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Case Study

Reclaiming investments after “dubious investment schemes”

Last month, the Solicitors Regulation Authority published a review into solicitors’ involvement in “dubious investment schemes”. The results are very concerning:

  • The Regulator has “intervened” into seven firms, meaning that the firm was immediately closed down
  • It has referred twenty cases to the Solicitors Disciplinary Tribunal for prosecution of individual solicitors

What have solicitors been doing wrong here?

The basic concern is that lawyers have allowed their clients to proceed with investments into property which were not really investments at all, but effectively investment scams.

Usually, the scheme will consist of an investment in property which has not yet been built. For example, the buyer is asked to purchase a room in a hotel, or a residential flat or home. A large deposit is requested (often as much as 50%, rather than the usual 10%).

The investor is promised security, for example that there will be an insurance policy to guarantee a minimum rental income to them. Alternatively, there is a guarantor who will “buy back” the property if the investor wishes, at anytime in the future. It is sold to them on the basis that nothing can go wrong, that this is a rock solid investment.

A conveyancing firm is instructed to deal with the paperwork. They treat it as a simple house purchase, rather than doing the due diligence which is really required. They don’t check that the insurance policy is genuine or if the guarantor can really pay what they are promising. They use a simple house purchase contract, instead of a property development contract. There are no staged payments, but the whole deposit is immediately handed over. No regular inspections by surveyors are organised and there are no independent valuations etc. Instead, they just “rubber-stamp” the paperwork, take their fee and move onto the next case.

Often the same small firm is asked to deal with large numbers of cases, say fifty at a time. This creates a strong incentive to the solicitors to proceed with the cases. If they raise objections or concerns with the scheme, then they will miss out on the legal fees.

It is not long before the investor realises that their money may have been lost. Perhaps the development is never completed – the buyer has taken the deposit but the company has gone bust. Or else the hotel has been built and is now operating, but there are no fees being paid back to the investor – the hotel says that profits are low, but that doesn’t stop them from demanding rent and service charges from the new hotel room “owners”.

In the worst cases, the solicitor then continues to try to fix the problem – not realising that it is themselves that is the root of the problem. Perhaps, for example, they continue to renegotiate with the developer in the false hope that the development will suddenly complete and the investment money will magically come rushing back.

So what can investors do?

My firm has represented several clients with claims to secure the refund of their investments, along with other costs such as legal fees.

Each claim is dealt with on a bespoke basis and we consider all possible routes of reclaiming the investment. Most often the primary targets are the developer themselves, and the solicitors who dealt with the investment for the investor.

Why investors should act urgently

Many of these cases are likely to become professional negligence claims against the solicitors who acted for the investors. The good news is that solicitors carry professional indemnity insurance: at least £2,000,000 for individual solicitors, and rising to £3,000,000 for solicitors practising in limited companies.

The bad news is that the insurer is entitled to “aggregate” together similar claims. That means that where a large number of investors bring claims against the same solicitors firm, the insurer will pay the first £2,000,000 (or £3,000,000) of claims, but will have no obligation to make payments beyond that.

Practically, this creates a race amongst investor claimants. The first ones to bring their claims are the most likely to be paid. Those investors who do not quickly take legal action may ultimately lose the chance to claim back their money.

Our Chinese clients

Clarendon Law Solicitors is proud to represent many Chinese clients across all its areas of practice. We have staff who are fluent in Mandarin/Cantonese and actively recruit Chinese-speaking employees.

In our experience, these dubious investment schemes have affected many Chinese investors. Our team is specialised in assisting the Chinese client and providing a smooth and helpful legal service tailored to them.

Author

Mr Richard Parsons, Solicitor, is the Principal of Clarendon Law Solicitors and heads its civil litigation department. He can be contacted by email at rp@clsolicitors.co.uk. His Wechat ID is rparsons.

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Case Study

Chinese Student Tenancy Disputes

In recent weeks we have received high numbers of tenancy disputes enquiries, particularly from Chinese students studying in the UK.

Many of these disputes have arisen as a result of the coronavirus pandemic, which has altered the plans for many universities and students, causing many unforeseen problems.

The cases we are dealing with range from individuals to large groups. Our largest group currently has about 70 students and a claim for approximately £1000,000.

Some of our clients are still in the UK, but many have returned to the PRC.

We are very pleased with the outcomes which we have been able to achieve for our clients. In many circumstances, we are able to quickly deal with these matters with very good results.

We have assigned Miss Charis Wong, solicitor, to lead this firm’s efforts in assisting our clients in this area. She speaks both Mandarin and Cantonese and is now very experienced in handling these claims efficiently and professionally.

Charis Wong is a qualified solicitor specialising in civil and family dispute resolution. As well as English, she speaks fluent Mandarin and Cantonese. You can contact her by email at cw@clsolicitors.co.uk, telephone at +44 115 7323375 or Wechat at chariswongay.