Lawyers Covered - July 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.
Supreme Court highlights lacuna in the law concerning LLPs and solicitors' undertakings
Solicitors are officers of the court. As such, they are subject to the court's inherent supervisory jurisdiction. That means the court can compel solicitors to comply with undertakings they have given. The recipient of an undertaking can apply to the court for it to be enforced without the need to commence a separate action. Courts have been willing to exercise this power without pleadings, disclosure or formal evidence.
Solicitors' undertakings can be useful in many different contexts. Most notably, they have been woven into the modern system of conveyancing (via the Law Society's Code for Completion by Post), in which numerous undertakings are given and received by the conveyancers on both sides of the transaction.
Not every undertaking given by a solicitor will be a "solicitor's undertaking". The test is whether the undertaking was given by the solicitor in his or her "capacity as a solicitor". For example, an undertaking by a solicitor to pay money in relation to the lease of the solicitor's office space is unlikely to be a "solicitor's undertaking"; whereas an undertaking to hold money to another's order in relation to a transaction on which the solicitor is instructed almost certainly would be.
Harcus Sinclair LLP v Your Lawyers Ltd concerned a term in a non-disclosure agreement between two firms of solicitors, that were contemplating entering into a collaboration to promote/progress group action claims against Volkswagen (in relation to the well-publicised VW emissions scandal).
In return for Your Lawyers Ltd sharing certain confidential information about its client base, Harcus Sinclair agreed "not to accept instructions for or to act on behalf of any other group of Claimants in the contemplated Group Action" without the express permission of Your Lawyers Ltd.
The questions before the Supreme Court included:
(a) was this an enforceable contractual term (or an unlawful restraint of trade); and
(b) was it a solicitor's undertaking;
(c) if so, was it enforceable as a solicitor's undertaking against Harcus Sinclair LLP?
On the first issue, the Court concluded the term was not an unlawful restraint of trade and was enforceable (as a contractual term). On the second issue, the Court found the term was not a solicitor's undertaking because the subject matter of the undertaking was a business arrangement between the firms rather than a professional matter; the non-compete undertaking had nothing to do with legal advice (and agreeing to not act for certain clients did not involve any legal activity).
The Court's conclusions on the third issue were obiter dicta (in light of its conclusions on the first two issues). However, the Court's comments on this third issue are of significant interest and may cause some surprise. In short, the Court declined to find that LLPs are subject to the court's authority to hold solicitors to their undertakings.
Lords Briggs, Hamblen and Burrows (who together gave the leading judgment) noted that the court's authority rests on solicitors' status as officers of the court (which has its origins in the development of the profession in the 13th century). Under relatively recent legislation, solicitors can carry out legal services via limited companies and LLPs. Management and ownership of corporate bodies carrying out legal services is now open to unqualified persons. The statutory instruments that created these new vehicles for providing legal services are silent as to whether they were subject to the Court's inherent supervisory authority or not.
The Court did not rule out the possibility that the statutes could be interpreted purposively in this way. However, the Court declined to make a ruling on this case for three reasons: first, because its decision would have been obiter; second, because the Court considered that a decision would be better made in a case with submissions from the Law Society and any other interested regulatory bodies; and third, because the Court suggested the question "is probably better dealt with by legislation than by the courts, because of the availability of procedures for consultation which the court lacks."
The result is considerable uncertainty about whether an undertaking given by an LLP (or an alternative business structure) can be enforced by the recipient as a solicitor's undertaking or not, as the law stands. The Court itself expressed concern about "whether those dealing with incorporated law firms, and with solicitors’ LLPs in particular, are sufficiently aware that undertakings given by them are not currently buttressed by the court’s supervisory jurisdiction".
We consider the decision further here.
Solicitors' private lives under the spotlight again
There has been a spate of recent cases where the SRA has exercised its regulatory functions in respect of issues arising from solicitors' private lives.
The judgment has now been released in Rocha v Law Society  EWHC 1666 (Ch) (mentioned in our April newsletter), so we now have access to the reasoning behind the High Court's decision that the SRA were entitled to documents sought under a section 44B notice. Read more about this in our article here. In Rocha, the target of the SRA's investigation was business dealings between the wife of a former client and a company allegedly controlled by the solicitor. Whilst the link between these dealings and the solicitor's practice was sufficiently tenuous to give rise to litigation, the SRA's interest was arguably less intrusive into the solicitor's private life than some other recent decisions.
In SRA v Saghir, a two year PQE solicitor, who took part in a "brutal and sustained" physical assault upon a lone victim who suffered long lasting health problems as a result, avoided strike off. Although the solicitor had been sentenced to 32 months in prison, the SDT found that a two and a half year suspension was the "proportionate" outcome. Whilst accepting that a strike off would have been justified, the SDT found that the solicitor, 31, was "still a young man with many years of his working life ahead of him".
Meanwhile, another solicitor who committed a criminal offence did not benefit from similar leniency. In SRA v McNeill, it was discovered that a solicitor with 26 years' PQE had child abuse images on his work computer and was growing cannabis in his home. He avoided imprisonment in his criminal proceedings but accepted a strike off. As in Saghir, the SDT considered the former solicitor's conduct to be "very serious" and, as such, striking off was proportionate.
In the latter two cases, there was no argument over whether a sanction was appropriate for conduct committed outside of the solicitors' practice. It seems that, for serious criminal offences, it is fairly obvious that there will be a regulatory sanction, but the more difficult cases will continue to be those involving minor criminal offences and business dealings outside of practice.
Another limitation case – bad news for law firms
Another case on limitation highlights (again) the difficulties of navigating s.14A Limitation Act 1980 and the risks to defendant law firms in this area.
In Witcomb v J Keith Park Solicitors and another, a personal injury case, the claimant suffered serious leg and foot injuries when he was in an RTA in July 2002. He brought a claim against a third party and accepted £150,000 "in full and final settlement" in December 2009. Nearly eight years later, as a result of his injuries, in July 2017, he had an amputation following advice in January 2017 that this was the best course of action.
There was no dispute that primary limitation had expired. However, under s.14A a claimant can bring a claim within three years of obtaining "the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action". Requisite knowledge requires both (a) knowledge of the fact that damage has been suffered and (b) knowledge that the damage is attributable (at least in part) to the defendant's acts/omissions.
In this case, the claimant argued he did not have the required knowledge until he first learned he was facing amputation (in January 2017). This was despite the fact the claimant acknowledged he had been repeatedly advised prior to settlement there was a risk of under-settlement if a later operation revealed more serious problems.
What the claimant didn't know (until after he had instructed independent legal advisers in 2017) was that the defendants were (allegedly) at fault for (1) not obtaining a plastic surgeon's evidence that might have highlighted a possible provisional damages claim; and (2) not advising on the possibility of such a claim.
Following a trial of the preliminary issue of limitation (only), the Court found in favour of the claimant.
Bourne J held that in this case the claimant's damage consisted of being left with a full and final settlement which made no provision for the possibility of a serious deterioration in his condition in future. The claimant knew of that fact when he entered into the settlement in December 2009. However, although he knew about the risk of under-settlement (the Court found) the claimant had no reason to suspect that that risk was caused by anything done or not done by his advisers until 2017. He had no reason, before then, to suspect he had received flawed advice.
The result of this case may seem surprising (perhaps even harsh) to defendant law firms, particularly firms facing claims arising from an alleged under-settlement. It is a reminder (if it were needed) that the way s.14A operates in practice can be (extremely) claimant-friendly.
Will an empty litigation threat undermine litigation privilege?
Whether a document attracts litigation privilege depends upon the purpose for which it was created and, if there was more than one purpose, which one was dominant. If the document was created for the purpose of obtaining information/advice in connection with existing/contemplated litigation then, normally, it will be privileged.
What happens when a document contains an "element of deception" as to its true purpose? Does that prevent the document from being covered by litigation privilege? In Victorygame Ltd & Anors v Ahuja Investments Ltd it was decided there was no such broad legal principle.
The proceedings concerned allegations of misrepresentation in a property transaction. The claimant had difficulty extracting information from its previous solicitors for the purposes of the action, and threatened negligence proceedings against them even though (the Court at first instance found) there was no intention to follow through with it. The defendants to the misrepresentation claim sought disclosure of the correspondence with the claimant's former solicitors, which the claimant maintained was protected by litigation privilege.
At first instance the Court ordered disclosure. However, the High Court overturned that decision, holding that while the tactics were not condoned, making empty threats to litigate against a third party in order to put pressure on them to provide information did not prevent a finding of privilege, provided the dominant purpose test was satisfied.
The Court of Appeal unanimously agreed. A person who requests information from a third party is not obliged (in order to claim privilege) to reveal why they want the information. Actively fostering a misapprehension, or even an outright lie, will not prevent privilege from being claimed. The Court did acknowledge that estoppel arguments might arise, particularly if information is requested from an intended defendant (who is misled into providing it). However, the Court found estoppel arguments would be extremely unlikely to arise where (as in this case) the information was requested from a third party.
Claimant awarded £10 receives £200k costs thanks to £1 Part 36 offer
Shah & Anor v Shah & Anor  EWHC 1668 (QB) is an eye-catching example of the power of a well-judged Part 36 offer.
The case concerned a family dispute over an apartment in India, which culminated in a consent order requiring a transfer of that property. A claim was brought for breach of an obligation under that order, in the sum of £30,000. The appellants were held to be in breach, but the court awarded nominal damages of £10, plus costs. The respondents had made a Part 36 offer, to accept £1, which was not accepted. The respondents had therefore "beaten" their offer. The courts (at first instance and on appeal) upheld the Part 36 offer and its costs consequences, which required the appellants to pay c. £200,000 towards the respondents' costs.
The Courts accepted that the respondents had won on liability and that there was a recoverable loss, notwithstanding the appellants' arguments that nominal damages did not equate to a 'success' in the action.
It is easy to see why, when the costs are significant, parties may be reluctant to accept such a low Part 36 offer, particularly when (as in this case) proceedings have become protracted. In such cases, a well-judged Part 36 offer can put the other side under considerable pressure and risk on costs. Sometimes, even a (very) low Part 36 offer can suffice.
Defendant avoids £101m default judgment by 'skin of his teeth' after three month delay
A defendant nearly missed the opportunity to have a default judgment of over £100m made against him set aside this month, due to the length of time it took his legal team to make the application.
In Mountain Ash Portfolio Limited v Boris Tsidenovich Vasilyev  EWCH 1853 the Judge stated that he had been successful in his application "by the skin of his teeth" and ordered him to pay the claimant's costs of and occasioned by the default judgment and the application to set it aside.
CPR13.3 requires the courts to consider whether an application to set aside a default judgment has been made "promptly".
In this case, the defendant was aware of the default judgment in October 2020 and yet the application to set it aside was not made until 5 February 2021. The Judge found there was "nothing prompt" about the application.
However, the Court held that "The magnitude of the default judgment is a factor feeding into the balance of injustice on the present application" and that the Applicant had "managed to set aside the default judgment by the skin of his teeth".
This is not the first judgment to make it clear that applications to set aside default judgment should be made as quickly as possible – the defendant was lucky in this case, but the outcome may be different next time.
A reminder of the risks to lawyers of defending proprietary claims
Where a claimant (C) seeks recovery of misappropriated assets (i.e. a "proprietary claim") and they believe the assets have been spent by the defendant (D) on their lawyers, can C pursue D's lawyers (as knowing recipients of the assets)? The answer is yes (in theory), though in practice such claims are rare and the tests the claimant must satisfy (as to the lawyer's state of knowledge) are high.
In a recent High Court Case, D's solicitors and counsel failed to obtain an injunction that would have barred C from bringing such claims against them in future. They argued (among other things) that:
- an exception in a previous freezing order (that expressly allowed D to pay his lawyers) would be rendered ineffective without the injunction; and
- D's ability to obtain legal representation would be impaired if the injunction was not granted (as D's only assets were those which C was pursuing).
Miles J dismissed these arguments and the application. The terms of the freezing order were effective without a further injunction. The risks to D's lawyers needed "to be kept in perspective". It was possible that, even if D's current lawyers were not willing to act for him without the protection of the injunction sought, other lawyers would be willing to represent him.
Singapore: Ministry of Law's "Legal Industry Technology & Innovation Roadmap Report" (TIR Report)
Towards the end of 2020, the Singapore Ministry of Law issued its TIR Report – a sector-wide plan to promote innovation and the adoption of technology and development in Singapore's legal industry through to 2030. As a result of various workshops conducted between April and October 2019 among representatives from the legal industry, academia, government and business, the TIR Report identified key global trends expected to have the most impact on the local legal industry. Extrapolating from such trends, the TIR Report anticipates expected changes in business demand for legal services. Three of the top expected changes in business demand from now to 2030 include: (i) increased demand for cybersecurity following recent, costly cyber-attacks; (ii) increased Asian demand for legal services; and (iii) demand for "24/7 accessibility" amid the rise of an "always-on culture".
In order to meet such challenges, the TIR Report also identified potential technological solutions that could be adopted by both law firms and in-house legal teams. These include basic, ready-made automation software for document management, document review and eDiscovery. More advanced tools such as legal chatbots would likely involve greater customisation and, therefore, involvement of legal professionals with innovation labs and startups to co-develop potential solutions. The TIR Report further emphasised the need for local LegalTech solutions to serve the Asian markets specifically, given their rich language and jurisdictional diversity.
In summary, the TIR Report serves as a testament to the ongoing efforts of the Singaporean government and the Law Society of Singapore to encourage the development and adoption of LegalTech by the broader legal industry, in line with previous digitalisation initiatives (2017 "Tech Start for Law" and 2019 "Tech-celerate for Law"). The importance of such initiatives is only heightened in an international city that is adapting to the longer-term consequences of COVID-19.
A link to the TIR Report can be found here.