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Professional negligence claims against law firms triple

Lenders lead rush of redress for post credit-crunch property losses

4 December 2014

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High Court cases against law firms for professional negligence has almost tripled in the last year.

The number of claims has jumped from just 143 a year ago to 418 in 2013/14, according to City firm RPC, with many of the cases involving property and conveyancing disputes, including subprime mortgage lenders as claimants.

The firm suggests this sharp rise comes as the time limit for pursuing professional negligence claims arising from losses, stemming from the financial crisis in 2008, begins to close. Claimants have six years from the date of the alleged negligence to launch a claim.

RPC partner, Joe Bryant, commented: "On the face of it, this looks like a pretty shocking, sudden and unexpected rise. However, what we are actually seeing is a something of a delayed reaction, as many of those who lost out as asset values, such as property prices, plummeted in the fallout from the credit crunch, make a last-ditch attempt at recovering their losses.

"When things go wrong, there's often a desire to apportion blame and seek redress, whether justified or not. The financial crisis and the recession did expose fraud and other failures in the system. However, going after the fraudsters themselves is often a dead-end street. Claimants are far more likely to be able to pursue damages from professional advisers such as solicitors, claiming that their negligence was a key cause of their losses."

Usual failures

Examples of claims for professional negligence against firms have included failure to carry out adequate money laundering checks on property transactions, both from individual house purchases and high-value developments; failure to conduct checks for mortgage fraud, particularly on self-certification mortgages; and failure to identify mis-selling of inappropriate mortgage products or failure to recommend buyers obtain independent financial advice.

Bryant continued: "In recent years, valuers have been the main target of professional negligence claims, as disputes over whether they have overvalued individual properties or large-scale real estate developments are fairly easy to establish.

"Now aggrieved lenders, developers and individuals are turning their sights on law firms and what role they might have played in their travails, through poor conveyancing or failure to spot fraudulent mortgage applications or loan mis-selling. However, these kinds of claims against solicitors are likely to be far less clear cut or straightforward to prove."

He added: "With the deadline fast approaching, some claimants are taking their claims straight to court without making a comprehensive effort to resolve them first. It's likely that many of these eleventh hour attempts to get cases in under the wire may end up ultimately being settled out of court, once time pressure is no longer an issue."

John van der Luit-Drummond is legal reporter for Solicitors Journal

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Professional negligence