Thousands to be hit by 'dishonest' law firms

More than 100 law firms are expected to be closed down by the regulatory authorities this year as the legal profession and its clients go through a recession-related "annus horribilis". Tens of thousands of people will find that they are left in the lurch mid-divorce or half way through a house sale – while officers from the Solicitors Regulation Authority (SRA) take control of these distressed firms.

The SRA has noticed a dramatic, 50 per cent increase in severe problems at small firms of one, two or three partners since January. Last year, it took over and closed 71 such businesses, but in 2009 it is on course to close more than 100 – the highest figure since 2001.

"We are, regretfully, finding an increase in dishonesty," says Geoff Negus of the SRA, which has jurisdiction over England and Wales. "Times are tight and some solicitors do not always respect the fact that the client account is the client's money, not theirs." Some lawyers are simply abandoning their practices and others, who may be totally honest, find they cannot cope anymore as their cash flow dries up.

But this is just one sign of a profession under pressure. While most law firms will survive, many will take short cuts and, whether they know it or not, clients will pay the price. It is mainly for this reason that Moore Blatch Resolve, a specialist personal injury legal practice, unveiled a new shop window on Monday, the website: www.claimsagainstsolicitors.com.

Moore Blatch Resolve, which has 4 per cent of the UK personal injury market, believes a significant number of injury claims are handled by inexperienced, generalist or overworked lawyers who do not understand or appreciate the steps they need to take to maximise claims for clients.

Moore Blatch recently won £500,000 for a motorbike dispatch rider by helping him to sue the law firm that handled his original claim. He had gone to that firm after getting a head injury in an accident that was not his fault. The solicitor there made the crucial mistake of sending him, for an expert opinion, to a retired neurologist who misdiagnosed and understated his injury.

He nevertheless won about £50,000 in compensation – and was back to work in six months. However, as the months went by, it was clear his memory and overall demeanour had been impaired and altered by the accident. For instance, he had to stop to consult maps more often when making deliveries and he found it difficult even to plan simple household tasks. He lost his job and his relationship broke down.

When he went to Moore Blatch Resolve four years later, they sent him to at least four experts who diagnosed a far more significant case of brain injury than had been first recognised, and he ended up winning ten times more than the sum he had settled for at first.

The new ClaimsAgainstSolicitors service will concentrate initially on mishandled personal injury and clinical negligence claims. This is a big enough market in itself, as about 250,000 people are injured in road accident injuries a year. But Moore Blatch Resolve may extend the service to other areas of the law in future. "There are quite a few firms out there who really don't have the proper skills to be dealing with these cases," says partner Damian Horan. "They dabble and don't know when they are in above their neck."

This problem is thought to be particularly acute now. Even the biggest international law firms have had to make redundancies, and most firms are struggling to make ends meet. To stay profitable, many will be trying to increase workload volumes for individual lawyers and to get more junior staff to take on more responsibility. This is fertile ground for making mistakes. But if the lawyers get some sort of settlement for their clients, those clients might well never know that they could have won a lot more. For instance, a person who loses a limb in an accident could get £300,000 to pay for prosthetic limbs over the course of their life – but a lawyer without the necessary expertise might not even be aware of this possibility.

The insurance firms that pay out for negligent acts by lawyers are also expecting a very difficult 2009. Some put up their premiums by more than 10 per cent last September when the annual renewals came up. Steve Manton, chief executive of M Consulting, advises both insurers and law firms on their marketing and reputation management.

"One of our insurance clients withdrew from this market completely on the grounds that claims are going to escalate very rapidly," he says. The recession will turn up lots of instances of mistakes made on valuations, poor advice on tax and other solicitor errors on which their clients could base negligence claims, says Manton. Most solicitors are honest, he adds, but: "There is a fair amount of fraud being uncovered."

To make life even more difficult for clients, the complaints-handling system for lawyers comes with a very tarnished reputation. Compliance consultant Adam Samuel says the complaints system for financial services institutions works better than for law firms, which is in need of an overhaul. "There is a great deal to be done. The current rules are not nearly rigorous enough and the Ombudsman lacks the power to make the type of awards that hurt. The SRA needs to enforce good complaint-handling standards by claiming some significant and highly public scalps. Until then, I would not expect very much."

The Legal Services Ombudsman made no recommendations in 2007/08 for lawyers to pay client compensation (although she asked the Legal Complaints Service (LCS) to pay compensation, averaging £382, to 126 complaints to compensate them for its poor complaints-handling service).

At the moment, there is clearly a disharmony between the Ombudsman, Zahida Manzoor, and the LCS. The LCS receives complaints about solicitors in England and Wales, passes on those about ethics to the SRA and handles service quality and fees complaints itself. Clients who are unhappy with SRA or LCS decisions can refer their cases to the Ombudsman. In her last annual report, the Ombudsman revealed that she was "satisfied with the handling of 68 per cent of the LCS's investigations that consumers referred to her".

She said she was "critical of the overall performance of the LCS, and in particular poor decision-making in individual cases". In February this year, her satisfaction rate sank to just 52 per cent. For its part, the LCS says that only 7 per cent of complainants decide to go to the Ombudsman and that February was a particularly low-scoring month.

The SRA, by contrast, achieves an 80 per cent satisfaction rate with the Ombudsman. Its finest hour has, arguably, been in taking 24 law firms to the Solicitors Disciplinary Tribunal over their involvement in the miners' compensation saga. Several lawyers have been struck off, suspended or fined as much as £25,000 each, as well as having to pay the legal costs of the SRA. Costs amounted to over £78,000 per head in one case. The lawyers have essentially been accused of raking off excessive sums, in a non-transparent manner, from sick miners who were making claims for respiration and other work-related medical problems. So far, 13 cases have been heard, and another eleven are scheduled for hearing.

Cause for complaint: How to protect yourself

Ombudsman ZAHIDA Manzoor advises "consumers to make their own notes about any meetings or telephone discussions that take place with a legal professional". Many complaints fall through because the client had no evidence, such as notes, of what was agreed with their lawyer.

Be precise about the service you want and the fees agreed. If you have a problem you should try to sort it out with the firm first, with the lawyer you dealt with, and then with the lawyer in charge of complaint-handling. Decide what category your complaint falls into: poor customer service, poor legal service, overcharging or negligence.

In Scotland, the new Scottish Legal Complaints Commission handles complaints. In England and Wales, the LCS upholds about 43 per cent of fee complaints made to it, awarding an average of £3,100 so far in 2009. It can award up to £15,000 in compensation on other complaints – although this limit is due to double from 2010 when a new Ombudsman-led Office for Legal Complaints is set to replace the LCS. Take your complaint to the Ombudsman if you are unhappy with the decision of the LCS or SRA.

Consider getting help from other sources. Citizens Advice Bureau advised on over 53,000 inquiries about lawyers in 2007/08. If you go to another law firm or charity, for example, they might handle your complaint for you against the original legal advisers.If the firm gets into difficulty and is closed down, clients who have lost money can apply to the SRA's Compensation Fund to be recompensed.