The legal fallout from the economic crisis will be more severe for professional advisers than ever before, professional indemnity lawyers have warned.
“In the last recession developments in law were driven by the property crash, with a high number of mortgage fraud cases being brought against firms,” says Blake Lapthorn partner Richard Portlock. “Life has moved on in the last 15 years and the way clients use professional advisers has changed.
Sophisticated organisations use professionals on a broader consultancy basis – therefore there’ll be a lot of fights about who’s at fault.”
According to Barlow Lyde & Gilbert (BLG) partner Sarah Clover, the first wave of property claims has already begun to pass through the profession, and higher value commercial property claims are beginning to arise.
“We hear anecdotally that a lot of property agents are looking over contracts very carefully, and if the investment hasn’t worked out they are looking to blame the lawyers,” she says.
The Nationwide Building Society has launched claims against Eversheds and Browne Jacobson relating to major mortgage fraud in the residential property sector. “There is masses of mortgage fraud out there, particularly in the buy-to-let sector,” says BLG partner Richard Harrison. “Landlords are desperate and in real trouble.”
In the commercial property sector, where claims volumes will typically be lower but values significantly higher, claims are also beginning to emerge.
Fladgate Fielder is facing a test case from commercial property developer Land Securities. The multimillion-pound suit comes after the firm allegedly issued two applications for a judicial review in a bid to force Land Securities to contribute to its relocation costs.
The property company has issued the claim for abuse of process in a bid to recover damages for losses caused by delays and uncertainties brought about by the judicial review applications.
While property-related professional negligence claims are inevitable, law firms are for the first time feeling the heat from the financial services market.
“Contractual arrangements between banks are hideously complex and they will be examined,” predicts Clover.
Collyer Bristow is facing a group litigation order from 555 investors in schemes drafted by the firm’s company commercial chief John Bailey. The claim, which has been funded using a combination of third-party litigation funding and after-the-event insurance, seeks to recover £50m in damages.
“It will take time for the wheels to really fall off the financial services sector, but more of these claims will come for sure,” says Harrison.
In addition, firms have seen a rise in professional negligence claims in the marine, energy and commodities markets on the back of fluctuating oil prices.
“There are massive companies collapsing out there,” says Harrison. “People who have entered into contracts to ship goods across the world are seeing their profit margins fall and are looking at contracts to see how they can get out of them.”
Telecoms company Levicom has launched a claim against Linklaters alleging that it made huge losses after the firm advised it to go to arbitration and settle a shareholder dispute. Levicom alleges that, had it not settled as a result of Linklaters’ advice, it would have settled at a higher sum at a much earlier point.
Beachcroft ;partner ;Duncan Greenwood says several firms with professional negligence practices are looking to bulk up in response to the impending claims tide.
“The market is still fairly small in terms of claims within it, but there are some firms seeking to expand,” he says.
The profession is teetering on the edge of a mass of claims from clients who have lost money during the economic collapse, who, with hindsight, may not have made such hasty decisions – and who are casting around for someone