Case Summary
There were two sisters, Sally, and Molly Williamson, the only children of Roger Williamson, a retired schoolteacher.
Sally had followed in her father’s footsteps and had become a schoolteacher.
Molly was an entrepreneur and had started a range of different businesses over the years. Recently, however, she had suffered some financial difficulties.
Following a short illness, Roger Williamson, died. He left a will which had been drawn up by the longstanding solicitor of the family, Mr Laws of Laws & Co. In the will, the two sisters were named as co-executors as well as the sole beneficiaries. The will conferred power on the executors to appoint a solicitor to administer the estate. Sally and Molly did not hesitate in appointing Mr Laws.
Mr Laws became engaged in the process of winding up the estate. He carried out a quick search on the Accountant in Bankruptcy (AIB) website and, to his surprise, he discovered that Molly Williamson was, in fact, bankrupt. Following correspondence with the AIB and his clients, Mr Laws subsequently received a mandate requiring that Molly’s share in the estate be paid directly to Molly’s trustee in sequestration. Mr Laws noted the mandate and filed it accordingly.
It took over 10 months for the estate to be fully wound up and for the funds to be distributed. By that time, Mr Laws had completely forgotten about the mandate instruction and paid the funds directly to Molly Williamson.
The trustee made a claim against the firm.
The Claim Notification
Dear Lockton
We act in the administration of the Estate of the Late Roger Williamson.
We attach correspondence from solicitors acting on behalf of the trustee in sequestration for Molly Williamson, indicating that their clients intend to raise a claim.
By way of background, Molly Williamson was sequestrated by order of the Sheriff at Aberdeen on 22 April 2024. By virtue of the sequestration, her property vests in her trustee in sequestration from 22 April 2024. We received a mandate from the AIB requiring that we pay her share of the estate to her trustee in sequestration. Unfortunately, we forgot to implement the mandate and we’ve paid the funds to Molly directly.
We haven’t been able to recover the monies from Molly despite extensive efforts.
Kind regards
Laws & Co.
Underlying Cause of Claim
What was the underlying cause of this claim?
In this case, the solicitor filed the payment instruction mandate when it was first received. However, there was then a significant amount of time between the filing of the mandate and the distribution of funds. It’s easy to see how a solicitor might forget about the mandate in that time – particularly when there will have a myriad of other issues to think about, as well as other business pressures and matters to deal with.
Lessons to be Learnt.
The case study above has outlined one example of an error in distribution involving a trustee in sequestration. Other examples of errors in distribution include:
- Where a beneficiary is simply paid the wrong amount
- Where the wrong party is paid all or part of the beneficiary’s share
- Where funds are inadvertently paid to a fraudster because of a fraudulent payment instruction (see https://www.locktonlaw.scot/news/fraud-alert-client-account-fraud.html)
- Where a payment is made based on an invalid will and later requires to be recovered
- Where funds are paid directly to beneficiaries when they should have been used to meet the estate’s tax liability
It’s worth taking steps to ensure that these situations are avoided at all costs. Any error in distribution inevitably creates awkwardness, disruption, and additional work for solicitors. Furthermore, it can also be extremely difficult to retrieve funds from a beneficiary who has been overpaid or paid in error.
Of course, erroneous payments are not exclusive to private client work – they can happen in any practice area where a matter involves transfers of funds.
How to Prevent These Issues
Having appropriate and robust systems for checking payments is vital. It is essential that there are robust risk management procedures in place.
- A system for ensuring that all payments are the correct amount and in favour of the right person.
- A process that involves payments being agreed by all intended recipients before distribution.
- Procedures for ensuring that mandates are implemented when the time comes for payment: e.g. annotating payment details prominently at the front of a file or on ledgers and / or ensuring cashroom colleagues are alerted to special payment instructions.
- Strong protocols in place regarding the checking and authorisation of any payments to be made from the client account (or, indeed, from the firm's own account). Dual signoff for larger amounts is always wise.
- Policies to deal with payment fraud - all staff should receive updates regarding the risk of payment fraud, how it is perpetrated and how it can be avoided.