In practice

Accounting for Proceeds of Sale

A complaint was received regarding the conduct of solicitors who had acted for a husband in a separation agreement. The parties had been separately represented, but the matrimonial home was sold before the separation agreement was executed. The sale was dealt with by a separate third firm of solicitors in accordance with the Practice Guideline of July 1998 (PH Book Vol 3 page F977). In this case the proceeds of sale were arrested by the solicitors acting for the wife before the separation agreement was executed. The agreement set out the division of the arrested funds and their destination, but when the arrestment was loosed and the funds were released to the husband’s solicitors, they paid the whole proceeds over to their client notwithstanding the terms of the parties agreement. The Committee took the view that this fell within the terms of Article 9 of the Code of Conduct which states that solicitors must act with fellow solicitors in a manner consistent with persons having mutual trust and confidence in each other and that there should be a corporate professional spirit based upon relationships of trust and co-operation between solicitors.   The Committee agreed that it should not be necessary for a firm of solicitors to have to obtain an express undertaking from another firm that proceeds will be distributed in accordance with an agreement which has been signed by the clients. Solicitors were entitled to rely on the agreement being implemented and it would be improper to accept unilateral instructions from one client to depart from such an agreement. If that client insisted on a different course of action being taken the proper course is to withdraw from acting and to advise the other solicitors accordingly. Had the husband’s solicitors also been acting for the wife in the sale, they would have been in breach of the Conflict of Interest Rules by ignoring the agreement and accounting only to one of their clients.

Letters of Obligation – Separating Spouses

Letters of obligation give rise to a substantial number of enquiries in one form or another. Letters of obligation may be required to fulfil contractual conditions. They do not stem from a professional duty to the other party or the other party’s solicitor.   They will be necessary to allow conveyancing transactions to be settled as it will normally be impossible to fully implement the conditions in missives at or before settlement. A dispute arose regarding the entitlement to a letter of obligation in a transaction where one spouse was buying out the other spouse’s interest in the jointly owned matrimonial home. The Minute of Agreement which was signed by the parties contained no specific requirement for a search to be delivered or exhibited. The Committee decided that in this particular case the buyer’s solicitors were not entitled to insist on a letter of obligation because there was no condition in the contract which would justify that. It may therefore be desirable to advise solicitors preparing separation agreements that if the house is to be conveyed to one of the spouses a specific clause requiring a search to be delivered or exhibited should be included.