SDT: Serious misconduct
A law firm earned some £800,000 in fees on three failed property development schemes as well as ‘quick sale’ conveyancing where it acted for both sides, a tribunal has heard.
Partner James Mawbey-Shaw put nearly £11m of client funds at risk due to his misconduct, according to the Solicitors Disciplinary Tribunal.
He and his firm were jointly fined £17,500, with restrictions placed on his practice for the next three years, after the tribunal ruled his misconduct “very serious”.
The solicitor, who qualified in 2008, is a partner at six-office Yorkshire firm Wilsons Solicitors, which is the trading name for Law Offices UK Ltd.
He faced a series of allegations over his work between 2010 and 2013 for buyers on exchanges of contracts in relation to three property development schemes – two for student accommodation units and one for hostel units – where the main or sole source of finance was the deposits of purchasers who had bought individual units. The buyer was required to pay a deposit of 30-50% upon exchange.
Investors in two of the developments never expected to complete their purchases: the deposits were short-term finance, contained within the contractual framework of a property conveyance.
They were told that this was because institutional lenders would only lend where a developer could show it had generated a certain amount of pre-sales to individual investors.
The developers arranged a ‘deposit protection guarantee’, effectively an insurance policy issued by a Nevis-registered company called ‘Company 6’ in the ruling.
The schemes involved 205 individual clients and 406 matters, and nearly £11m passed through the firm’s client account. With a fee of around £350 per matter, it generated approximately £140,500 of fees.
All three development companies subsequently went into administration, while Company 6 went into liquidation in 2015 without having paid any claims against the bonds.
A 2017 warning notices issued by the Solicitors Regulation Authority (SRA) highlighted the risks of these types of developments and bonds.
Mr Mawbey-Shaw did not undertake due diligence into the schemes, their developers or Company 6 – even though he produced a letter which told clients that Company 6’s assets far exceeded its liabilities, which turned out not to be the case.
The firm’s client-care letter said nothing expressly about the scope of the retainer, and in an agreement between the SRA and Mr Mawbey-Shaw, the solicitor admitted failing to advise clients:
- about the “obvious potential pitfalls” in the schemes, including in particular the risk that the Company 6 bond may be inadequate;
- that, notwithstanding representations to the contrary, he had carried out no due diligence of Company 6 and clients would be strongly advised to do so for themselves; and
- that there was no obvious need to purchase a room in the hostel and the investment was no more secure than investing in the hostel business itself.
In a separate allegation, the firm admitted that, since 2013, it acted for both seller and buyer in sales and potential sales of private homes to ‘Client AI’, and failed to have in place adequate systems and controls for assessing conflicts of interests.
Client AI bought properties via quick sales at discount prices, usually because they were ‘blighted’ in some way, such as a defective title, or because a quick sale was needed. It paid the firm £450 per transaction, excluding VAT and disbursements.
Client AI also recommended that sellers use the firm, which most did – Wilsons acted for both sides in around 700 transactions over five years, generating some £630,000 in fees.
Though Mr Mawbey-Shaw was the partner responsible for both sales and purchases, he was not accused of personally acting on both sides of a transaction.
The buying department operated from the upper floor of the firm’s Ilkley office, and the selling department from the lower floor. The solicitor said he believed the firm was complying with the conflict rules in that it was providing a conveyancing service where the price had already been agreed.
“Where, unusually, a conflict arose, he would refer the client to an alternative firm,” the agreement said.
Sellers were asked to sign a conflict waiver, but it did not spell out the nature of the potential conflicts. Mr Mawbey-Shaw said he would have had a similar waiver from Client AI, but could not produce one.
The SRA found no records on client files explaining why in each case the firm decided that there was no conflict of interest or significant risk of one, saying there was no a proper system for assessing conflicts.
In mitigation, Mr Mawbey-Shaw and the firm pointed out that they did not face any allegations of dishonesty or lack of integrity
He said he had acted in three other similar property developments which came to fruition, completing over 500 transactions. He added that the clients were referred by reputable regulated entities. With respect to Client AI, no clients had complained.
The agreement said a fine of £17,500 and costs of £36,650 – to be paid jointly by both Mr Mawbey-Shaw and the firm – along with a three-year ban on the solicitor practicing as a sole owner or manager, and on being a compliance officer, was a “proportionate resolution of the matter”.
Approving this, the tribunal said it considered the misconduct, as a result of which over £10m of client funds were placed at risk, to be “very serious”.
“The admitted breaches were of fundamental and basic obligations, however none of the allegations included acting without integrity.”
The fine and practice restrictions “adequately reflected the seriousness of the misconduct” and would maintain the reputation of the profession, it concluded.
Made £800,000 -fined £17,500.00. Why trust solicitors?