- The SRA shall establish and maintain a fund for making grants in respect of applications made in accordance with these rules.
- Solicitors, RELs, RFLs, recognised bodies and licensed bodies must make contributions to the Fund in such amounts and at such times as may be prescribed.
- Any unpaid contributions may be recovered as a debt due to the SRA.
- The SRA may at any time:
SRA Compensation Fund Rules 2021
For applications made before 5 July 2021 read the archived 2019 Compensation Fund Rules
Introduction
These rules govern the way that we operate the SRA Compensation Fund.
It is funded by contributions from individuals and firms authorised by us.
We have developed a statement setting out the purpose of the fund and guidance on the way we operate the fund.
Part 1: The Fund
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- The Fund is a discretionary fund of last resort and no person has a right to a grant enforceable at law. The SRA retains a discretion to refuse to consider an application or to make a grant notwithstanding that the conditions in these rules for making a grant are satisfied.
- The circumstances in which the residual discretion in rule 2.1 may be exercised include, but are not limited to, circumstances in which the SRA considers that the loss suffered is not material in all the circumstances or has been appropriately compensated through another means.
- The SRA may refuse or reduce a grant where the loss or part of the loss is, or was, capable of being made good or appropriately compensated by some other means, including another compensation scheme.
Part 2: Payment of grants from the Fund
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- A person may apply for a grant out of the Fund, if the loss referred to in rule 3.3 relates to services provided:
- by the defaulting practitioner for them; or
- to, or as, a trustee where they are a beneficiary of the estate or trust.
- A person who is not a client of the defaulting practitioner may apply for a grant out of the Fund if they:
- were a party on the other side of a legal matter on which the defaulting practitioner was acting; and
- have suffered, or are likely to suffer, financial loss in accordance with rule 3.3 arising as a result of the defaulting practitioner failing to apply funds for the purpose intended where they should have been used (whether on completion of certain conditions or otherwise) to complete a transaction for their benefit, or to make a settlement or other payment to them.
- For any grant to be made out of the Fund, an applicant must satisfy the SRA that the applicant is eligible in accordance with rule 4 and (save in respect of a grant made under rule 3.4) has suffered, or is likely to suffer, financial loss directly resulting from:
- the dishonesty of a defaulting practitioner or the employee or manager or owner of a defaulting practitioner; or
- failure to account for money which has come into the hands of a defaulting practitioner or the employee or manager or owner of a defaulting practitioner, which may include the failure by a defaulting practitioner to complete work for which the defaulting practitioner was paid,
in the course of an activity of a kind which is part of the usual business of a defaulting practitioner and, in the case of a defaulting licensed body, the act or default arose in the course of performance of an activity regulated by the SRA in accordance with the terms of the body’s licence.
- The SRA may make a grant to alleviate direct losses suffered as a result of the civil liability of a defaulting practitioner or a defaulting practitioner's employee, manager or owner in circumstances where:
- the defaulting practitioner in accordance with the SRA Indemnity Insurance Rules should have had, but did not have, in place a policy of qualifying insurance;
- the liability of the defaulting practitioner or the defaulting practitioner's employee or manager would have been covered by a policy of qualifying insurance; and
- the loss is not covered by the SIF.
- No grant will be made under rule 3.4 where due to the insolvency or cessation of the insurer the defaulting practitioner's policy of qualifying insurance has been disclaimed or otherwise ceases.
- The SRA may make a grant as an interim measure in relation to part of an application before the application has been fully assessed.
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- A person is eligible to apply for a grant out of the Fund if, at the time the application is made, they are:
- an individual;
- a sole trader; partnership, body corporate, unincorporated association or mutual association with an annual turnover or assets of less than £2 million;
- a charity with annual income net of tax in the most recent financial year of less than £2 million; or
- a trustee of a trust with an asset value of less than £2 million.
- The SRA may take into account such evidence as it sees fit when determining eligibility under rule 4.1 and may make a broad estimate of any relevant amount.
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- A defaulting practitioner means:
- a solicitor or an REL who at the date of the relevant act or omission was:
- practising in an authorised body; or
- practising in a non-commercial body;
- a solicitor or an REL who at the date of the relevant act or omission:
- was self-employed and practising in their own name, and not through a trading name or service company;
- did not employ anyone in connection with the services they provided; and
- was engaged directly by their clients with their fees payable directly to them;
- an RFL who is a manager or owner of an authorised body;
- a recognised body; or
- a licensed body,
- a solicitor or an REL who at the date of the relevant act or omission was:
- A grant may be made where, at the date of the relevant act or omission:
- a defaulting solicitor had no practising certificate in force;
- the registration of a defaulting REL or defaulting RFL had expired or been revoked;
- the authorisation of a defaulting recognised body or defaulting licensed body had been suspended or revoked;
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- The SRA may make a grant to a defaulting practitioner who or which has suffered or is likely to suffer loss by reason of their liability to any client in direct consequence of an act or omission of:
- in the case of a defaulting solicitor, defaulting REL or defaulting RFL, any of their employees or any fellow manager;
- in the case of a defaulting recognised body, any of its employees or managers or owners;
- in the case of a defaulting licensed body, any of its employees or managers or owners, provided that such act or omission arose in the course of performance of an activity regulated by the SRA in accordance with the terms of the body's licence,
- The SRA may make a grant under this rule by way of a loan upon such terms as the SRA specifies.
- In the case of a defaulting recognised body or a defaulting licensed body, the SRA may make such grant payable to one or more of the managers or owners of the defaulting recognised body or defaulting licensed body. If a loan is made to more than one person, they shall be jointly and severally liable for the repayment of the loan.
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- The SRA may make a grant to alleviate a deficiency in a statutory trust held by the SRA.
- The SRA may make a grant to a person where the money would have been due to that person but for their claim having been extinguished under rule 9.2 of the SRA Intervention Powers (Statutory Trust) Rules 2011 or rule 8.2 of the SRA Statutory Trust Rules.
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- In respect of any grants made under rules 3, 6 or 7 the SRA may make a supplementary grant by way of a sum in lieu of lost interest on the loss underlying the principal grant. Such interest will be calculated by the SRA in accordance with prescribed rates.
- 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.
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- Unless the SRA is satisfied that there are exceptional circumstances in the public interest that justify a higher sum, the maximum grant that may be made is £2 million.
- For the purposes of this rule, a single claim is an application, or applications, from an applicant for the loss incurred by them arising from a single event or set of connected underlying circumstances.
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- Where multiple applications are made to the Fund:
- that relate to the same or connected underlying circumstances; and
- the SRA is satisfied that the total amount of the grants made from the Fund in respect of such applications is likely to exceed £5 million,
the SRA may impose a limit on the total amount to be paid in respect of those applications of £5 million.
- Where the SRA imposes a limit under rule 10.1, the amount paid may be apportioned between the applicants to whom the SRA is satisfied a grant is payable, in such of the following ways as the SRA considers appropriate in the circumstances:
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- A grant may be refused or reduced to take account of:
- dishonest, improper or unreasonable conduct by the applicant or anyone acting on their behalf:
- in the circumstances that gave rise to the application;
- in relation to the application itself; or
- failure to pursue the application promptly, co-operatively and in good faith.
- dishonest, improper or unreasonable conduct by the applicant or anyone acting on their behalf:
- A grant may be refused or reduced to take account of any act or omission by the applicant or anyone acting on their behalf that has contributed to or has failed to mitigate the loss.
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- For the avoidance of doubt, the SRA shall not make a grant in respect of losses that:
- arise solely by reason of professional negligence by a defaulting practitioner, or the employee or manager of a defaulting practitioner, save as provided for in rule 3.4;
- are indirect or consequential, save where the SRA exercises its discretion to make a grant:
- under rule 8;
- for costs of completing or remedying work for which the defaulting practitioner has been paid; or
- for loss where a client of a defaulting practitioner has been made personally liable for loss suffered by a third party as a result of the act or omission of that defaulting practitioner.
- are, or result from, the trading debts or liabilities of the defaulting practitioner, including claims for fees payable to the applicant for which the defaulting practitioner is liable;
- comprise legal or other professional costs incurred by the applicant in making an application to the Fund;
- are for costs of proceedings instituted by the applicant for recovery of their loss, save in exceptional circumstances;
- are for interest payable to the applicant, save where the SRA exercises its discretion to make a grant under rule 8;
- are suffered by the Legal Aid Agency as a result of making regular payments under the Agency's contracting schemes for civil or criminal work; or
- are in circumstances where the applicant:
- has been made bankrupt and any grant would vest in the trustee in bankruptcy;
- has entered into a voluntary arrangement with their creditors and any grant would vest in the administrator of the arrangement; or
- is in liquidation.
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- The SRA shall not make a grant in respect of any act or omission of an REL, or the employee of an REL, where such act or omission took place outside the UK, unless the SRA is satisfied that the act or omission was, or was closely connected with, the act or omission of a solicitor or the employee of a solicitor, or that the act or omission was closely connected with the REL's practice in the UK.
- The SRA shall not make a grant in respect of the act or omission of an RFL, or the employee of an RFL, where such act or omission took place outside England and Wales, unless the SRA is satisfied that the act or omission was, or was closely connected with, the act or omission of a solicitor or the employee of a solicitor, or that the act or omission was closely connected with practice in England and Wales.
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- Where the loss has been sustained as a result of the act or omission of more than one party, the SRA will consider the role of each party in contributing to the applicant's loss in deciding whether to make a grant and, if so, the amount of any grant.
- In the case of a defaulting licensed body, the SRA will consider the extent to which the loss is attributable to an act or omission which falls outside the performance of an activity regulated by the SRA in accordance with the terms of the body's licence in deciding whether to make a grant and, if so, the amount of any grant.
Part 3: Applications and procedures
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- An applicant must make an application for a grant in the prescribed form, and within 12 months of the date they first became aware, or should reasonably have become aware, of the loss.
- The SRA may extend the 12 month period in rule 15.1 if satisfied that there are circumstances which justify the extension of the time limit.
- The applicant must provide information, documents and evidence requested by the SRA, which may include verification of matters by statement of truth or affidavit. Failure to provide such documentation or to co-operate with the SRA will be taken into account when determining the merits of the application.
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- The SRA may not make a grant unless it has given not less than 8 days' notice to the defaulting practitioner informing them of the nature and value of the application, unless it appears to the SRA that it would not be reasonably practicable to give such notice, or the grant should be made urgently.
- Where the SRA has made a grant urgently in accordance with rule 16.1, the SRA shall as soon as, and so long as, it is practicable to do so, give notice to the defaulting practitioner in the terms set out in rule 16.1 and may (insofar as any failure to give notice before the making of the grant has prejudiced the defaulting practitioner) waive in whole or in part the Fund's right of recovery under rule 18 against the defaulting practitioner.
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- Where the SRA makes a grant otherwise than by way of loan or if by way of loan repayments of the loan is waived or otherwise the borrower has failed to repay part or all of the loan, the SRA shall be subrogated to the rights and remedies of the person to whom or on whose behalf the grant is made to the extent of the amount of the grant.
- Where rule 17.1 applies, the recipient must if required by the SRA whether before or after the grant has been made and upon the SRA giving the recipient a sufficient indemnity against costs, prove in any insolvency 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 SRA.
- The recipient of a grant must comply with all proper and reasonable requirements of the SRA for the purpose of giving effect to the SRA's rights under this rule, and shall permit the SRA to have conduct of any proceedings brought on its behalf.
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- 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.
- The fact that an application has been rejected does not prevent a further application being submitted provided that material new relevant evidence or information is produced in support of the new application.
Supplemental notes
Made by the SRA Board on 14 July 2020.
Made under sections 36 and 36A of the Solicitors Act 1974, section 9 of, and paragraph 6 of Schedule 2 to, the Administration of Justice Act 1985, section 83 of, and paragraph 19 of Schedule 11 to, the Legal Services Act 2007 and the Legal Services Act 2007 (The Law Society and The Council of Licensed Conveyancers) (Modification of Functions) Order 2011.