City firms move to safeguard client accounts

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  • phew

    good thing all banks were nationalised this morning then!

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  • City firms move to safeguard client accounts

    On what basis can one say that 'the firm would generally be safe from legal action from the client unless the firm was negligent in choosing a bank'? There would be an immediate breach of the SAR because the required funds per the solicitors' accounts were no longer held in the bank account. Solicitors' terms of business do not usually provide that the risk is with the client (and even that may not be a complete solution.)

    There may be answers to this issue but they are not obvious, and I doubt lack of negligence is one of the available defences.

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  • Client Accounts

    I've always found that asking your industry body is not a completely solid defence from a third party suing you! Turning around to a client and saying sorry, the account's gone down and the government's going to pick up the first 50k is not a conversation I would want to have. I suspect we're not actually liable, but there is a significant client relationship issue here.

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  • Client account exposure

    Changing terms of business is not much of a defence either since such variations must be consensual. Can't see any client wanting to agree that and such approaches are hardly likely to instil confidence in the firms in question!

    Since choice of Bank will not be negligent if they are High Street, clients will be opting to bring claims based on rule breaches and aiming at the Compensation Fund. There may be defences available in that arena. Can anyone remind me which representative Council recently decided to reduce our contributions to the Fund?

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  • City firms move to safeguard client accounts

    Having thought about it further over night, I don't think the solution need be that difficult and may not even require a change of terms of business if you go about it the right way.

    I think I have identified a route through it for one firm; in essence, you just need to identify the causes of action (of which I've identified potentially 5 or 6 so far) and address each individually and systematically; most seem capable of resolution with one of three approaches so I don't think it needs vast amounts of documentation. Though doubtless a testing in anger would expose some potential flaws in this!

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  • safety of client accounts

    the answer ? move your client funds to an Irish bank

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  • Exposure to undertakings

    I believe there may be a further risk here which cannot be addressed via engagement terms, namely of exposure to third parties to whom a firm has given financial undertakings to pay money on a certain date/in a certain event, or to hold funds to order.

    This may be addressed via suitable caveats eg "I undertake to instruct my bank to pay", rather than "I undertake to pay", but the funds to order issue is more of a problem and in any event such wording may well be commercially toxic.

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  • City firms move to safeguard client accounts

    The Law Society has now issued a Practice Note dealing with this point which says 'You should not attempt to limit your undertakings because acceptance by a buyer's solicitors of such a limited undertaking risks not discharging the seller's charge if the bank fails.

    This is not in the interests of clients. Any undertaking you cannot honour is a claim against you and your insurers.' I do not understand why it is said that the solicitor should assume personal liability because it is in the best interests of the client - why should solicitors be guarantors of their clients' finances? Even the guidance to the Code of Conduct does not propose that extreme position - guidance note 26 to rule 10 says 'You are not obliged to give or accept undertakings.' Undertakings are an administrative convenience, not a professional obligation.

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  • Interim Practice Note Updated!

    The interim practice note issued by the Law Society has already been updated!

    The major change appears to be the advice in relation to undertakings and the removal, inter alia, of the sentence quoted by Frank Maher below.

    There is now a note from the President, Paul Marsh, stating, "Looking specifically at conveyancing, solicitors have a key role in the conveyancing process. Without solicitors, clients cannot move from house to house on the same day. This is our unique selling point in the market, and the Society's focus is on preserving this role. So while your liability for undertakings is of clear concern, it is important not to overreact, particularly in light of government statements of support for depositors. Solicitors may wish to review where they hold clients' money, but it would be disastrous to threaten the strength of our undertakings in conveyancing transactions, and so undermine our status as the lynchpin of the property market."

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