Law Society to face negligent misrepresentation action in 2015

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15 January 2015


Lawyer Checker200We have long been aware of and talking about the case where innocent purchaser Nick Christofi lost over 700k to criminals who had set up a fake branch office in order to steal his house purchase funds.

Mr Christofi’s solicitors, Schubert Murphy, relied upon the Law Society’s Find a Solicitor website when seeking to ensure that the vendor conveyancer was bona fide prior to purchase funds being sent. It was this check, however, that led Schubert Murphy to innocently send funds to criminals as the fake branch office used was actually registered on this list.

It is not clear how criminals have been able to add fake information to the regulator’s roll of solicitors but this allowed them to steal the funds intended for Mr Christofi’s purchase.

Following the loss of funds, the insurers (XL Services UK) who indemnified Schubert Murphy are seeking further redress to the huge loss (over £700k) suffered by purchaser Nick Christofi. They are bringing an action against the Law Society for negligent misrepresentation.

The Law Society’s application for Summary Judgement in this action was rejected by Mr Justice Mitting in December 2014 due to the action being ‘eminently suitable’ for trial.

In his ruling, Mr Justice Mitting, said that the Law Society encouraged the public to rely on its information as to who was a solicitor, and if members of the public relied on an “imposter” trusting him with their money and losing it they would be shocked to find they had no remedy.

Following proceedings brought by the purchasers against Schubert Murphy for negligence and breach of trust, the Law Society argued that it had not acted negligently and owed no duty to either the law firm or its client purchaser.

This information led Mitting, J to conclude that the circumstances of the case raise a question of wide importance and in theory calls into question undertakings by solicitors to discharge mortgages.

Further to a practice note by the Law Society back in April 2009, where there was a warning against fraudsters, solicitors were advised by the Society to check the recognised directory and provided a hyperlink to the FAS website. As the recognised check by the CML handbook as well, this has therefore been the ‘go-to’ check made by countless conveyancers when seeking ensure they are dealing with a bona fide vendor conveyancer on the other side.

Since 2009 the industry has been warned several times by the SRA, starting with the Warning Notice in early 2012 and culminating most recently with the November 2014 Risk Outlook which, in particular, focused on the threat of bogus firm and bogus solicitor infiltration activity.

It is therefore now accepted that conveyancers and the entire industry ought to be aware of what is a very real and present threat. The past two years have seen the SRA scam alerts increase exponentially. In order to mitigate potential failures in due diligence, risk management strategies within the conveyancing industry are under scrutiny. The SRA now will seek to understand what a defendant firm did to ensure the protection of its client money – s.61 relief no longer offers complete protection and in turn lenders are looking to safeguard mortgage funds by only using those who practice iron cast processes.

Ensuring the safety of client monies must now be paramount and most certainly on the top of the resolutions list in 2015 for all conveyancers. In particular whilst 2014 saw changes in the way that lenders would regard s.61 relief in R A Legal v Santander, 2015 looks like it will bring further changes as we wait for the outcome of this most recent case.

To find out more about Lawyer Checker and the services it can offer the legal sector in this fight against criminal conveyancers call 0800 133 7127.

 



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