Opinion

Current practice permits the same solicitor to act for both borrower and lender in a residential property transaction, where “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”. This exception to the principle against conflict of interest has worked well over the years and, in general terms, has been beneficial for both borrower and lender.

It is suggested, however, that times have changed, or at least are changing, and that it is time to consider whether the respective parties should have separate representation.

The traditional response is that it would result in delay and increased cost to the borrower, delaying conclusion of missives and threatening the traditional attraction of the Scottish system. In reality, however, do we not already experience considerable delays, for various reasons? Is our system really so different from that in England & Wales?

There will undoubtedly be increased costs for buyers as a result of any change, when economic conditions are already tight. Is it not the case, however, that the true cost of security transactions is not passed on to the borrower at present?

There are increasing claims on the Master Policy for losses sustained by lenders as a result of poor conveyancing, or at worst, dishonesty or fraud on the part of the solicitors representing them. In such cases, it is often questioned whether the solicitor considered the lender to be his/her client. Often they do not appear to have considered their duties under the CML Handbook, which can result in a greater duty of care to the lender client than is owed to the borrower client. Does the traditional argument withstand critical analysis in that light?

Lenders’ panels have become an emotive subject. It is worth considering, however, why some lenders are considering change in the first place: an increase in mortgage fraud; the increasing drive to improve risk control; the expectations of the Financial Services Authority in relation to vetting of solicitor firms on lenders’ panels. If more specialist rather than “open” panels are to become the norm, should we not recognise the direction of travel, and promote (rather than resist) separate representation of borrower and lender?

As for practice, conveyancing case management systems are now much more efficient and their use ought to assist in mitigating the risk of negligence. This has to be a positive development. Other moves could be made to support higher standards. In England & Wales, the Law Society introduced the Conveyancing Quality Scheme to improve lender and consumer confidence in the legal profession generally. There are arguments against it being adopted in Scotland, but the accreditation of residential property conveyancing practice as a specialism is worthy of consideration, given the range of specialisms already the subject of accreditation by our Society.

In short, are we not defending a system that has outlived its usefulness? Why should solicitors, and through them the Master Policy and Guarantee Fund, underwrite a system which is essentially flawed? In my opinion, the interests of both the consumer and the solicitor would benefit from the same solicitor not acting for both borrower and lender. Claims against solicitors have been on the increase. Is that a risk solicitors should assume when, as a general rule, they have not received suitable remuneration for undertaking the work in the first place? Lenders would argue that that is not a matter that need concern them – and they are quite correct.

As a result, it is argued that the existing exception to the conflict of interest rule should be removed and separate representation be the norm. Whether that be through bespoke lender panels is for the market to decide. It is also worth stating that there are differing views among lenders as to separate representation. And any change would require the solicitors acting on each side to have a clear understanding of the division of responsibilities between them. That is likely to require a specific version of the CML Handbook which would apply in the case of separate representation. It is understood that such a handbook is planned for England & Wales early in 2012.

It is acknowledged that this is an emotive topic that gives rise to strongly held opposing views. There are also specific concerns of those who practise in remote areas. This is precisely why the subject should be debated. If we do nothing, the incidence of claims will rise and change will be introduced anyway. I suggest that our Society should be proactive and encourage debate.