SRA needs to hold "overzealous lawyers" to account for advice that enables client wrongdoing

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31 January 2013


Moorhead: co-author of paper arguing for changes to SRA Handbook

Transactional lawyers should be held accountable if their advice is used by clients for unlawful acts and strict conduct rules are necessary to police this rather than an outcomes-focused principle, law academics have argued.

Such a rule of professional conduct would be workable even in highly complex areas of law and transactional lawyers should have limits imposed on their “zealous pursuit of client interests”, they suggested.

Even if not properly enforced, the rule would “provide a clear benchmark” that would help counter “the economics of zeal”, they argued.

Using the collapse of Lehmans as a case study, Professors David Kershaw of LSE and Richard Moorhead of UCL urged that lawyers should bear responsibility where a “real, substantial and foreseeable risk” of unlawful – or even probably unlawful – action exists, even when such advice is accurate and competently provided.

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Underlying the academics’ critique was the assumption that the existing regulatory regime has been tailored to other areas of legal practice and as a result was failing to “constrain overzealous transaction lawyering” in the public interest. Transactional lawyers are subject to different “economic incentive structures”.

The Solicitors Regulation Authority (SRA) should amend its Handbook accordingly, they said.

At a seminar held in London yesterday to discuss the professors’ article – chaired by SRA chief executive Antony Townsend and held under the Chatham House rule, meaning speakers cannot be identified – doubts were expressed that conduct rules could be framed in such a way as to identify advice that could be used by a client unlawfully without making lawyers excessively cautious.

It was suggested that even if lawyers could be discouraged from offering such advice, it would not prevent the clients’ unlawful behaviour.

Addressing the question of professional conduct rules versus broad principles applied under the SRA’s current outcomes-focused regulation regime, the article’s authors dismissed the argument that lawyers’ discretion should prevail in meeting their obligations because the incentives in transactional work were too great.

“The role of transactional lawyers in upholding the rule of law cannot be left to trust or to broad-based principles such as those set forth in the current professional conduct rules which contain no transactional context or guidelines.

“In the presence of a regulated constituency with conflicting responsibilities but strong incentives to prioritise one set of interests, the discretion of the regulated constituency has to be more strongly directed by regulation. In such an environment, the benefits of more specific rules outweigh the loss of flexibility which broad principles bring.”

They concluded: “More specific rules and guidance on a lawyer’s consequential responsibility would clarify the limits of proactive lawyering. Whilst in the absence of effective enforcement by the SRA such rules would be as ineffective as the current broad principles, they would provide a clearer benchmark according to which lawyers can internalise what is expected of them and around which the SRA can build an enforcement policy that provides some counterweight to the economics of zeal.

“Even where an enforcement policy is unlikely to outweigh the economic benefits of zeal, it would assure the public that the regulator deems it appropriate to hold lawyers to their rule of law obligations.”

Read the Modern Law Review article “Consequential Responsibility for Client Wrongs: Lehman Brothers and the Regulation of the Legal Profession” here



One Response to “SRA needs to hold "overzealous lawyers" to account for advice that enables client wrongdoing”

  1. The SRA Code of Conduct 2011 already requires solicitors (and other regulated individuals) to act with integrity (principle 2) and maintain public trust (principle 6). Solicitors who assist clients where there is a
    foreseeable likelihood of wrongdoing by that client (or real or substantial risk of unlawful client action) are already prosecuted. E.g. conveyancing solicitors who act in transactions which display hallmarks of fraud (i.e. those hallmarks set out in what used to be called the Green Card). Such prosecutions do not rely on a fraud having taken place, or any subjective knowledge of a client’s intention to defraud.

    The SRA has also prosecuted solicitors for providing Stamp Duty Land Tax mitigation advice, even though such advice may be lawful.

    There is a perception however, that such smaller firms of solicitors engaging in smaller ‘deals’ are easier for the SRA to target. As suggested in the article, guidance from the SRA would certainly assist.

    In my view the current test for dishonesty in the Solicitors Disciplinary Tribunal, the Twinsectra test, is the correct test. The Barlow Clowes test was rightly distinguished in the case of Bryant & Bench v Law Society in the context of the test for dishonesty in the Tribunal. Daily, solicitors are required to find the right balance between their duty to their client and their wider role as administrators of the rule of law. Solicitors run the risk of being sued for professional negligence by their clients, and regulatory action from the SRA if they get that balance incorrect. The effective criminalisation of civil default absent subjective knowledge that the line has been crossed is in my view unjust.

  2. Robert Forman on January 31st, 2013 at 11:50 am

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