Rule 3 (Code of Conduct)

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Rule 3 (Code of Conduct)
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Rule 3, notes and related rules from the Solicitors Code of Conduct (Conflict of Interests)
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  1. You must not act if...

    Finish the sentence

    UNLESS
    ...there is a conflict of interests (Rule 3.01 (1))

    The situation is covered by Rule 3.2
  2. Why else might you decline to act even where there is no actual conflict of interest or where there is but consent has been given?
    You might feel unable to do your best for a client because of some form of professional embarrassment. See guidance notes 14-16
  3. Define conflict of interest between two clients
    • - You/your firm owes separate duties to act in the best interests of two or more clients
    • - In relation to the same matter
    • - Those duties conflict OR there is a significant risk that those duties may conflict
    • NB: Consider also if there is a likelihood of future conflict (see Guidance note 11)

    Rule 3.01(2)(a)

    This will encompass all situations where doing the best for one client in a matter will result in prejudice to another client in that matter or a related matter (Rule 3 Guidance Note 1)
  4. Define conflict of interest between you/your firm and a client
    • - Your duty to act in the best interests of any client in relation to a matter
    • - Conflict or there is a significant risk it may conflict with your own
    • NB: Consider also if there is a likelihood of future conflict (see Guidance note 11)

    Rule 3.01(2)(b)

    This will encompass all situations where doing the best for one client in a matter will result in prejudice to another client in that matter or a related matter (Rule 3 Guidance Note 1)
  5. What does a "related matter" always include in relation to rule 3.01(2).

    What must you also consider? What must you do to resolve this?
    Any matter which involves the same asset or liability.

    • For example:
    • If you act for one client which is negotiating with publishers for the publication of a novel, an instruction from another client alleging that the novel is plagiarised and breaches copyright would be a related matter (Rule 3 Guidance Note 2)

    However, you must also consider whether there is a reasonable degree of relationship for a conflict to arise. Rule 3 Guidance note 3 (see this for further examples).

    You must make a judgement on the facts. You may wish to consider the view of your client (if this can professionally be taken) and any confidential information held. Rule 3 Guidance Note 4
  6. 1) What is the exception to rule 3.01 under Rule 3.02(1)?

    2 conditions

    2) What else must be considered?

    3) Why do these exceptions exist?
    1) - The different clients have a substantially common interest in relation to that matter or a particular aspect of it;

    This is the "common interest exception" - it would be disproportionate in terms of cost/disruption to require them to instruct separate solicitors (Rule 3 Guidance Note 6(a)(i)). For there to be a "common interest" there must be a clear common purpose and a strong consensus on how it is to be achieved. However, it will be for you to decide objectively on the facts in each case whether there is a "common interest" and it is appropriate to act. In making this decision, you should always consider whether the clients will be represented even-handedly with equal weight being given to the instructions from each. Look at guidance note 6 for further examples involving families or complex commercial transactions. Remember to consider the developing legal position.

    AND

    - All the clients have given in writing their informed consent to you or your firm acting.

    Rule 3.02(1)

    2) It must be reasonable in all the circumstances to act for all those clients (Rule 3.02(3))

    3) There may be circumstances in which, despite peripheral or potential conflict, the clients' best interests are served by you, or your firm, being able to act for two or more clients who are able to give informed consent
  7. What is the second exception to Rule 3.01 in Rule 3.02(2)

    5 conditions

    What else needs to be considered? What is the criterion against which this will be judged?

    When is this exception likely to be used?

    When should this exception NOT be used?
    • - The clients are competing for the same assets
    • - Which if obtained by one will make that asset unattainable to the other client(s)
    • - There is no other conflict, or significant risk of conflict, between interests of any of the clients in relation to that matter
    • - The clients have confirmed in writing that:they want your firm to act in the knowledge that your firm acts, or may act, for one or more other clients who are competing for the same asset - see Guidance Note 9(b) for the definition of informed consent.
    • - Unless the clients specifically agree, no individual acts for, or is responsible for the supervision of, more than one of those clients

    Rule 3.02(1)(b)

    It must be reasonable in all the cicumstances to act for all those clients (3.02(3)). This is important as all the conditions may be fulfilled but it must still be REASONABLE to act. Be particularly careful if one person's bargaining position is weak (i.e. old or infirm, see guidance note 7). The criterion against which reasonableness will be judged is whether one client is at risk of prejudice because of the lack of separate representation.

    Likely to apply in specialised areas of legal services where the clients are sophisticated users of those services and conclude that rather than seek out new advisers they would rather use their usual advisers in the knowledge that those advisers might also act for competing interests. An "asset" is not necessarily physical, and can include a contract or a business opportunity. See guidance note 6(b) for further examples. You should be wary of using the exception under 3.02(2) where it is not accepted business practice to do so.

    This exception should not be be applied to disputes over assets other than in the context of CORPORATE RESTRUCUTINGS and INSOLVENCIES.
  8. What must you do before relying on either of the exceptions under rule 3.02 to rule 3.01 (3 things)

    What else could you consider?
    - Draw all the relevant issues to the attention of the clients before beginning to act OR if already acting when the conflict arises or as soon as is reasonably practicable IN SUCH A WAY THAT the clients concerned can understand the issues and the risks involved.

    You should consider setting out in your initial terms of business letter the issues discussed in relation to the conflict of interests and how that might affect your ability to represent both or all of the clients as the matter progresses. Be particularly aware of weakness due to age or health or the influence of duress. You should always keep a written record of all discussions with the clients about the implications of your acting for them - Guidance Note 9

    - Have a reasonable belief that the clients understand the relevant issues.

    - Be reasonably satisfied that those clients are of full capacity

    Rule 3.02(4)

    You could also consider acting on a limited retainer - see Guidance Note 12
  9. What must you do if a conflict arises when you are already acting or more than one client in a matter and, during the course of the conduct of that matter, a conflict arises between the interests of two or more of those clients?

    What is this subject to?

    What else must be considered? How can this be done?
    You may only continue to act for one (group) of your clients

    Provided that the duty of confidentiality to the other client(s) is not put at risk.

    It is important to try and LIMIT the DISRUPTION that will inevitably be caused for the clients. One way of doing this is to discuss and agree with the clients at the outset what will happen if a conflict arises and agree which client the firm would continue to represent where this is possible.
  10. When must you advise a client to take independent advice about a gift they want to give to you/someone you know? What is the exception to this

    What must you do if they refuse to take independent advice?
    - The client wants to make a lifetime gift or a gift on death

    - To you, a manager owner or employee of the firm or a family member of any of these people

    • - The gift is a significant amount:
    • - In itself OR
    • - Having regard to the size of the client's estate and the reasonable expectations of prospective beneficiaries


    Unless the client is a member of the beneficiary' family.

    If the client refuses, you must stop acting for the client in relation to the gift.


    Rule 3.02(4)
  11. When must you decline to act where you, a member of your family, or a manager, owner or employee of your firm holds some public office or appointment?
    When, as a result of this public appointment:

    - There is a conflict of interests, or a significant risk of a conflict.

    OR

    - The public might reasonably conclude that you, or your firm, had been able to make use of the office or appointment for the advantage of the client

    OR

    - Your ability to advise the client properly and impartially is inhibited.
  12. If you provide ADR services what 3 things must you NOT do under Rule 3.06?
    • - Advise or act for any party in respect of a dispute in which you or any person within your firm is acting, or has
    • acted, as mediator

    - Provide ADR services in connection with a matter in which you or any person within your firm has acted for any party

    - Provide ADR services where you or any person within your firm has acted for any of the parties in issues not relating to the mediation, unless that has been disclosed to the parties and they consent to your acting.

    Rule 3.06
  13. 1) What do rules 3.07 to 3.15 apply to?

    2) What do the terms seller and buyer also refer to?
    1) The transfer of land FOR VALUE , and the grant or assignment of a lease or some other interest in land FOR VALUE.

    Both commercial and residential conveyancing transactions are covered

    2) Lessor and lessee
  14. What must you not do in relation to conveyancing, property selling or mortgage related services?

    What are the exceptions to this rule?
    Act for more than one party.

    As permitted by, and in accordance with, 3.08 to 3.15


    Rule 3.07
  15. What does 'property selling' mean?

    What does 'mortgage related services mean'?

    What does the word 'mortgage' include?
    Property selling = negotiating the sale for the seller

    Mortgage related services = advising on or arranging a mortgage, or providing mortgage related financial services, for a buyer.

    Mortgage includes a remortgage
  16. What is the exception to Rule 3.07 under Rule 3.08?

    3 conditions
    • You may act for seller and buyer when:
    • - The transaction between the parties is NOT AT ARMS LENGTH
    • - Provided there is no conflict or significant risk of conflict

    • AND
    • - It is not prohibited by rules 10.06(3) or (4)
  17. When may you act for both seller and buyer in a land transaction which is at arm's length under an exception?

    6 conditions
    1) It is not prohibited by Rules 10.06(3) or (4) - Rule 3.09

    2) The written consent of both parties is obtained (Rule 3.10(a))

    3) No conflict of interest must exist or arise (Rule 3.10(b))

    4) The seller must not be selling or leasing as a builder or developer

    • 5) when the seller and buyer are represented by two separate offices in different localities:
    • (i)differentindividuals authorised to do the work, who normally work at each
    • office, conduct or supervise the transaction for seller and buyer; and
    • (ii)no office of the firm (or an associated firm) referred either client to the office conducting the transactions.

    • 6) One of the following applies:
    • (a)both parties are established clients or
    • (b)the consideration is £10,000 or less and the transaction is not the grant of a lease; or
    • (c)seller and buyer are represented by two separate offices in different localities.

    Rule 3.09 and 3.10
  18. When can you act for the seller and the buyer in a land transaction of property selling/mortgages?

    7 conditions
    1. It does not conflict with Rule 10.06(3) or (4) - Rule 3.11

    • 2. One of the following applies:
    • (a)the only way in which you are acting for the buyer is in providing mortgage related services; or
    • (b)the only way in which you are acting for the seller is in providing property selling services through a Solicitors' Estate Agency Limited (SEAL) - Rule 3.11

    3. The written consent of both parties is obtained

    4. No conflict of interest exists or arises

    5. Different individuals must conduct the work for the seller and the work for the buyer and, if these individuals need supervision, they must be supervised by different individuals who are authorised to do the work.

    • 6. You must inform the seller in writing, before accepting instructions to deal with the property selling, of any
    • services which might be offered to a buyer, whether through the same firm or any associated firm

    • 7. You must explain to the buyer, before the buyer gives consent to the arrangement:
    • (i)the implications of a conflict of interests arising;
    • (ii)your financial interest in the sale going through; and
    • (iii)if you propose to provide mortgage related services to the buyer through a SEAL which is also acting for the seller, that you cannot advise the buyer on the merits of the purchase.


    Rule 3.13
  19. What does rule 3.14 say?
    • If any of the circumstances set out in 3.09 apply (established clients; consideration of £10,000 or less;
    • representation by two separate offices), you may sell the property, provide mortgage related services, and act for seller and buyer in the conveyancing, subject to the prohibition in 10.06(3) and (4) and compliance with the conditions set out in 3.10 and 3.13 as appropriate.
  20. What can you do if a conflict of interest arises during the course of a transaction when acting for the buyer and seller?
    You can continue to act for one of them but only if the duty of confidentiality to the other is not put at risk. If it is you must stop acting for both.

    Rule 3.15
  21. When must you not act for the lender and the borrower on the grant of a mortgage of land?

    4 conditions for this situation
    • 1) A conflict of interest exists or arises
    • 2) On the grant of an INDIVIDUAL mortgage AT ARM'S LENGTH
    • 3) If, in the case of a standard mortgage of property to be used as the borrower's private residence only, the
    • lender's mortgage instructions extend beyond the limitations contained in 3.19 and 3.21, or do not permit the use of the certificate of title required by 3.20
    • 4) If, in the case of any other standard mortgage, the lender's mortgage instructions extend beyond the limitations contained in 3.19 and 3.21.
  22. Which 3 conditions must be fulfilled for a mortgage to be described as a "standard mortgage"?

    What is an "individual" mortgage?
    1. It is provided in the normal course of the lender's activities

    2. A significant part of the lender's activities consists of lending

    3. The mortgage is on standard terms

    An individual mortgage is any other mortgage.

    Rule 3.17(1)
  23. For a mortgage to be on standard terms, what must not happen?
    Material terms in any of the documents relating to the mortgage transaction must not be negotiated between the lender's and borrower's lawyerscontemporaneously with effecting the mortgage.

    • NB: In commercial transactions, the element of negotiation will often relate to the
    • facility letter or facility agreement rather than the mortgage deed itself.


    Rule 3.17(2)
  24. When is a mortgage generally on standard terms?

    What does not stop a mortgage being on standard terms?
    • Provided there has been no contemporaneous negotiation of material terms between the parties' lawyers, a mortgage
    • will be on standard terms where the lender uses a prescribed form of mortgage deed.

    Minor variations, such as the usual clause limiting the liability of trustee mortgagors, are not regarded as material and do not alter the nature of these terms as standard.

    Rule 3.17(3)
  25. What are the 'standard terms' for special sets of borrowers?
    • In addition to its normal standard terms, a lender may have a different set or sets of standard terms applicable
    • to specialised types of borrower, such as registered social landlords. Provided these terms are applied by the lender to all equivalent specialist borrowers or have been agreed between the lender and a specialist borrower as applicable to all transactions between them, they will constitute standard terms for the purposes of 3.16 to 3.22.

    Rule 3.17(4)
  26. When may you act for both the lender and the borrower in a standard mortgage?
    provided:

    • (a)there is no conflict of interests;
    • (b)the mortgage instructions do not go beyond the limits set out in 3.19; and
    • (c)in the case of a property to be used solely as the borrower's private residence, the approved certificate of title set out in the annex to rule 3 is used.

    Rule 3.17(6)
  27. What is the meaning of "immediate family" for the purposes of rule 3?
    spouse, children, parents, brothers and sisters

    Rule 3.18(2)
  28. Is it acceptable when, due to a lapse of time between the mortgage offer and completion (for
    example, when new properties are added), an earlier edition of a recognised certificate?
    Yes.

    Rule 3.17(8)
  29. If acting for both lender and borrower in a standard mortgage, you and the individual conducting or supervising the transaction may only accept or act upon instructions from the lender you can only act on certain types of instruction. Where can you find a list of them?
    Rule 3.19
  30. What must you do in addition to the normal rules if acting for both lender and borrower in a standard mortgage of property to be used as the borrower's private residence only, what must you do?
    (a)you must use the certificate of title set out in the annex to rule 3 (below) ("the approved certificate"); and

    (b)unless the lender has certified that its mortgage instructions are subject to the limitations contained in 3.19 and 3.21, you must notify the lender on receipt of instructions that the approved certificate will be used, and that your duties to the lender are limited to the matters contained in the approved certificate.
  31. Which prevails in the event of any ambiguity in the lender's instructions, or discrepancy between the instructions?

    The terms of 3.16-3.20 or 3.19
  32. Under which guidance note will you find information for in house lawyers?
    Guidance notes 17-22
  33. Which guidance notes cover acting for criminal co-defendants?
    Guidance notes 23-35
  34. When can you act for a client whose interests conflict with your interests?
    Never.

    Rule 3, note 39
  35. Give some examples of when a client's interest would conflict with your interests as a matter of conduct?

    What must you do in such a situation?
    Where you in your personal capacity sell to, or buy from, or lend to, or borrow from, your client.

    In such a situation you must advise your client to take independent legal advice. If s/he refuses you must not continue to act.

    Rule 3, Note 40
  36. What does "independent advice" mean for the purposes of Rule 3
    Both legal advice and, where appropriate, competent advice from a member of another profession, e.g. a chartered surveyor

    Rule 3, Note 45
  37. When your interest conflicts with a client's, does this include your indirect interests?

    Does it include the interests of other people working in your firm?

    Does this include interest that are not economic in nature?

    Give two other situations you may need to consider...
    Yes. For example, where your business interests lead you to recommend the client to invest in a concern in which you are interested.

    Rule 3 note 46

    Yes. Rule 3 note 47

    Yes. Rule 3 note 48 (example of sexual relationship given)

    • ...
    • 1) You are a director of a company for which you act, you may need to resign - note 49
    • 2) You hold power of attorney for a client - note 50
  38. Are you acting for your client when negotiating the terms of your business, including costs and conditional fee arrangements?

    When might it be prudent to suggest a client takes independent advice on these matters? Give an example.
    No.

    • Where the terms are particularly unusual.
    • For example if, as part, or all, of your remuneration you are to receive shares in a company you are setting up on behalf of your client.

    Rule 3, Note 51
  39. What must you be aware of when accepting or suggesting any settlement achieved for a client, or any advice given in a non-contentious matter conducted on a contingency fee basis?
    It must be in the client's best interests and not made with a view to your obtaining your fee.

    Rule 3 Note 53
  40. Can you accept a gift from a client?
    • Yes.
    • BUT you must require the client to obtain independent advice if the gift is significant or significant as compared with the client's likely estate and the reasonable expectations of prospective beneficiaries.

    Rule 3 Note 55
  41. Are you allowed to prepare a will for a family member under which you receive a significant gift without requiring the client to seek independent advice on that gift?
    Yes.

    But you need to exercise extreme caution. The risk of conflict is very great and you must consider the reasonable expectations of other beneficiaries. If you are likely to receive a disproportionately large sum you must make sure the client is independently advised.

    An objective test would be applied if there was a complaint.

    Rule 3, note 56.

    See also note 57 as to why it might be best for a relative to seek independent advice on their will - secure from allegations of undue influence.
  42. In 3.04 what does "family member' mean?
    It is not defined. It does not include co-habitants.

    Rule 3, Note 57
  43. For rule 3.04, what is the meaning of significant?

    What is taken into account when considering this?
    • This depends on the circumstances. Anything more than a token gift will be considered significant.
    • Rule 3, note 58.

    • The date of the preparation of the document
    • Rule 3, note 59
  44. When you are given money to give out by secret trust, does this count as a "gift" to you?
    No. But it is important to keep accurate records of this and the transaction could not enable money laundering.

    Rule 3, note 62
  45. What type of conveyancing transactions do rule 3.07-3.15 apply to?
    All types. Both residential and commercial.
  46. For rules 3.07-3.15 when would a transaction not usually be "at arm's length"?

    Give 8 examples.
    • Where the parties are:
    • 1. Related by blood, adoption or marriage or living togehter
    • 2. The settlor of a trust and the trustees
    • 3. The trustees of a trust and its beneficiary or the beneficiary's relative
    • 4. Personal representatives and a beneficiary
    • 5. The trustees of separate trusts for the same family
    • 6. A sole trader or partners and a limited company set up to enable the business to be incorporated
    • 7. Associated companies
    • 8. A local authority and a company within the meaning of 13.08(c).

    Rule 3, note 72
  47. What is the test for an "established client" for rule 3.07-3.15
    It is an objective test. Is it reasonable to consider them an established client?

    • There needs to be:
    • - A degree of permanence
    • - Continuity of instruction over time
    • - Likelihood of future instruction

    An individual related by blood, adoption or marriage to an established client, or who is living with an established client, counts as an established client. A person also counts as an established client if selling or buying jointly with an established client.

    Rule 3, note 74
  48. For rules 3.07-3.15 when will consideration count as less than £10 000?
    The consideration will only count as £10,000 or less if the value of any property given in exchange or part exchange is taken into account.

    Rule 3, note 75
  49. What is not within the meaning of "selling as a builder" under rule 3.10(c) and 3.13(c)?
    A builder or developer who acquires a property in part exchange, and sells it on without development

    Rule 3 note 76
  50. note 81 - i don't really get this - look at it again
  51. What can be used as an alternative for printing an approved certificate of title for each transaction (when one is necessary?)

    What must be contained within this?
    a lender can use a short form certificate of title which incorporates the approved certificate by reference.

    • The form must include, in the following order:
    • (a) the title "Certificate of Title";
    • (b) the
    • contents of the details box in the order set out in the approved
    • certificate (use of two columns is acceptable) but with details not
    • required shaded out or stated not to be required; and
    • (c) the wording "We, the conveyancers named above, give the Certificate of
    • Title set out in the annex to rule 3 of the Solicitors' Code of Conduct
    • 2007 as if the same were set out in full, subject to the limitations
    • contained in it."

    Administrative details, such as a request for cheque, may follow the Certificate of Title.

    Rule 3, note 82
  52. When is an approved certificate of title necessary?
    • The approved certificate is only required for a transaction where the property is to be used solely as the
    • borrower's private residence. The approved certificate need not, therefore, be used for investment properties such as blocks of flats, business premises such as shops (even if living accommodation is attached), or "buy to let mortgages" on properties which are not intended for owner-occupation.

    Rule 3 note 83
  53. Under Rule 19(u) you can accept instructions from a lender to carry out administrative arrangements in relation to any collateral security. What else does this expression include?
    Associated debentures, collateral warranties, second charges, rent assignments, charges over rent income and deeds of priority.

    The administrative arrangements necessarily include the preparation and execution of the relevant documents and subsequent registration.

    Rule 3, note 88

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