A solicitor with a 40-year unblemished record has been fined for not making clear to clients the risk of a property investment.
David Hayhurst, senior partner of now-closed Merseyside firm 174 Solicitors Ltd, was fined £10,000 by the Solicitors Disciplinary Tribunal after admitting he failed to advise adequately about investing in four high-risk schemes.
The case related to Hayhurst’s role in acting for buyers in relation to three ‘fractional’ development schemes, where purchasers from East Asia paid deposits between 40-80% of the price for as-yet unbuilt units. Hayhurst was lead partner in the sale of 118 units, for which almost £2.9m was deposited.
The two developers involved both went bust, and none of the four developments was completed. The Solicitors Regulation Authority said the schemes were not inherently dubious but were inherently risky, with the investment being effectively worthless unless the development was completed.
Hayhurst accepted that his retainer with clients naturally included provision of advice as to the risks. Even if advice as to risk had been outside the scope of his retainer, Hayhurst accepted he had a duty to flag up obvious risks which came to his attention.
He pointed out that clients had already paid reservation fees of up to £5,000 prior to his involvement. But the SRA suggested that any requirement to pay a reservation fee was part of commercial pressure being applied by the scheme promoter, and a solicitor ought to have seen through that and offered proper and adequate advice.
The tribunal heard that Hayhurst’s firm was a panel member for each of the schemes and so received referrals from their promoters. This type of work made up around 10% of his firm’s income.
Hayhurst said he had exercised his professional judgement in an honest and genuine way, providing clients with a client care letter and terms and conditions making express reference to risk. The retainer had set out the limits of his input, but he accepted now he failed to advise adequately.
The fine, along with £15,000 costs, was ordered as part of a regulatory settlement agreement between Hayhurst and the SRA. This agreement was endorsed by the tribunal at a hearing last month.