Sep rep: where is the conflict?

The Scottish legal profession is being torn asunder by the proposal that conveyancing solicitors should no longer act on behalf of both purchaser and lender in conveyancing transactions.

Two principal arguments have been advanced supporting this motion. First, and most importantly from the proponents of the change, the potential conflict of interest between acting for purchaser and lender (which has always been subject to a waiver by Law Society of Scotland rules) is now so fundamental that it cannot be bridged. The second point is that the cost of insurance claims against Scottish conveyancing solicitors has risen because of a more activist position, against solicitors, by lenders when dealing with repossessed properties.

As one of the largest conveyancing firms in Scotland, McVey & Murricane (MM) naturally has a considerable interest in this argument; MM has authored both a substantial report and articles arguing that separate representation in terms of the proposed rules would be a disaster for the Scottish legal profession and the Scottish homebuying public.

As Allan Radlow, MM senior partner commented: "It would increase costs and stress for the public, render a conveyancing system, which is already teetering, practicably unusable, and do absolutely nothing to achieve the legitimate aims of those who support separate representation. As we indicated in our submission to the Law Society of Scotland, this is a politically motivated change which is not only unworkable but totally anti-competitive."

Conscious of many apocryphal stories circulating within the legal world, MM set out to clarify the actual facts. The methodology was to send a questionnaire to those firms of solicitors who appeared in the top 100 list compiled by submissions for purchase applications to the Land Register of Scotland. Excluded from that list were the very largest firms, as their work tends not to involve day-to-day conveyancing, which meant that just over 90 questionnaires were emailed. Thirty firms responded.

The first purpose of the questionnaire was to establish from the respondents in how many transactions over the last three years had their firm, or a firm with which they were dealing, declined to act in a conveyancing transaction because of a conflict between the purchaser and lender. Startlingly, 73% of these top conveyancing firms had not had one case where a conflict had resulted in them withdrawing from acting in the conveyance. Even more conclusive was the experience of firms with which they were dealing withdrawing from acting; 90% confirmed that there had not been a single instance of those circumstances.

This is a contentious issue. MM’s challenge to those lawyers who state that acting for both lender and purchaser represents an untenable conflict of interest, is why such lawyers are happy to act now in these circumstances.

Allan Radlow comments again: "Groucho Marx was famously quoted as saying: 'These are my principles, and if you don't like them… well I have others.' It is as if those who quote conflict of interest as the fundamental reason for separate representation can ignore these deep-seated concerns on a daily basis until they have made everybody else abide with their viewpoint. Surely, if this was some fundamentally held professional belief they would be withdrawing from acting now?"

The questionnaire asked the respondents whether they supported separate representation, the status quo or a standards-based system fit for the 21st century. Only three (10%) supported separate representation. Predictably, of those who did not support separate representation, most wanted to move to a standards-based system. Such a view is not a surprise, given the frailty and lack of fitness for purpose of the current conveyancing system.

Some may regard a 30% return on the questionnaire as lacking democratic credentials. It is important to be aware that the Scottish conveyancing profession is rather factional these days. There are divisions between east and west, and between solicitors who sell property as estate agents and those who don't. Quite a large number of firms of solicitors who have identified themselves within the separate representation camp did not take time to answer the survey. A leading member of their number emailed advising that MM "were asking the wrong questions". The essential message that followed was that solicitors were not able to understand what represented a conflict. MM repeated its request to this individual to complete the questionnaire, because it was all the more valuable to receive data from firms who perhaps had a different approach. Surprisingly, nothing else was heard.

And there lies the problem – reduce the argument to actual facts, and the intellectual basis of separate representation rather loses its lustre.

But what about those insurance claims? In MM’s submission to the Law Society of Scotland, MM provided a data driven analysis to the claims, showing how the onset of the financial crisis with its collapse in transaction numbers, together with changes that were made by the lenders following the initial part of the crisis, could only result in a sharply higher number of claims. MM were able to extrapolate that the number of claims would, in due course, reduce, and furthermore suggested a concept that would resolve the claims issue now in a manner that would (a) enormously reduce the additional costs that will be lumbered on the public because of separate representation, and (b) avoid the catastrophe for the profession that MM believe separate representation will signify.

Following its fact-based methodology, MM asked the insurers for detailed information about the claims over which much has been said. Initial comments from the insurers certainly put paid to certain of the stories doing the rounds, but full detail requires Law Society of Scotland consent to release of the information. Such consent is currently being sought.

When that information is to hand, MM will issue a further briefing note to assist a fuller understanding of this pivotal issue for the legal profession.