Claims lodged over dishonesty and default by solicitors spiral above £200m

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By Legal Futures

3 August 2011

Closed down: number of interventions in law firms falls 30%

The value of compensation claims lodged as a result of dishonesty and other default by solicitors now tops £200m – more than four times the amount just two years ago – it has emerged.

New figures from the Solicitors Regulation Authority (SRA) said the value of the 1,952 open claims against the Solicitors Compensation Fund at the end of June was £205m, £76m more than at the same time in 2010, even though there were almost 1,000 more claims open then.

The SRA said the rise is due to an increase in the average claim amount. In 2009, the figure was £48m, itself a high figure compared to previous years.

Last month, the Law Society council backed a massive rise in compensation fund contributions from £10 to £60 for individual solicitors and £120 to £770 for firms.

The fund compensates people who have suffered financial loss due to a solicitor’s dishonesty or failure to account for monies received. It mainly covers default by sole practitioners and small partnerships, as indemnity insurance will cover claims against partnerships where there is an innocent partner.

It provides cover of up to £2m per claim, although a large number of claims are rejected for various reasons, and often those that are accepted are not paid in full. The SRA figures – from its quarterly performance report – show that in the second quarter of 2011, just 28% of the amount claimed was paid out.

Clients have up to a year to make a claim, which usually happens when the SRA closes a firm down. When this occurs and money cannot be easily identified in client accounts, a claim is made against the fund. Stamp duty land tax and mortgage fraud are other notable causes of claims.

However, the report reveals that the number of firms being closed has fallen 30% in the year to 30 June, from 93 to 63. Just 12 of the interventions were on the ground on suspected dishonesty, half the number of the year before. In the second quarter of 2011, the ground of dishonesty represented just 6% of interventions.

The number of solicitors struck off or suspended by the Solicitors Disciplinary Tribunal rose 6% to 135.

The total number of solicitors on the roll at the end of June was 159,075 – up 7% on the same time in 2010 – while those with practising certificates rose 3% to 121,315.

The number of firms stayed stable at a shade under 11,000; 420 are legal disciplinary practices, which between them have 5,000 partners.

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