UK: Recessionary Claims - Crunch Time For Lawyers?

Last Updated: 15 July 2009
Article by Richard Dedman

Originally published in Legal Week on 2 April 2009

Recent media stories suggest that the current recession will trigger a huge increase in disputes, including claims against lawyers. This article explores the likely exposures and some risk management solutions.

Recessionary pressures

Commercial lawyers tend to be very active in an economic boom generating more contracts to litigate over in the subsequent "bust", and also creating the risk of cutting corners in attempts to meet increased client demand.

Not only do recessionary pressures induce people to commit fraud, but sharply reducing asset prices, together with increased redemption demand by investors, also lead to its increased detection. High profile examples, from which professional liability claims will inevitably flow, include the Madoff scandal and some recently reported scams in the UK "buy-to-let" property market.

Solicitors are often perceived to have deep pockets due to the mandatory professional indemnity insurance they must carry. Moreover, law firms typically do not seek extensively to limit their liability when agreeing terms of engagement with clients, in contrast to some other professionals.

Even where solicitors are not initially seen as primarily responsible for a loss, it seems inevitable that, as credit crunch disputes increase, solicitors will get drawn into them, particularly given the extreme complexity of some of the contracts generated in the financial services field.

Whilst little credit crunch litigation has been reported in the UK so far, consistent with the 1990s recession we have already seen a noticeable increase in real property and dishonesty-related claims, while the historical data suggests that we can expect a time-lag of a year or so before a general increase in claims occurs. At present, the top priority amongst corporates is understandably business survival and stability. Once this has been secured, experience shows that boards of directors will turn their focus to the past conduct of their professional advisors, often just as the economy is beginning to recover. Alternatively, claims will come from the liquidators of companies which fail due to the recession.

Sources of claims

Common sense suggests looking to the market sectors hardest hit by the recession, where losses will be greatest. A "sector vulnerability analysis" conducted by PwC indicates that the most vulnerable sectors are manufacturing (especially of metal products such as motor vehicles), financial services, hotels and restaurants, engineering, transport (the shipping market has been particularly hard hit), telecoms, construction, textiles, and oil and gas. To these market sectors, past experience tells us that we should add real estate (residential and commercial) and fraud, wherever it occurs, to make our list complete. Law firms acting for clients involved in these sectors are therefore at greater risk of claims being made.

Amongst this list, "financial services" is wide-ranging in scope, including not just sub-prime lending and associated credit derivatives but also other areas in which serious loss has been suffered, such as private equity, the hedge fund industry, and pension funds. Increased regulatory exposure of clients in the financial services sector may cause knock-on problems for the lawyers advising those clients.

Types of claim

We can expect many claims against lawyers to be brought in the context of a broader dispute in which one party to an agreement seeks either to enforce or escape from obligations under it. Claims against lawyers will plainly be fact-specific but, among others, we can expect to see arguments along the following lines:

  • inadequate "due diligence" in the broadest sense (for example regarding the target company of a private equity transaction, in relation to opinion letters or generally concerning the issue of prospectuses);
  • the agreement does not do what the client (or possibly all the parties) intended;
  • the client was not advised as to the full effect of the agreement;
  • the agreement does not adequately protect the client's interests in circumstances which have subsequently materialised.

The last of these arguments may frequently come close to a contention that the solicitor should have advised as to the commercial wisdom of the deal. With hindsight, "covenant-lite" transactions may no longer seem as acceptable as once they did! This argument may be thought to have taken a battering in cases such as Football League v edge ellison (2006) but it will not go away so long as solicitors offer commercial advice to their clients, effectively assuming the role of general "trusted advisor", and/or fail to document the terms upon which they are instructed in an engagement letter.

In the property field, lenders typically claim that they would not have lent (either at all or so much) but for their advisor's negligence. However, the outcome of such claims may be a little different from those in the '90s because judicial authorities established at that time with regard to causation, contributory fault and dishonesty have developed the law, and the CML handbook has further clarified the scope of solicitors' duties.

Litigation landscape

Procedurally, the legal landscape has also changed since the last recession, with concern at the cost of litigation promoting a major rise in mediation and attempts to streamline the conduct of large cases. The funding of litigation is also different now, with Conditional Fee Arrangements increasingly commonplace and the rise of after the event insurance and third party litigation funding. Lord Justice Jackson's current review of the costs of civil procedure is likely to lead to further major changes in this area.

One would need a crystal ball to predict the combined effect of all these changes upon the bringing of claims against lawyers and their outcome. However, it can safely be predicted that, if the recession is severe and prolonged, the volume of such claims is likely to increase significantly.

Risk management

Where claims against solicitors relate to work already done, it may be argued that the die is substantially cast. However, a review of sample files in identified problem areas can still provide benefit. This should not only help to develop a firm's risk management model going forward but can also assist to preserve evidence relevant to potential claims. Early identification of a problem can sometimes also lead to the mitigation of loss. Even where that is not possible, it may assist with the management of client relationships.

Finally, some potential claims may be avoided altogether by enhanced risk management. Points to consider here include the fact that the issue of large and unexpected bills without prior discussion with the client often generates unwelcome counterclaims in negligence. Poor vetting of new clients or instructions typically causes a range of future problems including conflicts of interest. And work done by lawyers without appropriate expertise, whether because they have been redeployed from a less busy practice area or as a result of "hoarding", carries obvious risk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.