High Court judge shuns Clayton Rule

A landmark High Court judgment has seriously eroded an almost 200-year-old rule determining the way solicitors' client accounts are broken up by the courts

Last week, Mr Justice Lindsay ruled that funds in client accounts should be pooled equally among creditors, instead of using the controversial Clayton Rule, which originated in 1816 and has been used frequently ever since.

The Clayton Rule is based on the principle that the first funds placed in a client account are the first released for investment. So only the owners of the last funds – those whose money has not yet left the account – can get any money back when assets are broken up following a Law Society intervention.

The rule is applied in scores of cases annually after firms are closed down. However, the judgment ruled that the assets in Sheffield solicitor Richard Prentis's client account should be pooled between the investors. Judge Lindsay drew this conclusion because there was no evidence that the first funds into the account were also the first to leave. He said: “In jurisdictions unbound by Clayton's case, Clayton's case has very often been roundly criticised.”

Prentis's firm was closed in June 2000 and he was struck off the solicitors' roll in November 2001. He ran a mortgage investment scheme in which clients provided funds that acted as loans for properties. For fees, he received a cut of the loans plus interest. The loans totalled around £5.6m, most of which was invested in massively overvalued properties.

Hodge Malek QC of 4-5 Gray's Inn Square acted for the trustees.