Legal practices

In this chapter of our Annual Insurance Review 2023, we look at the main developments in 2022 and expected issues in 2023 for legal practices.

Key developments in 2022

2022 has proven to be an eventful year for solicitors' firms, their advisers and the Solicitors Regulation Authority ("SRA"). Indeed, the latter half of the year saw influential case-law emerge, including RSA v Tughans [2022] EWHC 2589, on coverage of solicitors' fees.

However, one of the defining features of the year for RPC has been the continuing surge of buyer-funded development scheme claims. The issue has been on the SRA's agenda for years, and its concerns are encapsulated in the Warning Notice of 2017, updated in 2020, about unregulated Collective Investment Schemes and the use of solicitors to legitimise such schemes. The claims are typically high value, with multiple claimants, and generate up complex liability and coverage issues, including questions over dishonesty and aggregation. There is also obviously potential regulatory exposure for firms in receipt of such claims.  

This year, new case law has emerged on the subject, including Various North Point Pall Mall Purchasers v 174 Law Solicitors Ltd v Key Manchester Ltd [2022] EWHC 4. That case considered when investors' deposits can be released by solicitors acting for developers in the capacity of stakeholder. The Judge held that the deposits were lawfully released with the authorisation of the buyers and the claimants' solicitor. This is an encouraging outcome for defendant solicitors and their insurers.

As we reported in September 2022, the SRA has decided to reduce the profession's contributions to the SRA Compensation Fund because an expected spike in pay-outs to investors has not transpired. Despite this, we have seen a number of new claims this year, and we foresee the trend continuing into 2023 and beyond.

What to look out for in 2023

For the last few years, the SRA has been consulting upon what is most easily described as lawyers' "social" lives: the non-work activities which take up their time whether inside or outside the office, including social media, interrelations between lawyers and their colleagues, and behaviour in lawyers' private lives.

SRA consultations usually forecast increased enforcement, and for this reason we think 2023 will see a crackdown by the SRA in this area. Indeed, 2022 saw an SRA thematic review on Workplace Culture, followed by a consultation on proposed changes to enhance SRA powers to deal with risks stemming from poor workplace culture. In 2023 we will likely see the results of this.

In September 2022 the SRA also published updated guidance on sexual misconduct, the purpose of which was to lay out the SRA's approach as well as identify the boundary between an individual's behaviour in their private and professional lives. We anticipate that 2023 will see the application of this guidance.

Additionally, the SRA is consulting on how its greater fining powers (up to £25,000, as of July 2022) should be best used, and has identified cases involving sexual misconduct, discrimination or harassment as so serious that a financial penalty is highly unlikely to be an appropriate sanction. In other words, this category of case is to be sent to the Solicitors Disciplinary Tribunal almost always, unless exceptional circumstances exist (for more, see RPC's article on this from September 2022).

The SRA's fining powers may also be increased by the Government during 2023, as part of a wider set of measures linked to a crackdown on economic crime (see the Economic Crime and Corporate Transparency Bill 2022).

Written by Charlotte Thompson.

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