THE Law Society has successfully fended off a £3m compensation fund claim after arguing that a Finnish company acted negligently when it trusted a sole practitioner to look after the money.
Ingman Foods launched a judicial review against the Law Society after the Solicitors Compensation Fund refused to compensate any of the money the company had deposited with Charles Deacon, the sole practitioner who was jailed for nine years last year for fraud.
The company deposited the money with the Newcastle solicitor as part of a deal to obtain a $50m loan.
But apart from a signed loan agreement, there were no other contemporaneous documents relating to the transaction, except for the minutes of a meeting.
The Law Society refused to pay out any compensation to the company arguing that it "had demonstrated considerable imprudence in parting with such a large sum of money without any terms being established beforehand."
In its judicial review application to Mr Justice Latham at the High Court the company said it had set great store by the fact that Deacon was a solicitor. And it argued that business was conducted "much more informally in Scandinavia".
But Judge Latham agreed with the Law Society that the company had not taken sufficient precautions to safeguard the money before depositing it.
The judge confirmed that the SCF was designed to compensate victims of fraud but that the Law Society was "entitled to adopt a policy which protects the fund for those cases which most closely meet the characteristics of the sort of case which calls out clearly for compensation".
Although it may be appealed, the decision is the second important judgment in recent months which safeguards the Law Society's discretion to compensate victims of fraud.
In December the Court of Appeal held that the society was not obliged to compensate mortgage lenders defrauded by dishonest solicitors when the losses were caused principally by inflated valuations or a fall in the property market.
A spokeswoman for the Office for the Supervision of Solicitors welcomed the decision.