SRA Guidance on the new SRA codes

The Solicitors Regulation Authority (SRA) has yesterday issued its long awaited guidance on “putting things right”. A copy can be found here.

The issue

As readers will recall from our earlier article, the new Codes contain two competing challenges; an absolute prohibition against acting in an own interest conflict and an obligation to put things right for clients when things go wrong. The Guidance does not give concrete answers: instead it is just an “outline [of] certain key considerations” to help practitioners “understand their obligations”.

The Guidance and analysis

The Guidance recognises that there will be circumstances in which, where things have gone wrong, an own interest conflict will not necessarily arise. Two examples are given:

  • firstly where a title defect can be mitigated by purchase of an indemnity policy
  • secondly where the counter party to a document is prepared to amend an obvious error.

These are similar to the Administration Error and Consent Rectification scenarios discussed in our earlier article. The Guidance does not identify who is to bear the costs of any rectification steps (including indemnifying opponents costs in the event a document is to be amended). Implicitly however these costs must be the responsibility of the solicitor.

The Guidance then becomes, on one reading, contradictory: it states “you will not be able to advise on the merits of options for the client to rectify the matter or losses they have suffered if one of these is to bring a claim against you for professional negligence”. But it is difficult to see in principle how that prohibition has not been engaged in the two examples above - whilst there would be obvious questions of failure to mitigate if, in the title indemnity scenario, the client chose to sue the solicitor rather than incept the policy, suing the solicitor is certainly an “option” available to the client.

It seems therefore that the SRA will adopt a pragmatic approach if the apparent error is an Administration Error or a Consent Rectification. Plainly it will lack the resource to investigate “breaches” falling in these categories.

Where the client is in a Hostile Rectification scenario, the Guidance provides that -

  • The client should take independent advice;
  • Once that has been taken the solicitor may be able to act on implementation of that advice;
  • But the solicitor will need to think carefully whether it should act and consider the complexity of the remedial steps , the certainty of the outcome of those steps and whether the client will need to take decisions which will involve the relative merits of bringing a claim against the solicitor.

In these scenarios, the Guidance says:

It may become difficult to continue to act in a matter whilst defending your reputation and/or resisting liability. This will be particularly the case if the remedy turns on you making admissions, for example in an application to set aside an order.

Interestingly, the reference is to “resisting liability” This may be an SRA oversight as in the event of an obvious error which puts the client in a worse bargaining position against its counterparty, breach is often admitted by the solicitor and the true battleground is the quantification of loss. Accordingly, it appears that the SRA will consider it inappropriate for a solicitor to continue acting if it wishes to preserve its position to assert any form of quantum defence in any subsequent claim against it.

The Guidance goes on to provide (emphasis added):

“If there is a risk of conflict, are you able to mitigate against this, reducing the significance or existence of the risk? This will be fact specific, but may include:

  • Restricting the work you do. You may be able to take certain steps which do not present a risk of conflict, with another firm or adviser involved at key stages, for example to offer independent advice or carry out certain steps.
  • Offering to pay the costs of the remedial work. You will need to consider whether you wish to pay all costs or limit this to a proportion of the costs or certain steps – bearing in mind where litigation is involved if this will cover adverse cost orders, appeals, satellite proceedings etc. Depending on the circumstances, this may not reduce the risks sufficiently, for example if unexpected or additional costs arise and you need to advise on options where you have a personal interest.”

But isn’t this exactly what happened in Howell Jones (6 May 2019)? In that case, the firm offered a full indemnity to the client and had the “release valve” of counsel giving independent advice to the client. Yet still it received regulatory sanction.

Comments

Whilst the Guidance is welcome as a set of values against which any decision to continue to act can be compared, it seems to us that the prudent course will be to cease acting in the Hostile Rectification scenario – at least until there is a better body of authority which shows how the SRA/Solicitors Disciplinary Tribunal (SDT) has approached particular cases. Indeed, practically if a solicitor were to decide to continue to act, it will be on condition that his client will have obtained advice from an independent solicitor whose role will be to vet and challenge the advice the solicitor gives and, no doubt, to then pursue any negligence claim against the solicitor should the need arise. Such situations have always been uncomfortable for a solicitor, particularly if they consider that the independent solicitor is acting unreasonably or from a position of limited knowledge. Whilst there can be good outcomes, it is more common in our experience for the breakdown in relations between solicitor and client to become irreconcilable as the solicitor and independent solicitor may challenge the steps each other takes.

In those circumstances, a solicitor may feel that the commercial relationship will be better served by ceasing to act altogether but then providing advice and assistance as a witness to the relevant events – also preserving for the benefit of the firm and its insurers the ability to argue that there has been a failure to mitigate if the remedial plan does not work. This is by far the safest regulatory course for a solicitor – he is endeavouring to put things right by providing evidence and assistance to his client having ensured that the client has taken independent advice on the legal steps to be taken.

Two further important aspects are:

  1. the need for decisions to be documented internally – no doubt with the assistance of the COLP or member of the Risk team
  2. the fact that immediate mitigation steps (such as issuing an application for relief from sanction) is likely to be looked at leniently by the SRA.

Related item: The new SRA code - putting things right

Read other items in Professions and Financial Lines Brief - November 2019