Claim Worries 2018 - DAC Beachcroft

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Claim Worries 2018

Published 11 October 2018

Mistakes in the context of property transactions are still far and away the most significant causes of claims against the profession. Many of the mistakes that we see are as a result of human error but the consequences particularly in a rising market can be significant.

The recent Court of Appeal decision in the case of Dreamvar v Mishcon De Reya will only serve to contribute to the disquiet of real estate lawyers. The only light at the end of the tunnel as far as that decision is concerned is the willingness on the part of a number of Insurers to provide policies that respond in the event of vendor fraud. There are now a number of such policies available on the market, however, the benefit to real estate lawyers will entirely depend upon the client's willingness to incept such a policy and pay the premium.

We are also seeing numerous claims arising out of dubious development schemes, particularly in the north west. These so called "buyer funded" schemes have seen investors defrauded of their investments with the proceeds of sale being misappropriated by unscrupulous development companies.

Cyber security continues to be a big issue for the profession particularly following the introduction of the GDPR in May this year.

The sanctions applicable in the event of a data breach have significantly increased which presents a greater potential exposure to a profession which deals in third party data on a daily basis.

We have acted for a number of solicitors who have received Data Subject Access Requests under the new legislation. It appears that the publicity surrounding GDPR has led to an increase in such requests not only by clients but also by third parties, for example beneficiaries. This presents a number of challenges for the profession given its obligations in relation to privilege and confidentiality.

As far as cyber security is concerned, however, despite the fact that the risks posed by so called "Friday Afternoon Scams" are well known to the profession, this appears not to have deterred would be fraudsters.

Increasingly, for our clients who act on behalf of corporates we see issues in relation to so called "mission creep" which serve to underline the importance of detailed retainer letters at the beginning of a transaction. Frequently, sophisticated clients will deal with certain aspects of transactions themselves and there is always scope for misunderstanding unless the Terms of Engagement are clarified from the outset.

We do occasionally see claims arising as a result of drafting errors and this is particularly so in the area of overage agreements which continue to cause difficulty for the profession. These situations often result in large claims against firms calculated on the basis of lost profit often in respect of valuable development land.

In all of the areas of law in which our clients practice, however, the most common cause of mistakes is simple human error – omitting to read a search properly, forgetting to undertake a specialist search or inadvertently overlooking some other significant detail in a case.

Finally, one of the biggest risks to the profession at the moment in our view is in relation to the SRA's increased interest in larger firms.

In the past the SRA was criticised by smaller firms who felt that they were unfairly the subject of the Regulator's focus. This is certainly no longer the case and the SRA does seem to be moving towards a situation, in common with other Regulators, in which, despite their published sanctions policy, they will seek to impose fines on larger firms that are commensurate with their turnover. One only has to consider the recent decision in SRA v Locke Lord to anticipate the difficulties that such a stance will cause many members of the profession and their firms.

Most larger firms will insure themselves against the cost of an investigation and any later disciplinary proceedings. The case of SRA v Leigh Day demonstrated to the profession why such insurance is invaluable in circumstances in which Leigh Day's senior partner made it quite clear that without insurance backing the firm would probably have faced financial ruin. This is an extreme case but nevertheless the financial but more importantly and in most cases the reputational damage to firms can be considerable. The only way in practice to try to combat this risk is with the assistance of a sophisticated in house risk management team.

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Clare Hughes-Williams

Clare Hughes-Williams


+ 44 (0)1633 657685

Key Contacts

Clare Hughes-Williams

Clare Hughes-Williams


+ 44 (0)1633 657685

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