Last week, the Solicitors’ Regulatory Authority (“SRA”) published a Regulatory Settlement Agreement (“RSA”) – effectively the result of a plea bargain between solicitor and regulator – in which LZW Law Limited accepted it had failed to act in its clients’ best interests and had acted in transactions in which there was a significant risk of conflict between the interests of two or more clients.
The RSA arose from an investigation into LZW’s participation in certain schemes – once commonplace, now less so – which had as their intention the avoidance of stamp duty land tax on certain (typically residential) purchases. LZW’s financial interest in those schemes was modest: it charged each (and there were 203) client between £250 and £500 for the extra work involved in effecting the scheme. The lion’s share of the profits on those schemes – typically calculated by reference to the purported stamp duty land tax saving – would have been enjoyed by the promoters.
As others have observed, the fine paid by LZW was a relatively modest £2,000 plus costs of £6,965. The aggregate of these sums is, as can immediately be seen, substantially less than the fees earned by LZW. Others have found this difference remarkable; for what little it’s worth, I do not.
What interests me is the role of Counsel in the scheme.
The conflict of interest referred to in the RSA was between LZW’s borrower clients (those purchasing the properties in question) and its lender clients (providing the monies by which the purchases were to be effected on the strength of the security in the property). It is a common feature of stamp duty land tax avoidance arrangements that they can impair the quality of the lender’s security. Although there is no explicit finding that these arrangements had that effect, the RSA does state that LZW had failed to disclose “material” information to its lender clients (being the borrowers’ participation in the schemes).
In mitigation, LZW pointed out that it had taken advice from Counsel as to whether it was obliged to disclose to lenders the fact of its putative borrower clients having entered into SDLT schemes. To this the RSA observed:
That “However” is rather troubling. It is not said that the barrister (who, sadly, goes unnamed) is not competent to give that advice. Nor is there any finding that the barrister – instructed by LZW and owing a duty to LZW – has a conflict of interest. Indeed, one might consider that, if the SRA regarded the barrister as having had a conflict of interest, that would have mitigated LZW’s breach because the fault would have been the barrister’s rather than LZW’s.
However, if one proceeds, cautiously, from the assumption that the barrister had no conflict of interest one is left in a rather uncomfortable position. The SRA has held, in effect, that the degree to which a solicitor can rely on a barrister’s advice is dependent on whether the barrister has advised on a related tax avoidance scheme.
If this is right, we have two tiers of specialist tax barrister: those the SRA recognises the bar’s clients can fully rely on and those they cannot.