Jonathan Smithers, member of the CQS technical panel and chair of the Land Law and Conveyancing Committee discusses separate representation.
The ability to act for both lender and borrower in a residential purchase and mortgage has, for many years, been taken for granted. The lenders were content as it helped to facilitate lending. Problems were few and far between and sometimes covered up by a rising market. For most solicitors it was of little or no consequence. There was extra work, and although a great deal of potential liability was assumed it was rarely called on, so much so that many charged the borrower little or nothing extra to act for the lender.
The banking crisis of 2007 and the subsequent fall in house prices brought a new paradigm. Under pressure from their own regulator, the Financial Services Authority, the banks became more concerned about losses, and on occasion about ascertaining who had an indemnity policy on which they could claim.
Regrettably some solicitors had not done a very good job, others, under competitive pressure, pushed prices to a level where they could not undertake the work properly, sometimes using unqualified and unsupervised staff. The 'numbers game' played by the lenders had also been played by some solicitors.
The lack of competition between the banks, with some household names barely lending, meant that they were able to look at whom they chose to appoint to represent them when granting a mortgage safe in the knowledge that having a smaller panel would do little or nothing to hurt their business.
The Law Society's response to this question (and others) was to launch the CQS. This is a method of demonstrating that the vast majority of firms in the market are dedicated to doing a proper job and are very good at doing it and, if they are able to demonstrate the probity of the firm and the individuals within it, will not pose a risk. The size of the entity is not relevant, large and small alike can pass the test.
The road towards a proper panel management system continues to be a rocky one. Lenders, sometimes without reference to anybody, look at their panels and make their decisions, the most recent cases being HSBC and Santander. Whilst they may strictly be entitled to do so the lack of transparent criteria can raise questions as to their motives.
Those firms excised from the panels are aggrieved. Lenders set up appeals panels, some at the behest and request of the Law Society but some firms are still left in the cold. In those circumstances there has been a suggestion to move away from joint representation to the separate representation of lender and borrower and some members have called on the Law Society to support this.
This is not a new issue but rather one which has raised its head from time to time over a great many years.
If the Law Society was to change its policy and support Separate Representation could that be brought about? The Rules are under the control of the SRA. Whilst the Society, if it accepted that this was a good idea, could petition the SRA it cannot require them to do anything. The Regulator's policy is driven by the Legal Services Act. Section 1(1)(a) which requires that it regulates in the public interest, thus a policy designed in the self interest of solicitors will not get over even the first hurdle. One could argue for a change in the Legal Services Act but given that it took years for it to come into being and had all party support, a change, effective to support solicitors, will hardly be top of the list.
Many firms had not encountered separate representation for residential mortgages for years. With the actions of HSBC, only a few months ago, it was experienced again and, judging by the fury of the profession, it was disliked intensely. It caused extra work and delay.
Some may have rubbed their hands, realising that it meant greater fees. Indeed on the occasions where I encountered it I required that my clients, if they continued to instruct me, were to pay my additional costs. Rather than viewing this as a cash bonanza the profession knew, quite rightly, that this was not in the best interests of their borrower client. The campaign, coordinated by the Law Society, changed HSBC's mind to the extent that all CQS firms are now reinstated to the panel.
Did it give the lender, as a client, a better deal or greater security? I think it would be hard to argue that it did. Solicitors for the borrower were doing exactly the same as solicitors for the lender. Their scheme essentially ticked boxes but duplicated effort and thus wasted client's time and money.
Perhaps a more pressing argument is to argue that separate representation would further distort the, already uneven, level of the playing field between solicitors and licensed conveyancers (LC). LCs have a relatively small part of the market. There are a few very large firms, in fact the largest individual business units undertaking conveyancing and then more smaller units, mostly one or two partner practices.
If our regulator changed the rules there is no evidence that their regulator would do similarly. That would have the immediate effect of pushing work away from solicitors to LCs so rather than preserving the small firms it would be likely to do the exact opposite.
It is suggested that a solicitor acting only for the borrower would achieve low indemnity premiums. That too is unlikely. In most separate representation cases the borrower's solicitor still carries a degree of liability, sometimes akin to a certificate on title. If there is a default the lender will look not just to the solicitor that acted but also the borrower's solicitors. Even if premiums were to go down it would probably take years and, more likely, be driven by an upturn in the market when there are fewer claims.
What I have written may be an exposition of the world as it is now, however markets and circumstances can change sometimes in ways which are hard to predict.
Far from being remote, Law Society Council and the Conveyancing and Land Law Committee has many dedicated members, practising solicitors who do this work day in day out. No policy is set in stone but can be re-examined and changed. We will continue to keep a watchful eye on this subject (as on many others) and of course are always willing to listen to the views of the profession.