Guarantee Fund ‘at risk’ as financial crises hits solicitors management of client funds while regulator dithers on oversight role

28 Oct

Money which your solicitors have been looking after may no longer be safe as it was revealed today lawyers have failed to keep a check on clients funds under their administration, being too busy trying to save their own personal financial deals and sweeteners they received from the big banks for steering clients funds into certain institutions which are now financially unstable or have been nationalised.

The Law Society of Scotland’s “Guarantee Fund” which is touted by lawyers as being the ultimate in consumer protection, may now not be able to handle the expected increase in client claims for financial losses suffered through their solicitors poor management of client funds .. and solicitors occasional use of slightly dodgy banking deals purely to shore up their own personal finance dealings.

One solicitor today expressed fears the Guarantee Fund was “hopelessly inadequate to compensate clients for an expected run of claims after the banking crisis”.

He went onto say “I have heard of two legal firms today who were struggling to recover funds for clients which have been lost in the financial fiasco in Iceland”. The sums in question are rumoured to be in the millions of pounds, which had been held on clients behalf, now possibly lost.

Jane Irvine, Chairman of the Scottish Legal Complaints Commission, whose functions include oversight of both the Guarantee Fund and the Indemnity Insurance scheme to protect clients against negligent solicitors would not comment on questions put to her relating to the instability of the Law Society’s Guarantee fund, probably because as I reported earlier, the SLCC has staggeringly decided to delay their implementation of monitoring the Guarantee Fund and the Master Insurance Policy.

Read my earlier report on the Scottish Legal Complaints Commission’s decision to delay oversight of the Guarantee Fund and Professional Indemnity Insurance here : Legal Complaints Commission to delay monitoring of discredited lawyers insurance as worries increase over poor regulation of crooked lawyers

The Law Society of Scotland describe their “Guarantee Fund” as the following : “The Guarantee Fund is for the protection of those who have lost money as a result of their solicitor acting dishonestly. It is operated by the Law Society of Scotland and those who have suffered loss in this way can apply to the Society for a grant of compensation. All solicitors in Scotland who handle clients’ money contribute to the Fund each year.”

In truth however, conditions are attached to this compensation fund, which has seen some claims last almost 15 years before being resolved … with the following conditions attached :

• The solicitor must have acted dishonestly in the course of their legal practice.
• The claimant must have suffered monetary loss.
• There must be no other means of recovering the money; for example, by suing the solicitor directly or making a negligence claim.

The last condition “no other means of recovery by suing the solicitor or making a negligence claim” , involves as you may expect .. trying to obtain the services of another lawyer to sue the lawyer you are attempting to claim against and as many people who have tried to claim against the Guarantee Fund in the past, have found to be a policy which the Law Society cooked up to ensure most claims fail.

As expected, it seems the “Guarantee Fund” may be of little use to thousands of Scots who may find out their money has been totally mismanaged to the point of being lost by their solicitor, with no compensation cover available simply because the Law Society is too busy protecting the backs of lawyers to care about clients.

To make matters worse, lawyers who are seeing their income from litigation and legal business dwindle to a trickle, are now inflating accounts for existing work up to extortionate levels.

One client who contacted me after he had received a revised bill which has been more than tripled from nearly £1000 to £3630, for work done on a boundary dispute which has so far got nowhere after two years.

The solicitor had already sent the client an account for £958.32 earlier last week, detailing work which had allegedly been done, but in the wake of the financial crisis it seems the legal firm felt they had inflate their demands, claiming ‘court work’ and ‘court appearances’ which apparently never took place must be added, along with a junior counsel’s opinion which the client has never been asked to authorise or has seen – this all despite the fact the client had been promised access to court and the resolution of the fairly clear cut boundary problem within a year.

As the problem of solicitors inflating their costs and demands for more money all across Scotland, another client last night revealed he had received a bill demanding £600 for three telephone calls made by his solicitor to an unidentified individual for exactly 35 minutes each, work which has been of no apparent use to the client’s case whatsoever. The solicitor when asked by the client who the telephone calls were made to, staggeringly refused to identify the person he had called !

The Law Society of Scotland, rather doing their duty of protecting clients funds held by solicitors, have been too busy lobbying the high street banks to protect legal firms and solicitors personal financial deals and the standing of the legal profession’s ‘financial power’ such as it remains.

As insiders to the profession put it simply last night “if the Guarantee Fund collapses, there will be a riot among clients who will lose a lot of money and it could get nasty”, while another solicitor joked “we might have to go begging to the Bank of England too !”

As a reminder of the Scottish Legal Complaints Commission’s powers, here are the relevant parts of legislation from the Legal Profession & Legal Aid (Scotland) Act 2007, which in the light of the international banking crisis, should now be implemented immediately to guard against severe losses of clients funds held by solicitors :

Legal Profession & Legal Aid (Scotland) Act 2007 : 39 Monitoring effectiveness of guarantee funds etc.

(1) The Commission may monitor the effectiveness of—

(a) the Scottish Solicitors Guarantee Fund vested in the Society and controlled and managed by the Council under section 43(1) of the 1980 Act (“the Guarantee Fund”);

(b) arrangements carried into effect by the Society under section 44(2) of that Act (“the professional indemnity arrangements”);

(c) any funds or arrangements maintained by any relevant professional organisation which are for purposes analogous to those of the Guarantee Fund or the professional indemnity arrangements as respects its members.

(2) The Commission may make recommendations to the relevant professional organisation concerned about the effectiveness (including improvement) of the Guarantee Fund, the professional indemnity arrangements or any such funds or arrangements as are referred to in subsection (1)(c).

(3) The Commission may request from the relevant professional organisation such information as the Commission considers relevant to its functions under subsections (1) and (2).

(4) Where a relevant professional organisation fails to provide information requested under subsection (3), it must give reasons to the Commission in respect of that failure.


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