Clients ask to see solicitors’ files for a variety of reasons. Lenders often ask to see conveyancing files to establish whether the borrower has failed to share information that should have been disclosed or to see whether the solicitors or valuers that represented them could be sued for not complying with their instructions, or in negligence.
However, where a solicitor acts for a buyer and its lender, it enters into two separate retainers and will owe separate duties of confidentiality to each client. Therefore, if a lender asks to see a conveyancing file, the Solicitors’ Code of Conduct states that practitioners should disclose only those parts of the file that relate to the work carried out on its behalf.
This means that, unless the lender can show a prima facie case of fraud, practitioners must obtain the borrower’s consent before sharing any other information with the lender. However, lenders often need access to all the information on a solicitor’s file to substantiate suspicions that a borrower has defrauded them.
In Mortgage Express v Sawali [2010] EWHC B23 (Ch); [2011] PLSCS 38, the lender asked to see certain files to investigate whether it had advanced money to fund subsales or back-to-back arrangements. Both types of transaction can be used to perpetrate – and are therefore classic indicators of – fraud.
The law firm accepted that the lender was entitled to see documents relating to work carried out on its behalf. However, lawyers are under a duty to claim privilege on behalf of clients where this arguably arises. Consequently, the firm refused to disclose the contents of the borrowers’ files. It argued that they contained confidential information that was protected by legal professional privilege.
The lender referred the court to provisions in the borrowers’ mortgage applications irrevocably authorising the borrowers’ conveyancers to send files relating to the entire transactions –not merely the loans – to the lender. It argued that the authorisations were essential. They enabled lenders to police conveyancing transactions and, should the court decide that they were toothless, it would become impossible for buyers and lenders to instruct the same solicitor.
The judge upheld the lender’s claim. He ruled that the authorisations were unambiguous, irrevocable and binding and that they constituted a clear waiver of the borrowers’ privilege. They were not unduly onerous or unfair and they authorised the law firm to deliver to the lender all the contents of the borrowers’ files.
Most lenders ask borrowers to sign similar authorisations when they apply for loans.
This decision will make it easier for them to obtain any documents necessary to confirm whether borrowers have been dishonest or whether solicitors or valuers have disregarded their instructions and/or breached their duties to the lender.
Allyson Colby is a property law consultant
