Change tracker – Solicitors' Compensation Fund Rules

2007-07-31
 

The Solicitors' Compensation Fund Rules 2009 have been replaced on the 6 October 2011 by the SRA Compensation Fund Rules 2011 as part of the introduction of outcomes-focused regulation.

Go to SRA Handbook

The Solicitors' Compensation Fund Rules 1995 were replaced on 31 March 2009 by the Solicitors' Compensation Fund Rules 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007.

 
 

Statutory authority, rules and guidelines

The Law Society's Compensation Fund is maintained pursuant to Section 36 of the Solicitors Act 1974. The object of the Fund is to enable the Society to make grants to those persons who have suffered loss by reason of the dishonesty of a solicitor, or his employee, or to an applicant who has suffered hardship as a consequence of a failure by a solicitor to account for money.

Section 36(2) provides as follows–

"Where the Council are satisfied –

  • (a)

    that a person has suffered or is likely to suffer loss in consequence of dishonesty on the part of a solicitor, or of an employee of a solicitor, in connection with that solicitor's practice or purported practice or in connection with any trust of which that solicitor is or formerly was a trustee; or

  • (b)

    that a person has suffered or is likely to suffer hardship in consequence of failure on the part of a solicitor to account for money which has come to his hands in connection with his practice or purported practice or in connection with any trust of which he is or formerly was a trustee; or

  • (c)

    that a solicitor has suffered or is likely to suffer loss or hardship by reason of his liability to any of his firm's clients in consequence of some act or default of any of his partners or employees in circumstances where but for the liability of that solicitor a grant might have been made out of the Compensation Fund to some other person; the Society may make a grant out of the Compensation Fund for the purpose of relieving that loss or hardship."

Section 36(8) provides as follows:-

"The Council may make Rules about the Compensation Fund and the procedure for making grants from it."

The administration of the Compensation Fund is presently subject to the Solicitors' Compensation Fund Rules 1995 which provides as follows:-

Rules dated 26 January 1995 made by the Council of the Law Society under Section 36(8) of the Solicitors Act 1974 and section 9 of the Administration of Justice Act 1985.

Solicitors' Compensation Fund Rules 1995

1 Interpretation

  • (a)

    In these Rules:

    "the Act" means the Solicitors Act 1974.

    "applicant" means a person or persons applying for a grant out of the Compensation Fund under section 36 of the Act, Schedule 2 paragraph 6 of the Administration of Justice Act 1985 or Schedule 14 paragraph 6 of the Courts & Legal Services Act 1990.

    "defaulting practitioner" means:

    • (i)

      a solicitor in respect of whose act or default, or in respect of whose employee's act or default, an application for a grant is made;

    • (ia)

      a registered European lawyer in respect of whose act or default, or in respect of whose employee's act or default, an application for a grant is made;

    • (ii)

      a recognised body in respect of whose act or default, or in respect of whose officer's or employee's act or default (in the case of a company), or in respect of whose member's or employee's act or default (in the case of a limited liability partnership), an application for a grant is made; or

    • (iii)

      a registered foreign lawyer who is practising in partnership with a solicitor or a registered European lawyer, and in respect of whose act or default or in respect of whose employee's act or default, an application for a grant is made;

    and the expressions "defaulting solicitor", "defaulting registered European lawyer", "defaulting recognised body" and "defaulting registered foreign lawyer" shall be construed accordingly.

    "recognised body" has the meaning assigned by section 9 of the Administration of Justice Act 1985;

    "registered European lawyer" means an individual registered with the Law Society under regulation 17 of the European Communities (Lawyer's Practice) Regulations 2000: and

    "registered foreign lawyer" has the meaning assigned by section 89 of the Courts & Legal Services Act 1990.

  • (b)

    Other expressions in these Rules have the meaning assigned to them by the Act.

  • (c)

    The Interpretation Act 1978 applies to these Rules as it applies to an Act of Parliament.

2. Grants in respect of persons not authorised to practise

  • (a)

    A grant may be made in respect of a defaulting solicitor even if the defaulting solicitor had no practising certificate in force or was suspended from practice at the date of the relevant act or default provided that the Council is reasonably satisfied that the applicant was unaware of the absence of a practising certificate or of the suspension.

  • (aa) A grant may be made in respect of a defaulting registered European lawyer even if, at the date of the relevant act or default, the registration of that lawyer in the Society's register of European lawyers was suspended or was cancelled under regulation 8 of the European Lawyers Registration Regulations 2000 due to non-renewal provided that the Council is satisfied that the applicant was unaware of the suspension or cancellation.

  • (b)

    A grant may be made in respect of a defaulting recognised body even if the recognition of that body had been revoked for non-renewal under regulation 7.1 of the Solicitors' Recognised Bodies Regulations 2007 on or before the date of the relevant act or default provided that the Council is reasonably satisfied that the applicant was unaware of such revocation.

  • (c)

    A grant may be made in respect of a defaulting registered foreign lawyer even if, at the date of the relevant act or default, the registration of that lawyer in the register of foreign lawyers was suspended or was cancelled under Schedule 14 paragraph 3(4)(a) of the Courts & Legal Services Act 1990 due to non renewal provided that the Council is reasonably satisfied that the applicant was unaware of the suspension or cancellation.

3. Grants to practitioners

No grant shall be made

  • (i)

    under section 36(2)(c) of the Act to any solicitor, or

  • (ii)

    under section 36(2)(c) of the Act to any registered European lawyer, or

  • (iii)

    under Schedule 14 paragraph 6(1)(c) of the Courts & Legal Services Act 1990 to any registered foreign lawyer, or

  • (iv)

    under Schedule 2 paragraph 6(2)(c) of the Administration of Justice Act 1985 to any solicitor, registered European lawyer, recognised body or registered foreign lawyer, or to any other individual or body corporate permitted under rule 14 of the Solicitors' Code of Conduct 2007 to be a member of a recognised body,

unless the Council is satisfied that no other means of making good the loss is available and that he or she is fitted by reason of conduct, age and experience (or in the case of a company it is fitted by reason of the conduct, age and experience of its officers and employees, or in the case of a limited liability partnership it is fitted by reason of the conduct, age and experience of its members and employees) to receive such a grant.

4. Foreign lawyers

  • (a)

    If a registered European lawyer is exempted from contributing to the Compensation Fund under the Solicitors' Compensation Fund (Foreign Lawyers' Contributions) Rules 1991 on the basis of completely equivalent cover under home state rules, no grant shall be made:

    • (i)

      under section 36(2)(a) of the Act in respect of any act or default of the registered European lawyer or his or her employee unless, in the case of an employee, the employee is:

      • a solicitor, or
      • the employee of a partnership which includes at least one person who is not exempted on the basis of that provision;
    • (ii)

      under section 36(2)(b) of the Act in respect of any act or default of the registered European lawyer; or

    • (iii)

      under section 36(2)(c) of the Act to the registered European lawyer.

  • (b)

    No grant shall be made under section 36 of the Act in respect of any act or default of a registered European lawyer, or the employee or partner of a registered European lawyer, where such act or default took place outside the United Kingdom, unless the Council is satisfied that the act or default was, or was closely connected with, the act or default of a solicitor, or that the act or default was closely connected with the registered European lawyer's practice in the United Kingdom.

  • (c)

    No grant shall be made under Schedule 14 paragraph 6(1) of the Courts & Legal Services Act 1990 in respect of the act or default of a registered foreign lawyer, or of the employee or partner of a registered foreign lawyer, where such act or default took place outside England and Wales, unless the Council is satisfied that the act or default was, or was closely connected with, the act or default of a solicitor, or that the act or default was closely connected with practice in England and Wales.

5. Application form

Every applicant shall complete and deliver to the Society an application in such form as may from time to time be prescribed by the Society.

6. Time limits

Every application shall be delivered to the Society within six months after the loss, or likelihood of loss, or failure to account, as the case may be, first came, or reasonably should have come, to the knowledge of the applicant. The Council may extend this period if satisfied that there are exceptional circumstances which justify the extension of the time limit.

7. Documentation in support

The Council may require an application to be supported by a statutory declaration and accompanied by any relevant documents and shall cause such enquiries to be made in relation to the application as it sees fit. Failure to provide documentation or information requested or to co operate fully in the Council's enquiries may be taken into account when the application is considered.

8. Other remedies

The Council may, before deciding whether or not to make a grant, require the pursuit of any civil remedy which may be available in respect of the loss, the making of a formal complaint to the Police in respect of any dishonesty on the part of the defaulting practitioner or may require the assistance of an applicant in the taking of any disciplinary action against the defaulting practitioner.

9. Costs for submitting applications

Where a grant is made, the Council may consider an application for a further grant in respect of the reasonable costs properly incurred by the applicant with either his solicitor or other professional adviser, provided that such costs were incurred wholly, exclusively and necessarily in connection with the preparation, submission and proof of the application. If, in the view of the Council, such costs were not reasonably or properly incurred then the Council may decline to pay some or all of those costs.

10. Interest

The Council may consider an application for a supplementary grant by way of a sum in lieu of lost interest on a principal grant. Such interest will normally be calculated in accordance with the rates prescribed from time to time by the Council for Compensation Fund applications and will normally be calculated from the day the loss which was the subject of the principal grant was incurred, up to the next working day after the despatch of the grant cheque.

11. Discretion to limit grant

In relation to any loss sustained, or any sum of money which came under the control of a defaulting practitioner, after 10th June 1993, the Council will refuse to authorise a grant of an amount which would result in sums exceeding £1,000,000.00 (inclusive of all costs and interest) being paid to or on behalf of an applicant from either the Compensation Fund or the Solicitors Indemnity Fund or both together in respect of any individual transaction or matter.

12 Assisting in recovering money

An applicant to whom a grant has been made may be required to prove, on behalf of the Society, in any insolvency and/or winding up of the defaulting practitioner and also to comply with all proper or reasonable requirements of the Council in the exercise of subrogated rights under section 36(4) of the Act.

13. Refusal of an application

If the Council refuses to make a grant of either the whole or part of the amount applied for then the Council shall cause the applicant to be informed in writing of the reasons for the decision.

14. Notice to defaulting practitioner

  • (a)

    The Council shall not make a grant unless a letter has been sent:

    • (i)

      to the defaulting solicitor at his or her last known correspondence address or to any solicitors or other lawyers instructed by him or her;

    • (ia)

      to the defaulting registered European lawyer at his or her last known correspondence address or to any solicitors or other lawyers instructed by him or her, as well as to the appropriate regulatory body for the defaulting registered European lawyer within his or her home jurisdiction or jurisdictions, whether in Europe or elsewhere;

    • (ii)

      to the defaulting recognised body at its registered office as last communicated to the Council or the Society (or any Rules for the time being replacing those Rules); or under rule 14 of the Solicitors' Code of Conduct 2007.

    • (iii)

      to the defaulting registered foreign lawyer at his or her last known correspondence address or to any solicitors or other lawyers instructed by him or her as well as to the appropriate regulatory body for the defaulting registered foreign lawyer within his or her home jurisdiction or jurisdictions.

    informing him/her or it of the nature and value of the application and not less than eight days have elapsed since the date of such letter.

  • (b)

    If by reason of death, insolvency or other disability, proper notification under sub paragraphs (a)(i), (ia) or (iii) of this rule cannot be given to a defaulting practitioner then such notice may be given to a Personal Representative, Trustee in Bankruptcy or any other person who the Society is satisfied acts for or on behalf of the defaulter and/or his or her Estate.

  • (c)

    Where the defaulting practitioner is a recognised body and it appears to the Society that any letter sent under (a)(ii) above will not come to the attention of the recognised body (or any officer or employee thereof if it is a company, or any member or employee thereof if it is a limited liability partnership) then the letter may be sent to the liquidator and/or receiver of the recognised body or to any other person for the time being accountable for the affairs of the recognised body.

  • (d)

    If it appears to the Society that any letters sent under sub paragraphs (a)(i) to (iii) of this rule will not come to the attention of the defaulting practitioner or any other person on his or her behalf, then the Council may make a grant notwithstanding failure to comply with the provisions of this Rule.

15. Notice of requirements

Any requirement of the Council or the Society under these Rules may be communicated by a notice in writing.

16. Guidelines

When exercising the discretion conferred upon it by Section 36(2) of the Act, Schedule 2 paragraph 6(2) of the Administration of Justice Act 1985 and Schedule 14 paragraph 6(1) of the Courts and Legal Services Act 1990, the Council may take into consideration the Guidelines contained in the Schedule to these Rules and decisions of the Council, and any other guidelines that the Council may approve, although these guidelines and decisions shall not fetter the Council's discretion.

17. Waivers

The Council may waive any of the provisions of these Rules excepting Rule 14.

18. Repeal and commencement

These Rules shall come into operation on 1 March 1995, whereupon the Solicitors' Compensation Fund Rules 1975 (as amended) shall cease to have effect save in respect of applications submitted before that date.

Solicitors' compensation fund rules 1995 [Schedule]

Guidelines

These guidelines form part of the Solicitors Compensation Fund Rules 1995 made by the Council on 26 January 1995, although were subject to amendment by the Council on 18th July 1996, 22nd May 2000, 25th February 2004, 17th March 2004, 9th February 2005 and 1st July 2007

In these guidelines, reference to a solicitor shall include registered European lawyers; registered foreign lawyers practising in partnership with a solicitor or a registered European lawyer; and recognised bodies.

1. General Principles

  • (a)

    The basic object of the Fund is to replace "clients' money" misappropriated by a solicitor or his or her employee(s), but, although an applicant for a grant must be a person who has suffered loss through the actions of the solicitor, he or she need not necessarily be or have been the solicitor's client.

  • (b)

    A grant out of the Fund is made wholly at the discretion of the Council of the Law Society. No person has a right to a grant enforceable at law, but the intention of the Council is to seek to administer the Fund in an even handed and consistent manner.

  • (c)

    The Fund is administered as a fund of last resort. This means that a grant may be limited or refused to an applicant where the loss is an insured risk or where the loss is capable of being made good by recourse to another person.

  • (d)

    The burden of satisfying the Council that a loss has been suffered within the ambit of the Fund rests with each applicant, but the Society will give guidance and, so far as possible, for the purpose of the application, allow the applicant reasonable access to records under the Society's control or to which the Society has access.

  • (e)

    A grant may be made out of the Fund to a solicitor applicant, usually by way of a loan, in circumstances where a loss within the ambit of the Fund has been suffered by reason of misappropriation of clients' money by his or her partner or employee or where he or she is the purchaser of a practice from a defaulting solicitor, provided that the application is not tainted with the default. Exceptionally, such a grant may be made even though the applicant may be entitled to indemnity under the Solicitors' Indemnity Fund and without prejudice to that indemnity.

  • (f)

    The Council normally require that the "dishonesty" or '"failure to account" referred to in Section 36(2)(a) and (b) of the Solicitors Act 1974 must have occurred within the course of a solicitor/client transaction of a kind which is part of the usual business of a solicitor.

2. Losses which cannot be the subject of a grant

Certain losses are outside the ambit of the Fund because the Council has no power to make a grant. Examples are:

  • (a)

    losses arising as a result of misappropriation of money by a solicitor outside his or her practice as such or by a solicitor's employee acting outside the scope of his or her employment;

  • (b)

    losses arising solely by reason of professional negligence by a solicitor;

  • (c)

    losses arising by reason of the failure of a solicitor to satisfy a money judgment against him or her where the facts of the judgment would not otherwise give rise to a claim on the Compensation Fund;

  • (d)

    losses where the Council is satisfied that either no evidence of dishonesty is available or, where in the case of failure to account, an applicant is not suffering material hardship.

3. Losses in respect of which a grant may not be made

Notwithstanding the statutory provisions of section 36, there are certain losses in respect of which it is not normally the practice of the Council to make a grant. Examples are:

  • (a)

    losses which result from, but do not form part of any misappropriation of, or failure to account for, money or money's worth. This is subject to certain exceptions, e.g. legal costs incurred in applying for a grant and interest on the amount of the grant.

  • (b)

    the application is tainted with the applicant's own dishonesty.

  • (c)

    the applicant has contributed to his, her or its loss as a result of his/her or its activities, omissions or behaviour either before, during or after the transaction giving rise to the application or thereafter.

  • (d)

    in the case of an applicant who is a member of a profession, or is engaged in trade or business or performs a function, where the loss arises in connection with that profession or in the course of that trade, business or function, and there is evidence that the applicant and/or the applicant's servants or agents contributed to the loss by failing to exercise a reasonable standard of care.

  • (e)

    the loss amounts to a claim for contractually agreed interest between the applicant and the solicitor. Where, following the authorisation of a principal grant, the Council makes a supplementary grant for a sum in lieu of lost interest, the sum is calculated at rates which may from time to time be prescribed by the Council.

  • (f)

    the Society was not notified of the applicant's loss within six months of the date upon which the loss first came or ought to have come to the applicant's knowledge, and there are no exceptional circumstances which, in the opinion of the Council, justify the delay (see Rule 6 of the Solicitors' Compensation Fund Rules);

  • (g)

    the application is based on the failure by a solicitor to comply with an undertaking. The Fund does not generally underwrite a solicitor's undertaking. Failure on the part of a solicitor to comply with an undertaking is a matter of misconduct which may be the subject of a complaint but does not of itself entitle the recipient to make a successful application for a grant out of the Fund.

    An application may, however, be considered favourably if it can be shown that an undertaking was given in the course of the solicitor's usual business as a solicitor acting on behalf of a client, that the recipient acted reasonably in accepting the undertaking and placing reliance on the solicitor in his or her capacity as such and that:

    • (i)

      the undertaking was given with dishonest intent for the purpose of procuring money or money's worth, or

    • (ii)

      the undertaking, although not given with dishonest intent, Is subsequently dishonestly not performed by the solicitor for the purpose of procuring money or money's worth.

The Council does not consider the giving of an undertaking in circumstances which amount to the solicitor giving a bare guarantee either of his or her personal liabilities or the financial obligations and liabilities of a client or third party to form part of the usual business of a solicitor, and such an undertaking would therefore not normally be regarded as having been given within the course of a solicitor/client transaction.

  • (h)

    the loss occurred in relation to an overseas partnership of which all solicitor partners are exempt from other provisions of Rules 12 and 13 of the Solicitors Overseas Practice Rules 1990 by virtue of Rules 12(6) and 13(6), and the loss did not occur as a result of a solicitors dishonesty.

  • (i)

    the application is by the Legal Services Commission for loss occasioned through making regular payments under the Commission's contracting schemes for civil and/or criminal work.

4. Requirements to be satisfied

Every applicant for a grant out of the Compensation Fund must satisfy the Council:-

  • (a)

    that he, she or it has suffered or is likely to suffer actual loss of money or money's worth;

  • (b)

    that such loss has been occasioned by (i) the dishonesty of a solicitor (or his or her employee) acting in the course of his or her practice as such or in connection with a Trust of which the solicitor was at the material time, a professional Trustee or (ii) the failure of a solicitor (or his or her employee) to account for money received in the course of his or her practice or in connection with a Trust of which the solicitor was, at the material time, a professional Trustee;

  • (c)

    that any alleged dishonesty is evidenced either by the conviction of the solicitor (or his or her employee), or by a finding of fraud in a civil action, or by evidence leading to an inevitable presumption of theft. Where an application is based on failing to account, the application must be supported by sufficient documentation to substantiate that a failure to account has occurred and that the applicant is suffering or is likely to suffer hardship; and

  • (d)

    that the loss is not reasonably recoverable from any other source.

5. Interim grants

In an application where it appears that there is severe hardship, the Council may make an interim grant before the full investigation of the whole application has been completed and without the full application being admitted. However, the Council must be satisfied that there has been a loss of an amount at least equal to that to be paid out by way of an interim grant.

6. Claims where the defaulting solicitor is or was in partnership

  • (a)

    Losses caused by the dishonesty of a partner or employee will normally be recoverable from the Solicitors' Indemnity Fund, or after 31 August 2000 from the firm's insurer under the Solicitors' Indemnity Insurance Rules. The Council may, however, make a grant to an applicant in respect of part of his or her claim which is not covered by the Indemnity Fund or by the firm's insurance, e.g. where the remaining partners are unable to settle all or part of the claim from their own resources.

  • (b)

    Accordingly, applicants should proceed with a claim against the remaining partners who, in turn, will make a claim against the Indemnity Fund, or after 31 August 2000 under the firm's insurance. Where there is doubt as to whether a claim should be met from the Indemnity Fund or the Compensation Fund, the Society endeavours to make suitable arrangements with Solicitors' Indemnity Fund Limited to ensure that claims are paid promptly.

7. Institution of civil proceedings

In some cases the Council may require an applicant to institute civil proceedings including, where appropriate, insolvency proceedings against the solicitor in respect of the loss suffered. The purpose of the proceedings may be to recover all or part of the alleged loss or to quantify precisely the amount of such loss. No applicant should institute proceedings unless and until the written consent of the Society has been obtained and the question of who is to be responsible for the costs has been decided, otherwise any application for a grant in respect of such costs may be rejected by the Council.

8. Prosecution of dishonest solicitors

In all appropriate cases, the applicant will be expected to assist the Police in connection with enquiries into the commission of any criminal offence by the solicitor in respect of the alleged acts giving rise to the application. However, the Council may consider an application for a grant notwithstanding that a defaulting solicitor has not been convicted of any such offence nor has been the subject of a finding of dishonesty by the Solicitors' Disciplinary Tribunal.

9. Personal liabilities of a solicitor

The Council will not normally make a grant in respect of the personal or trading debts or liabilities of a solicitor or a solicitor's firm or where the monies form part of a commercial transaction or business venture between the applicant and the solicitor outside the normal solicitor/client relationship.

10. Applicant's own behaviour

When considering any application, the Council takes into account the conduct of the applicant and/or the applicant's servants or agents both before and after the loss was sustained. If the Council, in the exercise of its discretion, considers an applicant and/or an applicant's servants or agents to have inter alia contributed to the circumstances of the loss, or to have failed to submit an application for a grant within a reasonable time (see also Rule 6 of the Solicitors' Compensation Fund Rules), or to have failed to pursue an application diligently, then the application may be rejected in its entirety or the amount of any grant substantially reduced.

11. Deduction from grants

  • (a)

    The Council may deduct from any grant the costs that would have been due to the solicitor provided that the work had been properly completed so that the applicant will not be in a better position by reason of a grant than he or she would otherwise have been in. A deduction in respect of notional costs may be made by the Council notwithstanding the fact that the defaulting solicitor may not have held a practising certificate at all material times. If a defaulting solicitor did the work so badly, or did not complete it, with the result that the applicant has had to instruct another solicitor to carry out or finish the work, then a grant may be made for the additional reasonable costs incurred by the applicant.

  • (b)

    The Council will normally seek to deduct from any grant all monies already recovered by an applicant and monies which either will be or should have been recovered. For example, if an application is for a sum of £10,000 but an applicant has already recovered, from whatever source, a sum of £2,000, the Council will normally seek to base any grant on the balance of £8,000. This principle will usually apply even when an applicant believes that he is receiving re payments at a contractually agreed rate, but where the solicitor has, in fact, actually misappropriated the money advanced and is, for example, making re payments in lieu of interest in an effort to allay suspicion.

2. Payment of interest on claims

In appropriate cases, the Council will consider an application for a supplementary grant in lieu of lost interest on the amount of the grant from the date of the loss (see Rule 10 of the Solicitors' Compensation Fund Rules). If paid, interest will normally be calculated at those rates prescribed from time to time by the Council which take into account that a grant is a gift and is therefore not subject to tax.

13. Payment of costs of application

The Council has the power to make a further grant in respect of the reasonable costs of an applicant's solicitor or other professional adviser relating to a claim where a grant is authorised (see Rule 9 of the Solicitors' Compensation Fund Rules). The Council may not, however, be prepared to make such a further grant or may grant less than the full costs if it is of the opinion that all or part of the costs should not have been incurred, or might have been saved by an earlier approach to the Society, or is of the view that the costs incurred are unreasonable or excessive.

14. Multi-profession frauds

In an application where the loss has been sustained as a result of the combined activities of more than one profession, (e.g. a solicitor conspires with an accountant or surveyor, or a dishonest solicitor is assisted by a negligent accountant or valuer) the Council will normally consider how each contributing factor affected the applicant's loss. The Council will normally endeavour to base any grant on its assessment of that portion of the loss primarily attributable to the acts of the solicitor as opposed to that portion which is primarily attributable to the acts or omissions of the other professional parties, or to other factors. The Council may decide to make a grant on a pro-rata basis in accordance with its assessment of the importance of each contributing factor in the loss, or may reject an application in its entirety if it is of the opinion that the loss was primarily due to other factors rather than the solicitor's dishonesty.

15. Normal maximum payout

For any loss sustained, or any sum of money that came into the possession of a defaulting solicitor, subsequent to 10 June 1993, it is the Council's policy not to authorise a grant with regard to any individual transaction which would result in an aggregate sum exceeding £1,000,000, inclusive of all interest and costs, being paid from a combination of the Compensation Fund and the Solicitors Indemnity Fund or the Compensation Fund solely.

16. Rejection of claim

The most common ground for rejection of an application is that it does not come within the Compensation Fund's statutory framework. When the Council refuse or are unable to make a grant, the applicant will be informed in writing of the reason for this decision. The fact that an application has been rejected does not prevent a further application being submitted, or the rejected application being re considered, provided that substantial new relevant evidence, information or submissions are produced in support of the new application or the request for re consideration.

Solicitors' Compensation Fund Rules 2009

Rules dated 31 March 2009 commencing 31 March 2009 made by the Solicitors Regulation Authority Board under sections 36, 36A, 79 and 80 of the Solicitors Act 1974 and section 9 of the Administration of Justice Act 1985, with the concurrence of the Master of the Rolls and the Lord Chancellor under article 4 of the Legal Services Act 2007 (Commencement No. 4, Transitory and Transitional Provisions and Appointed Day) Order 2009 and paragraph 16 of Schedule 22 to the Legal Services Act 2007.

1. Interpretation

  • (1)

    In these rules:

    "the Act" means the Solicitors Act 1974;

    "applicant" means a person or persons applying for a grant out of the Compensation Fund under rule 3 of these rules;

    "appointed representative" means the personal representative of a deceased defaulting practitioner; the trustee of a bankrupt defaulting practitioner; the administrator of an insolvent defaulting practitioner, or other duly appointed representative of a defaulting practitioner;

    "approved regulator" means a body listed in paragraph 1 of Schedule 4 to the Legal Services Act 2007 (whether or not that paragraph has been brought into force), or designated as an approved regulator by an order under paragraph 17 of that Schedule,

    and reference to the SRA as an approved regulator means the SRA carrying out regulatory functions assigned to the Law Society as an approved regulator;

    "defaulting practitioner" means:

    • (a)

      a solicitor in respect of whose act or default, or in respect of whose employee's act or default, an application for a grant is made;

    • (b)

      a registered European lawyer in respect of whose act or default, or in respect of whose employee's act or default, an application for a grant is made;

    • (c)

      a recognised body in respect of whose act or default, or in respect of whose manager's or employee's act or default, an application for a grant is made; or

    • (d)

      a registered foreign lawyer who is a manager of a partnership, limited liability partnership or company together with a solicitor, a registered European lawyer or a recognised body, and in respect of whose act or default or in respect of whose employee's act or default, an application for a grant is made;

    and the expressions "defaulting solicitor", "defaulting registered European lawyer", "defaulting recognised body" and "defaulting registered foreign lawyer" shall be construed accordingly;

    "exempt European lawyer" has the meaning assigned in rule 24 of the Solicitor's Code of Conduct 2007;

    "manager" means a partner in a partnership, a member of a limited liability partnership or a director of a company, as defined in rule 24 of the Solicitor's Code of Conduct 2007;

    "recognised body" has the meaning assigned by section 9 of the Administration of Justice Act 1985;

    "registered European lawyer" means an individual registered with the SRA under regulation 17 of the European Communities (Lawyer's Practice) Regulations 2000;

    "registered foreign lawyer" has the meaning assigned by section 89 of the Courts and Legal Services Act 1990 and

    "SRA" means the Solicitors Regulation Authority.

  • (2)

    Other expressions in these rules have the meaning assigned to them by the Act.

  • (3)

    The Interpretation Act 1978 applies to these rules as it applies to an Act of Parliament.

2. Maintenance of and contributions to the Fund

  • (1)

    The Law Society ("the Society") shall establish and maintain the fund called the Solicitors' Compensation Fund ("the Fund") for making grants in respect of compensation claims.

  • (2)

    Every solicitor, registered European lawyer, registered foreign lawyer and recognised body shall make contributions to the Fund in such amounts, at such times and in such circumstances, as may be prescribed from time to time by the Council of the Law Society. Any unpaid contributions may be recovered as a debt due to the Society.

  • (3)

    Paragraph (2) shall not apply to a solicitor, registered European lawyer or registered foreign lawyer who is a Crown Prosecutor.

  • (4)

    The Society may invest any money which forms part of the Fund in any investments in which trustees may invest under the general power of investment in section 3 of the Trustee Act 2000 (as restricted by sections 4 and 5 of that Act).

  • (5)

    The Society may insure with authorised insurers, in relation to the Fund, for such purposes and on such terms as it considers appropriate.

  • (6)

    The Society may

    • (a)

      borrow for the purposes of the Fund;

    • (b)

      charge investments which form part of the Fund as security for borrowing by the Society for the purposes of the Fund.

  • (7)

    The Fund may be applied by the SRA for the following purposes (in addition to the making of grants in respect of compensation claims):

    • (a)

      payment of premiums on insurance policies effected under paragraph (5);

    • (b)

      repayment of money borrowed by the Society for the purposes of the Fund and payment of interest on any money so borrowed under paragraph (6);

    • (c)

      payment of any other costs, charges or expenses incurred by the Society in establishing, maintaining, protecting, administering or applying the Fund;

    • (d)

      payment of any costs, charges or expenses incurred by the SRA in exercising its powers under Part 2 of Schedule 1 to the Act (intervention powers);

    • (e)

      payment of any costs or damages incurred by the Society, the SRA, their employees or agents as a result of proceedings against any or either of them for any act or omission of its or theirs in good faith and in the exercise or purported exercise of such powers.

3. Grants which may be made from the Fund

The object of the Fund is to replace client money which a defaulting practitioner or a defaulting practitioner's employee or manager has misappropriated or otherwise failed to account for. The applicant need not necessarily be or have been the defaulting practitioner's client.

  • (1)

    A grant out of the Fund is made wholly at the discretion of the SRA. No person has a right to a grant enforceable at law.

  • (2)

    For any grant to be made out of the Fund, an applicant must satisfy the SRA that:

    • (a)

      he has suffered or is likely to suffer loss in consequence of the dishonesty of a defaulting practitioner or the employee or manager of a defaulting practitioner or

    • (b)

      he has suffered or is likely to suffer loss and hardship in consequence of a failure to account for money which has come into the hands of a defaulting practitioner or the employee or manager of a defaulting practitioner, which may include the failure by a defaulting practitioner to complete work for which he was paid,

    in the course of a transaction of a kind which is part of the usual business of the persons listed in rule 1 (1) (a) to (d).

  • (3)

    For the purposes of paragraph (2)(b):

    • (a)

      an individual whose dealings with the defaulting practitioner have been in a personal capacity and who has suffered or is likely to suffer loss due to a failure to account shall be deemed to have suffered hardship; and

    • (b)

      a body corporate, or an individual whose dealings with the defaulting practitioner have been in a business capacity and who has suffered or is likely to suffer loss due to a failure to account must provide evidence to satisfy the SRA that it, he or she (the body or individual) has suffered or is likely to suffer hardship.

  • (4)

    A grant may, at the sole discretion of the SRA, be made as an interim measure.

4. Grants in respect of persons in default of regulatory requirements

  • (1)

    A grant may be made in respect of a defaulting solicitor even if the defaulting solicitor had no practising certificate in force at the date of the relevant act or default provided that the SRA is reasonably satisfied that the applicant was unaware of the absence of a valid practising certificate.

  • (2)

    A grant may be made in respect of a defaulting registered European lawyer even if, at the date of the relevant act or default, the registration of that lawyer in the SRA's register of European lawyers was suspended or was cancelled under regulation 8 of the European Lawyers Registration Regulations 2000 due to non-renewal provided that the SRA is reasonably satisfied that the applicant was unaware of the suspension or cancellation.

  • (3)

    A grant may be made in respect of a defaulting recognised body even if the recognition of that body had expired for non-renewal under regulation 8.3 of the Solicitors' Recognised Bodies Regulations 2007 on or before the date of the relevant act or default provided that the SRA is reasonably satisfied that the applicant was unaware of such revocation.

  • (4)

    A grant may be made in respect of a defaulting registered foreign lawyer even if, at the date of the relevant act or default, the registration of that lawyer in the register of foreign lawyers was suspended, or was cancelled under Schedule 14 paragraph 3(4)(a) of the Courts and Legal Services Act 1990 due to non-renewal, provided that the SRA is reasonably satisfied that the applicant was unaware of the suspension or cancellation.

5. Grants to practitioners

  • (1)

    A grant may be made to a defaulting practitioner who or which has suffered or is likely to suffer loss by reason of his, her or its liability to any client in consequence of some act or default of:

    • (a)

      in the case of a defaulting solicitor, registered European lawyer or registered foreign lawyer, any of his or her employees or any fellow manager;

    • (b)

      in the case of a defaulting recognised body, any of its managers or employees or any fellow manager,

    in circumstances where but for the liability of that defaulting practitioner a grant might have been made from the Fund to some other person.

  • (2)

    No grant shall be made under paragraph (1) unless the SRA is satisfied that no other means of making good the loss is available and that the defaulting practitioner is or in the case of a recognised body are fit and proper to receive a grant.

  • (3)

    A grant under paragraph (1) shall normally be made by way of a loan and shall be repayable by the recipient at the time and upon such terms as shall be specified by the SRA.

  • (4)

    In the case of a defaulting recognised body, such grant may be payable to one or more of the managers of the defaulting recognised body. If a loan is made to more than one manager, they shall be jointly and severally liable for the repayment of the loan to the Society.

6. Foreign lawyers

  • (1)

    If a registered European lawyer is exempted from contributing to the Fund on the basis that he or she has completely equivalent cover under home state rules, no grant shall be made:

    • (a)

      in respect of any act or default of the registered European lawyer or his or her employee unless, in the case of an employee, the employee is:

      • (i)

        a solicitor, or

      • (ii)

        the employee of a partnership which includes at least one person who or which contributes to the Fund; or

    • (b)

      under rule 5 to the registered European lawyer.

  • (2)

    No grant shall be made in respect of any act or default of a registered European lawyer or an exempt European lawyer, or the employee of a registered European lawyer, where such act or default took place outside the United Kingdom, unless the SRA is satisfied that the act or default was, or was closely connected with, the act or default of a solicitor or the employee of a solicitor, or that the act or default was closely connected with the registered European lawyer's practice in the United Kingdom.

  • (3)

    No grant shall be made in respect of the act or default of a registered foreign lawyer, or of the employee of a registered foreign lawyer, where such act or default took place outside England and Wales, unless the SRA is satisfied that the act or default was, or was closely connected with, the act or default of a solicitor or the employee of a solicitor, or that the act or default was closely connected with practice in England and Wales.

7. Losses outside the remit of the Fund

A grant will not be made in respect of the following:

    • (a)

      Losses arising solely by reason of professional negligence by a defaulting practitioner, or the employee or manager of a defaulting practitioner.

    • (b)

      Losses which are the personal debts of a defaulting practitioner and where the facts would not otherwise give rise to a claim on the Fund.

    • (c)

      The loss results from, but does not form part of, any misappropriation of, or failure to account for, money or money's worth.

    • (d)

      The loss results from the trading debts or liabilities of the defaulting practitioner.

    • (e)

      The loss amounts to a claim for contractually agreed interest between the applicant and the defaulting practitioner.

    • (f)

      The SRA was not notified of the applicant's loss in accordance with rule 10.

    • (g)

      The loss occurred in relation to an overseas partnership which does not fall within rule 15, 27(1)(c) or (2)(b) of the Solicitors' Code of Conduct 2007, unless:

      • (i)

        the loss occurred as a result of a solicitor's dishonesty, or

      • (ii)

        the loss occurred as a result of failure to account by a solicitor acting as a named trustee.

    • (h)

      The application is by the Legal Services Commission for loss occasioned through making regular payments under the Commission's contracting schemes for civil and/or criminal work.

8. Undertakings

A grant in respect of a failure by a defaulting practitioner to comply with an undertaking will be considered if it can be shown that the undertaking was given in the course of the defaulting practitioner's usual business acting on behalf of a client, that the recipient acted reasonably in accepting the undertaking and placing reliance on the undertaking and that:

  • (i)

    the undertaking was given with dishonest intent for the purpose of procuring money or money's worth, or

  • (ii)

    the undertaking, although not given with dishonest intent, is subsequently dishonestly not performed for the purpose of procuring money or money's worth.

The SRA does not consider the giving of an undertaking in circumstances which amount to the giving of a bare guarantee of the defaulting practitioner's personal liabilities, or the financial obligations and liabilities of a client or third party, to form part of the usual business of a solicitor or other legal practitioner.

9. Multi-party and multi-profession issues

  • (1)

    Where the loss has been sustained as a result of the combined activities of more than one party, (e.g. a defaulting practitioner conspires with an accountant or surveyor, or is assisted by a negligent accountant or valuer) the SRA will consider the role of each contributing factor in causing the applicant's loss. The SRA will base any grant on its assessment of that portion of the loss primarily attributable to the acts of the defaulting practitioner as opposed to that portion which is primarily attributable to the acts or omissions of the other parties, or to other factors. The SRA may decide to make a grant on a pro-rata basis in accordance with its assessment of the importance of each contributing factor in the loss, or may reject an application in its entirety if it is of the opinion that the loss was primarily due to other factors rather than the defaulting practitioner's dishonesty.

  • (2)

    When a solicitor, registered European lawyer or registered foreign lawyer is practising as the manager or employee of a body authorised not by the SRA but by another approved regulator, the SRA will not consider any claim in respect of that individual's act or default, or his or her employee's act or default.

  • (3)

    When an individual authorised not by the SRA but by another approved regulator is practising as the manager or employee of a recognised body, the SRA will in its discretion consider a claim in respect of that individual's act or default.

10. Applications: form and time limit

Every application must be delivered to the SRA, in such form as may from time to time be prescribed by the SRA, within twelve months after the loss, or likelihood of loss, or failure to account, as the case may be, first came, or reasonably should have come, to the knowledge of the applicant. The SRA may extend this period if satisfied that there are circumstances which justify the extension of the time limit.

11. Documentation in support

The burden of proving a claim rests with the applicant who must provide such documentation as may be required by the SRA including when requested, a statement of truth. Failure to provide such documentation or to co-operate with the SRA will be taken into account when determining the merits of the application.

12. Exhausting other remedies

  • (1)

    A grant may be refused or limited where the loss or part of the loss is an insured risk or where the loss is capable of being made good by some other means.

  • (2)

    The SRA may, before deciding whether to make a grant, require the applicant:

    • (a)

      to pursue any civil remedy which may be available to the applicant in respect of the loss,

    • (b)

      to commence insolvency proceedings,

    • (c)

      to make a formal complaint to the Police in respect of any dishonesty on the part of the defaulting practitioner or

    • (d)

      to assist in the taking of any action against the defaulting practitioner.

  • (3)

    In the absolute discretion of the SRA, a grant may be made before requiring the applicant to resort to other means of recovery.

13. Notice to defaulting practitioner

  • (1)

    The SRA shall not make a grant unless:

    • (a)

      a communication has been sent to the defaulting practitioner at his, her or its last known correspondence address or to his, her or its appointed representative informing the defaulting practitioner of the nature and value of the application; and

    • (b)

      not less than eight days have elapsed since the date of receipt of such communication, which shall be regarded as the day following the date of the communication.

  • (2)

    If it appears to the SRA that any communication sent under paragraph (1) will not come to the attention of the defaulting practitioner or his, her or its appointed representative, then the SRA may make a grant notwithstanding failure to comply with the provisions of this rule.

14. Costs

  • (1)

    Litigation

    Where an applicant intends to or has already instituted proceedings for recovery of his loss and wishes to apply for a grant in respect of the costs of the proceedings, the SRA will only consider such costs where:

    • (a)

      they can be shown to be proportionate to the loss and the amount likely to be recovered, or

    • (b)

      the proceedings were necessary for the making of an application to the Fund.

  • (2)

    Application costs

    Where a grant is made, the SRA may consider an application for a further grant in respect of the reasonable costs properly incurred by the applicant with either his solicitor or other professional adviser, provided that such costs were incurred wholly, necessarily and exclusively in connection with the preparation, submission and proof of the application.

  • (3)

    Costs where the defaulting practitioner has failed to complete work

    If the defaulting practitioner did not complete the work for which he was paid, a failure to account shall be deemed to have arisen within the meaning of rule 3(2)(b) of these rules. In such circumstances, the SRA may consider making a grant in respect of the additional reasonable legal costs incurred by the applicant in completing the outstanding work or a grant by way of contribution towards those costs.

15. Interest

  • (1)

    The SRA may consider an application for a supplementary grant by way of a sum in lieu of lost interest on a principal grant. Such interest will be calculated in accordance with the rates prescribed from time to time by the SRA. This will normally be calculated from the day the loss which was the subject of the principal grant was incurred, up to the next working day after payment of the principal grant. Such payment will take into account that a grant is a gift and is therefore not subject to tax.

  • (2)

    Where the application for the principal grant is in respect of a failure to redeem a mortgage, the SRA may also make a grant in respect of the additional interest accrued to the mortgage account as a result of the defaulting practitioner's failure to redeem.

16. Maximum grant

Subject to rule 23, the maximum grant that may be made is £2million.

17. Recovery and subrogation

Where a grant is made otherwise than by way of loan or if by way of a loan repayment of the loan is waived or otherwise the borrower has failed to repay part or all of the loan, the Society shall be subrogated to the rights and remedies of the person to whom or on whose behalf the grant is made (the recipient) to the extent of the amount of the grant. In such event the recipient shall if required by the SRA whether before or after the making of a grant and upon the SRA giving to the recipient a sufficient indemnity against costs, prove in any insolvency and/or winding-up of the defaulting practitioner and sue for recovery of the loss in the name of the recipient but on behalf of the Society. The recipient shall also comply with all proper and reasonable requirements of the SRA for the purpose of giving effect to the Society's rights and shall permit the SRA to have conduct of such proceedings.

18. Reduction in grants

Where an applicant or the applicant's servant or agent has contributed to the loss as a result of his, her or its activities, omissions or behaviour whether before, during or after the event giving rise to the application, the SRA may, in the exercise of discretion and to the extent that such activity, omission or behaviour has contributed to the loss, reduce the amount of any grant that may be authorised or reject the application in its entirety.

19. Deduction from grants

  • (1)

    The SRA may deduct from any grant the costs that would have been legally due to the defaulting practitioner so that the applicant will not be in a better position by reason of a grant than he, she or it would otherwise have been in.

  • (2)

    The SRA may within its discretion deduct from any grant all monies already recovered by an applicant and monies which either will be or should have been recovered.

20. Refusal of an application

  • (1)

    If the SRA refuses to make a grant of either the whole or part of the amount applied for, the applicant will be informed in writing of the reasons for the decision.

  • (2)

    The fact that an application has been rejected does not prevent a further application being submitted provided that substantial new relevant evidence, information or submissions are produced in support of the new application.

21. Appeals

Should the applicant wish to appeal against refusal of an application, written notice of intention to appeal must be delivered to the SRA within thirty days of the date of receipt of the decision, which shall be regarded as the day following the date of the written communication of the decision. Such notice must be accompanied by details of the grounds of appeal together with any additional evidence in support.

22. Notice of requirements

Any requirement of the SRA under these rules will be communicated in writing.

23. Waivers

The SRA may waive any of the provisions of these rules except rules 13 and 20 to 24.

24. Repeals and commencement

  • (1)

    These rules shall come into operation on 31 March 2009, whereupon

    • (a)

      the Solicitors' Compensation Fund Rules 1995 shall cease to have effect save in respect of applications submitted before that date, which shall continue to be subject to the 1995 rules; and

    • (b)

      the Solicitors' Compensation Fund (Foreign Lawyers' Contributions) Rules 1991 shall cease to have effect.

  • (2)

    On 1 July 2009, rule 4 was amended as follows:

    • (a)

      in paragraph (2):

      • (i)

        delete "cancelled under regulation 8 of the European Lawyers Registration Regulations 2000" and substitute "revoked under regulation 9.2(a)(ii) of the SRA Practising Regulations 2009"; and

      • (ii)

        delete "suspension or cancellation" and substitute "suspension or revocation";

    • (b)

      in paragraph (3):

      • (i)

        delete "had expired for non-renewal under regulation 8.3" and substitute "was suspended or was revoked under regulation 9(c)"; and

      • (ii)

        delete "expiry" and substitute "suspension or revocation"; and

    • (c)

      in paragraph (4):

      • (i)

        delete "cancelled under Schedule 14 paragraph 3(4)(a) of the Courts and Legal Services Act 1990" and substitute "revoked under regulation 9.2(a)(ii) of the SRA Practising Regulations 2009"; and

      • (ii)

        delete "suspension or cancellation" and substitute "suspension or revocation".