Friday, 6 April 2018

Financial Crime - Conveyancing File Access Requests


The focus on financial crime detection is unlikely to diminish. On the contrary, it I likely to intensify and with this there will no doubt be a marked increase in requests from law enforcement agencies for access to client files.  

There are several powers available to those conducting financial crime investigations, and there is a need for all conveyancers to understand the obligations these create, and how the discharge of these should be balanced with the requirement to keep client’s information confidential. 

The probability of receiving a request for access is high, and the need to be prepared, and to prepare your staff on what to do if a request is received, is one which you would be foolish to ignore. 

The conflicting professional obligations are contained in Chapter 4 and 5 of the SRA Code of Practice. The former places an obligation on you to keep the affairs of clients confidential, unless disclosure is required at law, or the client consents. The latter Chapter states you must comply with court orders which place obligations on you. 

Normally, the starting point for the enforcement agent is to serve a S29 Data Protection Act notice asking for information on a client for the purposes of the prevention, detection or investigation of a crime. The notice, if you comply with it, provides a defence to a claim of a data protection breach, yet it will not, and this is important to note, override your obligation of confidentiality.  

So what do you do? To begin with, you should make sure that the request is referred to the appropriate person within your organisation. It should go without saying, that you should have a plan in place to be relied on in the event of a request, for responding, dealing with clients and other relevant third parties and advisers. 

It is important to remember, that unless you are in receipt of instructions from the client under investigation relating to the enquiry, it is a breach of confidentiality to confirm or deny you act for the client. If however your engagement is already known, ( for example you are advised that your details were found during the investigation ), then there would be no harm in accepting your connection to the client. 

Either way, you should advise the enforcement agency that you will not be able to grant access without a court order. 

You should also advise your professional indemnity insurers of the request straight away. Some policies will enable you to seek specialist advice on how best to respond, and on the more complex issue of which parts of the file are privileged from disclosure, and those which are not. Also consider contacting the SRA Ethics Helpline to seek guidance. 

You should also ensure that all files are available, since once an order for the production of the file is made you will normally only have 7 days to respond. 

Ask the investigator whether it is possible to contact the client to seek consent for the disclosure. Normally you will be told not to ‘tip off’ the client, and if you are, then you must make sure there is no contact with the client. Instead wait for the Order to be produced. Make sure all staff who have involvement in the transaction ( if ongoing ) are alerted and open a separate file to record and retain documents relating to the request. 

Also consider whether there is a need to submit a suspicious activity report. This is mainly relevant when you are acting for a client in a property transaction at the time the access request is received. This should put you on immediate alert of a possible money laundering offence, and if doubts about the source of funds or wealth also exist, your Money Laundering Reporting Officer will need to consider whether a SAR should be submitted. 


So to recap, never disclose a file without your client’s consent ( assuming you are in a position to seek this) , always invite the enforcement agency to apply for a production order, ensure you seek professional specialist advice either though your PII insurers or by going direct to an adviser, and then make sure you start preparing for the arrival of the production order. 
The agency will normally give you notice of when the application for the production order is to made ( normally within a 28 day period ), and will ask if you wish to be in attendance at the hearing of the application. Unless advised otherwise, there is no real need to attend the hearing, though it is worth asking for the time to comply with the order to be extended from 7 ( the standard ) to 14 days. 

There are several different notices and orders that can be sought depending on the nature of the investigation. Normally when property is concerned, and money laundering is suspected, the enforcement agency will seek a production order under s345 of the Proceeds of Crime Act 2002. The other likely option is to seek a production order under schedule 1 Police and Criminal Evidence Act 1984. 

Neither of these two orders will require your to produce material that is subject to legal professional privilege. 

On receiving the production order immediately refer this to your advisor, and begin copying the material in readiness for production. You will need to consider whether the order has been obtained correctly, whether it is clear in its terms ( not, for example, drafted too widely ) and whether there are any parts of the file which should be redacted or excluded under legal professional privilege.  

What amounts to legal professional privilege is not an easy question to address, and even specialist advisors often struggle to provide definitive guidance on this issue. In the conveyancing arena the relevant head of privilege is advice privilege.  In a conveyancing transaction all communication between you and a client is covered by privilege even though it does not contain advice e.g communication with, instructions from, and advice given to the client in the performance of your legal duty as adviser. This includes all working papers, your bill of costs and completion statement, and information imparted by prospective clients in advance of a retainer. Advice privilege does not however attach to the clients ledger and the actual conveyancing documents. 

Legal professional privilege can be displaced by the crime/fraud exception where documents form part of a criminal or fraudulent act or communications which take place in order to obtain advice with the intention of carrying out of an offence. This applies even when you are not aware that you are being used for that purpose.  Arguably, in the context of a conveyancing transaction where there is prima facie evidence of money laundering or attempted money laundering, this could mean that the whole of your file would need to be produced. 

As you will see this is a very complex area of law and specialist advice should always be sought. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Monday, 19 March 2018

Your obligations under the Criminal Finances Act 2017

The pages of legal journals, and other publications, are currently filled with information and guidance on GDPR and Anti Money Laundering, yet there is very little commentary on the far-reaching obligations imposed by the Criminal Finances Act 2017 (‘Act’). It received royal assent the 27th April last year, and contains some of the most far-reaching changes to anti-money laundering since the passing of the Proceeds of Crime Act 2002, as well as new powers designed to address the seizure of suspected criminal property.

Equally as important the Act has also created new offences in relation to the facilitation of tax evasion which will affect all companies, LLPs and partnerships, such as lawyers.

A company or LLLP or partnership can now be held to account for the actions of its directors, employees and others businesses with which it might contractually engage (“Associated Persons”) in relation to a failure to prevent facilitation of tax evasion – not only in relation to UK tax but also in relation to foreign tax evasion offences.  

This includes any specific statutory tax evasion offence or the common law offence of cheating the public revenue. There must also be an element of fraud or deliberate dishonest conduct, so liability would not arise, for example, through failure or even a refusal to complete a tax return or breach of other similar notice requirement offences. There need not be a conviction for a tax evasion offence.

There is a defence. Liability will not arise if the Associated Persons “demonstrate that it has put in place a system of reasonable prevention procedures that identifies and mitigates its tax evasion facilitation risks” (ss.45(2) and 46(3) of the Act).



For liability to arise (according to the HMRC Practice Notes) there needs to be a deliberate and dishonest action to facilitate the evasion. This suggests that boa fide advice on, for example, a tax avoidance scheme, should not present a risk, though where the SRA has issued a warning notice about a particular arrangement, the line between potential liability under the Act and not, may prove, in my view, be less clear.  


Liability under the Act will not arise simply because a client is known to be committing tax evasion.  For the offence to be committed the adviser must be seen, as mentioned above, to be taking “deliberate and dishonest action” to facilitate the evasion. This would suggest that there is not a need to report a client for suspected tax evasion. Indeed, it is worth stressing that, since legal professional privilege applies to this offence no liability will arise for the firm under the Act if it fails to report tax evasion by the client where it knows that evasion is taking place.

Great care 
should however be exercised here, since if it is known the client is committing tax evasion and funds from that client are to be used say, to purchase a property, the tax evasion will mean the funds are criminally tainted, and to receive those funds into your client account would clearly amount to money laundering.  The tax evasion would clearly in these circumstances need to be reported to the NCA since failure to do so could constitute a criminal office under the anti-money laundering legislation.


The Act does not restrict the ability of a client to seek advice as to how legally to minimise tax liabilities.  It is to prevent the unlawful evasion of tax.  Thus, there is nothing to prevent a solicitor from defending criminal charges of tax evasion or providing advice to the client on how they may regularise their tax position through legal means. Similarly, a firm cannot be held to be liable if their advice to a client to cease tax evasion goes unheeded, though do keep in mind here your AML obligations.
So, what should we be doing to comply with the Act?
To begin with, there should be an immediate evaluation undertaken to assess the risk areas within the business.  In Conveyancing, the areas of risk center around tax advice on capital gains tax and stamp duty. The risk is heightened where the turnover of clients is high, and in offices where work is undertaken by individual case handlers rather than teams. If clients are referred on to outside advisors, for example to seek advice on Wills, this would also be viewed as a risk area. The HRMC Guidance notes are helpful in identifying both low and high-risk areas, and is a good starting point when putting together a risk assessment. Your AML risk assessment will also assist.
Once you have identified the areas of risk you can then look to form a policy on detection and prevention measures and controls.  How are staff vetted when they join?  Do you obtain references and carry out back ground checks? In my firm we undertake criminal background checks.   How do you carry ongoing monitoring and supervision of staff and third-party contractors?  Are files reviewed regularly?  Making sure there are good accounting protocols is a must.  How are transfers of money out of the office approved.  In this office no transfer is made without ensuring adequate source of funds and wealth checks are made and a director has paperwork to enable bank details can be checked before funds are sent out.  This helps to mitigate the risk of funds being transferred out to an account established by, for example, an employee.
One area of major risk of collusion is where the business acts for a family member or friend of an employee or the employee.  Stricter monitoring in these circumstances should be implemented, and a policy on who can work on those files should be formed and implemented.
As for third party contractors, make sure contracts are reviewed, that you formulate and issue a statement of your stance on tax evasion, and that you seek details of the business’s policy on the Act.  There is good argument to suggest that unless the contractor has a workable policy you should consider terminating the contract.
Putting together a policy is the first step.  Making sure you can demonstrate the implementation of the policy is the next step, and perhaps for establishing the defence to liability if required, is the most important one to take.  Organise staff training, create and maintain monitoring records, ask external file reviewers to include checks within the review.  Also review the risk assessment and policy regularly.
In short, do what you can to demonstrate that you are taking the obligations seriously, and that you are implementing adequate controls to detect signs of dishonesty within the work place.  Including a statement of your intent on your website and in your terms and conditions is also advisable.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Wednesday, 14 March 2018

Is a source of funds check a complete waste of time?


A controversial question, but one I must raise given information received today from Lloyds Banking Group to the effect that it is not their policy to pass on bank details of the person transferring funds into a client account, without the consent of the transferor. It seems that depending on the type of transfer only the sort code of the transferor’s bank is captured and made available. This is not the case on all transfers however.


The consequence of this apparent data protection issue, is that without this information it is impossible to carry out a full and complete source of funds check, and to fully comply with obligations imposed by anti-money laundering and counter terrorism legislation.


Take the following example.


Client A provides Solicitor Firm B with bank statements and other documents to enable source of wealth and source of funds to be undertaken.  These checks are made and details of the account or accounts from which funds are to be transferred are recorded by Solicitor Firm B.  Client A then makes the transfer of funds into Solicitor Firm B’s client account. How is it possible for Solicitor Firm B to complete with its regulatory and statutory obligations and complete the source of funds check when Solicitor Firm B’s bankers refuse to provide details of the transferor’s account? A client with criminal intentions could have provided Solicitor Firm B the bank statements from a legitimate account only to later use an account holding criminal tainted funds for the transfer. 


This example demonstrates in my view a massive hole in anti-money laundering and counter terrorism measures and makes a complete mockery of the hard work that many of us are undertaking to assist the enforcement agencies with their fight against crime.


I know Lloyds is looking into this, and has referred the concern to the SRA and their legal department to seek urgent guidance. It will be interesting to see what comes of this referral when it is clear that there a legal obligation placed on a bank to obtain details of the account from which a transfer is to be made. The question whether this information should be passed onto a regulated body to discharge a legal obligation to adhere to anti-money and anti-money laundering and counter terrorism legislation is less clear.


In the meantime, the absence of joined up writing on this aspect of effective detection will leave the whole of the legal and other sectors covered by the legislation completely exposed.  I have asked Lloyds if this now means it is safe to assume that if the money is coming through the UK banking system the risk of money laundering and terrorism funding is low. I suggest this as the situation currently stands only the Bank knows from where the money has originated.  I have also asked whether a warranty to that effect can be given! I am not, needless to say, expecting a positive reply! 


David Pett - Solicitor

Friday, 2 March 2018

Moving home in the snow

Moving house is a highly stressful event for most people, and even though most factors can be planned for weather is not one of them. As anyone moving in the last few days and in the coming week will be aware of, weather is unpredictable and often not considered fully.


If you are due to exchange contracts and the weather forecast is predicting adverse weather, the best approach is to delay matters.

Once you have exchanged contracts, you are contractually bound to move on the agreed completion date. In a property contract, unlike many commercial contracts, there is no provision that deals with unforeseen circumstances like the weather we've recently experienced.

You should be aware that if you are unable to move on the agreed date you could face penalties for being in breach of contract. The sensible approach therefore is to keep an eye on the forecast and wait until the weather has cleared, before committing yourself to an exchange.

So if you are unlucky enough to complete your property transaction during adverse weather conditions, here are a few helpful tips to keep in mind;


  • Safety: this must always be at the forefront of your thoughts when making decisions about your move
  • Be careful when packing: ensure to fully protect your temperature sensitive household goods such electrical items, delicate furniture, plants and animals, and any boxes are labelled 'keep dry'
  • Prepare for the day: clear paths and driveways to your current property so that movers can safely access your property
  • Protect: Limit damage to the flooring in both your current property and new home by using plastic sheeting and thick cardboard
  • Be wise: Remember not to pack your warm winter clothing on moving day
  • Make sure all utilities are connected, and you know how the heating and boiler operate in your new home
  • Morale: Have equipment ready for making hot drinks for all your helpers
  • Plan ahead: Have a back-up plan in case conditions worsen

Moving in any kind of adverse weather can take longer than anticipated, so keep calm and stay warm!

BEN PETT AND ANNA MCNEIL

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Wednesday, 28 February 2018

Know your client or face the prospect of imprisonment



The obligations placed on independent legal advisors as imposed by the Proceeds of Crime Act 2002, the Terrorism Act 200 and the Money Laundering Terrorist Financing and Transfer of Funds ( Information on Payer) Regulations 2017 ( ‘Regulations’) are far reaching, and come with some scary consequences for those who choose to ignore them.  There is no doubt that the focus of Government is now very much on making sure lawyers and other key movers in the business and financial world are not used unwittingly by criminals to further a criminal purpose.  

Money laundering and terrorist funding present a serious threat to society causing a loss of revenue and endangering life, and fuelling other criminal activity such as human trafficking.   This is very serious stuff and whether you are large or small provider of legal services covered by the Regulations, you would be extremely foolish to bury your head in the sand and do nothing. 

There is whole raft of sanctions both professional and criminal that can be imposed for failure to discharge obligations.  There is also the risk of civil action and damage to reputation and consequential  loss of business. The Regulations are complex and require more than a cursory glance.  There is no short cut.  There is need for the controllers of a business to obtain a clear and precise understanding of the requirements, and to make sure each and every member of staff shares a similar level of familiarity with the Regulations, in terms of the purpose they serve and how they are applied in practice.  This covers not only customer due diligence, which most professionals understand, but also carrying out a practice wide risk assessment, a policy for a risk based approach to assessing the risk level of each transaction retainer, the establishment of systems, polices and procedures to meet the obligations, training, reporting suspicions and the relationship between disclosure obligations and legal privilege. And that’s just for starters! 

As mentioned most lawyers have over the years got to grip with the need to carry out  customer due diligence before commencing work under a retainer.  Obtaining photographic evidence of identification and proof of address has become common place and is now often backed up by electronic  background checks to help identify politically exposed persons and the existence of financial sanctions and other restrictions.  However,  there is now much more to adopting a risk based approach to preventing money laundering.   If you are still in working in the age where a quick check on the source of funds to be used for say the purchase of a property would be sufficient, the time has now truly come to review your processes, as the emphasis has changed and changed quite dramatically.  The onus is now on ‘Knowing Your Client’.   Forget source of funds and enter the world of source of wealth investigation. 

So what does this involve?  In short, it means gathering information and documents which will help you to check that the client’s financial background fits the nature and purpose of the transaction you are handling.  This is very different from the erroneous belief that there is only a need to check the source of funds.

This difference is succinctly described in the Legal Sector Affinity Group’s draft Anti Money Laundering Guidance for the Legal Sector ( September 2017) as follows:

‘In addition, please note that source of funds is different from source of wealth. Source of funds relates to from where the client’s funds are received – a UK bank account for example. Source of wealth relates to how the client came to have the funds in question – via inheritance, house sale, or investment windfall for example. Source of wealth is fundamental to money laundering risk assessment. If you are clear about the legitimacy of a client’s source of wealth, the risk of money laundering is significantly reduced.’

In practice this places an obligation on a business to have a documented process in place to provide for the collection from each client of personal and financial information, as well as detail on the transaction.  This will include the age of the client, the client’s occupation and employer, the value of the transaction, the size of the contribution the client is making towards the purchase, the identity of the bank account(s) from which the funds are to be transferred, along with documents to substantiate the accumulation of the client’s wealth.  

Clearly without knowing more, a twenty five year old office cleaner purchasing a property for half of a million pounds without a mortgage should ring alarm bells and warrant further investigation.  There is nothing in the Proceed of Crime Act which prevents you from making normal enquiries about your clients instructions, and the proposed retainer, in order to remove concerns and to decide whether you wish to continue to act.  These enquiries will only constitute tipping off if a SAR has been made or that you are aware a money laundering investigation is underway or contemplated. 

So staying with this example, the high level of risk of proceeding with the transaction could be removed if on asking questions, it is discovered the client had recently inherited a substantial some of money.   There would be a need to obtain evidence of this, but if this was forthcoming the concern would  probably then  be  satisfactorily addressed. 

There would remain, however, a need to continue to monitor the transaction, and if keeping with the same example, you were to discover when it came to exchange of contracts that the client has transferred funds to you from a bank account which was different from the one disclosed, the level of risk could rise once again.  The concern may then turn to suspicion. Even though you do not have evidence that a money laundering offence has occurred, the suspicion may lead you to conclude that a SAR should be submitted. 

Applying a risk based approached means the level and degree of investigation will vary from one transaction to another.  There is therefore no set criteria for detecting and assessing the risk of money laundering.    If in this example, for instance, you have had no face too face contact with this client, and you find, after forwarding to you a deposit without prior request, the client decides to withdraw from the transaction without good reason, this could change the complexion of the transaction, and give rise to a concern, and probably a reportable suspicion.  

As can be seen, there is a need to be alert throughout the transaction, and to have a process in place to monitor the clients conduct, and to assess this against the background information gathered at the outset.  You need to know your client, since without this knowledge, an assessment of the risk of money laundering will simply not be possible,  with the consequence you will exposing yourself and your business to possible enforcement action. 

Remember customer due diligence per se does not constitute knowing your client. Nor is it safe to assume that as the funds to be transferred originate from a UK based account the risk of money laundering is low.  

Not only when scrutinising a clients bank account do you need to satisfy yourself on source of wealth, but you also need to be on the look out for any unusual  cash deposits which fall outside your client’s known financial standing, and which could suggest tax evasion.  You need to be wary with money or property where you suspect that either is being transferred to avoid the attention of HMRC or a law enforcement agency. 

The reality is that once you are exposed to bank statements and other financial information you do take on the responsibility for looking for any sign of criminality, and the consequential obligation to report your suspicions.  The more you dig the more responsibility is assumed.   

Here are some practical tips:

Review your initial client questionnaires and make sure these are re-designed to collect sufficient information on the client and the transaction to be able to put together a client  transaction profile.  This can then be used when checking source of wealth.  In our office this has been addressed through modifying our case management initial electronic questionnaire and producing a client profile tab. 

Make sure all of your staff, including reception and other support personnel, are made aware of the legislative requirements, and know what to look out for, and what to do if a concern arises.  All staff should be able to name your Money Laundering Reporting Officer. 

Ensure clients are made aware on your website, and in all new business communication, that they will be made the subject of these inquires, and to warn that without cooperation, there could be a delay in the completion of the transaction, and also the possibility of you having to terminate the retainer.  Don’t be afraid of telling your clients that you take your legislative responsibilities seriously.  This could also help to act as a deterrent to those who may be looking for a business to be used as a vehicle for the furtherance of criminality. 

Have a separate file to record and retain CDD results, red flags and all discussions that might take place over concerns.  Remember the importance of making sure SAR reports and associated communication are kept of the transaction file and retained separately.  This will help to avoid possible tipping off offences.  In our office all concern and discussion is recorded on a risk register within our case management systems and this is monitored centrally. 

Adopt a similar approach to where funds are to to paid by a third party.  For example, a gift.  The donor’s wealth should be scrutinised in exactly the same way. 

Don’t be put off from adopting a risk adverse policy towards financial crime.  We have decided not to accept instructions from corporate clients, those who are politically exposed, and to undertake anything other than straight forward residential transactions.  We also do not accept instructions where funds are to be transferred to us from a non UK bank account.  Nor do we transfer funds to oversee accounts. 

It may run against the grain, yet to say no to a client when you have concerns should be part and parcel of an effective AML policy.  In nearly all of the cases in which we have submitted SARs we have decided, following the granting of consent, to terminate the retainer.   Why run a risk when it is within your power to end your exposure.  

Finally, there is a good case for being over cautious, and to always report when the general consensus is that something is not quite right.  Its far better to be safe than sorry. 

As lawyers we are not trained to be criminal investigators, yet we have had imposed on us some of the most stringent regulations currently in force. The consequence is that we are now all running a very high risk of exposure to serious and career ending sanctions, and as mentioned the time to wake up and smell the coffee has without doubt arrived with some vengeance.  

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Sunday, 28 January 2018

Party Wall Act Costs - Protecting the building owner from the Highwayman

Introduction 

One of the most worrying aspects of entering the Party Wall Act 1996 (Act) arena is the uncertainty surrounding  fees, or as they are referred to within the Act -‘costs’. 

If you are fortunate enough ( or some might say lucky enough) to have at your side a competent party wall surveyor, and one with a moral compass, the chances are you will derive a certain degree of protection.  However, there is still no guarantee you will not need to set aside a considerable sum of money to cover the cost of becoming trapped within the Act.  This applies equally to both building owner and adjoining owner, and one must not forget that if an adjoining owner’s surveyor does not recover all of his costs from the building owner, there is every possibility the adjoining owner may be left to meet the remaining liability. 

The problem of high, unreasonable and unpredictable costs is caused, in part, by a piece of malfunctioning legislation, and patly as a result of certain unconscionable conduct on the part of some of those so called ‘experts’ working within and purporting to discharge their statutory duties under the Act. 


……the peculiarity of the Act is such that the appointed surveyor does not have to be qualified or trained in party wall matters or indeed affiliated to any professional body. Consequently, they are therefore not bound by the code of conduct or ethics of any professional body. Dealing with these types of surveyors ………………that adopt these procedures is very frustrating. Their approach is detrimental to principles of the Act and makes the whole process extremely difficult to manage.


So what does the Act say on costs?


The relevant parts can be found in sub-sections of section 10  of the Act:-

Sub-section (12): An award may determine... (c) any other matter arising out of or incidental to the dispute including the costs of making the award

Sub-section (13): The reasonable costs incurred in - (a) making or obtaining an award under this section... shall be paid by such of the parties as the surveyor or surveyors making the award determine

This means the costs must have been incurred in connection with the making and production of the award, and must also be reasonable in terms of relevance and the amount of fee sought.  

What does the cost of making or obtaining an award include?

According to leading Party Wall Barrister Nick Isaac (Party Wall Surveyors and their "reasonable" fees - published January 15, 2018):

 ….all of the to-ing and fro-ing which goes into producing the document entitled "award" which the surveyors eventually produce - generally speaking that is almost all of the surveyors' time between a deemed dispute arising 14 days after service of a notice under section 3 or section 6(5), and the award itself being signed. It will include communicating with the other surveyor, obtaining and checking the relevant information for the making of the award, and the time spent actually drafting the award, or revising it.

What is not included is the cost of actual or contemplated litigation. 

This was recognised by  Etherton J, as he was then, when delivering the only judgment of the Court of Appeal in Reeves v Beatrice Blake [2009] EWCA Civ 6111 :

‘The purpose of the 1996 Act is to provide a mechanism for dispute resolution which avoids recourse to the courts. A power of the appointed surveyors under the 1996 Act to make provision for costs incurred for the purpose of actual or contemplated litigation in court would be inconsistent with that statutory objective. Such litigation, resulting from noncompliance with the dispute resolution mechanism, falls entirely outside the statutory dispute resolution framework.”

The view was reaffirmed in Reeves v Blake [2010] 1 WLR 1.

Nor does it include the cost of enforcing an Award, as was recognised by HH Judge Bailey in  Reeves v Young Antino (C20CL109 Approved Judgment(1).  Upon being required to consider the  enforcement costs of  Philip Antino the judge found :

‘It seems to me that the legal costs of pursuing a sum for costs awarded by a surveyor, or surveyors, to himself or themselves, in an award is not properly considered to be a matter arising out of or incidental to the dispute. On the contrary it is a matter which arises outside the 1996 Act. All courts of law govern their own procedures, including any incidence of costs arising out of proceedings before the court. The fact that a party wall surveyor has to go to court to enforce his award leaves him in no worse a position than any other litigant. He is entitled to claim such costs as are available to him in the relevant court’s procedures. It is possible for a surveyor to enforce his award either in a Magistrates’ Court or in a County Court and he may make his choice and obtain such costs as are available in each of those different courts. Therefore in including the passage which I have put in italics it seems to me that Mr Antino is going beyond that which he is entitled to do under the 1996 Act’.  


So which items of work are covered? Is all communication between the surveyors post appointment covered per se?  I would argue no it is not.  The purpose of each letter, telephone call, or other exchange should be examined.  For example, if the surveyor acting for the adjoining owner has written numerous letters unnecessarily arguing each and every point and has failed to focus squarely on discharging his or her statutory duty, should the owner be responsible for those fees?  Moreover what is the position where unnecessary work has been generated for no reason other than deliberate procrastination, or the constant shifting of position, designed to increase that surveyor’s fee entitlement? 

More often than not a party wall dispute will involve work that falls outside of the jurisdiction of the Act, but which an unscrupulous surveyor may attempt to include as part of his or her party wall costs. For example, the time spent on addressing and responding to common law issues, such as encroachment.  There is nothing of course preventing the surveyor from recovering these fees from his or her appointing owner, but without making sure cost claims are considered closely, there exists a risk that a building owner may be charged for this non party wall work.  Added to this is the problem the mechanics of the Act leaves it to the surveyors involved to agree fees between themselves. This can often leaves the home owner excluded, and left only with the option of an appeal to the County Court. 

The need to protect the building owner was recognised by Phillip Antino in his article:

‘The appointed surveyors‘ duty is to ensure that the procedures are applied properly and this would include ensuring that a building owner is not put to any unreasonable expense, either as a consequence of unethical ruthless strategies adopted by the adjoining owner‘s surveyor, or indeed as a consequence of any false claims made by an adjoining owner’.

Mr Antino drawing on his wealth of experience, clearly recognised the problem faced by the building owner when faced with a demand for unreasonable fees, and of the need for surveyors, particularly third party surveyors ,to be alert to unreasonable practices of this type. 

Reasonableness 

Tied in with the need for costs to be tied into or arising out of the dispute, is the question of reasonableness. Nick Isaac in his article suggests the assessment of fees raised by an adjoining owner’s surveyor should not be regarded as routine, but should comprise instead of a more considered approach, taking into account some fundamental principles.  He suggests the following questions would be asked when looking at a breakdown of costs:

Firstly, was it really necessary for that piece of work to be undertaken?  For example, if ten letters were sent when only two were actually necessary, then only the fee for those two letters should be allowed.

Secondly, was the time spent reasonable having regard to the nature of the dispute and the skill and experience of the surveyor in question.  For example, if the only issues between the parties comprised of some minor damage occurring during the performance of notifiable works, should an adjoining owner’s surveyor be able to claim, without challenge, a large number of hours  for investigating, reporting, negotiating and producing an award?

This has particularly relevance when faced with a surveyor who has a very high hourly rate and who records every minute of time spent working.  

This was one of the other issues His Honour Judge Bailey was asked to determine in Reeve v Youngs  and Antino.   

Commenting on the reasonableness of Mr Antino’s charging rate of £350, and the time he spent as one of the appointed surveyors, the Judge said:

‘Fees involve both hourly rate and hours spent. A high hourly rate, if it is to be reasonable, will be justified only where the surveyor has and demonstrates particular expertise or exercises such efficiency that he carries out more work than a surveyor for whom a lower hourly rate is appropriate. In comparison with the charges made by surveyors in many of the awards that have been before this court £350 per hour is a very high rate. Casting one’s eye down the breakdown of Mr Antino’s fees one can well envisage he would have very great difficulty indeed in persuading a court that the hours spent at this hourly rate was anything approaching reasonable. But although I have highlighted the difficulty inherent in setting out an hourly rate in a party wall award I do not consider that I can properly go so far as to say (as I have been invited to do) that hourly rates should not be set by surveyors or that any particular hourly rate, subject, of course, to ludicrously high rates (and £350 ph while very high in comparison with the market as a whole cannot be stated to be ludicrously high), must necessarily be invalid within the context of a party wall award’.

This suggests the following :

  • It not proper for an Award to record an hourly rate.

  • A surveyor can essentially charge his or her time out at any rate providing it is not ‘ludicrously high’.

  • There is a reasonable expectation that where there is a high hourly rate, the time spent by that surveyor should be significantly less than that of a less experienced surveyor with a lower hourly rate.  The cost of research is a good example of time that should not be charged to a building owner by an experienced surveyor.  

The third principle and perhaps the most important one is proportionality.   

As Nick Isaac points out, this element has for a longtime spent a very prominent role in the assessment and determination of fees claimed in litigation. He argues there is no reason for this to be any different in the context of assessing the reasonableness or otherwise of a surveyor’s fee. 

He explains:

‘This is a concept which is universal in consideration of fee assessment in civil litigation, but which appears generally little-known or understood amongst surveyors. A cynic might argue that this is because proportionality can have a very significantly depressing effect on levels of recoverable fees. Nonetheless, I would suggest that proportionality is very much at the centre of any consideration of reasonableness in terms of fees. In essence, and borrowing from the CPR definition of the same, the person determining the reasonableness of fees has to consider whether the amount of fees which are sought to be awarded bear a reasonable relationship to: (a) the cost of notifiable works which are the subject of the award, (b) the complexity of the dispute resolved by the award, and (c) any additional work generated by the conduct of the paying party.’

Some may say this is nothing more than a statement of common sense.  How could a surveyor reasonably raise a fee of, say £3,000 for representing an adjoining owner in a dispute where the notifiable works to be recorded in an award only amount to say £200?  Complexity I accept, may be a factor, but as we all know, as indeed Mr Antino hints at in his article, there are certain surveyors who can make even the most straightforward of disputes complicated and protracted 

One must keep firmly in mind the purpose of the Act.  The Act was designed to prevent and resolve disputes.  It was never intended to provide unscrupulous surveyors with a vehicle to ‘cost build’ at the expense of the paying owner.   Nick Isaac in his article calls on the profession and regulators to do more to address this problem:

‘Although the majority of party wall surveyors, objectively viewed, approach the assessment of reasonable fees in a sensible way, there are unfortunately a few surveyors who treat the Act as a licence to print money. I have expressed the view previously, and do so again, that the surveyor's profession as a whole, or certainly those who practice in the arena of party walls, should be very concerned at the damage which such surveyors are undoubtedly doing to the reputation of the profession as a whole. If professional bodies do not take appropriate steps to regulate such matters, the courts and, ultimately, parliament, may do so’.


So what action can be taken when faced with an unreasonable cost demand?


To begin with, there is nothing to prevent you from reminding the surveyor of his or her statutory duty.  


Each surveyor owes an individual duty of impartiality to each of the appointing parties and that this must take priority to the interests of their own appointing client.   There is also an overlapping duty of diligence in administering the provisions of the legislation which would be owed to both parties equally. 


‘…a failure by surveyors to deal promptly with matters arising under the legislation, possibly even in response to express instructions from their appointing owner, would therefore result in a potential liability to the other appointing owner’.

These incidents are not isolated. They are increasing in number and, as Nick Isaac alludes too, there is a need for surveyors to ‘police’ their colleagues more closely and to refer rogue surveyors to their regulator. There is a collective responsibility to do more to stamp out this fast growing epidemic.  

The next option is to consider the ex parte procedure.  Mr Antino is an advocate of this process, and in his article he suggests that a building owner’s surveyor faced with a unreasonable  fee demand should simply acknowledge the fee as unreasonable, and to then, after giving appropriate notice, proceed to draw up and serve an award ex parte.

The enabling parts of the Act are sections 10(6) and 10(7) which provide :

Section 10(6) of the Act states: “If a surveyor [...] refuses to act effectively, the surveyor of the other party may proceed to act ex parte and anything so done by him shall be as effectual as if he has been an agreed surveyor”. 

Section 10(7) states: “If a surveyor [...] neglects to act effectively for a period of ten days beginning with the day on which either party or the surveyor of the other party serves a request on him, the surveyor of the other party may proceed to act ex parte in respect of the subject matter of the request and anything so done by him shall be as effectual as if he had been an agreed surveyor”

The authority of Frances Holland School v Wassef [2001] makes it clear that to rely on this part of the Act there is a strict need to for evidence to be recorded within the ex parte award to illustrate either a refusal to act effectively or a failure to act effectively within 10 days of a request.  This will include evidence to show that whatever action may have been taken by the other surveyor has not been effective. 

There is an argument that by proceeding in this way that the surveyor chasing the unreasonable fee could be left high and dry, at least in for far as making a recovery from the building owner. 

In an article  Going It Alone: ex parte Awards’ James McAllister explains the risk:

‘Taking matters further, it could be submitted that the fees of the surveyor refusing or neglecting to act need not even be entertained by the ex parte surveyor since their services (and naturally their appointment) will have been summarily discharged with the service of the ex parte award; this example, of course, assumes the ex parte award covers all the points the surveyors were appointed to settle. Accordingly, the non-participating surveyor will no longer exist as a statutory member of the tribunal and fees need not, therefore, be awarded. If the supplanted surveyor wishes to pursue his fees with the appointing party directly, then that is their prerogative, but this could only be enforced contractually, if indeed a contract exists’. 


Mr Antino in his article also warns that in adopting this ex parte procedure there is still a need to:

‘[d]demonstrate reasonableness at all times; again, to protect your owner against any claims for costs [and] [a]pply the Act procedures with impartiality; you should then achieve the same objective, which is to ensure that the building owner only pays reasonable costs’.


Finally, there is a need to consider the role of the Third Surveyor. 

It is open to the parties to agree an award on the agreed issues and to then refer the issue of fees to the Third Surveyor for determination. There are costs risk associated with this referral for the losing party, and therefore one must always take a pragmatic approach when considering whether the fee is reasonable or not. 

The building owner has to trust the Third Surveyor to understand what is involved in the assessment, of what is and what is not reasonable, and does not simply proceed to rubber stamp the fees. 

This will involve a detailed look at the time spent, the purpose and relevance of each item of work and reference to the level and expertise of the surveyor in question.  The conduct of the surveyor also needs to be considered.  Nick Issac in his article articulates this argument well when he says:

‘When it comes to considering the reasonableness of fees, it is incumbent upon the person assessing that reasonableness to analyse who is responsible for the continuation or escalation of any dispute. Overly aggressive or adversarial correspondence is often, although not always, a good indicator that a surveyor is ramping up disputes rather than seeking to resolve them. Appointing owners should not be expected to foot the bill for party wall surveyors feuding about their pet party wall arguments.

Surveyors should be particularly alive to the fact that assertions of unreasonable conduct by one party or surveyor against the other, are sometimes made by the most unreasonable person involved. This is a judgment much easier for a truly independent person to reach, but an objective analysis of correspondence is generally a good starting point in determining such matters’.

One tactic open to the challenging party is to make an offer to pay a reasonable fee and to produce this offer prior to agreeing to the Third Surveyor referral.  Once made, and assuming it not agreed,  ask the Third Surveyor to reserve making a costs award at the end of his assessment until details of the the rejected offer can be communicated.  If the assessed fees are lower than the offer then there would be good argument that the cost of the referral should be visited upon the adjoining owner. This may make the adjoining owner surveyor think twice about making the referral. 

Conclusion 


No building owner acting reasonably and in accordance with the Act should be required to pay   to the adjoining owner’s surveyor anything other than a reasonable fee. If there is evidence of mischief on the part of the adjoining owner’s neighbour then there exists a duty on the party wall community to make sure the conduct is exposed and stamped upon.  To allow unfair practice of this type to continue is unprofessional, unethical and possibly criminal.  

There is really no better way to conclude than to record the wise words of warning made by James Jackson FFPWS in his editorial (Faculty of Party Wall Surveyors’ Newsletter: ‘Party Wall Surveyor‟, January 2011):

‘If the image of a party wall surveyor is that of a person charging exorbitant fees whilst offering a basic service and it seems demonstrating little in the way of skill and expertise let alone advice and guidance, it is probable that he may be considered as the twenty first century equivalent of the highwayman. There is plenty of opportunity to earn reasonable fees and make a comfortable living from party wall work. It is therefore incumbent upon members of The Faculty of Party Wall Surveyors to set examples of reasonableness, fairness and impartiality and to demonstrate to the outside world that we are possessed of a level of integrity which sets up apart from those who are only in the business to get all that they can out of it’

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com