Law Soc advises on client money held in insolvent banks

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  • Law Soc advises on client money held in insolvent banks

    The Practice Note could usefully have said rather more really in several respects. The analysis on liability in negligence is rather less than a complete picture and there are in any event about 6 other bases of potential liability, though there are releatively straightforward solutions to each, at least in relation to clients rather than third parties.

    On undertakings it 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.'

    Yet it it is not incumbent on solicitors to assume personal liability, simply because (a) that is in the best interests of clients and (b) solicitors are insured: guidance note 26 to rule 10 of the Code of Conduct says ‘You are not obliged to give or accept undertakings.’ We can no longer be sure our insurers will be good for the money in the event of a catastrpohic bank failure which would impact across an insurers' entire book of solicitor business, and in any event there are significant issues of aggregation, limits of indemnity and excesses.

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  • Law Soc advises on client money held in insolvent banks

    The advice not to limit the scope of undertakings is hugely problematic from a conduct perspective but fairly easily defended in terms of civil liability in the event of a collapse of a bank providing purchase funds, for example. If conveyancers were to follow the advice it could lead to the conveyancing system freezing up rather like the banking system. What next!

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  • Law Soc advises on client money held in insolvent banks

    The Law Society seems to have recognised that the original guidance on undertakings was wrong and withdrew it on Friday. There is some revised guidance on undertakings but not a solution. Undertakings remain the harder part to resolve in practice; taking of client money is easier to resolve, but the reference to limiting liability and rule 2.07 is missing the point.

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