05 Mar 2013

Lenders’ requests for Solicitors’ Conveyancing Files

Lenders’ requests for Solicitors’ Conveyancing Files

Following the recent release of Law Society guidance, Senior Solicitor Ryan Openshaw examines the extent to which a lender, investigating potential negligence, can rely on a borrower’s waiver of professional privilege to recover the transaction file. 

Following the recent release of Law Society guidance, Senior Solicitor Ryan Openshaw examines the extent to which a lender, investigating potential negligence, can rely on a borrower’s waiver of professional privilege to recover the transaction file. 

When faced with a significant shortfall following the sale of repossessed property, a lender will often investigate the prospects of a claim against the solicitor who acted on its behalf in putting the standard security in place.

In order to fully investigate the background to the original transaction and the conduct of the solicitor, the lender will usually ask for a copy of the solicitor's file.

Privilege

A solicitor considering such a request must divide documents into three categories: those belonging to the borrower client; those belonging to the lender client; and those belonging to the solicitor. Often the solicitor will rely on solicitor/client professional privilege in order to withhold the borrower’s documents. Without those, the lender may have difficulty proving even the strongest suspicions of negligence.

Waiver   

With that in mind, many lenders include a clause in their mortgage agreement requiring the borrower to waive their professional privilege and authorise the completing solicitor to release the whole conveyancing file at the lender’s request. It is therefore important to establish the effect of such clauses and, more generally, what the lender is entitled to demand to see.

Interpretation in England and Wales

In the case of Mortgage Express v Sawali, the High Court of England and Wales considered the effect of the following clause;

"we declare and agree that...I/We irrevocably authorise my/our conveyancer to send their entire file relating to the whole transaction (not just the loan) to you at your request"

The clause was interpreted to amount to an ongoing waiver of legal privilege, with the judge considering it a matter of "commercial common sense" to give effect to the declaration.

The Scottish Approach   

It had been anticipated that a similar approach would be taken in Scotland, however, guidance recently issued by the Law Society of Scotland (following opinion from a Senior Advocate) demonstrates a more restrictive approach.

Although the Advocate agreed that, in cases where the borrower has consented to release, the solicitor is obliged to let the lender see the whole contents, he went on to state that any waiver must be "voluntary, informed and unequivocal".

Accordingly, the Society recommends that solicitors "consider carefully the correct construction of any arrangement said to embody or imply such consent in order to judge whether it does in fact convey such consent". Solicitors may conclude that, even where a consent clause exists, they cannot be sure the borrower’s consent was sufficient to allow release unless they see evidence that the effect and implications of its terms were explained to the borrower.

Conclusions

A Scottish test case is perhaps inevitable. It will be for the court to decide whether the terms of a particular clause, and the circumstances surrounding the borrower’s agreement to it, amount to the “informed” consent required to waive professional privilege. Lenders will hope Scottish courts place the same reliance on “commercial common sense” as their English counterparts.

Ryan Openshaw, Solicitor  


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