The recently published independent review into the RICS has shocked the property industry, leading to the resignations of four members of the management team including chief executive Sean Tompkins.
The governing council of the RICS had commissioned Alison Levitt QC to undertake an independent review into allegations that the RICS tried to suppress a critical internal report into its finances in 2018/19, and then unfairly dealt with those who sought to explore the issue by ousting them from the management board.
The review was to consider the governance, obligations and duties of the RICS in relation to these issues, and now the governing council has published the results. It follows the events that took place following the commissioning of the treasury management audit in 2018, and also scrutinises the role of external legal advisers.
The Levitt report makes several recommendations, all of which the RICS has voted to accept. It is also particularly critical of the role of the RICS’s external legal advisers, Fieldfisher, and highlights the importance of external lawyers being independent, non-partisan and without bias.
In relation to legal advice, the report sets out the following: “RICS should consider replacing its external legal advisers, ideally by putting the matter out to tender. As part of this process, RICS may wish to scrutinise the involvement of Fieldfisher in this matter, particularly in relation to:
a. Possibly unwise decisions, bearing in mind that RICS – not the Executive – was Fieldfisher’s client;
b. Whether advice was given on legal matters only or whether it strayed into other areas and whether it could be described as non-partisan;
c. The level of spend.”
The Levitt report has thus thrown up a host of issues about the scope of the professional adviser’s role when representing a client.
Regulated individuals, such as solicitors, have certain obligations and responsibilities governed by their regulatory body. The SRA Handbook sets out 10 mandatory principles that apply to all solicitors. Specifically, let’s look at the principles that are often considerations for professional advisers.
Independence
Solicitors must not allow their independence to be compromised – for example, they cannot put themselves in a position where a third party can dictate their advice. This appeared to occur regarding the RICS and Fieldfisher. As a result, it could be argued the advice that was being given was compromised.
Bias
Solicitors must provide a proper standard of service to their clients – this includes considering the needs and circumstances of each client, advising them accordingly and carrying out their instructions. Again, Fieldfisher appeared to take into account the interests of one particular group within the RICS. It could be argued that this could have compromised the interests of the RICS as a whole.
Conflicts of Interest
Solicitors must always act in the best interests of each of their clients. This is not possible when the interests of their clients are not the same. Advisers need to be aware of potential conflicts of interest before taking any confidential information from the prospective client. However, there are situations in which a conflict may not be immediately clear or when two parties have the same interest initially; and so, there is no conflict to begin with. The adviser will, however, need to be aware that if the clients’ instructions change, a subsequent conflict may arise. It is prudent in such circumstances that each “client” is allowed to seek its own independent legal advice.
Supreme Court guidance
Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 40; [2021] EGLR 34 provided some useful guidance for the proper approach to determining the scope of duty and extent of liability of professional advisers.
In 2006, Grant Thornton incorrectly advised MBS that its accounts could be prepared using a method known as hedge accounting. This was particularly important, because by doing so MBS could keep the capital it was required to have, to show liquidity to its regulator, at an affordable level. In 2013, Grant Thornton became aware of its error in advising that the hedge method of accounting could be used when it could not. This resulted in MBS having to restate its accounts, which showed reduced assets and insufficient regulatory capital.
The Supreme Court set out six questions that are required to analyse the scope of the professional advice:
1. Is the harm (loss, injury and damage) which is the subject matter of the claim actionable in negligence?
2. What are the risks of harm to the claimant, against which the law imposes on the defendant a duty to take care?
3. Did the defendant breach his or her duty by his or her act or omission?
4. Is the loss for which the claimant seeks damages the consequence of the defendant’s act or omission?
5. Is there a sufficient nexus between a particular element of the harm for which the claimant seeks damages and the subject matter of the defendant’s duty of care as analysed at stage 2 above?
6. Is a particular element of the harm for which the claimant seeks damages irrecoverable because it is too remote, or because there is a different effective cause or because the claimant has mitigated his or her loss or has failed to avoid loss which he or she could reasonably have been expected to avoid?
The Supreme Court said it should “begin at the beginning” and looked at the purpose for which Grant Thornton’s advice had been given.
Importance of retainers
The case above illustrates that, in practice, claims of negligence arising from professional advice can be avoided by proper consideration at the outset of carefully drafted retainer letters, which make clear who the adviser is advising and what the adviser’s duties are within the scope of the retainer – and any limitations to this. If the parties’ agreed purpose and scope of the advice is made clear at the outset of the matter, there should be no blurring of lines or interests that became so apparent in this particular case.
Shah Qureshi is a partner and Sacha Sokhi a solicitor in the employment and professional discipline team at Irwin Mitchell
