Contents
1 Introduction
1.1 Who should read this practice note?
Solicitors acting for lenders in residential conveyancing matters.
1.2 What is the issue?
Some lenders are requesting that solicitors disclose information or documents contained in their conveyancing files. Entitlement to the whole or part of a conveyancing file is a matter of law.
You shouldn't disclose information or documents that belong to your borrower client to the lender client without the consent of the borrower client.
Requests for information may be made by the lender in an attempt to establish whether:
- the lender can make a claim on your professional indemnity insurance if you acted on their behalf in completing the security for a loan
- mortgage fraud has taken place
- you followed the instructions in the CML Lenders' Handbook or the BSA Mortgage Instructions, if one or other applied to the retainer.
In non conveyancing matters, the client usually has a single file making it simple to identify papers belonging to them. In residential conveyancing matters however, where you are or were acting for both the lender and the borrower/buyer on a contemporaneous mortgage, purchase papers belonging to both clients are likely to be kept in the same file despite there being two separate retainers.
The legal issues in this area are not straightforward - a recent first instance decision of the High Court, Chancery Division, Mortgage Express v Sawali, is relevant (see Section 3). Where necessary, you should consider taking specialist legal advice before deciding how to respond to a request for the production of documents by the lender.
In this note the term 'client' includes a former client, ie a client in for whom your retainer has been terminated as a result of all aspects of the transaction being completed.
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1.3 Professional conduct
1.3.1 SRA Code: Principles
There are ten mandatory principles which apply to everyone the SRA regulates and to all aspects of practice. The principles can be found in the SRA Handbook.
When thinking about how to meet the outcomes in chapters 3, 4 and 5 in the Code/Handbook, you must consider these principles. You should always bear in mind what the ten principles are and use them as your starting point when looking to achieve the outcomes.
The following sections of the SRA Code are most relevant to this issue:
- Chapter 3 Conflicts of interests
- Chapter 4 Confidentiality and Disclosure
- Chapter 5 Your Client and the Court
1.3.2 Legal and other requirements
- Data Protection Act 1998
- CML Handbook
- BSA Mortgage Instructions
- The Conveyancing Handbook
- Practice Note on Mortgage Fraud
- Practice Note on Client Care
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1.4 Status of this practice note
Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.
Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.
For queries or comments on this practice note, contact the Law Society's Practice Advice Service.
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1.5 Terminology
Must - A specific requirement in legislation or of a principle, rule, outcome or other mandatory provision in the SRA Handbook. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or the SRA Handbook.
Should
- Outside of a regulatory context, good practice for most situations in the Law Society's view.
- In the case of the SRA Handbook, an indicative behaviour or other non-mandatory provision (such as may be set out in notes or guidance).
These may not be the only means of complying with legislative or regulatory requirements and there may be situations where the suggested route is not the best possible route to meet the needs of your client. However, if you do not follow the suggested route, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice, or in the particular retainer.
May - A non-exhaustive list of options for meeting your obligations or running your practice. Which option you choose is determined by the profile of the individual practice, client or retainer. You may be required to justify why this was an appropriate option to oversight bodies.
SRA Code - SRA Code of Conduct 2011
SRA - Solicitors Regulation Authority
IB -indicative behaviour
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2 Rules governing disclosure and consent
The SRA Code Chapter 4 Confidentiality and disclosure says:
'Protection of confidential information is a fundamental feature of your relationship with clients. It exists as a concept both as a matter of law and as a matter of conduct. This duty continues despite the end of the retainer and even after the death of the client.... Bear in mind that all members of the firm or in-house practice, including support staff, consultants and locums, owe a duty of confidentiality to your clients. The duty of confidentiality to all clients must be reconciled with the duty of disclosure to clients. This duty of disclosure is limited to information of which you are aware which is material to your client's matter. Where you cannot reconcile these two duties, then the protection of confidential information is paramount. You should not continue to act for a client for whom you cannot disclose material information, except in very limited circumstances, where safeguards are in place.'
If you are or were acting for the borrower only, and the lender was separately represented, and the lender requests information from the file you maintained on behalf of the borrower, the usual rules of confidentiality and legal professional privilege apply in respect of the borrower's file.
If you are or were acting for both parties, in general terms you cannot disclose to the lender those parts of the file which belong to the borrower without the latter's consent, except where disclosure is required or permitted by law.
Where 'the borrower' is more than one person you may only disclose their papers and documents to the lender (or other third parties) with the consent of all of the borrower clients.
It is important to bear in mind the distinction between this duty of confidentiality and legal professional privilege. The duty of confidentiality extends to all information about a client's affairs, irrespective of the source of the information, subject to some limited exceptions.
Legal professional privilege applies more specifically as it protects certain communications between you and your client from being disclosed, even in court. However, not all communications are protected from disclosure in this way and you should, if necessary, refer to an appropriate authority on the law of evidence.
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3 The borrower's consent
In general terms you cannot disclose to the lender those parts of a file which belong to a borrower without their express consent.
Many lenders therefore require that the borrower gives advance consent to any future requests for disclosure, for example through the mortgage deed, or in the mortgage offer acceptance form. If you do not otherwise have the consent of your borrower client you should check the terms of the consent on which the lender is relying before supplying any documents.
Despite the borrower having signed a document giving his or her prior consent this does not automatically mean that you can produce the whole file to the lender. For example, if you are no longer retained by the borrower and the file has been closed the consent may no longer apply: see Winterthur Swiss Insurance Company v AG (Manchester) Ltd [2006] EWHC 839 (Comm) - this was not a conveyancing case but one in which the judge held that the consent given by the client applied only whilst the matter was continuing.
The end of the solicitor's retainer with the borrower client does not necessarily amount to a revocation of any consent given by the borrower to the lender. The construction of the consent will determine whether or not this is the case.
Your duty of confidentiality to your borrower client continues after the end of the retainer even if a consent given to the lender does not remain valid. You should consider the terms of the consent relied on by the lender to determine the extent to which it applies to the case.
See references to 'informed consent' in Outcome 4.4 of the SRA Code.
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3.1 Establishing consent
It is a matter of law whether any document signed by the borrower at the time of accepting the mortgage offer will constitute the required authority. That consent might have lapsed and you must be satisfied that there is a valid current consent. You should request a copy of the signed consent of the borrower relied on by the lender, rather than accepting an assurance from the lender that it holds a valid consent.
In Mortgage Express v Sawali the borrowers had, when applying for a mortgage advance, signed a declaration in the following terms:
'I/We declare and agree that .... I/We irrevocably authorise my/our conveyancer to send their entire file relating to the whole transaction (not just the loan) to you at your request.'
The judge held this to be a binding and effective consent on the part of the borrowers, expressing the view that 'as a matter of commercial common sense' it was necessary to give effect to this declaration in order 'to make the transaction work'. The judge therefore ordered delivery up of the file by the solicitor to the lender under the inherent jurisdiction of the court, as extended by the Solicitors Act 1974.
In this first instance decision the judge accepted the lender's argument that without the borrowers' agreement to the handing over of the complete file at a future date 'it would be impossible for purchasers who require a mortgage and their lenders to retain the same solicitor.'
It should also be noted that the borrowers were not parties to the proceedings, which were brought against the solicitor alone.
The Winterthur Swiss Insurance Company v AG (Manchester) Ltd case is authority that a successor in title can enjoy the benefit of a consent given by the client to a predecessor in title but only whilst the matter is continuing.
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3.2 Duty of confidentiality
The SRA Code Chapter 4 Confidentiality and disclosure prohibits the disclosure of information from a client's file unless you have the consent of your client.
Your duty of confidentiality to the borrower client means that you will require the borrower's consent to release to the lender that part of the file belonging to the borrower alone.
The lender's claim of consent does not absolve you from your professional duty to be satisfied that your client has waived his rights to confidentiality. You should not rely on the lender's claim but should satisfy yourself as to both the existence and extent of the consent. If you are still in contact with your client, it may be prudent to verify their position in writing.
Taking these steps may give rise to a conflict of interest and it may be necessary to direct both clients to seek separate representation.
Many aspects of confidentiality relate to conflicts of interest and SRA Code Chapter 4 Confidentiality and disclosure should be read in conjunction with SRA Code Chapter 3 on Conflicts of interests.
Under the SRA Code you must achieve these outcomes:
O(4.1) - you keep the affairs of clients confidential unless disclosure is required or permitted by law or the client consents;
O(4.3) - you ensure that where your duty of confidentiality to one client comes into conflict with your duty of disclosure to another client, your duty of confidentiality takes precedence;
There are exceptions to the principle of confidentiality. The main exception to obtaining consent is where there is prima facie evidence of fraud. (See IB's in SRA Code Chapter 5 Your Client and the Court).
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3.3 Court order for delivery up
In the absence of a clearly expressed written authority, if the borrower's consent is not forthcoming a court order may be obtained by the lender for delivery up of those documents you hold which belong to the borrower.
The borrower will often decline to consent where repossession proceedings have been commenced against him by the lenders.
The solicitor who acted in the conveyancing transaction will probably not be acting for the borrower at this stage.
If you are acting for the borrower on a lender's application for a court order for delivery up, the borrower may argue that the consent they gave previously was not 'informed'. Conversely, the lender may have evidence that shows an explanation was given to the borrower of possible situations that may require access to the borrower's papers, at the time it obtained the consent relied on, in support of the application. These are matters that will have to be resolved by the court.
The borrower should be advised that if the lender has to make an application for a court order this will delay matters. If the lender's application is successful it is likely that the borrower will be liable for the legal costs incurred.
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4 Identifying documents for disclosure
You will be able to disclose documents to the lender which are part of the work done for it as a client, but you cannot release other documents from the file without the borrower's consent. You should sort through the file to determine the ownership of the constituent parts of the file.
4.1 Borrower's documents
There may be documents which belong to the borrower but which the lender is nevertheless entitled to see because they relate to areas of work in which both clients can be said to have a common interest. These areas may include:
- deduction of title
- acquisition of good title
- ancillary related legal issues such as the authorised use of the property
In order to establish consent requirements you may find it helpful to divide the file into three parts:
1. Documents that relate only to the lender's retainer: These are documents prepared or received by you on behalf of the lender. These should be released to the lender on request, although you may be able to charge the lender in respect of the costs of so doing (see section 5 below).
Examples include:
- lender's instructions to the solicitor
- copy of any certificate on title or report on title prepared for the lender
- correspondence passing between the solicitor and the lender or between the solicitor and a third party written or received on the lender's behalf
- copy of the executed and dated mortgage deed
This note only addresses lender's requests for documents which belong to the borrower, but similarly the borrower is not permitted to have access to the documents belonging to the lender without the lender's consent.
Borrowers who have or may have committed fraud may attempt to obtain their parts of the file from you in order to destroy evidence. Consider keeping copies of the parts of files given to clients.
Subject access rights under the Data Protection Act 1998 are only available to individuals, and are therefore are only applicable to borrowers.
2. Documents that relate to the borrower's retainer but are also relevant to the lender because they cover an area of common interest. These are documents prepared or received by you on behalf of the borrower but which it is considered the lender is nonetheless entitled to see. Certified copies of these can be provided to the lender on request, possibly subject to costs.
Examples include:
- pre-contract enquiries
- search results and related correspondence
- title information
- contract for sale
- requisitions
- draft transfer
- land registry application and related correspondence
- draft licence to assign
3. Documents that relate only to the borrower's retainer. These are documents prepared or received by you on behalf of the borrower. These require the consent of the borrower, as discussed above, before you release them or certified copies of them to the lender. The most common example is:
- Correspondence between you and your buyer/borrower client (except where there is a prima facie case of fraud on the part of the borrower)
You would usually supply copies of documents, where appropriate to do so, by way of certified copies.
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4.2 Your accounts ledger
The lender may request to see copy entries from your accounts ledger. Ordinarily this ledger is created by a firm for its own record purposes and therefore forms part of the firm's own documents . A document prepared for your own benefit or protection, the preparation of which is not regarded as an item chargeable against the client, belongs to you.
This means that neither a lender nor borrower client would be entitled to see these ledger entries, unless there is a prima facie case of fraud on the part of the borrower. If there is an allegation of fraud you may require specialist legal advice before providing any certified copy accounts ledgers. Fraud might, for example, include incentives offered by the seller to the borrower that have not been disclosed to the lender.
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5 Costs
Whether you can charge for establishing which documents can be copied and handed over is a matter of law.
The original retainer from the lender client or the terms of panel membership will, in most cases, constitute the terms on which the mortgage lender instructs you, rather than your usual terms and conditions of business.
Your entitlement to charge for the time taken to retrieve the file and to go through it to establish the ownership of the relevant documents is dependant on the terms of your retainer. For information relating to this area see the Law Society practice note on client care letters.
If you are satisfied that the borrower has given their consent to production of their papers to the lender you may seek an undertaking in respect of your reasonable costs from the lender's solicitor, or a reasonable payment on account from the lender (see Section 3 above).
The CML Lenders Handbook (14.3.3) and the BSA Mortgage Instructions (E.37) provide that:
'Subject to any right of lien or any overriding duty of confidentiality, you should treat documents comprising your file as if they are jointly owned by the borrower and us, and you should not part with them without the consent of both parties. You should on request supply certified copies of documents on the file or a certified copy of the microfiche to either the borrower or us, and may make a reasonable charge for copying and certification'
There is no reported authority on the construction or application of this provision which is subject to your overriding duty of confidentiality to your borrower client.
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6 More information
6.1 Practice Advice Line
The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 0870 606 2522 from 09:00 to 17:00 on weekdays.
6.2 Professional Ethics Helpline
Solicitors Regulation Authority's Professional Ethics Helpline for advice on conduct issues.
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