legalregulationreview.org.uk

Solicitors Regulation authority pays out increasing amount in claims

Solicitors get a  bad rap generally and often clients simply do not understand that while hourly rates are high and the perceived value of work to prevent future problems is low, the hourly rates incorporate high compulsory insurance which protects the public and business clients in a way which unregulated legal services simply do not.

Put simply, if your solicitor is negligent, he or she must have insurance of at least £2 million per claim and if there are other issues such as fraud or bankruptcy or missing client funds, the Solicitors Compensation fund will ultimately pay out legitimate claims., These represent some very compelling reasons to use solicitors rather than attempt a DIY or unregulated solution to any legal issue or problem of any value or importance.

In terms of figures, mortgage frauds cases are always the biggest drain on the compensation fund, and whenever there is a property boom, these cases rise, but tend to only surface when the bubble bursts and lenders and others take time out to analyse a loan book.

Latest figures from the SRA reveal :-

• claims against solicitors relating to mortgage fraud have risen sharply to £173 million in the last year although a good proportion (about 70% are not paid out)
• there are 770 ongoing claims being dealt with by the compensation fund
• the overall amount of claims against the fund is rising. This year it is £214 million which is  27% higher than a year earlier although with a smaller number of claims

Exclusion Clauses and Limitations of Liability in Business Contracts

Contracts drafted by solicitors will typically include exclusion clauses to expressly exclude or limit their clients’ liability under the contract.

The law provides that in order to be effective exclusion clauses must be clearly expressed and unambiguous. The party seeking to rely on an exclusion clause must satisfy the court that it is generally clear and proportionate.

In terms of stature rather than Judge made law, The Unfair Contract Terms Act 1977 (“UCTA”) regulates the use of such clauses in contracts.

An exclusion clause must be part of the contract between the parties, not, for example an invoice or receipt which are not clearly the terms agreed at the time of the bargain. It is a matter for interpretation, on the facts, for the court to decide if a document is part of a contract or merely ancillary to it

Where a contract has been signed, an exclusion clause will be, on the face of it, effective if clearly expressed and unambiguous.

Where there is no written contract, reasonable notice of the exclusion clause must be given to the other party before entering into the contract, otherwise it will be ineffective, however expressed. Where reasonable notice of an exclusion clause has been given, it will be effective.

Contracting parties are deemed to have knowledge of an exclusion clause which has applied consistently in previous dealings between the parties, even where notice of the exclusion clause is not given on every occasion. It is for the party relying on this to prove that there has been a consistent course of dealing for this to be inferred in future dealings where specific notice is not provided

In limited circumstances, where no notice of an exclusion clause has been given and there is no previous history of dealings between the parties, an exclusion clause may still be implied by law and found to be effective. The most usual way this happens is where it can be shown that both parties are aware of industry standard practices which can be construed as exclusion clauses. Consequently, if it can be shown that both parties had an expectation that certain exclusions would apply, the law may imply such exclusions or accept the validity of a clause in a contract which one of the parties has clearly not read before they commenced work did not render it ineffective.

The Unfair Contract Terms Act 1977 (“UCTA”)

This Act is a very important and the main statutory provision which regulates exclusion clauses and, when applied can lead either to a clause being found at court to be effective, ineffective or partially acceptable. It applies to business liability as between businesses or a business and a consumer, where it can be particularly effective. With business to business dealings, particularly with businesses of equal size and bargaining position, it is far more difficult to persuade a court to strike out or limit a clause as being unfair. The Act should be considered whenever drafting or reviewing any contract incorporating an exclusion clause.

More problems for law firms …  this time it’s the banks

Law firms have tended to be viewed as relatively low risk by the banks in the past, but this appears to have changed, partly perhaps due to overall credit crunch conditions and the banks having moved from being too lax on lending to too strict. However, the new policies are also perhaps linked to the increased competition looming in the legal sector and things have also certainly not been helped by the rapd and high cost collapse of Halliwells solicitors, formerly one of the top 250 English law firms.

It seems that some of the main banks will now not provide partner capital loans if they also lend to the firm, are insisting on debentures as security and increasing margins on funding. This in turn is causing law firms to look at alternatives methods of reducing reliance on credit such as retaining some profit or convert to limited company status.

Conditions for even some of the bigger law firms are so difficult that the Solicitors Regulation Authority is actively encouraging law firms to approach it at an early stage if they face financial difficulties so that any potential issues in relation to client monies and client files can be considered at an early stage.

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