The new SRA Code - putting things right

The market is awash with commentators presently discussing the new Codes of Conduct for Solicitors and Firms; what they mean for practitioners and how they differ to the current regulatory regime.  One vexed question that has provoked debate but provided little guidance is how are practitioners expected to comply with their Code 7.11 obligations to 'put things right' when a paradigm example of a solicitor doing that (SRA v Howell Jones LLP (2018)) resulted in an adverse outcome in the Solicitors Disciplinary Tribunal (the SDT)?

In light of these questions, we have considered the common types of error, categorised them and predicted how the Solicitors Regulation Authority (the SRA) may - and we emphasise 'may' - approach steps to put them right. We should learn more on 25 November when further guidance is due to be released.

Categories of error

Errors can generally be categorised in one of (at least) three ways:

  1. An administration error which is easily cured - for example an over or under payment of Stamp Duty Land Tax (SDLT) or a delay in lodging a SDLT or other tax return which attracts a penalty (Administration Error).
  2. An error which should be capable of easy rectification by consent - for example a mismatch between property description and title number in a deed which both parties want to cure by way of a deed of rectification (Consent Rectification).
  3. An error which can only be cured by engaging with a hostile third party - the Howell Jones scenario, where the counter party is not likely to consent to the rectification/cure steps which need to be taken (Hostile Rectification).

Potential SRA approaches

Own interests conflicts (Code 6.1) issues arise in all three scenarios. 

In the first one, the Administration Error, the most common cure is for the solicitor to pay the penalty or discount their bill by the relevant amount. Will the SRA really consider it a good use of time to involve itself with these matters (or to 'insist' that a solicitor cease acting)? We would think not. 

The second category, the Consent Rectification, again seems to be an area where the SRA is unlikely to devote much attention. Particularly on the assumption that the solicitor has taken all appropriate steps ('confessed' to the client; advised the client that it could (should) take advice from other solicitors; ascertained that the rectification steps will in fact be consensual; and appropriately anaesthetised the client in terms of fees)..

The third category - the Hostile Rectification -  seems to us to be a different animal altogether.  Whilst issues relating to own interest conflicts arise in the prior two scenarios, they are most acute where everyone (solicitors, clients and counter parties) has different aims and objectives. As Howell Jones tells us, even the best intentions of the solicitors and the most pragmatic steps taken to ensure that the client does not suffer loss (where the solicitor effectively underwrites the mitigation steps) were insufficient to avoid regulatory censure.

Comment

Where, then, does this leave the practitioner? Can the apparent inconsistency between Howell Jones and Code 7.11 ever be squared?

With the usual caveats that all matters turn on their own facts, and in the absence of any guidance (at least until 25 November), it seems to us that a solicitor who appropriately documents their decision making process in conjunction with their Compliance Officer for Legal Practice (and hence should pass the Connolly test that an honest and genuine exercise of judgment is not a disciplinary offence) will be unlikely to face censure in an Administrative Error or Consent Rectification scenario. 

A Hostile Rectification scenario is, however, far more difficult and cautious lawyers might well conclude that Howell Jones and Code 7.11 are presently irreconcilable, and the best course is to (commercially however unattractive it might be) cease acting. Other approaches, for example having a third party law firm actively shadow all mitigation steps (at the solicitors’ expense) combined with serial self-reflection by the solicitor as to whether it should still act, might also work for the brave. We have encountered different attitudes to these risks, but nobody wants to be the precedent which the SRA uses to test the operation of Code 7.11 and its interaction with own conflict rules. 

Upcoming event

Solicitors PI seminar

We will be discussing these issues in more detail at our breakfast seminar in Birmingham on 3 December.

Register here