Lawyers Covered - August 2021
Welcome to the latest edition of our Lawyers Liability & Regulatory Update, in which we look back over the last month at key developments affecting lawyers and the professional risks they face.
Aggregation under solicitors' policies becomes more difficult
A decision of the Court of Appeal has made it more difficult for claims against solicitors to aggregate.
Baines & Anor v Dixon Coles & Gill & Ors featured an unfortunately familiar fact pattern: a dishonest employee stole money from a number of otherwise unconnected clients over a period of years. Insurers argued that the claims should aggregate (limiting their contribution to the limit of indemnity of £2m) and the claimants argued that the claims did not aggregate (so that each of their losses were insured).
This case focussed on the second limb of the aggregation wording in the SRA minimum terms and conditions: "all claims… arising from… one series of related acts or omissions… will be regarded as one claim". Drawing on Lord Hoffman's analysis in Lloyds TSB General Insurance Holdings Limited v Lloyds Bank Group Insurance Co Limited, the Court of Appeal found that, in order for the claims to aggregate, each claim must be caused by the entire series of acts together (not merely by one act in the series). More detailed analysis of the decision can be found here. In summary, this decision is likely to add a layer of complexity and make aggregation more difficult for insurers. The impact of this may well be taken into account by primary layer insurers on renewal. It remains to be seen whether insurers will appeal. If so, it would be helpful for the Supreme Court to deal with one argument that the Court of Appeal found it unnecessary to decide: whether a shortfall on client account (which occurs when an employee steals from the client account and which arguably causes loss to each client pro rata according to the proportion of money in client account belonging to them) should be treated as one claim.
High Court and SDT: wilful blindness to signs of fraud is dishonest
Metcalfe v SRA concerned a solicitor who acted for clients in a number of transactions which were dubious, risky and/or bore the hallmarks of fraud. The sole practitioner had been involved in three schemes which drew the SRA's attention:
- investments/loans which bore the hallmarks of early release pension scams;
- a buyer-funded development of student accommodation which bore the hallmarks of fraud; and
- the back-to-back sale and purchase of shares in a Gibraltar-based company which also bore the hallmarks of fraud.
The SDT found the solicitor had turned a blind eye to red flags and his deliberate decision not to investigate his suspicions (in case he discovered something that he did not wish to know) was dishonest. In relation to the pension loans scheme, for example, he denied being aware that the loans involved his clients' pensions; however, he had never contacted his purported clients directly, dealing only through the lender company. Had he contacted them, he might have discovered this.
The solicitor appealed the finding of dishonesty and the sanction (strike off). One of his key complaints was that the SDT had not actually found the schemes to be fraudulent but had nevertheless concluded that he had acted dishonestly in relation to them. However, the High Court rejected his argument, finding that it was enough that the transactions bore clear and obvious hallmarks of fraud and that the solicitor deliberately turned a blind eye to them. The Court upheld the SDT's decision, concluding that there was sufficient evidence to justify a finding of dishonesty and that there were no exceptional circumstances which would have justified a sanction other than striking off.
£10 million claim dismissed following solicitor's failure to serve correctly
In LSREF 3 Tiger Falkirk Ltd I SARL & Anor v Paragon Building Consultancy Ltd a solicitor's failure to serve a claim form and particulars of claim correctly brought a premature end to a £10 million claim after the High Court declined to dispense with the normal rules on service.
Proceedings were issued (within the limitation period) and the parties agreed (several) extensions of the deadline for service. On the day the extended deadline was due to expire, the claimants' solicitors, Shepherd & Wedderburn LLP ("S&W"), contacted their opponents, Clyde & Co LLP ("Clydes") to seek a further extension. Clydes said they would seek instructions. However that evening, after Clydes did not return S&W's further calls, S&W attempted to serve the claim form and particulars of claim by an email on Clydes. Unfortunately for the Claimants, Clydes had not stated in writing that they were authorised to accept service of the claim form (therefore CPR 6.7(1)(b) was not satisfied).
The claimants made an application asking the Court to exercise its discretionary power (under CRP 6.15 and 6.16) to dispense with the normal rules on service where there is a "good reason" to do so. By the time of the claimant's application limitation had expired.
The Court dismissed both applications. Applying the leading authority on CPR 6.15 (Barton v Wright Hassall LLP) Fraser J found there was no "good reason" to dispense with the normal rules on service in this case. S&W had failed to take reasonable steps to follow the rules. Their actions on the last day were "very last minute and simply did not address a crucial and important question, which Clydes do not appear to have been asked at any point over the preceding period of years, namely whether Clydes was authorised to accept service of proceedings."
Fraser J said it was "difficult not to have some sympathy" with the solicitor at S&W who made the mistake but that sympathy "has no place in the court's decision making". He echoed the comments of Lord Sumption in the Barton case, that a claimant who "courts disaster":
- first, by waiting until the end of the limitation period to issue the claim form;
- second, by opting to serve the claim form themselves (rather than have the court do it); and
- third, by waiting until the end of the period of the claim form's validity before attempting to serve it,
can have only a "very limited claim on the court's indulgence" in an application under CPR rule 6.15(2). The result of this decision may seem harsh to the claimants but, in view of the Barton case (where the claimant was a litigant in person), it is unsurprising.
Legislation to allow senior legal officer advocates to become Senior Counsel
On 7 July 2021, the government announced proposals to amend section 31A of the Legal Practitioners Ordinance (Cap. 159) to allow a person who holds office as a legal officer (as defined in section 2 of the Legal Officers Ordinance (Cap. 87)) to be eligible to be appointed as a Senior Counsel. At present only a barrister in private practice in Hong Kong or practising as an advocate while holding office as a legal officer is eligible to be appointed as a Senior Counsel.
The Legal Practitioners (Amendment) Bill 2021 was gazetted on 9 July 2021 and introduced into the Legislative Council on 14 July 2021. A Bills Committee was appointed and had two meetings. The Bill was passed by the Legislative Council (after a second and third reading) on 25 August 2020 and the amendments are likely to come into force this year. Proponents of the Bill argue that senior legal officer advocates should be eligible to be appointed as Senior Counsel in addition to advocates who are barristers – for example, legal officers who are qualified as solicitors. While the proposals have received fairly wide support, there are those (including some members of the Bar Association) who argue that more time was required for consultation.
Ultimately, Senior Counsel are appointed by the Chief Justice based on the criteria set out in section 31A of the Legal Practitioners Ordinance (including, ability, standing and experience as an advocate). Successful applicants are expected to meet high standards in order to serve the public interest. Similar arguments have been deployed in the past in support of legislative proposals to allow senior solicitor advocates to be eligible for appointment as Senior Counsel – the merits of those proposals continue to be considered.
Guideline hourly rates – changes are coming (finally)
The guideline hourly rates ("GHR") for solicitors are set to change on 1 October 2021. It will be the first changes to the GHR since 2010, when a small increase was made for inflation. The new changes will be more substantial, including the following:
- London 1 and 2 rates will be based on the nature of the work as opposed to geographical location - London 1 will be primarily for very heavy commercial and corporate work, London 2 will be for all other work;
- National 3 will be abolished and merged into National 2
- additional counties will be added to National 1
- while the GHR are designed for summary assessment the revised guide will state that it "may also be a helpful starting point on detailed assessment"
A copy of the new guide, which includes details of the new rates, is available here.
Helpful Law Soc guidance on legal professional privilege
The Law Society has issued a new practice note on legal professional privilege ("LPP"). It offers a summary of the law as well as guidance on issues that solicitors may face in practice, such as: what to do if a solicitor believes their client has a fraudulent/criminal purpose in seeking their advice; and how to deal with pressure by prosecuting authorities/regulators to waive LPP. It also has useful reminders of the more mundane (but important) risks in this area that every solicitor should be familiar with – e.g. the risks of inadvertent and/or collateral waiver of LPP. The guidance is not too long and worth reading. It is available to Law Society members here.