Solicitors Conflict of Interest Rules Affecting Vendors #33
By Gerry Neely
Column No. 26 discussed the increasing number of successful damage actions brought against lawyers by vendors in transactions where the lawyers in question considered that they were acting for the purchasers only. These actions were successful because the Courts held that in the particular circumstances, the lawyers owed a duty of care towards the vendors. In order to avoid this risk of liability, some lawyers insisted that the vendor must have separate legal advice. The Law Society has now approved new conflict of interest rules which are to be observed by all lawyers, since a breach of these rules will be considered to be unprofessional conduct. The purpose in repeating them in their entirety in this column, is to enable licensees to avoid delays in completion by advising the vendors in advance that they may be required to retain their own conveyancer.
RULING 1 ACTING FOR BOTH SIDES
- No member shall act or continue to act for more than one party in any matter where there is a conflict between any of the parties for whom the member acts.
- Acting for More than One Party to a Conveyancing Transaction
Where a solicitor is asked to act for more than one party with different interests in a conveyancing transaction, he or she shall recommend that each party have independent representation. Having given that recommendation, a solicitor shall not act for one party in a conveyancing transaction unless:
(a) because of the remoteness of the location of the solicitor's practice it is impracticable for both sides to be separately represented; or
(b) the transaction between Vendor and Purchaser is a simple conveyance involving only the assumption of one or more existing Mortgages or Agreements for Sale, and the payment of the cash balance, if any, the payment of all cash for clear title, or the discharge of one or more existing Mortgages or Agreements for Sale and the payment of the cash balance, if any; or
(c) the transaction is a simple conveyance coupled with a mortgage for an institutional lender such as a bank, trust company, life insurance company, or credit union;
- If a solicitor acts for more than one party in the circumstances of 2(a), (b), (c) above, then the solicitor shall:
(a) inform each such party in writing that he or she acts for one or more parties and that should a conflict arise which cannot be resolved, he or she cannot act for any party;
(b) obtain the consent in writing of all such parties; and
(c) raise all issues which may be of importance to any such party and explain the legal effect of these issues to all such parties.
- If a solicitor acts for more than one party in the circumstances in 2(b) or (c) above, then the solicitor shall not act in any foreclosure proceedings which arise in relation to that transaction.
- If one party does not want legal representation or wants only limited legal representation to remove any existing encumbrances, the solicitor acting for the other party shall recommend to the former that he obtain independent legal representation, and shall confirm his recommendation in writing. If the party refuses independent legal representation, or insists on only limited legal representation, the member should confirm in writing to that party that the member does not act for that party or the limited nature of the member's engagement, as the case may be.
You will note Paragraph 3(a) which prevents a lawyer who has agreed pursuant to Paragraph 2 to act for both parties, from acting for either party in the event that an unresolved conflict arises. This limitation will lead many lawyers who would prefer to continue to act for their clients, to insist that the vendor must be separately represented. Paragraph 5 provides an alternative for a vendor who doesn't want legal representation. It may also provide an alternative for a vendor who wants only limited legal representation, if the purchaser's solicitor agrees to represent the vendor. However, a vendor should be encouraged to employ separate legal representation, particularly in circumstances where there are successive transactions or mortgage financing, either of which may delay payment of funds. In these circumstances, solicitors, undertakings usually facilitate completion and delivery of possession.
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