conflict arises, or as soon as reasonably practicable, and in such a way that the clients concerned can understand the issues and risks involved as well as having a reasonable belief that the clients understand the issues involved and have full capacity.”

She points to the fact that the explanatory notes to the rules urge caution. She comments that – “The concept of what constitutes “informed consent”

has kept medical litigators busy for decades. The need to draw “all relevant” information to the client’s attention so that they may understand “the issues and the risks involved” is not always straightforward. It is clear that this would be a risky area for lawyers. The retained will need to be kept under constant review to check whether there has been any change in the nature of the relationship which could upset any of the criteria. Informed consent is an issue to be addressed throughout, not just at the inception of the retainer and, inevitably, it carries with it a panoply of compliance ramifications.”

Shirvington71 referred to the case of Maguire –v- Makaronis72 in which it was stated that what constitutes a fully informed consent is a question of fact to be determined in all the circumstances of each case. The court said that there is no precise formula which will determine in all cases whether a fully informed consent can be given.

Hollander and Salzedo73 point to what was stated by the Law Commission in England in its consultation paper of 1992 on “Fiduciary Duties and Regulatory Rules” -

“A customer is entitled to a duty of loyalty from a firm, which requires it to put at its customer’s disposal all information in its possession which is relevant to the discharge of the obligations that it has assumed.”

70 “Conflicts and Confidentiality (1) and (2) ”, Jane Jarman, Solicitors’ Journal, 2006, Vol. 150, 1560-1561; 1597-1598 71 Ethics and Conflict of Interest and Duties, Virginia P. Shirvington, Law Society of New South Wales, April 200672 (1997) 188 CLR 44973 Conflicts of Interest, Charles Hollander & Simon Salzedo, 3rd Edition, 2008


They noted that a further view had surfaced in Mortgage Express Limited –v- Bowerman & Partners74 in which a solicitor acting for a mortgage lender and a borrower became aware that the vendor in the transaction was purchasing the property at a price significantly lower that the valuation before simultaneously selling it onto the borrower. The court felt it was the duty of the solicitor to pass this information on to the lender even if it affected the borrower’s interest. They noted that Sir Thomas Bingham M.R. had in this case expressed the principle in the following terms -

“A client cannot expect a solicitor to undertake work he has not asked him to do and will not wish to pay him for such work, but if in the course of doing the work he is instructed to do the solicitor comes into possession of information which is not confidential and which is clearly of potential significance to the client, I think the client could reasonably expect the solicitor to pass it on, and feel understandably aggrieved if he did not.”

The authors had also noted that the judgment in Mortgage Express was further examined in Bristol & West Building Society –v- Baden Barnes Groves75 in which Chadwick J. stated -

“In my view, the words “if in the course of doing the work he is instructed to do” reflect an important and significant qualification to the solicitors’ duty to disclose information relevant to the lending risk. A solicitor is obliged to disclose information which comes into his possession in the course of doing the work which the lender has instructed him to do; but he is not obliged to disclose information which has come into his possession independently of any work which the lender has instructed him to do including, for example, information which has come into his possession as a result of earlier transactions in which he has been retained by the borrower.”

Hollander and Salzedo remarked that the notion of a duty of disclosure and how it may affect a solicitor in a matter where there is a conflict of interests had been summed up by the principle in Moody –v- Cox76 where Lord Walker had held that -

“.... if a solicitor is unwise enough to undertake irreconcilable duties it is his own fault, and he cannot use his discomfiture as a reason why his duty to either client should be taken to have been modified”

They noted that the duty to disclose information was also considered in the same case by Scrutton L.J. who stated –

“..... It may be that a solicitor who tries to act for both parties puts himself in such a position that he must be liable to one or the other whatever he does. The case has been put of a solicitor acting for vendor and purchaser who knows of a flaw in the title by reason of his acting for the vendor, and who if he discloses that flaw in the

74 (1996) 2 A.E.R. 83675 (2000) Lloyd’s Reports76 (1917) 2 Ch71

title which he knows as acting for the vendor, may be liable to an action by his vendor, and who, if he does not disclose the flaw in the title, may be liable to an action by the purchaser for not doing his duty as solicitor for him. It will be his fault for mixing himself up with a transaction in which he has two entirely inconsistent interests ...”

Paterson and Ritchie77 also commented that, similarly, in Spector –v- Ageda,78 Megarry J. stated -

“A solicitor must put at his client’s disposal not only his skill but also his knowledge, so far as is relevant; and if he is unwilling to reveal his knowledge to his client, he should not act for him. What he cannot do is act for the client and at the same time withhold from him any relevant knowledge that he has.”

In dealing with the duty of disclosure Shirvington79 referred to the case of Stewart –v- Layton80 as previously outlined in paragraph 7.1.6.5 above.

The issue of duty of disclosure was also considered by Perrell in Conflicts of Interest in the Legal Profession81 on the basis that, for the client to make an informed decision, the lawyer must reveal the existence of the multiple representation. The lawyer must disclose whether there is a regular and continuing relationship with any of the clients and, in these circumstances, the lawyer must recommend that the client obtain independent representation. The lawyer must disclose the implications of a joint retainer to the confidentiality of information passing between a lawyer and a client. The lawyer must also discuss the consequences of any unreasonable conflict of interest developing during the retainer.

Both Hollander & Salzedo82 and Paterson & Ritchie83 observed that, in the case of Prince Jefri Bolkiah –v- KPMG84 in relation to the concepts of informed consent and information barriers, Lord Millet suggested that information barriers could never apply to protect the fiduciary in existing client conflicts, unless both clients had given their informed consent to the professional acting by means of an information barrier.

Paterson & Ritchie noted that what constitutes informed consent was considered by the Privy Council in the case of Clark Boyce –v- Mouat85 where it was stated -

“There is no general rule of law to the effect that a solicitor should never act for both parties in a transaction where their interests may conflict. Rather is the position that he may act provided that he has

77 Law, Practice and Conduct for Solicitors, 2006, Alan Paterson and Bruce Ritchie78 (1973) Ch 3079 Ethics and Conflict of Interest and Duties, Virginia P. Shirvington, Law Society of New South Wales, April 200680 (1992) 111 ALR 68781 Conflicts of Interest in the Legal Profession, Perrell, 199582 Supra83 Supra84 (1999) 2 A.C. 222, HL85 (1994) 1 A.C. 428, PC


obtained the informed consent of both to his acting. Informed consent means consent given in the knowledge that there is a conflict between the parties and that as a result the solicitor may be disabled from disclosing to each party the full knowledge which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interest of the other. If the parties are content to proceed on this basis the solicitor may properly act.”

On the topic of information barriers, Holland & Salxedo86, Shirvington87 and Paterson & Ritchie88 have all referred to the statement of Lord Millet in Prince Jefri Bolkiah –v- KPMG89 that an effective barrier - “…needs to be an established part of the organisational

structure of the firm, not created ad hoc and dependant on the acceptance of evidence sworn for the purpose by members of staff engaged on the relevant work.”

They noted that this could be interpreted as outlawing ad hoc information barriers altogether, but that it is now accepted that there is no rule of law that information barriers or other arrangements of a similar kind are insufficient to eliminate the risk of conflict, and that this had been made plain by Laddie J. in Young –v- Robson Rhodes90 when he stated -

“The crucial question is “will the barriers work?” If they do, it does not matter whether they were created before the problem arose or are erected afterwards. It seems to me that all Lord Millett was saying was that Chinese Walls which become part of the fabric of the institution are more likely to work than those artificially put in place to meet a one off problem.”

Having reviewed all of the above academic materials the Task Force agreed with the concluding statement of Shirvington in her 2006 article91 that ethical principles are strongly intertwined with legal practice and common law authority, and that conflict of interests is not an easy issue.

86 Supra87 Supra88 Supra89 (1999) 2 A.C. 222, HL90 (1999) 3 A.E.R. 52491 Ethics and Conflict of Interest and Duties, Virginia P. Shirvington, Law Society of New South Wales, April 2006

8 THE CONTEXT IN WHICH THE TASK FORCE CONDUCTED ITS REVIEW

In setting out to identify the issues for discussion, the Task Force summarised the background against which it would conduct its review:· There is a complete prohibition in Ireland on acting

for lender and borrower in commercial transactions · There is a prohibition in Ireland subject to some

exceptions on acting for both vendor/developer and purchaser of a newly constructed residential property

· There is no prohibition on acting for vendor and purchaser in residential or commercial transactions for value

· There is no prohibition on acting for both donor and donee in voluntary transactions

· There is no complete prohibition on acting for both vendor and purchaser in any other common law jurisdiction

The Task Force also had as a backdrop to its deliberations the factors that underpin the relationship between solicitor and client, including, but not limited to, - · Loyalty of solicitor to client· Confidentiality of client information· Impartiality of the advice given· Independence of the advising solicitor

Commonality of interests is often pleaded as a reason for permitting one solicitor to act for both parties. The Task Force was cognisant of the need to look to the nature of the conveyancing contract and to bear in mind that the vendor and purchaser come to it from two different perspectives. The vendor gives warranties and makes certain disclosures on which the purchaser relies. While the completion of the transaction may be a common interest of both, the process of arriving at completion is not the same for both parties and is not necessarily without conflict or the potential for conflict.

The report of the Canadian Bar Association perhaps best summed up the matter in stating as regard the wider issue of conflict generally – “In summary, the consultation reinforced the extent

to which today’s conflicts challenges affect all types of clients and legal practices and raise concerns in all parts of the country. This is not a “big firm” issue any more than it is a “legal aid”, “big city” or “small town” issue. Collectively, lawyers and their clients are experiencing difficulties with the application of the conflicts rules. The need to find workable solutions is evident.”92

The Law Society currently has a dual remit, with its regulatory and enforcement role on one side and its representative role on the other side. In its exercise of its regulatory role it must be seen to be independent, being ever cognisant of the view of the courts on the function and role of the Society in its supervision and regulations of solicitors.

92 Canadian Bar Association Task Force Report on Conflicts of Interest, Conflicts of Interest: Final Report, Recommendations & Toolkit”, August 2008, p.3


The Task Force was cognisant of the fact that the Law Society views the question of conveyancing conflicts against its duty, in light of its above mentioned dual role as regulator and representative of the solicitors’ profession, to provide clarity and guidance for solicitors as to how to implement best practice. It also recognised that some of the problems include the concern that, if it were to be overly prohibitive, clients’ access to their solicitor of choice might be unduly restricted. It was also very conscious that any possible recommendations might have cost implications.

On the other hand, the Task Force was keenly aware of the basic principles underpinning the relationship between solicitor and client and of the areas where the judiciary has focussed its attention. It agreed that an overriding concern is the very real danger that in acting for both parties the solicitor will overlook the duties owed to both clients. It noted that the Canadian report on conflicts stated –

“Fundamentally, the expectations a client has of a lawyer and the duty a lawyer has to a client have remained constant over the years. Clients expect lawyers to act with integrity and to provide them with sound legal advice. Lawyers are expected to be competent, protect client confidences and provide zealous representation. Lawyers must never permit their own interests or the interests of others to compromise their work for a client. These core principles are immutable.”93

Within the above context the following were the matters identified and considered by the Task Force in arriving at its conclusions:- 1 Whether there should be any recommendations made

in relation to (a) voluntary transfers and (b) transfers for value;

2 Whether residential conveyancing should be differentiated from commercial conveyancing;

3 Whether the status of the client is relevant - experienced client, etc;

4 Whether landlord and tenant transactions should be included in any proposed recommendations;

5 Whether exceptions to any proposed recommendations are needed;

6 Proportionality – whether a de minimis rule is needed;7 Whether accessibility / remoteness of location should

be a determining factor in deliberations;8 Information barriers;9 Whether a definition of “conflict” is needed;10 Cost implications of any possible recommendations;11 Whether there is a need to competition-proof any

recommendations to be made.

The main issues arising appeared to be common to all jurisdictions.

93 Canadian Bar Association Task Force Report on Conflicts of Interest, Conflicts of Interest: Final Report, Recommendations & Toolkit”, August 2008, p.11

9 CONCLUSIONS

Having considered all guidelines, regulations, academic papers, submissions, outcomes of consultations and meetings, the following are the considered conclusions of the Task Force.

9.1 VOLUNTARY TRANSFERS

The rules and regulations regarding the conduct of voluntary transfers, as set down in the Law Society’s ‘A Guide to Professional Conduct of Solicitors in Ireland’, are quite onerous on solicitors, which make it difficult to ensure compliance with same. Judicial commentary has been to the effect that solicitors have to go beyond their legal expertise when acting for both sides. In voluntary transfers, for example, solicitors are expected to make enquiries into a client’s entire financial affairs, into what assets a client has, into the mental capacity of the client, into what are the circumstances of other family members, into what arrangements the client has made for future maintenance, upkeep, long-term care, etc. In cases where the same solicitor is acting for both sides in the conveyancing transaction it would be essential to alleviate any doubts as to full adherence to the solicitor’s fiduciary duty to both clients.

Judicial commentary has certainly sought to strengthen the protection of donors in voluntary transfer situations. It seemed to the Task Force that this has informed the position of many solicitors who made submissions to it on the basis that they view voluntary transfers as particularly risky for both the solicitor and the parties involved. They submitted that there was no justification for solicitors acting on both sides in these cases as there is an inherent conflict of interest.

Examples of cases considered by the Task Force included e.g. a deed of voluntary transfer subject to covenants and a power of revocation, which it was agreed is onerous on both parties and it was acknowledged that there is a strong argument for each client having separate representation in those circumstances.

On the other hand, the Task Force had noted that other submissions from solicitors indicated that, while they might welcome a general prohibition on acting for both sides, they would want exceptions in respect of certain voluntary transfers, e.g. the transfer of a site from parent to child. It emerged from further discussion and analysis by the Task Force that even an apparently benign voluntary transfer of a site to a child is not without the potential for conflict and carries risks. Acquisition of a site alone does not, by itself, generally involve a large financial exposure, but the donee will usually have to borrow substantial funds to build on the property transferred. Therefore, if there is any doubt about the original site transfer, this can be a source of conflict and can result in a significant financial exposure for the donee and the solicitor who acted for both sides.

It seemed to the Task Force that, historically, a transfer of a site was often tax-related and, with the emergence of several new taxes, the transfer of a site will now be a more


onerous burden than it was previously.

In addition, it was noted that a voluntary transfer of a site can often disproportionately affect the value of the rest of the holding, e.g. if a site is in a strategic position in the overall holding and the donor divests him/herself of that site, it can seriously devalue the remaining holding. The site may have been transferred to facilitate, for example, family arrangements. However, if there is a marriage break-up subsequently and changed circumstances and a stranger assumes ownership of the site then the donor can be negatively impacted in a manner not foreseen in the original arrangement.

The transfer of a site to one child has potential to cause disharmony within a family, which can have follow-on consequences for querying the validity of the transfer and for the solicitor who acted for both parties in the matter, e.g. if planning laws limit development on a farm to one site only and there are other siblings of the donee with expectations of acquiring a site on which to build a home. The question of potential undue influence arises for consideration in that context, which in turn raises the question of whether it was prudent for a solicitor to have acted for both sides in such circumstances.

Another common example of a voluntary transfer that was considered was the practice in rural Ireland of farmers transferring their farms to sons or daughters primarily for the purpose of qualifying for the old age pension or, in relation to some past transactions, an EU farm retirement pension. There are serious implications for both the donor and the donee in these cases. The fact is that the retiring farmer is divesting him/herself of valuable assets, and the question arises whether it is appropriate to do so in return only for a right of residence or whether additional income should be secured for the retiree. If the latter, the question arises for the donee as to whether the acquired farm can generate income sufficient to support both the retiring farm family and the donee’s farm family. Consideration must also be given to the future financial needs of both parties, and provision made for, e.g. the possibility of marital breakdown and the prospect of the farm having to potentially support a third family, or be broken up to provide a property settlement on the breakdown of a marriage. The Task Force also gleaned from its meetings with the IFA and the ICMSA that many retired farmers have, on occasion, found themselves in very poor circumstances where the relevant EU farm pension they availed of on retirement has since ceased and they have no other source of income, having divested themselves of their only asset, the farm.

Similar concerns were expressed in relation to voluntary transfers of farms in the context of the single farm payment. This payment is currently made to qualifying farmers in replacement of various subsidies previously paid by the EU. However, unlike many of its predecessors, this is a payment that can be separated from the land. The question in the context of voluntary transfers of farms is whether the single farm payment, or part thereof, should be retained by the donor as an income following transfer of the farm land. On the other hand, the question for the donee is whether it is prudent, or indeed possible, for him

or her to take on the cost of maintenance, upkeep and development of the farm without having the benefit of the income (single farm payment) accruing in respect of that farm.

The new legislation on nursing home charges, with “look-back” provisions that allow the HSE to look back on any voluntary disposals and in relevant cases register statutory charges (in respect of the cost of care of the donor) on property previously transferred voluntarily by a donor, is a further example of why both sides in a voluntary transfer should be separately represented. Donors are divesting themselves of all assets and, on the other hand, the transferred property is taken by donees subject to future liability to statutory charges being imposed retrospectively.

As further evidence that difficulties arise in practice as regards intra-family transactions, the Task Force considered an independent report94 co-published in 2010 by the HSE and UCD showing the results of a national survey of the prevalence of abuse of older people in the community. The study identified that 1 in 45 of the older population had experienced elder abuse or neglect – with financial abuse being the most commonly reported mistreatment accounting for over half the cases reported. For the purpose of the study, financial abuse was defined as the unauthorised and improper use of funds, property or any resources of an older person and included theft, coercion, fraud, misuse of a power of attorney and also not contributing to household costs where this was previously agreed. The study showed that 94% of financial abuse of the elderly is carried out by family members, as evidenced by the overall breakdown below:- Adult child 50% Spouse/partner 20% Other relative 24% Friend 4% Home help 2%

In spite therefore of all the guidelines issued by institutions such as the Law Society, HSE and others to safeguard the property of the elderly, it is clear from this HSE study that problems still occur. The report also shows that the instances of abuse occur more frequently in rural areas than in urban areas. The transfer of home ownership and the gifting of real property would normally require an input from solicitors. It is clear therefore that solicitors must take the utmost care to protect their clients in this situation.

The HSE report also showed that there was a 91% level of house ownership among elderly Irish people, i.e. they own a valuable asset. From submissions made to the Task Force is appears that many elderly Irish people divest themselves of their property during their lifetime, and that they tend to do so to children or other family members, or in circumstances other than for full value. The empirical evidence to date shows that financial abuse of the elderly is still taking place and that there is every cause for solicitors to be wary of acting for both sides in voluntary transfer transactions.

94 Abuse and Neglect of Older People in Ireland, HSE, UCD, NCPOP, November 2010


Given the varied and sometimes divergent interests that require protection, some of which are described above, it seemed inevitable to the Task Force that different legal advice would be given to a donor than to a donee in most voluntary transfer situations and, in light of that fact, it did not see how one legal adviser could give independent or impartial advice to both parties to the transaction, or be seen to so do.

It was apparent to the Task Force that when things go wrong or when relationships between parties break down after the voluntary transfer has taken place, it only then becomes obvious that a solicitor should not have acted for both sides. It was clear that, in order to avoid such consequences and to ensure that conflicts cannot negatively affect the validity of a voluntary transaction, it is necessary to have each party to a voluntary transaction independently and separately represented. It was agreed that whilst such a requirement being made mandatory might create issues for solicitors, it would also protect solicitors in circumstances where they were being pressurised to act on both sides of a transaction.

Recommendation:Taking all of the above together, the Task Force concluded that, in the case of voluntary transfers and transfers manifestly below market value, there should be a total prohibition on a solicitor or firm acting for both sides, with one exception to this rule as set out below.

Cognisant of the need to ensure that its recommendations are proportionate, and also in recognition of the fact that there is legislation in this area to implement what is accepted social policy, the Task Force agreed that there should be one exception to the above prohibition -

Exception:In the case of the transfer of a family home as defined in the Family Home Protection Act, 1976 or a shared home as defined in the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010, into the joint names of both spouses or civil partners (but not in the case of a transfer from joint names to sole name) the same solicitor or firm may represent both the transferor and the transferee, provided there is no conflict of interest.

9.2 TRANSFERS FOR VALUE

In its consideration of whether or not there should be a prohibition on a solicitor acting for both sides in a conveyancing transaction for value, the Task Force considered a range of issues.

· Should residential conveyancing be differentiated from commercial conveyancing?

Submissions made to the Task Force argued strongly that there should be no differentiation based on property type. The point was made that, for example, a transfer of a substantial residential property might be a larger value transaction and more complicated than, e.g. a warehouse property for storage purposes, the transfer of which would be deemed to be a commercial transaction.

Recommendation:After due consideration, the Task Force concluded that it was not appropriate to differentiate as between commercial property transactions and residential property transactions in considering this matter.

· Should landlord and tenant matters be included in any treatment of the topic?

The Task Force considered whether landlord and tenant matters should be included in any treatment of the topic. The terms of reference did not specifically mention a solicitor acting for both landlord and tenant. However, Task Force members agreed that it was not logical to exclude a transaction such as the granting of a lease of property when an assignment of that same lease would automatically be included in the overall description of conveyancing. It also agreed that settling the terms of a lease was potentially a contentious matter.

Recommendation:The Task Force therefore concluded that any decisions of the Council should extend also to landlord and tenant matters.

· Should the status of a client be a determining factor in whatever regulations or guidelines are issued?

The Task Force members were agreed from the outset that, in considering the status of a client, there was no basis for distinguishing between individual clients who are natural persons based on their wealth or their perceived position in society.

The Task Force noted that in several jurisdictions there were instances where exceptions to prohibitive rules and guidelines were made in relation to associated companies. It considered whether such an exception should be made in relation to any proposed rule prohibiting the same solicitor from acting on both sides in a conveyancing transaction. In so doing, it considered the nature of ownership of associated companies, and concluded that the nub of the matter is that a solicitor dealing with two companies, one of which either wholly owns or is in effective control of the other is, in effect, dealing with only one client. The same is true when both client companies are wholly owned or effectively controlled by another company or person.

Recommendation:In the specific situation of associated companies, the Task Force saw no reason why each company should have to be represented by separate solicitors or firms and agreed that an exception would be appropriate for associated companies.

The Task Force then considered, if implementing an exception for associated companies, what definition of associated company would be used. It examined four possible definitions of “associated companies” that are used from time to time for various purposes:-• For accounting purposes – a company in which

another company has a 20% share or more;


• For the purpose of section 432 of the Taxes Consolidation Act, 1997 – control of the company;

• For Companies Acts purposes – a definition which effectively means ownership of 50% plus 1 of the equity (voting) share capital or the ability to appoint the majority of the board;

• A definition requiring 100% ownership by one company of the other – a stricter rule than the other three above.

The Task Force considered that the first option did not have the requirement for effective control alluded to above. The third option would necessitate investigation of the status of the shares, voting or otherwise, which was seen as undesirable in a conveyancing transaction. The Task Force acknowledged that if it were to opt for a very strict rule (such as the 100% ownership definition) it would be moving away from concepts that are well established and accepted in company law and in taxation legislation. Reluctant to abandon concepts that are well known to solicitors in practice and anxious to avoid the confusion that an expanding number of definitions might cause, the Task Force rejected the use of the last option above. It agreed that the remaining option, the definition used in section 432 of the Taxes Consolidation Act, 1997, having broad acceptance currently in the profession and the business world generally, was the preferred option. Being based on a requirement to have “control” of the company, this definition was seen to offer the greatest clarity for any possible exception to any prohibition that might be recommended.

Recommendation:For the purpose of any proposed recommendation, “associated companies” should have the meaning attributed to that phrase in section 432 of the Taxes Consolidation Act, 1997.

Having arrived at a conclusion on associated companies, the Task Force next considered the concept of a company that is associated with one or more individuals by virtue of being owned by those individuals either in whole or in part, the company and the individual being, in effect, the same client.

Recommendation:It was agreed that, in light of the earlier decision of the Task Force not to have an exception to any proposed rule for natural persons, a stricter rule as to ownership/control should be employed where one of the parties to a transaction is a natural person and the other a company. On that basis it was agreed that –

(a) as between associated companies - the definition from section 432 of the Taxes Consolidation Act, 1997 could be used i.e. effective control, and

(a) as between an individual and a company – the individual should be required to have 100% ownership of the company.

The Task Force next considered whether all clients need the same level of protection. It considered whether clients could be distinguished, for example, as between

consumers and non-consumers, vulnerable as against non-vulnerable, existing clients as against new clients, etc. Various statutory definitions of terms such as “consumer”, “vulnerable client”, “qualified investors” as defined in the EU Prospectus Directive, etc, were considered.

It was noted that the 2005 EU Prospectus Directive Regulations95 defined “qualified investors” as a category of investors that are not felt to require the protection of having a prospectus issued to them. These clients would, by definition, be large corporate entities (which are not small or medium-sized entities)96 as well as national and regional governments, government departments, central banks, international and supranational institutions exercising public or quasi-public functions e.g. the International Monetary Fund, the European Central Bank, the European Investment Bank and other international organisations of a similar nature. The Task Force considered an EU directive to be a solid basis for it to distinguish as between parties in any recommendation it might make, but decided that it would do so in a more restricted manner. The EU directive, for example, also applied to very wealthy individual natural persons. The Task Force therefore decided, on the basis that it did not wish to distinguish between two natural persons solely on the basis of their respective levels of wealth, that any reference to natural persons in the definition of “qualified investors” in the above Regulations would not be carried over to whatever definition the Task Force might ultimately adopt for the purpose of drafting a rule on conflicts in conveyancing transactions. The Task Force also decided that the term “qualified party” might be more appropriate than “qualified investor” to use in the conveyancing context.

The Task Force, having considered all the above issues, judicial decisions, practice guidelines from the jurisdictions it examined, academic comment, etc, concluded the following as regards transfers for value – Recommendation:There should be a prohibition on a solicitor or firm acting for both sides in a conveyancing transaction for value with just two exceptions to this rule as set out below.

Exceptions:(1) associated companies in accordance with the meaning

of that term in Section 432 of the Taxes Consolidation Act 1997, or, where one party comprises one or more individual persons and the other is/are a company or companies, the parties are associated by virtue of ownership by the individual(s) of the entire issued share capital of the compan(y)(ies).

(2) where both parties are “Qualified Parties” (to be defined with reference to paragraphs (c) and (d)

95 Prospectus (Directive 2003/71/Ec) Regulations 2005; S.I. No. 324/2005

96 An entity is classed as a small or medium-sized enterprise if, according to its last annual or consolidated accounts, it satisfies two of the following three conditions – (a) an average number of employees during the financial year of less than 250, (b) a total balance sheet not exceeding €43,000,000, and (c) an annual net turnover not exceeding €50,000,000.


of the definition of “qualified investors” in the Prospectus (Directive 2003/71/Ec) Regulations 2005 (S.I. No. 324/2005))

On the basis that a solicitor might be permitted to act for both sides where the vendor and purchaser are “qualified parties” as above, the Task Force considered whether any particular protections would be required.

Information barriers, also commonly referred to in academic papers and case law as “Chinese walls” and “ethical barriers”, were considered.

Much of the case law in this area pre-dates the most recent developments in technology. One argument is that, in the pre-technology era, it was easy to show that information barriers worked. With today’s technology it is possible at the press of a button to send information to multiple recipients. On the other hand, it is argued that technology is capable of blocking access to information and limiting it to specified individuals. It can also show who accessed the information. In this way, technology can support ethical barriers.

Among the matters discussed by the Task Force was whether or not information barriers may put a solicitors’ firm in a serious predicament. If one partner has knowledge which, if used in acting in the best interest of one client of the firm, will be detrimental to the interests of another client of the firm, there is an argument for saying that this will also be detrimental to the other partner and to the firm. The question arises as to whether this means that there is an inherent risk to a firm both where information barriers work and where they do not work. It was suggested that properly implemented information barriers or ethical barriers will negative that risk.

Another topic discussed was whether, if the efficacy of ethical barriers is fully accepted, and if the two solicitors in a firm representing the two parties to a transaction are treated as and behave as if they were two separate firms, why is it not allowed that the same firm can act for two sides in litigation? It was also suggested that, if you accept the principle of ethical barriers, you should logically be saying that firms with ethical barriers should also be able to act for both sides in a voluntary transfer (as well as in certain transfers for value). There was a general acceptance among Task Force members that it has never been envisaged that the same solicitor would act for both sides in a litigation matter, the very existence of the litigation itself indicating that there is a conflict between the parties.

It was agreed that disclosure of confidential information is the biggest risk associated with information barriers, i.e. the risk that the barriers will fail. The Task Force discussed the fact that there seems to be a lack of confidence in information barriers among the people who had met with the Task Force. The evidence that the Task Force had heard from an in-house solicitor whose employer regularly engaged external solicitors’ firms was that neither the solicitor nor the employer would accept that these information barriers are effective. References were made to “human nature being what it is” and also to “chat in corridors” as reasons for not trusting ethical barriers. It

was also noted that solicitors from lending institutions had pointed to the dynamics between partners in a firm as being relevant to whether information barriers would succeed or not. The Bolkiah case (concerning accountants) and the Freshfields case (concerning solicitors) were both considered. They showed how human failures had brought ethical barriers into question, and looked to the possibility of there being conversations in the corridor between solicitors acting on both sides. It is this human aspect of ethical barriers that can give cause for concern. The counter argument is that conversations in the corridor are not allowed in a properly constructed information barriers situation, and that such barriers work in practice.

It was clearly the view of all Task Force members that it is not feasible to operate information barriers in a firm with one solicitor. While it was acknowledged that one could have information barriers in a two-solicitor office, it was agreed that the reality is that it would be difficult in many firms, depending on the extent of the professional divide between the two partners or the two solicitors acting. It was agreed that effective information barriers would not be possible in a firm where either of the two solicitors acting is supervised by the other or they are both supervised by the same person.

It appeared to the Task Force that there is a considerable administrative overhead involved in setting up information barriers. Why such a burden would be undertaken by a solicitors’ firm was discussed, and the reason given was that firms have a desire to retain clients, and that clients have a legitimate interest in being able to engage their preferred choice of solicitor, even if the firm is acting for the other side in the transaction.

There was also considerable discussion around how compliance with the requirements for such barriers could be policed. It was acknowledged that a certain level of monitoring would be necessary if the matter were to be dealt with by way of a regulation which would add to the regulatory burden of the Law Society. The Task Force decided however that the following requirements would apply to transactions involving qualified parties as per Exception (2) above –

• the solicitors’ firm has requested the Vendor and Purchaser to consent to its representing both and has notified both in writing that it may have to give them conflicting advice and has notified both of the measures it proposes to implement in relation to such representation

• suchnotificationtoincludeastatementthatifadispute arises between the parties during or after the transaction likely to result in litigation the solicitors’ firm will not act for either party in such dispute or litigation and will cease acting in the transaction

• followingreceiptoftheabovenotificationbothclients consented in writing to the solicitors’ firm representing both of them

• theVendorandPurchaserarerepresentedbyseparateindividual solicitors within the firm, neither of whom may be supervised by the other and who may not both be supervised by the same person

• communicationsbetweenthesolicitorsshallbe


conducted in all respects as if they were members of different solicitors’ firms

• detailedrecordsandnotestobekeptbybothsolicitorsof all correspondence discussions and meetings between them

A draft of the proposed rule covering voluntary transfers and transfers for value is set out in Appendix 1 Part 1 to this report. The Task Force recommended that any breach of said rule may on due enquiry by the Disciplinary Tribunal be found to be misconduct under the Solicitors’ Acts.

In light of the definitive approach outlined above, the Task Force felt it was unnecessary to further prescribe the detail of what measures a firm should take to ensure the confidentiality of each client. Instead it decided that any detailed requirements in relation to information barriers should be disseminated to the profession by way of practice notes or guidelines.

A draft outline of suggested guidelines is set out in Appendix 1 Part 2 to this report.

9.3 MATTERS APPLICABLE TO BOTH VOLUNTARY TRANSFERS AND TRANSFERS FOR VALUE

As regards both voluntary transfers and transfers for value, the Task Force considered the following additional issues -

· Cost implications of any possible recommendations

While the focus of the Task Force was on ensuring the probity and integrity of the underlying conveyancing system, it has throughout its review been very conscious of costs.

General concern had been expressed97 to the Task Force about a possible increase in costs if a prohibition on acting for both sides in a conveyancing transaction were to be introduced. There was a perception that there is a saving in costs to the clients if one solicitor acts and also that firms acting for both sides could offer a more efficient service. It seemed to the Task Force that reduced conveyancing costs (if such applied) have been offered thus far on the basis that one solicitor acts for both parties. However, in light of the judgment of Mr Justice Quirke in Murray & Whelan v. O’Donnell Dalton and Hogan98, it was clear to the Task Force that if the same solicitor/firm purports to act for both sides they have a particularly onerous obligation to comply strictly, fully and in detail with accepted conveyancing practice. There is a strict obligation on the solicitor to record each step of the transaction for the benefit of each client, and indeed for their own benefit and in their own interests. Consequently, the opportunity for saving costs in such cases would appear to be very limited.

97 See paragraph 6.1 hereof98 Ex tempore High Court judgment delivered 7th October 2004

To put any costs issue associated with mandating separate representation in context, the following points should be noted – · the fee for separate representation is a once-off cost -

not a recurring cost,· that where a solicitor does act for two clients in

a voluntary transfer at present, there is a duty on the solicitor to refer one of them for independent legal advice, and that there is already a cost for that independent advice,

· that any higher cost for obtaining separate independent representation for both parties is justified by the knowledge and assurance that each party has their own solicitor and there is no possibility of conflict of interest arising, thus ensuring the probity and integrity of the transaction

The Task Force is of the opinion that the benefit of separate independent representation improves the protection and service for the clients. The cost is incurred in order to ensure everything is done properly in what has become a very complex conveyancing environment. The Task Force noted that complicating factors in the conveyancing transaction can include planning restrictions where one site only on a family farm has development potential, where each client may have a different tax situation and require different taxation advice, family situations with complications around farm income and farm pensions and future requirements as to maintenance and housing.

In this regard, the Task Force was of the view that the social consequences of a conveyancing transaction being overturned should not be underestimated. It was acknowledged that best practice and regulation may cost more, but that, in light of the specific directions of Quirke, J. in Murray & Whelan –v- O’Donnell Dalton and Hogan99, the cost to the client and to society when things go wrong can be significant.

The position of the Law Society in Northern Ireland100 whereby an increase in PII claims was anticipated arising out of solicitors acting for both parties in conflict situations was noted, as was the indication from the Law Society of Scotland that it is in the process of reviewing its position in this regard. Other jurisdictions are looking at the potential for an increase in claims against the profession in those countries if something is not done about solicitors acting in conflict situations. The Law Society of Ireland could take the initiative by dealing with one of the factors that impact on claims – the practice of acting for both sides.

Having considered the above matters the Task Force expressed the view that the Society was in a good position to show that any costs that might result from a prohibition on the same solicitor acting for both sides in a conveyancing transaction can be justified on the basis that separate representation is in the best interest of the clients, improves the probity and soundness of the transaction itself, is merely an extension of an existing system where a separate cost already exists for obtaining legal advice

99 Ex tempore High Court judgment delivered 7th October 2004100 Law Society of Northern Ireland PII newssheet, September 2011


in voluntary transactions, and is an unavoidable cost of improving the existing regulatory framework.

The Task Force is cognisant that there is a proposal for a new regulatory framework to be put in place to deal with the issue of legal costs.

· Proportionality – is a de minimis rule needed?

The Task Force considered whether or not there should be any distinction made on the basis of the value of the proposed conveyancing transaction. It was noted that, while a conveyance of property might be transacted for a relatively small consideration, the consequences of that transaction being overturned for lack of probity arising from a conflict situation might be significant. An example given was where a family member acquires a site by voluntary transfer. The site may have a small notional value, but if that family member borrows a large sum of money in order to build a house on the site the ultimate loss to a lending institution might be several hundred thousand euro if its security were to be undermined by virtue of the fact that the same solicitor acted for both sides in the transaction and there was a conflict that was not detected or not dealt with correctly. Another example that was considered was one where the same solicitor might act for a vendor and purchaser of a plot of land with development potential and a dispute might arise as to the true interpretation of the terms of the contract, the loss to one client might be the future potential development value of the land, and the loss to the other might be the amount by which the land fell in value between the original date of the contract and the date on which the contract dispute arose or the contract was rescinded.

On the basis that some residential property would be worth significantly more than some commercial property, and vice versa, the Task Force did not see any grounds for seeking to apply a de minimis rule based on the nature of property the subject matter of a conveyancing transaction.

Task Force members were agreed that it seemed from the overall discussion that there would be no logic in seeking to apply a de minimis exception to the proposed rule for either the voluntary transfer situation or the transfer for value situation.

Recommendation:The value of the property involved in either a voluntary transaction or a transfer for value should not to be a deciding factor in any recommendation the Task Force might make.

· Accessibility – remoteness of location, etc

In Canada, geographical remoteness and diversity of languages and cultures have been given as reasons for allowing the same solicitor to act on both sides of a conveyancing transaction. However, the scale of these issues in Canada differs greatly to the situation pertaining in Ireland.

There are huge geographical distances between clients and centres of population in many parts of Canada, several

hundred miles in some instances. This does not apply in Ireland.

In addition, the number of lawyers per capita in Ireland (approx 8,500 for 4.5m population i.e. ratio 1:530) when taken together with the much shorter distances between centres of population in Ireland means that clients of solicitors in Ireland have a greater choice of solicitors than in Canada where the ratio of lawyers to clients is 1:620 (approx 50,000 for 31m population) but where 50% of the total number of lawyers are centred around 4 main cities.

Task Force members expressed the view that, while remoteness of location may have been an issue for access to legal services in Ireland fifty years ago, it is no longer an issue due to the increased mobility of solicitors and of clients, improvements in public and private transport, improvements in roads infrastructure, etc. The Task Force noted similar comments regarding courts services as expressed in the McCarthy Report, commissioned by the government.101

Advances in communications technology in particular were seen as having had a major effect on how legal services are delivered. Many clients now instruct their solicitors in conveyancing matters by email and need only meet face to face with the solicitor in order to sign the final original documents, thus cutting down on the frequency of travel, etc. It was also acknowledged that the customer services aspect of solicitors’ work has changed over the course of the last 20 years, with many solicitors’ firms now offering late and early opening hours, etc.

It was also noted that, in litigation matters and family law matters, clients did not appear to have any difficulty in travelling to other locations for legal advice and legal services and that there was no logical reason why they could not also do so in relation to conveyancing transactions. The Task Force members concluded, therefore, that remoteness of location is not a current issue for clients of solicitors.

Recommendation:Accessibility of legal services or remoteness of location are not deciding issues in the context of the same solicitor acting for both sides in a conveyancing transaction.

· Is a definition of “conflict of interest” needed?

The Task Force initially formed the view that, if it were to introduce an outright prohibition on the same solicitor acting on both sides in a conveyancing transaction, a definition of “conflict of interest” would not be needed. It was noted that there had been several definitions of “conflict of interest” identified in the academic papers already reviewed and, to that extent, the Task Force would prefer not to seek to re-invent the wheel in this regard. Following further discussion of the matter it was unanimously agreed that, as the wording of the proposed prohibition as drafted by the Task Force uses the phrase “give conflicting legal advice” and will not include a specific

101 McCarthy Report, July 2009, Volume II, pp162-5


reference to “conflict of interests”, it is not necessary for the Task Force to provide a definition of the latter term. · The need to competition-proof any possible recommendations

The Task Force prefaced its discussion of this issue by confirming that the intention of the Task Force is that any new rule it might recommend will apply to all firms regardless of size.

Cognisant of judicial comment to date, it appeared to the Task Force that there are no negative competition law issues arising from the Task Force’s proposed rule. Indeed, it is suggested by the Task Force that, not only does the proposed rule not have the effect of restricting choice or competition, but it in fact fosters competition in the market for legal services.

10 RECOMMENDATIONS

10.1 The recommendation of the Task Force is that the draft rule reflecting the conclusions reached be adopted as a statutory instrument and implemented and monitored in accordance with the provisions of that statutory instrument.

To assist the Council, the Task Force has drafted an outline of a statutory instrument that reflects its recommendation. This is set out in Appendix 1 Part 1 to this report.

10.2 In an effort to be helpful, the Task Force has prepared a draft outline of guidelines which may be used or elaborated on by the relevant practice committee within the Law Society in furtherance of the above proposed statutory regulation. This is set out in Appendix 1 Part 2 to this report.

10.3 The recommendation of the Task Force is that this report be circulated to - • Allmembers,and • BarAssociations.

____________________________Catherine TreacyChairConveyancing Conflicts Task Force

March, 2012


11 APPENDICES

APPENDIX 1 PART 1

PROPOSED DRAFT CONVEYANCING CONFLICT OF INTERESTS REGULATION

1. Definitions and Interpretation

1.1 In this Rule the following words and expressions shall have or, where the context requires, shall include, the following meanings:

“Associated Company”, the meaning ascribed to that expression by Section 432, Taxes Consolidation Act 1997, save that the words “or at any time within one year previously” shall be deemed omitted from sub-section (1) thereof for the purposes of this Rule;

“Civil Partner”, the meaning ascribed to that expression by Section 3, Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010;

“Conveyancing Transaction”, the transfer of any Property, whether by sale, lease, voluntary transfer, conveyance, licence, assignment, surrender or grant of an easement or option or otherwise, but excluding a transfer upon the grant or release of a mortgage or charge;

“Family Home”, the meaning ascribed to that expression by Section 2, Family Home Protection Act 1976;

“Property”, any interest in land situate in Ireland; “Purchaser”, any transferee or recipient of an interest

in Property pursuant to a Conveyancing Transaction, whether or not for value;

“Qualified Party”, an entity which is either: (a) a qualified party by virtue of meeting the criteria

in either paragraph (c) or paragraph (d) of the definition of “qualified investors” in Regulation 2 of the Prospectus Directive (2003/71/EC) Regulations 2005 (Statutory Instrument 324 of 2005) (as the same may be amended or re-enacted from time to time); or

(b) a company which is an Associated Company of an entity meeting the criteria referred to in paragraph (a) of this definition;

“Shared Home”, the meaning ascribed to that expression by Section 27, Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010;

“Solicitor”, includes two or more solicitors acting in partnership or in association, whether or not in the same office, and “Solicitors’ firm” shall mean a partnership, association or other entity carrying on business as Solicitors; save that for the purposes of implementing Ethical Barriers (Clause 3), “solicitor” shall mean an individual person;

“Vendor”, any transferor of an interest in Property pursuant to a Conveyancing Transaction, whether or not for value.

1.2 For the purposes of this Rule (a) an individual person or individual persons shall be treated as Associated with a company, and the company shall be treated as Associated with him or them if such individual(s) own(s) (directly or indirectly through

other companies) the entire issued equity share capital of such company and (b) references to a “party” to a Conveyancing Transaction shall mean either the Vendor or the Purchaser (taken collectively in each case where there is more than one person or entity comprised therein).

2. A Solicitor may not act for both Vendor and Purchaser in a Conveyancing Transaction except:

2.1 A Conveyancing Transaction comprising only the voluntary transfer of Property which is a Family Home or a Shared Home either (a) from its owner to the joint tenancy of the owner and his/her spouse or Civil Partner or (b) (where the Property is owned by spouses or Civil Partners otherwise than as joint tenants) from the owners to themselves as joint tenants;

2.2 a Conveyancing Transaction in which the Vendor and the Purchaser are Associated Companies or, in a case in which one such party comprises one or more individual persons and the other is/are a company or companies, in which the parties are Associated in accordance with Clause 1.2;

2.3 a Conveyancing Transaction for value in which both the Vendor and the Purchaser are Qualified Parties and:

2.3.1 the Solicitors’ firm concerned has requested the Vendor and the Purchaser to consent to its representing both of them and has notified them in writing that it may have to give them conflicting advice and of the measures it proposes to implement in relation to such representation. Such notification shall include a statement that if a dispute shall arise between the Vendor and the Purchaser during or after the Conveyancing Transaction which is likely to result in litigation or threatened litigation (including arbitration) between them concerning the Conveyancing Transaction, the Solicitors’ firm will not act for either party in such dispute or litigation and will cease to act for both of them in the Conveyancing Transaction ; and

2.3.2 following receipt of the notification at 2.3.1, both Vendor and Purchaser have consented in writing to the Solicitors’ firm representing both of them on the basis specified in such notification.

3. Each Solicitors’ firm relying upon the exception in Clause 2.3 shall establish, maintain and observe measures appropriate for the circumstances of the firm as well as those of the Conveyancing Transaction and the clients in question, which shall include measures to ensure that:

3.1.1 the Vendor and the Purchaser shall be represented by separate individual solicitors within the firm, neither of whom may be supervised by the other and who may not both be supervised by the same person; and


3.1.1 communications between the solicitors shall be conducted in all respects as if they were members of different Solicitors’ firms. Detailed records and notes shall be maintained by both solicitors of all correspondence, discussions and meetings between them.

4. Any breach of this Rule may, upon due inquiry by the Solicitors Disciplinary Tribunal pursuant to Section 7 (as substituted by Section 17 of the Solicitors (Amendment) Act 1994 and as amended by Section 9 of the Solicitors (Amendment) Act 2002 ) of the Solicitors (Amendment) Act 1960 , be found by the Solicitors Disciplinary Tribunal to be misconduct within the meaning of Section 3 (as amended by section 24 of the Solicitors (Amendment) Act 1994 and by Section 7 of the Solicitors (Amendment) Act 2002 ) of the Solicitors (Amendment) Act 1960.

APPENDIX 1 PART 2

PROPOSED DRAFT GUIDELINES

The following Guidelines are proposed for consideration by firms availing of the exception in Clause 2.3 of the proposed draft regulation, although the Guidelines are not exhaustive, and it is emphasised that each firm should take into account its own circumstances as well as those affecting the clients and the transaction in question and should adopt specific measures accordingly:

1. The Solicitors’ firm should have in place a person or committee to oversee conflicts of interest and the operation of measures to regulate them. Such person or committee should have authority over all aspects of the operation of the measures with the power to make rulings on additional procedures or to the effect that the measures are insufficient and that the Solicitors’ firm should not act in particular cases. The person or committee should also be available to members of the firm for consultation and the provision of advice. Where such person or a member of such committee is one of the solicitors acting in a conflict situation, he/she should be replaced by another uninvolved person or (in the case of a committee) should withdraw from all discussions of and rulings on the conflict in question.

2. Arrangements should be put in place to ensure that neither solicitor will have access to confidential information in relation to the interests of the other’s client in the Conveyancing Transaction. Files which are subject to such measures should be kept in a secure location in the office or otherwise under the control of the individual solicitor acting in the matter and should not be stored in common filing areas. Password protection and other appropriate means should be used to safeguard the confidentiality of electronically stored information, correspondence and documents;

3. To the extent that secretarial resources and/or specialist expertise are required by the solicitors, they should not be provided to both of them by the same individual(s).


APPENDIX 2 MEMBERSHIP OF CONVEYANCING CONFLICTS TASK FORCE

Chair: Catherine Treacy

Gerard DohertyDeirdre FoxKen MurphyOwen O’ConnellDan O’ConnorPatrick O’ConnorCatherine O’FlahertyJohn P ShawBrendan Twomey

Secretary: Catherine O’Flaherty

APPENDIX 3 PART 1

Members of the profession from whom submissions were received re: Proposed Prohibition on Same Solicitor Acting for Both Vendor and Purchaser in Conveyancing Transactions, including Voluntary Dispositions

(listed in order received)

Solicitor/FirmBrophy SolicitorsOmar Perrozzi, Hennessy & PerrozziMichael O’Byrne, O Byrne LawC. P. Crowley & Co.Patrick Ahern, Ronan Daly JermynMona O’Leary, O’Leary MaherAidan J. McNultyBernadette Young, O’Rourke ReidGerry McCanny, McCanny & Co.Ken HeffernanDavid R. Pigot, D. R. Pigot & Co.Bernie Coleman, O’Rourke ReidL. C. O’Reilly, Timmins & Co.Gráinne Donnelly & Co.Elma Lynch, Daly Lynch Crowe & MorrisVal Stone, Stone LawSara McDonnell, R. H. McDonnellA. J. Duncan & Co.Ken ByrneMichelle Treacy, O’Flaherty & BrownAnne ClancyAileen WalsheDermot DeaneJames DennisonGail Enright, Michael Enright & Co.John Landy, Canning Landy & Co.Margeurite Fennell, Legal Aid BoardSadleir Lynch PierseMary DorganJohn D. Holland, Holland CondonBrendan T. Muldowney & Co.Rory P. BenvilleStanley A SievW. R. White, White O’Donoghue & Co. (forwarded by Laois Solicitors Association)Michael O’Dowd, O’Dowd SolicitorsNoelle McDonald, O’Rourke ReidLiam Hipwell, Liam Hipwell & Co.Padraig O’TooleRory Williams, Treasury HoldingsMichael McInerney, McInerneyOwen Binchy, James Binchy & SonAilbhe Burke, Pauline O’Reilly & Co.Patrick Derivan (forwarded by Tipperary Bar Association)David Larney, Gleeson McGrath BaldwinLongford Bar AssociationDSBA Conveyancing CommitteeMichael Meghen, Arthur CoxA & L GoodbodyMikayla Sherlock, Ballymun Community Law CentreAlvin Price, William FryEversheds O’Donnell SweeneyMatheson Ormsby Prentice


Jim Murphy, McCann FitzgeraldKearney Roche & McGuinn (forwarded by Kilkenny Bar Association)

APPENDIX 3 PART 2

Internal Law Society committees and committee members from whom submissions were received re: Proposed Prohibition on Same Solicitor Acting for Both Vendor and Purchaser in Conveyancing Transactions, including Voluntary Dispositions


Internal Committee / Committee memberBrian Gallagher, Solicitor, Conveyancing Committee and Gallagher Shatter William B. Devine, Solicitor, Conveyancing CommitteeRegulation of Practice Committee, Law Society of IrelandPaddy Sweetman, Solicitor, Conveyancing Committee and Matheson Ormsby PrenticeDermot O’Dwyer, Solicitor, Conveyancing Committee and Albert C. O’Dwyer & Co.

APPENDIX 3 PART 3

External persons and organisations from whom submissions were received re:Proposed Prohibition on Same Solicitor Acting for Both Vendor and Purchaser in Conveyancing Transactions, including Voluntary Dispositions


External OrganisationsProfessor Desmond O’Neill, former Chair of Government Working Group and of Elder Abuse National Implementation GroupSociety of Chartered Surveyors IrelandIrish Banking FederationChambers IrelandCitywest LimitedGreen PropertyFrank Murphy, HSE, Chair of National Elder Abuse Steering CommitteeICMSABank of IrelandIFA

APPENDIX 4

Acknowledgements

Thanks to the following for their participation in this review:

(listed alphabetically by surname)

Ciara Cahill, Solicitor, AIB BankCiaran Dolan, BL, General Secretary, ICMSA Donald Eakin, Law Society of Northern IrelandJim Graham, Claims Manager, SMDFJames Kane, former Chair of Farm Business Committee, IFAPaul Naessens, Solicitor, Bank of IrelandNicola Palmer, Solicitor, Bank of IrelandPatricia T Rickard Clarke, Solicitor, Chair of the Law Society’s Mental Health and Capacity Task Force, member of the HSE’s National Financial Abuse of Older People Working GroupDavid Larney SolicitorJohn Scott, Law Society of ScotlandJonathan Smithers, Law Society of England & WalesSeamus Tunney, Panel Solicitor SMDFRory Williams, Solicitor, Treasury Holdings


APPENDIX 5

Acknowledgements

Thanks to the following for their assistance with this review and this report:

(listed alphabetically by surname)

Ronan Baird, researcherLaw Society of Ireland – Lisa Duffy, report design John Elliot, Director of Regulation Library staff, research materials Linda Kirwan and Eleanor Hannon, Complaints and

Client Relations Section Eva Massa, CCBE materials on civil law jurisdictions Seamus McGrath, Financial Regulation Section

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