Insurers of failed firm Axiom Ince are suing the Solicitors Regulation Authority for failing to prevent monies going missing, it has emerged. Axiom Ince Limited, represented by national firm Kennedys, brought the professional negligence claim against the SRA last month, court documents show.
The value of the action was not specified, but Axiom Ince’s professional indemnity insurer Travelers has to date paid out £3 million to settle claims from former clients of the law firm, with more of these yet to be resolved. As of last October, the SRA’s compensation fund had also paid 812 grants to former Axiom Ince clients with a total value of £37.2m, and it is understood the regulator has stated its intention to pursue subrogated claims for this sum against Travelers.
The new negligence claim against the SRA comes after an independent report commissioned by the Legal Services Board concluded the organisation had missed several opportunities to prevent client monies from disappearing.
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Axiom Ince went into administration in October 2023 after acquiring several firms - including Ince Gordon Dadds in April 2023.
In particulars of claim seen by the Gazette, Axiom Ince Limited alleges that sole shareholder Pragnesh Modhwadia, with the assistance of two other directors, misappropriated funds amounting to £64.5m from the client account. Money was transferred into non-client accounts and used to acquire and develop various properties. Modhwadia, along with four other former executives, deny allegations of fraud.
The SRA became involved in June 2022 when an Axiom employee resigned and the firm self-reported over three areas of concern regarding client money payments.
It is alleged in the professional negligence claim that the SRA’s forensic investigation officer reviewed documents on site but did not check off the stated balance of the purported client accounts against bank statements provided to them.
The PoC states that, it was reasonable for the firm (effectively in this case its insurers) to rely or depend on the SRA to investigate Axiom with ‘reasonable care and skill and to place reasonable reliance and/or dependence on its conclusions’.
In the event, following the SRA’s 2022 decision to take no further action, Axiom continued to trade and receive sums into its client account.
In August 2023, the SRA produced a forensic investigation report which resulted in Modhwadia and two other individuals being subject to intervention.
As was stated in the LSB report, the SRA did not insist on existing client accounts being frozen and the remaining directors believed they were allowed to proceed on a ‘business as usual’ basis. From 27 July 2023 to October 2023, the amount held in Axiom’s client account diminished gradually from £23.5m to £2.2m.
Axiom’s insurers say in their claim that the SRA was in breach of its duty of care by not intervening in the firm as a whole when it suspended the three individuals. This failure included failing to advise Axiom not to receive or pay out sums from the client account during August and September 2023.
The particulars of claim states that Axiom is entitled to compensatory damage for negligence. The claimant also seeks an order for contribution under the Civil Liability (Contributing) Act 1978. The document adds: ‘The SRA owed Axiom’s clients, and prospective clients, a duty to exercise reasonable care and skill in exercising its function as Axiom’s regulator… in investigating and concluding as it did the SRA created a risk of loss to clients.’
The SRA has been approached for comment.
