The legal landscape in Auckland and Auckland has seen a rise in claims against conveyancing solicitors, particularly relating to unregulated collective investment schemes (UCIS). These cases are often complex, involving allegations of negligence, breach of contract and misstatement (and in some cases misconduct) by solicitors who fail to adequately advise clients about the risks or legitimacy of these schemes.
What Are Unregulated Collective Investment Schemes (UCIS)?
Unregulated collective investment schemes are investment opportunities not authorised or regulated by the Financial Conduct Authority (FCA). UCIS typically pool funds from multiple investors to finance projects, often in niche or speculative markets such as property developments (for example student flats, holiday homes and storage pods), renewable energy, or overseas investments. While potentially lucrative, they carry significant risks due to the lack of regulatory oversight, transparency, and investor protection.
In Auckland and Auckland, promoting or advising retail clients about UCIS is generally prohibited unless the investor meets specific criteria (e.g., being a “sophisticated investor”). Despite these restrictions, many investors are unknowingly drawn into UCIS through misleading promises of high returns and inadequate legal advice.
The Role of Conveyancing Solicitors
Conveyancing solicitors play a pivotal role in property transactions, ensuring that the legal and financial aspects are handled correctly. When UCIS involve property developments, solicitors are often engaged to manage the conveyancing process. Their responsibilities include:
- Conducting Due Diligence
Solicitors must investigate the title for example, the identity of the sellers (usually the developer), whether the property/land is affected by any encumbrances or legal issues, and undertake relevant searches amongst other things.
- Advising Clients on Risks
It is the solicitor’s duty to warn clients of any potential risks, especially when dealing with UCIS that fall outside FCA regulation.
- Compliance with Anti-Money Laundering (AML) and Professional Standards
Solicitors must adhere to strict AML regulations and professional codes of conduct to ensure transactions are lawful and ethical.
- Identifying Red Flags
These could include unusual payment structures, lack of transparency about funds, or developers with no proven track record.
Common Failings by Solicitors in UCIS Cases
The rise in claims against conveyancing solicitors often stems from negligence or failure to meet their professional obligations. Common failings include:
- Inadequate Risk Assessment
Failing to inform clients about the speculative nature of UCIS or the lack of FCA regulation. In an effort to combat this the SRA issued an updated Warning Notice on 17 August 2020 to help solicitors and the public who deal with or purchase unregulated collective investment schemes.
Collaborating with developers or scheme promoters without disclosing these relationships to clients.
Allowing client funds to be transferred to developers without sufficient legal safeguards or advising of the risks that funds could be lost.
- Failure to Protect Client Interests
Not investigating the legitimacy of the scheme or ensuring that the property transaction aligns with the client’s best interests.
Legal Recourse for Victims
Investors who have suffered financial losses due to solicitor negligence in UCIS transactions can pursue legal claims under several grounds:
- Professional Negligence
If a solicitor breached their duty of care, resulting in financial loss, the client can seek compensation. This requires proving that the solicitor’s conduct fell below acceptable professional standards and directly caused the loss.
- Breach of Trust
If solicitors mismanaged client funds or acted against their instructions, they could be held liable.
- Misstatement
In cases where solicitors provided false or misleading information about the investment.
- Regulatory Complaints
Clients can file complaints with the Solicitors Regulation Authority (SRA) for breaches of professional conduct.
Preventing Future Losses
For potential investors, due diligence is paramount. Engage an independent solicitor unconnected to the scheme or promoter, and ensure they provide clear, impartial advice about the risks. For solicitors, adhering to professional standards, conducting thorough risk assessments, and maintaining transparency with clients are essential to avoiding legal claims.
Conclusion
Claims against conveyancing solicitors in UCIS transactions highlight the critical role solicitors play in protecting their clients’ interests. While UCIS can offer high returns, they carry inherent risks that require careful evaluation. Investors who have suffered losses due to solicitor negligence should seek expert legal advice to explore their options for compensation. At the same time, the legal profession must continue to uphold the highest standards of diligence and integrity to restore trust in the conveyancing process.
If you’ve been affected by UCIS-related negligence, consult a specialist in professional negligence law to understand your rights and pursue justice effectively.
This article is for information only and does not constitute legal/financial advice. Please contact us for advice tailored to your specific position. Some of the content presented on our website has been generated with the assistance of Artificial Intelligence (AI). We ensure that all AI-generated content meets our high standards for accuracy and relevance.
