Two partners who asked clients to sign a declaration in their retainer letters stating that they absolved their law firm “from any liability whatsoever” – including professional negligence – have been fined by the Solicitors Disciplinary Tribunal (SDT).
Siu Yung Alan Ma and Taut-Yang Cheung (also known as Daniel Cheung) admitted that the clause was inappropriate and not in the interest of clients.
Mr Ma and Mr Cheung, partners at City firm Maxwell Alves, also admitted failing to properly advise client investors who eventually lost money in two different ‘off plan’ developments.
The firm’s client-care letter sought to limit its liability to the total remuneration payable to the firm, and sought to exclude liability for economic and consequential loss and damage.
The two partners also asked clients to sign a declaration stating: “I absolve Maxwell Alves from any liability whatsoever. Liabilities include professional negligence and I hereby indemnify Maxwell Alves for all liabilities and costs which they may incur either now or in the future in relation to my instructions.”
The SDT said Mr Ma and Mr Cheung closed Maxwell Alves in 2018. As part of the winding-down process, Mr Cheung sent a ‘frustration notice’ to all clients explaining that its retainers with them had been “frustrated”.
The tribunal described the concept behind the notice as “inappropriate and misconceived” and said it contained a “particularly objectionable” clause.
This warned that if any client complained to the Legal Ombudsman (LeO) asking for a refund on legal fees for uncompleted work, Maxwell Alves would argue that LeO had no jurisdiction and seek a court declaration that the retainer was frustrated.
It said the clients would be added as defendants to the action.
However, within four days, Mr Cheung took legal advice that the notice was inappropriate and he wrote to the clients withdrawing it and apologising for sending it in the first place.
The letter stated: “For clarity, we would like to confirm that clients of course have every right to make a complaint to LeO as any client may choose to do so, and we will not be pursuing legal action against you for making any such complaint.”
Mr Ma was admitted as a solicitor in July 1999, and from 2013 to March 2019 was a partner of Maxwell Alves with Mr Cheung, admitted in 2010.
On the development work, the SDT said that Developer A started to sell ‘off plan’ residential units in a new-build development of 344 flats in late 2014, marketed largely to overseas investors as an investment opportunity.
Between December 2014 and January 2016 the firm acted on behalf of 42 client investors wanting to invest, all of them apart from three from overseas.
Maxwell Alves paid £3.6m of investor cash to Developer A’s solicitor and received almost £35,000 in costs from the buyers.
The SDT said Maxwell Alves failed to advise clients properly as to the risks, including that funds were paid to the seller’s solicitor “without ordinary control mechanisms such as an escrow agreement”, that funds described as ‘deposits’ – which were 50% of the sale price – would be used to fund the development and investors “might lose all their money”.
Funding for the development duly “fell very short of what was needed” to complete it. The developer went into administration in September 2017, having spent 40% of buyers’ cash on sales and marketing commissions.
The solicitors told the Solicitors Regulation Authority (SRA) that the development site was sold for £5.2m and around £2m was recovered for the 320 investors.
The SRA said it had intervened into the seller’s law firm, which had failed to transfer funds from its client account to the account of the buyers’ company. The solicitor involved, who was not named, had been referred to the tribunal.
The SDT heard that Maxwell Alves was involved in a further ‘off plan’ investment scheme, acting on behalf of 32 client investors wanting to buy flats at Development B.
In this case, purchase money for five flats was paid to the developer without obtaining architects’ certificates and the development was not completed.
The tribunal said Mr Ma was experienced and should have been “alert to the risks” as off-plan developments were a “known area of risk in the legal profession”. Mr Cheung, despite his “more junior status”, had direct control of the firm.
Mr Ma’s misconduct “arose largely from omission and failure to go the extra mile for his clients rather than the actual commission of wrong doing”, the SDT said.
“[He] had mechanistically restricted the advice to his clients to the conveyancing aspect of the transactions rather than seeing the bigger picture.”
Further, reputational damage to the legal profession had been “considerable”, while “the harm caused to the individual investors who had suffered major financial losses had also been high”.
In mitigation, the SDT noted that the investors’ losses were being made good via the liquidator, money left in the client account and from indemnity insurance. However, there were still “unsatisfied claims which would take time to resolve”.
The tribunal said Mr Ma was the senior partner and his misconduct was “naturally the result of doing too many other things”, such as taking Scottish law examinations and setting up an office in Hong Kong.
The SDT condemned Mr Cheung’s frustration notice as a “grossly inaccurate and self-serving document”, but he had “quickly taken steps to set matters right”.
It decided that a fine of £17,500 was appropriate because Mr Ma had shown “genuine insight”, made proper admissions and had taken steps to set matters right.
Though Mr Cheung’s misconduct also included the frustration notice, the SDT handed him the same fine as Mr Ma because he was the junior of the two and Mr Ma should have provided him with “greater support and direction”.
In addition to their fines, both solicitors’ practising certificate were made subject to conditions preventing them from acting as sole practitioners/owners of law firms and from being compliance officers. Each was also ordered to pay £22,000 in costs.