LEGAL REGULATION:Nama's further examination of bank assets combined with the conditions of the bailout, will put a spotlight on the regulation of the legal profession, writes CAROL COULTER
FOUR MONTHS have passed since the conclusion of the agreement on a financial bailout from the IMF/EU. This included specific measures for the legal profession, to be completed by the third quarter of the year. That is only five months away, yet there is no sign of the measures being implemented any time soon.
The required measures include the establishment of an independent regulator for the professions, and the implementation of the outstanding recommendations of a five-year-old Competition Authority report on the two branches of the profession. These dealth with issues such as self-regulation, and what it sees as restrictive practices.
Meanwhile there is trouble coming down the tracks for the solicitors’ branch of the legal profession as more and more bank assets are transferred to Nama (National Asset Management Agency), revealing, in the process, the fact that in some cases the borrower may not be registered as the owner of the asset.
According to legal sources, during the boom there were instances where mortgages were advanced without the property registration being completed with the Land Registry.
The Registry is now operated by the Property Registration Authority (PRA), set up in 2006. “Registered” land is where the title has been registered in the Land Registry, and this requires the deed of transfer, a declaration under the Family Home Protection Act (if appropriate), maps and other relevant documents, including charges on the property, rights of way and so on.
The original title documents are retained in the Land Registry and filed, and a folio – reference file – is opened in relation to the property. The title shown on the folio is guaranteed by the State, so a purchaser can accept the folio as evidence without having to read the relevant deeds.
Some land (including about 50 per cent of the city of Dublin) is unregistered, and comes under the Registry of Deeds. The mandate of the PRA is to end this and bring all land within the Land Registry. This will entail new registrations of previously unregistered land, including scrutiny of documents going back centuries.
The creation of folios requires a considerable amount of work, and during the boom backlogs built up. During the registration process queries could arise regarding a map or other document, which required a reply from the solicitor for the vendor or financial institution advancing the mortgage.
Normally the solicitor involved in the transaction would give undertakings he or she would secure the registration of the property. However, if the query went unanswered, the registration remained uncompleted. The PRA sent two reminders following its initial query, and if there was still no reply the application was marked “abandoned”.
There were 777 “abandoned” registrations in 2003, rising to 1,350 the following year. This rose again in 2005, to 2,474, when there was the highest number of “abandoned” applications. In 2006 the figure was 1,521, it was 1,299 in 2007, 1,145 in 2008, 1,661 in 2009 and 1,929 in 2010.
A spokeswoman for the PRA pointed out that this only represented a tiny proportion of the total number of registrations, accounting for 0.45 per cent of cases in 2008 and 0.69 per cent in 2009. Nonetheless, the transaction normally went ahead and the mortgage was issued, even though the borrower was not registered as the owner and the mortgage was not registered as a burden on the property.
A further problem with registration arises if stamp duty is not paid, as a property cannot be registered without the payment of stamp duty.
Non-registration becomes a problem if the borrower defaults on the loan and the lender, or a receiver, seeks possession. “A lot of banks or receivers now have to spend time chasing up these registrations,” said one solicitor. “It shows there was bad oversight by the banks, who only wanted to lend money; the borrower only wanted to buy the property and the solicitor only wanted completion. The architect might have been too busy to get the maps. Effectively it was sloppy practice and solicitors did not pay proper attention.”
The deputy registrar of the PRA, John Deeney, said that problems did arise with some of the boom developments, particularly multi-unit and commercial developments. Mapping of the various storeys of multi-storey developments was required and there could be problems with the ownership of various common areas, or the developer might want to keep basement areas for maintenance or other purposes. Such problems gave rise to queries and if they were not resolved the registration was rejected.
“At times we would wish the rejection rate was less,” he said, adding that as the system becomes more streamlined and user-friendly, due to recent agreements with the Irish Bankers Federation and the Law Society, this would lessen.
The number of cases under query is running at 8 per cent this year, a drop compared with previous years. According to a spokeswoman for the PRA, the Land Registry is very actively managing the cases under query and solicitors are responding to queries very promptly.
It was not always so. Last year the number of cases under query was 39,636, about 20 per cent of all applications for registration, with similar figures for 2008 and 2009.
There was “a tsunami” of work into the Land Registry during the boom, Deeney said, and he paid tribute to his staff for managing it while simultaneously moving to a new, accessible and electronically based system. The non-registration of a property due to non-completion of the paper-work could give rise to claims against solicitors for failing to comply with the obligation to register it.
The PRA has opened a separate register for Nama properties, a “subsidiary register”, which effectively creates an electronic property portfolio database for Nama. This will show all charges on a property, its location and maps, he said. So far 1,600 properties have been registered on it, and it should facilitate the work of Nama.
If Nama’s work is held up by having to chase the registration of property, it will give added impetus to calls for the regulation of the legal profession. This will be compounded by the avalanche of complaints and court cases arising from malpractice on the part of solicitors dealing with property transactions, which has led to acute problems with professional indemnity insurance for the entire profession as claims are lodged running to hundreds of millions of euro.
In its newsletter of October last year the main insurer, the Solicitors Mutual Defence Fund (SMDF) said: “The loss ratios for the Legal Profession in Ireland are indeed frightening . . . We must reduce claims. We need to adopt a different approach this year to reassure underwriters that as a profession we have taken control of our businesses and our future.”
The newsletter went on to outline a new standard with “basic requirements for practising safely”. It said: “There is undoubtedly a lot of work involved in complying with the Standard, particularly for firms which have never had written procedures and have to implement them from scratch.”
This is hardly a ringing endorsement of past practice under the existing regulatory regime.
Not surprisingly, there has been a rise in the number of property related complaints. According to Law Society figures most of the 1,134 complaints for the year ending last September related to problems with undertakings on property transactions, and 124 of the 158 referred on to the Disciplinary Tribunal for investigation were property-related.
An "independent regulator" for the legal profession is already one of the terms of the Memorandum of Understanding (MOU) between the Government and the EU/IMF.
When asked last December what was being done about this, the then minister for justice, Dermot Ahern, said details of the necessary legislative changes for the legal profession would be published "in due course". He added that consideration would be given to the implications this would have for the office of legal services ombudsman.
This referred to the existing proposal, contained in legislation passed more than two years ago, to establish an office of a Legal Services Ombudsman to oversee the legal professions. Although the legislation was passed, no-one was appointed.
It is difficult to see how this office, as described in the legislation, will meet the requirements in the IMF/EU for an "independent regulator".
As proposed, the Legal Services Ombudsman will essentially have an oversight role in relation to the disciplinary regimes already operated by the Law Society and the Bar Council, while also reporting to the Minister on access to the professions.
The Ombudsman will be able to "receive and investigate" complaints, but this only refers to complaints that have already been received and processed by the complaints bodies of the Law Society and the Bar Council themselves.
These are the Law Society itself in the first instance, and the Solicitors' Disciplinary Tribunal; and the Professional Conduct Tribunal of the Bar Council and its Professional Conduct Appeals Board in the case of barristers.
These bodies deal with breaches of the various Solicitors' Acts in relation to solicitors, and of the code of conduct of the Bar Council in relation to barristers.
Not all matters that give rise to complaints by clients of the legal professions are covered adequately by these documents. For example, details of appropriate fees, and of adequate notice in advance of the fees likely to be incurred, are dealt with in only vague terms, and were only introduced into the Bar Council code of conduct two years ago.
Other issues, like basic courtesy and efficiency, can be of great concern to clients, but are poorly provided for.
None of this falls within the remit of the proposed Legal Services Ombudsman, who will only be able to examine the process of handling the complaint and, if the process is found wanting, refer it back to these same committees. Few complainants will have the stamina to face them a second time.
It can also order modification of the amounts paid by the Law Society out of its Compensation Fund. However, this fund only compensates people for money lost as a result of dishonesty by a solicitor. There is no provision in the process, or in the Bill, for people to be compensated for the stress and less definable losses they endure as a result of incompetence by their solicitor, which can be compounded by the whole complaints process itself.
The Solicitors' Disciplinary Tribunal at least holds its hearings in public, and they are reported by the media, which gives some transparency to the process. This is not the case with the Bar Council's Professional Conduct Tribunal and its Professional Conduct Appeals Board, though they deal with a far smaller volume of complaints.
There are other ways in which the Bill reveals the influence of the professional bodies, who will be funding the office of the ombudsman.
For example, a person can only be employed by it, and his or her level of remuneration set, with the consent of the Minister who must have first consulted with the Bar Council and the Law Society.
Imagine the outcry if the Financial Regulator could only employ staff following consultation with the banks.
Overall, the problem with the existing system of regulation is as much with what it does not include as what it includes. There are no positive obligations on solicitors to provide timely and efficient service for a reasonable and transparent cost. As the problems in the Land Registry reveal, this means that sloppy and unfinished work can go unnoticed for years.
It will not go unnoticed that the existing system of regulation has not only permitted such problems to arise, it has also brought the main insurer for solicitors, the Solicitors Mutual Defence Fund, to its knees with liabilities estimated at €170 million, though most of this is covered by re-insurance.
It is difficult to imagine the men from the EU/IMF taking a benign view of this state of affairs.
