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These regulations will come into force on 1st September 2009.

Background
The Lynn and Byrne cases have caused damage to public confidence in solicitors’ undertakings and it was considered by the Council of the Law Society that appropriate action should be taken to address legitimate public concerns in this regard and do what can reasonably be done to restore confidence.

The Council decided that the best course of action would be to introduce regulations creating a restriction on the giving of undertakings to mortgagees in secured loan transactions in which the solicitor or a person closely connected is beneficially interested, which would focus on the core of the main problem which occurred in the Lynn and Byrne cases, and thereby reduce the risk of the problem reoccurring.

Text of new regulations
Please see the full text of the new regulations.

Purpose of new regulations
The purpose of the regulations is to prohibit solicitors from giving undertakings to, or for the benefit of, a bank or other persons in relation to a secured loan transaction in which the solicitor or a connected person has a beneficial interest, unless the solicitor has given specified notice and the bank or other person has both acknowledged receipt of such notice and consented to the solicitor providing the undertaking.

Exceptions
The prohibition will not apply:

1. To an undertaking given prior to the coming into force of the regulations which remains to be honoured in whole or in part after the coming into force of the regulations, or

2. To a statement of fact or declaration of intention made by a person who is a solicitor as a necessary requirement of that person’s application to a bank as part of a secured loan transaction, provided that the making of such a statement or declaration would be a similar requirement for another applicant who is not a solicitor and that that person in doing so is not acting as a solicitor in the course of his or her legal practice, or

3. In respect of an undertaking given by a solicitor who is a sole principal or a partner in a firm in relation to a secured loan transaction in which another solicitor in the firm, who is not a partner, has a beneficial interest but where neither the solicitor giving the undertaking nor a connected person has a beneficial interest.

Undertaking
The introduction to the definition of “undertaking” in the regulations tracks directly the language of “undertaking” in paragraph 6.5.1 of the Second Edition of A Guide to Professional Conduct of Solicitors in Ireland. The specific items in the definition of undertaking include certain items that form part of the new certificate of title arrangements agreed between the Law Society and the Irish Bankers Federation in respect of residential mortgage lending, but not all the specific items in the definition (e.g. undertakings in relation to the execution of guarantees) are part of such new arrangements. The last sub-set is a “catch-all” to ensure that, for example, if a transaction is effected by means of a corporate structure, undertakings that a bank might seek in relation to filings to be made in the Companies Registration Office are captured.

Connected person
The definition of “connected person” in relation to the interested solicitor covers his or her spouse or life partner or fiancée, and a sole principal or partner in the same firm.

Beneficial interest
A solicitor cannot avoid the requirements of the regulations by arranging his or her interests so that they are held through the means of a company, a partnership (or similar arrangement) or a trust. The definition of a company controlled by a solicitor for this purpose is taken from the Companies Act 1990. This definition is used widely as a test for ascertaining control of a company. The application of a threshold of 25% is in recognition of the fact that in any co-ownership arrangement an individual with an interest of less than that amount should have minimal influence or control over the affairs of the partnership and therefore minimal means of exercising undue influence on their solicitor. Co-ownership agreements customarily require 75% approval of any matter to be undertaken by that group.

Continuing obligations
Nothing in the regulations is to be construed as lessening the obligations of:

(i) Solicitors to honour undertakings given by them, and

(ii) Banks engaged in the funding of secured loan transactions to engage in appropriate due diligence before placing reliance on undertakings.


John Elliot 
Director of Regulation