The recovery position

The natural assumption would be that the credit crunch could only benefit litigation practitioners. In the current economic climate, it is all the more important for a practitioner faced with an instruction from a potential claimant to recover a debt, to assess the likelihood of recovery and the potential recovery routes before embarking on the court process.

Chances of recovery

It may be worth recommending to the client that they first search for assets and then direct the recovery action towards those assets. Of course, we should always be mindful of Rule 2 of the Solicitors' Code of Conduct, which requires a solicitor to provide a client with all necessary information to enable them to make suitable decisions about if and how the dispute should be pursued. This will undoubtedly include an assessment of the prospective defendant's ability to pay any award made against it.

There are many searches which can be done to find assets. Examples include searches at Companies House and at the Land Registry, credit checks, searches of insolvency registers and a search of the County Court Judgments (CCJ) register, to name but a few. If the targeted defendant is a professional, a key question to ask is whether they have professional indemnity insurance to underpin the claim.

The legal profession is not immune from claims and, in tightened economic times, the lure of the potentially deep pocket of a solicitor's professional indemnity policy may be too tempting a prospect for a potential claimant to hold back. In addition to the common claims of negligence against the legal profession '“ an area which will undoubtedly rise again, as it did in the late 1980s and early 1990s '“ is the lender claims against solicitors arising from mortgage transactions. The law in this area was crystallised by the Court of Appeal decision in Mortgage Express Limited v Bowerman & Partners (a firm) [1996] 2 AER 836. The then Master of the Rolls, Sir Thomas Bingham, stated that 'a solicitor who, in the course of investigating title, discovered facts which a reasonably competent solicitor would have realised might have a material bearing on the valuation of a lender's security, also another ingredient of the lending decision, had a duty to point that out'.

Solicitors' liability

If the solicitor breaches his duties by failing to report something material to the lender client in a mortgage transaction, they will usually be liable for the damages which flow from that breach. There has been a raft of cases since Mortgage Express which have developed various aspects of solicitor duties, but that basic principle remains good today.

The most recent case is that of Nationwide Building Society v Dunlop Haywards & Cobbetts [2009] EWHC 254 (Comm). It examined how the solicitor defendant, Cobbetts, who had settled out of court with the claimant, might recover a proportion of the monies it had paid out in settlement from their co-defendant, the valuer, against whom it had brought contribution proceedings. As part of the case, the court calculated the respective liabilities of the valuer and the solicitor to the lender which then allowed a further calculation to arrive at the proportion Cobbetts could recover from the valuer in repayment of settlement monies it had already paid out to the claimant.

With ever deepening losses in the mortgage industry being reported weekly, it is anticipated that lenders will scrutinise their lending to ascertain whether those losses were caused by a breach of duty on the part of one of their former professional advisors '“ usually the valuer or the solicitor. It is expected, therefore, that there will be more case law in this field over the next couple of years.

When times are good, people are able to settle their differences more easily; compromise is more acceptable. However, in these times of belt tightening and diminishing availability of credit, more are looking at ways to delay their payment obligations. One good consequence for litigation practitioners is that there may well be more work. The flip-side is whether there is actually any money out there to pay the debt, even if dispute resolution is pursued, and that as a profession, we are seen to have deep pockets and so may be in the firing line more often.