The number of professional negligence claims against law firms in the High Court has almost tripled in a year, according to data compiled by City firm RPC.
Many involve property and conveyancing disputes, and include sub-prime mortgage lenders as claimants. Lenders are leading a rush to get redress for post-credit crunch property losses, with claimants also redirecting their fire from surveyors to lawyers.
There were 418 High Court cases against law firms for professional negligence in 2013/14, up from 143 the year before.
RPC points out that the rise came as the six-year time limit approached for pursuing claims arising from losses stemming from the financial crisis of 2008, which was sparked by the collapse of Lehman Brothers in September that year.
Joe Bryant, partner at RPC said: ‘On the face of it, this looks like a pretty shocking, sudden and unexpected rise.
‘However what we are actually seeing is a something of a delayed reaction, as many of those who lost out as asset values, such as property prices, plummeted in the fallout from the credit crunch, make a last-ditch attempt at recovering their losses. Claimants – many of them lenders – are rushing to launch claims for perceived professional negligence against law firms before they run out of time.’
RPC says examples of claims for professional negligence against law firms include:
- failure to carry out adequate money laundering checks on property transactions;
- failure to conduct proper checks to identify mortgage fraud, particularly on self-certification mortgages; and
- failure to identify mis-selling of inappropriate mortgage products or failing to recommend buyers obtain independent financial advice.
Bryant added: ’In recent years, valuers have been the main target of professional negligence claims, as disputes over whether they have overvalued individual properties or large-scale real estate developments are fairly easy to establish.
’Now aggrieved lenders, developers and individuals are turning their sights on law firms and what role they might have played in their travails, through poor conveyancing or failure to spot fraudulent mortgage applications or loan mis-selling. However, these kinds of claims against solicitors are likely to be far less clear-cut or straightforward to prove.’
With the deadline fast approaching, some claimants are taking their claims straight to court without making a comprehensive effort to resolve them first, RPC found.
’It’s likely that many of these 11th-hour attempts to get cases in under the wire may end up ultimately being settled out of court, once time pressure is no longer an issue,’ said Bryant.