I am interested in the recent exchange of letters between Messrs Hopper and Treverton-Jones and Antony Townsend, the Solicitors Regulation Authority’s chief executive, about changes to the guidance notes to rule 9 of the Code of Conduct made on 13 November 2009.

Mr Townsend explains that the changes are a ‘clarification’ and ‘impose no new obligation on regulated persons’.

On the issue raised by Hopper and Treverton-Jones – namely that the guidance note changes have imposed a new obligation on solicitors to induce a client to breach a pre-existing lawful contract with a third-party introducer of personal injury work – I have an initial query.

If Mr Townsend is correct, why was this ‘clarification’ not provided in the guidance notes to rule 9 before the code even came into effect, given that the Robinson case, which he cites, was decided in July 2006?

In addition to the point raised by Hopper and Treverton-Jones, there is another issue, which to my mind is equally, if not more disturbing about this ‘rule change by way of guidance note clarification’.

This relates to what amounts to an ‘improper constraint’ within an agreement with an introducer. Not only do the new provisions amount to a substantive change rather than mere ‘clarification’, but they also conflict with other parts of the code, namely rule 2.02(2)(e).

Rule 2.02(2)(e) obliges a solicitor to: ‘explain any limitations or conditions resulting from your relationship with a third party (for example a funder, fee sharer or introducer) which affect the steps you can take on the client's behalf".

Guidance notes 16 and 17 to rule 2 explain what this means and that there are: a) 'constraints which are proper' which do not need to be disclosed (eg service standards); b) 'constraints which are proper but require disclosure' and c) 'constraints which are improper' which 'cannot be remedied by disclosing them'.

In relation to proper but disclosable constraints, guidance note 17(b) says: 'Some third parties may have a legitimate interest in the progress of the client's matter and the way it is dealt with – for instance, third parties who fund a client's matter, and insurers. Constraints that they impose, eg that you will not issue proceedings without the authority of the funder are proper provided they do not operate against the client's best interests, but should be disclosed to the client.'

Guidance note 17(c) gives as examples of what might amount to improper constraints as: ‘Requirements that you do not disclose information to the client to which the client is entitled, or give advice to the client which you know is contrary to the client's best interests, or with which you disagree, or that you act towards the court in a deceitful manner or lie to a third party.’

The above guidance appears to strike the right balance and is eminently sensible bearing in mind both a solicitor’s professional duties and the manner in which the market of third-party funding has to operate. It enables a solicitor to justify constraints as long as they are legitimately imposed by a third party because of their interests and the risks that they bear in their support of their mutual client.

For instance, these provisions legitimately enable an insurer to assess its risk prior to the issue of proceedings. It would also enable an insurer to require a solicitor to use the services of medical experts which the insurer knows are the best available and who are probably themselves subject to service standards which benefit the client. In reality, it is likely that these panels comprise experts that solicitors have asked to be included in the first place.

These types of constraints are certainly not of the type included within the examples of improper constraints which cannot be remedied by disclosure under guidance note 17 (c).

The previous rule 9 guidance notes specifically referred solicitors to 16 and 17 of the rule 2 guidance notes in relation to constraints. However, this cross reference has now been deleted as part of the 13 November amendments.

Following this 'clarification', which was without consultation or publicity, rule 9 guidance notes now state that any agreement between a solicitor and a third-party introducer to refrain from issuing proceedings or to refer a client to a particular expert or advocate will amount to an improper constraint.

Guidance notes, repeatedly declared to be non-mandatory, state that solicitors 'must' not enter into these types of agreements and, if they do, they will also breach core duties. These issues are not merely 'clarification' but substantive changes to the operation of rule 9 and conflict directly with rule 2 and its guidance notes.

There are cases awaiting tribunal hearings currently in which the above issues will be debated, perhaps in more detail than was possible in the Robinson case.

Why is it that this 'clarification' has not awaited the outcome of these cases?

Why has the SRA decided that no public consultation on the above proposed changes to the guidance notes is necessary?

Would Mr Townsend understand the concern that solicitors might have, that the SRA’s regulatory and prosecuting divisions may well seek to apply this 'clarification' retrospectively?

Vanessa Shenton, the Compliance Partner (thecompliancepartner.com), member, Law Society rules and ethics sub-committee