Question of ethics archive

Important: The guidance below was written and issued before the introduction of the SRA Handbook on 6 October 2011, and may refer to regulatory material that is no longer in effect. Although it may still be relevant, this guidance has not been rewritten in light of the wide-ranging regulatory changes implemented on 6 October 2011. Accordingly, it has been archived.

March 2011

Note: References to a "rule" or the "Code" mean the rules in the Solicitors' Code of Conduct 2007. References to the "SAR" mean the Solicitors' Accounts Rules 1998.

Bank holding firm's client account closing branches in England and Wales

Q. My bank, which is based in Scotland, has informed me that it is closing all of its branches in England and Wales and that my account will be transferred to Scotland. I am aware that the Solicitors' Accounts Rules require our client account to be held in England and Wales. What should I do?

As you rightly say, rule 14(4) of the SAR requires your client account to be a bank account or a building society deposit or share account at a branch or the head office in England and Wales. This ensures that clients benefit from the protection afforded by section 85 of the Solicitors Act 1974, which prevents the bank taking monies from the client account to satisfy debts owed by the firm. The SRA has no power to waive this requirement.

If—as has recently occurred with firms who bank with HBOS—your bank informs you that it is closing its branches in England and Wales, you should contact the bank's head office as soon as possible, explaining the requirements of the SAR and urging the bank to contact our Professional Ethics helpline. If the problem cannot be resolved, then, to avoid being in breach of the above rule, you will need to make arrangements to move your account to another bank before your branch closes.

This rule can also cause problems for solicitors choosing online banking. It is important to check that the bank does have an office in England and Wales and that your account is held at that branch.

In the case of HBOS, Lloyds Banking Group sought SRA guidance as soon as the concern was raised. Following discussions with our Professional Ethics Unit, Lloyds Banking Group is writing to all affected customers and making arrangements for its solicitor clients to transfer their accounts to a Bank of Scotland plc branch in London. Customers will also be able to transact through the nominated Lloyds TSB branches as agreed with its customers.

Lender requesting conveyancing file

Q. We acted a few years ago in a conveyancing transaction on behalf of the buyer and the lender. The lender has now written to us, demanding that we send our entire conveyancing file to them. In doing so, the lender says it is relying on a clause in the mortgage application form in which the buyer irrevocably authorised us to send the file to the lender on request and has referred us to the recent case of Mortgage Express v Mehrban Michael Singh Sawali. What should we do?

We have received a lot of queries on this point following the decision in the Mortgage Express case. Your duties are owed to your client; you are not a party to the agreement between the lender and the borrower and consequently—even if the instruction is expressed to be irrevocable—our view is that you remain subject to the client's instructions. You may therefore be at risk of a complaint from the client that you breached client confidentiality in relying on the authority in the mortgage application without checking whether the client's position has changed. This is particularly so where there is no evidence that

  • the client's consent to the disclosure was given on an informed basis
  • the client's attention was drawn to the clause before signing the application form, or
  • where considerable time has elapsed since the consent was given.

We would therefore advise that you adopt a cautious approach as follows:

  • Ensure that you have a copy of the authority signed by the client and check what it says.
  • Where possible, you should endeavour to contact the borrower to enable the borrower to give instructions. If the borrower does not wish to give consent, you should make it clear that you will not oppose any application to the court for a court order unless the borrower puts you in funds to do so.
  • If the borrower refuses consent, or you are unable to obtain instructions, you should ask the lender whether there is strong prima facie evidence that the borrower involved you in the perpetration of a fraud. If the lender satisfies you in this respect, then the duty of confidentiality does not arise and you are free to hand over the borrower's papers.
  • If there is no strong prima facie evidence of fraud, our view is that you should:
    1. provide a copy of those documents on the file which belong to the lender or which relate to the work carried out for the lender (for assistance, see Annex 16C of Guide online, but bear in mind that this has not been updated since 1997 and you will need to satisfy yourself with regard to the current legal position)
    2. inform the lender that in the absence of the client's up-to-date instructions you will need a court order to override your duty of confidentiality, but that you will not oppose any application to the court. On the question of costs, you may wish to draw the court's attention to the above points.

At the end of a conveyancing retainer, before placing the file in storage, it would be advisable to remind the client that the client should keep you informed of any change of address to enable you to contact the client if needed.

Undertakings following the closure of your practice

Q. We are in the process of closing our firm (one of us will be retiring and the other will be moving to an in-house position). We are taking steps to deal with any outstanding undertakings our firm has given insofar as we can, but we are not sure what to do about those undertakings we cannot deal with. Does liability for these undertakings end once the firm ceases to be a recognised body? If so, what should we should do with the monies where the firm has given an undertaking to retain them?

No, liability for these undertakings does not end once the firm ceases to be a recognised body—please see the Undertakings section of the Closing down your practice guidance, which explains your position. Bear in mind that, while failing to comply with an undertaking is likely to be a matter of conduct, it may also be open to the recipient to apply to the court for specific performance of the undertaking.

If there are some outstanding undertakings from which you cannot immediately obtain a discharge, the guidance therefore advises you to keep them under periodic review. You should agree between you what measures you want to take in this respect and ensure that you keep the relevant client files to hand. If, following the closure of your practice, you need to continue holding monies pursuant to an undertaking, these will need to be retained in the client account until you are in a position to pay the monies out in accordance with rule 22 of the SAR.