SRA: Conduct was reckless
A solicitor who acted for a property investment company and an investor has been fined just over £9,000 for breaking conflict of interest rules.
Alison Meyler Evans also admitted failing to give her investor client adequate advice, despite the “limited retainer” in place.
Ms Evans, a recognised sole practitioner and former owner of Alisons Legal Practice in Aberystwyth, which closed in March 2020, accepted the sanction in a regulatory settlement agreement with the Solicitors Regulation Authority (SRA).
The SRA explained how ‘Company A’ offered property investment opportunities to professional investors by setting up special purpose vehicle companies in the name of various development sites to purchase land as bare trustees for the benefit of investors.
The investors were beneficial owners to protect them from any claims on the sites.
Alisons Legal Practice acted for Company A on the conveyancing and preparation of the bare trust documents. In 2016, Company A introduced MH, who wanted to invest £200,000, to the firm.
Over the next two years, she paid £50,000 into its client account on four occasions for different sites. The law firm made clear that Company A was its client “so far as the conveyancing is concerned” and that MH’s instructions were “limited to receiving your investment and applying it for the purchase of land”.
Each time, Ms Evans created a bare trust to reflect MH’s equitable interest in the land.
In her client engagement letters, Ms Evans said she did not provide investment advice, that MH must seek independent legal advice regarding any investment and that MH should satisfy herself as to any risks involved in investing and must carry out her own due diligence prior to paying any funds into the firm’s client account.
All four developments failed and MH’s investment in only one of them was returned, meaning a loss of £150,000.
MH applied to the SRA Compensation Fund, which was refused at first instance and on appeal. MH was also unsuccessful in a claim against the firm’s professional indemnity insurance.
The SRA’s 2017 warning notice on investment schemes said that acting for both buyer and seller (or investment company) was likely to constitute a conflict of interest.
The regulator said: “Ms Evans had a duty to advise MH of the obvious inherent risks that had come or ought to have come to her attention despite it being outside the scope of the limited retainer.
“MH was advised to obtain independent legal advice but declined to do so. Nevertheless, Ms Evans’ conduct had an adverse impact on her client.”
MH may have reconsidered her investments “had she received proper and adequate advice”; Ms Evans’ conduct was reckless, the SRA said.
Ms Evans admitted that by acting for both an investor and the company in which she was investing, she acted where there was, or a significant risk of, a client conflict.
She also admitted failing to give adequate advice to MH on the risks of investing into sites that were yet to be developed and to give MH any advice prior to her signing the bare trusts.
The SRA’s fining guidance indicated a penalty bracket of £2,963.20 to £9,074.80.
“In deciding the level of fine within this bracket, the SRA has considered mitigation that there was no intent or motivation involved in Ms Evans’ conduct and Ms Evans has a clear regulatory history and there is no evidence that this is a pattern of behaviour.
“However, the SRA has also considered that Ms Evans’ conduct had caused harm. On this basis, the SRA considers a basic penalty of £9,074.80… to be appropriate.”
As she made no financial gain out of the misconduct, the figure did not have to be adjusted. Ms Evans also agreed to pay costs of £600.
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