Around £35m of mortgage lender claims against the Law Society's Compensation Fund have been thrown out by the House of Lords Appeals Committee.
Last week, the committee backed an earlier Court of Appeal ruling 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.
The case was brought by Mortgage Express and the Alliance and Leicester Building Society which argued that the Compensation Fund mirrored the Solicitors Indemnity Fund (SIF).
However, the Court of Appeal ruled that the discretionary fund, which provides compensation for clients of dishonest solicitors if they fall outside SIF's protection, was based on “rational and intelligible” grounds.
At stake was £20m, with at least another £15m in potential claims from other mortgage lenders who were awaiting the outcome of this case.
Had the mortgage lenders won solicitors, who each annually contribute £100 to the fund, would have faced paying another £1,000 each.
“If the lenders' challenge had been successful, this would have destroyed the discretionary nature of the Compensation Fund and possibly could have undermined the protection offered to ordinary clients by the scheme,” said Law Society legal adviser Anne Coles.