LSB wants more transparency in legal sector by 30 June

The LSB today published four outcomes it wants regulators to achieve, including a ‘step change’ in standards of transparency to help consumers understand the price and service they will receive. Clients must also have more understanding of the redress options available and the regulatory status of their provider.

The LSB wants promotion of the use of independent feedback platforms, more data accessible through comparison tools and better information available to assist consumers when they identify their needs.

On this final outcome, regulators are urged to either enhance the existing Legal Choices website and pursue alternative mechanisms such as partnering with existing websites like the one run by Citizens Advice.

But regulators are warned off creating their own accreditation schemes and reminded this is still the role of representative bodies.

The LSB said its policy is that frontline regulators should set the minimum standards required of firms, with schemes to promote higher standards left to others.

Neil buckley

Neil Buckley

Neil Buckley (pictured), LSB chief executive, said his organisation is encouraged by the ‘collective goodwill and early progress’ from regulators since December and is keen that this continues.

He added: ‘The LSB has long been clear that there is a need to increase competition in the market and a major part of achieving this will be to ensure there is better information available for consumers in relation to price, quality, redress and regulation.’

One frontline regulators have published their action plans, these will be assessed against the LSB’s preferred outcomes.

Responding to the Legal Services Board (LSB) recommendations following the Competition and Markets Authority (CMA) market study, Bourns said: ‘It is helpful that the LSB has set out its thinking on how the frontline regulators may implement the CMA’s recommendation.

Dreamvar (UK) Ltd v Mishcon de Reya

I think that it is fair to say that many conveyancers have been shocked by the decision in Dreamvar (UK) Ltd v Mishcon de Reya (see Today’s Conveyancer January 30th 2017). But it is consistent with previous court decisions and follows basic principles. The buyer’s solicitors were held liable to a buyer client for breach of trust in paying the purchase price over to solicitors acting for a seller who was not the owner of the property but a fraudster.

But it is not new law to hold that a buyer’s conveyancer holds the purchase money on trust; it is not the conveyancer’s money after all. It is not new law to say that the terms of that trust are that it can only be used for the purchase of the property; why else was it given to the conveyancers other than to fund the purchase? It is not new law to hold that if a trustee uses trust funds for an unauthorised purpose, that trustee is liable for the loss irrespective of fault.

But there is protection; the Trustee Act 1925, section 61, states: If it appears to the court that a trustee, … is or may be personally liable for any breach of trust, … but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust …, then the court may relieve him either wholly or partly from personal liability for the same.

Note the three conditions for relief. Yes, the trustee must have acted honestly and reasonably, but that is not enough; it is also necessary to show that he/she ‘ought fairly to be excused.’ That was the issue in this case.

To quote the Judge:

… it is common ground that it is insured for events such as this, and that its insurance cover is sufficient to cover in full the loss suffered, should it not be excused from liability. In terms of balancing the relative effects or consequences of the breach of trust, it is apparent that MdR (with or without insurance) is far better able to meet or absorb it than Dreamvar. While, as I have held, it was not unreasonable for MdR not to have advised Dreamvar about the risk of fraud, or to have sought greater protection for Dreamvar against that risk (such as further undertakings), it is also not irrelevant that MdR was necessarily far better placed to consider, and as far as possible achieve (a matter not in the event tested), greater protection for Dreamvar against the risk which in fact occurred….. 

For these reasons, I conclude that MdR ought not fairly to be excused for the breach of trust 

This has been the most controversial aspect of the case – the conveyancer is insured, therefore they should carry the can.

But the question has to be asked, who should fairly bear the loss? How would YOU have decided that very difficult question? In most cases there are four innocent parties: the real owner of the property; the seller’s conveyancers; the buyer’s conveyancers; the buyer himself/herself (and sometimes the buyer’s lender as well). Which of these innocents should carry the loss?

Do we wish to accept the view that it should be the buyer personally who accepts the risk? If not the buyer, it either has to be the buyer’s or the seller’s conveyancers. But in the case, all claims against the seller’s solicitors failed.

Note that the judge held that it was not unreasonable for Mishcon’s not to ask for confirmation from the seller’s solicitors as to the identity of their client but should we all, when acting for a buyer, start asking for confirmation that the person purporting to sell a property really is the seller?

But if you were so asked, what would your reply be? If you do so certify then you will be the one that foots the bill if it all goes wrong. And of course, we all act for both buyers and sellers anyway.

Insurance against fraud is also available to buyers. One international title insurer has told me that they could sell an insurance policy to protect a buyer against fraud for about £100 plus tax. Not a lot for a client to pay for freedom from worry – but we all know clients are reluctant to buy any kind of policy. But we could we limit our retainer to disclaim liability for fraud to encourage use of the policy. But unless recommended by the Law Society and the Council for Licensed Conveyancers, it would be commercially difficult.

But unless we start using dedicated policies like this it seems likely that either seller or buyer’s conveyancers will continue to bear the risk of fraud.

As to which, I can do no better than set out the view of another judge. In Patel v Freddy’s Limited [2017] EWHC 73 (Ch ) Tribunal Judge Elizabeth Cooke, sitting as a Deputy High Court Judge set out her view of the position with regard to fraudsters. Her view was:

… it is the task of the vendor’s solicitor in a conveyancing transaction to check the identity of his or her client, establishing not only that the vendor’s name is what the vendor says it is but also that the vendor really is the owner of the property. So it was for Mr Cuthbert first to carry out the “Know Your Client” procedure required by the money-laundering legislation; hence the obtaining of the passport and a utility bill to ascertain that this client really was an Ashok Patel who lived in Barnet. But it was also for Mr Cuthbert to ascertain that this was the Ashok Patel who was the registered proprietor of Sai Villa. …The important point is that this is the vendor’s solicitor’s duty, because he is the one with access to the client and to his client’s documents… but it is not for the purchaser’s solicitor to duplicate the actual checking of the vendor’s identity, nor to check that the vendor’s solicitor has done so.

In the writer’s opinion, there is much force in such views. Note that both judges state that there is no obligation on a buyer’s conveyancer to check that the seller’s conveyancer has carried out such steps.

But we are badly in need of advice from the Law Society with regard to all of this. Time to stand up Law Society and say something.

Respecting Legal Professional Privilege

The Law Society has urged the government to ensure that the application of powers to snoop on communications respects legal professional privilege.

Commenting on a consultation on codes of practice under the Investigatory Powers Act 2016, Society president Robert Bourns said: ‘Legal professional privilege is the cornerstone of the trusting relationship between a solicitor and their client and intrinsic to the administration of justice, which is why we have fought and will continue to fight to ensure that the law provides appropriate protections.’

Chancery Lane has also published a practice note to ensure solicitors understand legal professional privilege – increasingly being seen as an ‘inconvenience’, the Society said. While LPP is vigorously protected by the courts and reflected in a range of legal provisions, proposals to combat crime, increase consumer choice and improve regulation all threaten to undermine its protections.

Bourns said: ‘This growing trend to see LPP as something of an “inconvenience” to be surrendered is a critical threat to the ability of clients to work openly and honestly with their solicitor, which is why the Law Society has responded so firmly in each case.

‘While we have had considerable success working with government to find ways to meet its public policy objectives while protecting LPP, such as with amendments to the Investigatory Powers Bill, we cannot do this alone.’

Legal professional privilege protects all communications between a solicitor or barrister and their clients from being revealed without the client’s permission.

The practice note states that the fact that LPP is a right can be overlooked. ‘It is a right, not of lawyers or the legal profession, but of our clients – whether individuals or corporates,’ it says.

Applying LPP to communications made in connection with internal investigations by corporations and regulated firms ‘requires care’.

LPP does not arise in relation to assistance with a crime, fraud or equivalent conduct (the ‘iniquity exception’).

Bourns said: ‘The whole solicitor profession must make sure it understands LPP, that clients understand LPP and the rights it gives them, that solicitors uphold it in their work and must be beyond reproach in their application of it if the justice system is to function properly.’

Electronic signatures for LR forms

Solicitors could no longer be asked to witness signatures on Land Registry forms if proposals for electronic signatures are adopted.

In a long-awaited step towards electronic conveyancing, the registry has opened a consultation on amending rules to allow documents to be signed online by the government’s Gov.UK.Verify process. Law Society president Robert Bourns described the move as a ‘positive step’, saying the Society had backed the use of electronic signatures last year with the publication of a practice note for commercial transactions.

‘We are considering the proposals in the rules consultation, and awaiting further important details on exactly how the proposed system will work,’ he said. ‘Our focus will be to ensure that they are practical and effective, and most importantly provide appropriate identity and security measures.’

LSB revises its diversity guidance

Wednesday, 15 February 2017

LSB revises its diversity guidance

The Legal Services Board (LSB) today issues its revised statutory guidance for regulators on diversity. The changes introduced place a focus on improved outcomes, ensuring all regulators take their work in this area beyond data collection.

The revised guidance allows regulators freedom to deliver their own, targeted approaches to improve diversity in their respective professions, whilst also making sure that much needed progress will be made across the sector.

Legal Services Board Chief Executive, Neil Buckley, said:

“Diversity is a key issue on which the LSB places great significance. We believe that a more diverse profession will support the delivery of legal services and encourage innovation in the sector.

Our new guidance gives regulators greater flexibility and will help the sector find new ways of developing the diversity of the workforce and assist in collecting and using the valuable data gathered in the last five years. The guidance will support the excellent work some regulators are already doing in this area, and encourage those still developing their approach to continue to work towards a more diverse profession.

We will be reviewing the progress made by regulators in August 2017 and expect the regulators to have started to use the greater flexibility offered by this guidance to make positive strides to address this issue.”

LSB to examine SRA governance and TLS

Legal Services Board  to examine SRA governance and The Law Society see letter to Paul Tenant OBE Interim CEO from LSB

LSB letter to TLS 17 Feb 2017

Law Society of England and Wales has appointed Paul Tennant OBE as interim chief executive.

Robert Bourns, Law Society president, said: “I am delighted to be working with Paul Tennant whilst we finalise arrangements for recruiting a permanent chief executive for the organisation.

“Paul has been chief executive of a large and complex housing organisation but also has a clear understanding of non-executive leadership roles, having been president of the Chartered Institute of Housing. This perspective will be helpful as we consider future ways of working.

“We have a clear business plan for the year focused on understanding and serving our members, transforming our IT and improving our efficiency and Paul will be working with our executive team to deliver our plans.

“Meanwhile, my focus will be on ensuring we represent the profession effectively through a period of significant change and working with council colleagues and others to progress our governance review.

“We have appointed the Good Governance Institute to help us with the governance review and have also brought member perspectives on to our review working group.

“I will say more about the recruitment of a permanent chief executive in due course and in the meantime thank Catherine Dixon for her hard and effective work with the Society.”

Paul Tennant said: “I am looking forward to working with the president, council and staff at the Law Society for the next few months.”

CQS and HSBC conveyancing threshold raised for SPs from £150k to £350k

Nearly five years after the Law Society successfully campaigned for HSBC to expand its conveyancing panel to include all firms accredited under Chancery Lane’s specialist kitemark, the High Street lender has raised the mortgage threshold for sole practitioners who can act for the bank and borrowers.

HSBC has announced that it will increase the loan threshold imposed on sole practitioners registered under the Society’s Conveyancing Quality Scheme (CQS) from £150,000 to £350,000.

HSBC’s head of secured lending, Tracie Pearce, said the bank’s decision would provider ‘greater choice and flexibility’ for customers and cut homebuying costs.

The Society welcomed the change, which came into force today. Robert Bourns, president, said: ‘The CQS accreditation marks a solicitor’s commitment to maintaining the highest standard of skill and service, and the value solicitors bring to an often complex deal.

‘HSBC’s decision shows that those dealing with conveyancers know that when a solicitor is CQS-accredited they can be relied upon to be at the top of their game. It is a welcome change that will benefit both solicitors and their clients.’

In 2012 HSBC agreed to amend its conveyancing approach to enable all CQS-accredited solicitors to act for HSBC and its mortgage customers, following a four-month campaign by the Society. CQS-accredited sole practitioners were able to handle all cases with mortgage values up to £150,000.

Previously only firms on HSBC’s managed panel of conveyancers were able to act for the borrower and lender, with all other firms able to act for the borrower only.

Under HSBC’s conveyancing system, those applying for a HSBC mortgage have three options when seeking a solicitor or licensed conveyancer. They can choose:

  • A solicitor firm or licensed conveyancer on its managed panel;
  • A CQS-accredited solicitor firm or licensed conveyancer who can act for the homebuyer and the lender; or
  • A solicitor or licensed conveyancer who is able to act for the mortgagee but not HSBC, which would cost £295 including VAT in addition to the chosen firm’s fees.

The Sole Practitioners Group was ‘delighted’ with HSBC’s announcement. Chair Kemi Mosaku said: ‘Everyone should have access to independent legal advice from a solicitor of their choice and, of course, we welcome any initiative on the part of lenders which widens consumer choice.

‘Obtaining CQS accreditation requires solicitors to have stringent procedures in place and the public and indeed banks can thus rest assured that they are getting advice from experts.’

Mosaku urged other lenders to follow suit by increasing mortgage lending limits in the same way.

Proposed SRA SQE reform criticised by Society of Legal Scholars

Law professors lambast proposed reform of solicitor qualification

A planned radical overhaul of the solicitor training regime is “fundamentally flawed”, says a report from senior academics.

The proposed reform – which involves a centralised exam for all those aiming to qualify as solicitors in England and Wales – risked creating a two-tier system that “will damage the reputation of all solicitors”, according to the report.

In a damningly critical analysis, the 118-year-old Society of Legal Scholars says that the proposals have been put forward despite research showing that the legal profession is “broadly happy with the current system”.

The society, whose 3,000 members are mostly legal academics at universities, criticises the Solicitors Regulation Authority, the body that has mooted the reforms, for having “failed to provide robust evidence as to inconsistency of standards in the present system”. In a jibe seemingly aimed at riling the solicitor watchdog, the academics predicted that if the reforms were implemented “the Bar … will truly be able to say that barristers are better educated in the law than solicitors”.

In addition to creating a single qualifying exam, the SRA wants to widen the route to that final hurdle, meaning that a qualifying law degree or the conversation course, the current graduate diploma in law, will no longer be required.

Therefore, SRA officials are likely to suggest that the society’s arguments are based on a degree of self-interest. Indeed, the society’s response to the SRA proposals says: “Most jurisdictions around the world require possession of a law degree as a complement to a centralised assessment. There are real risks that the qualification of solicitor will be devalued in international perception.”

CMA report on Accreditation

Accreditation schemes 

Accreditation schemes or quality marks have been developed by providers as a way of demonstrating that specific quality standards have been met or that the provider has specialist expertise. The majority of quality marks focus on specific practice areas but they commonly aim to signal that providers who have the accreditation are operating at a higher standard than others. Providers who are members of these schemes have made an active decision to participate. 

The Law Society suggests that these accreditation schemes: ‘promote high standards in legal service provision and ensure that clients are able to easily identify legal practitioners and firms with proven competency in specific areas of law’.

However, the LSCP has previously reported that there is minimal awareness of quality marks and consumers make little use of them. Our qualitative research with consumers confirmed this, finding that: ‘Overall, consumers had little awareness and knowledge of formal quality indicators such as quality mark schemes. This is reflected in the fact that no such indicators were referenced by consumers’.

The latest consumer research by the LSB and the Law Society also showed that when choosing a main adviser, consumers only looked for services which had quality marks or other standards for 4% of issues.

Further, there are questions about whether such schemes really provide a signal of ‘better’ quality. The SRA notes that: ‘while these schemes cost providers money to join and an annual fee, we are not aware of any evidence that they improve the quality of service. There is also the risk that they can confuse consumers or provide unwarranted assurance’.

The CLC elaborates on this by explaining that: ‘Such kitemarks as exist attest to certain inputs by the firms in question in terms of business processes but do not measure or attest to quality of outputs’.

Despite the limited awareness from consumers, some quality marks may benefit consumers indirectly, as they are used by intermediaries who filter providers on their behalf. In principle, the use of quality marks by intermediaries can be beneficial because it can drive higher quality standards. However, there is the possibility that the use of an accreditation scheme as a requirement for access to a particular part of the sector can create an issue for competition, for example where the scheme is only open to one type of provider. The CLC raised this concern in relation to the Conveyancing Quality Scheme (CQS) which is managed by the Law Society for solicitors. However, in practice this has not been an issue. This is because, although solicitor firms are often required to hold CQS membership to access lender panels, CLC-regulated firms are not. 

The CLC also has concerns about the quasi-regulation that intermediaries can introduce through their requirements for quality and questioned whether the costs to providers are matched by the benefits, given their existing regulatory obligations.