Lawyers Covered - June 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 reviews BPE/SAAMCo principles: an Introduction to Manchester Building Society v Grant Thornton UK LLP
The Supreme Court has reviewed the law on the scope of a professional advisor's duty (recently clarified by Lord Sumption in BPE) and its guidance is potentially unwelcome to defendant professionals.
On 18 June 2021, the Supreme Court handed down a landmark decision in Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 in the context of professional advice given by expert accountants. The decision was handed down by a specially constituted Court, that also heard the appeal in Khan v Meadows [2021] UKSC 21, which was concerned with the same scope of duty issue in the context of professional advice given by a medical expert. The judgments in the two appeals should be read together. The case concerned whether Grant Thornton ("GT") were liable for Manchester Building Society's ("MBS'") losses on swaps following GT's negligent advice on the accounting treatment of the swaps. The Court of Appeal had held that the losses fell outside the scope of GT's duty. MBS appealed.
The appeal was unanimously allowed. It was held that the losses which MBS suffered in closing out the swaps were within the scope of GT's duty and legally caused by GT's negligence. The case represents an unwelcome development for professional defendants as it signals a shift away from adherence to the clear principles set out by Lord Sumption in BPE.
Of particular interest is the Court's guidance regarding the proper approach to determining the scope of a defendant's duty of care and the extent of liability of professional advisers in professional negligence cases. These principles had been previously laid down by the House of Lords in in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 (“SAAMCO”) and recently clarifiedby Lord Sumption in Hughes-Holland v BPE Solicitors [2017] UKSC21; [2018] AC 599.
In its guidance, the Court placed emphasis on the scope of duty of care principle. Causation and the counterfactual test in professional advice cases was said to distract attention from the primary task of identifying the scope of the defendant's duty. The Court also encouraged parties to dispense with the "rigid straitjacket" labelling of cases as 'information' or 'advice' cases.
Click here to read further analysis of this important case by Nick Bird and Bryony Howe. Subscribe to RPC's Professional and Financial Risks blog to receive alerts.
SDLT: conveyancers may soon be able to take their Summer Holiday
SDLT
For England and Northern Ireland, the Government's stamp duty holiday, introduced to invigorate the housing market as the first lockdown lifted, will finally come to an end in its current form at the end of this month. From then until September 2021, the rate will be tapered and stamp duty will not have to be paid on a residential property purchased for up to £250,000.
In Wales, the land transaction tax concession will cease from 30 June 2021 with no applicable tapering.
Conveyancers are feeling the strain, buried under a pile of transaction files with little time to rest and recuperate. Following a brief respite when the holiday was extended in March, clients will now be eager to meet the 30 June deadline. It is therefore imperative to manage clients' expectations – please see our previous article for our top tips.
With fleets of removal vehicles up and down the country now fully booked until July, The Law Society has issued guidance on SDLT deadlines and we set out the main points below.
Communication is key. With the sheer volume of transactions completing, we understand that lenders may require notice. If you are unsure, contact them as a matter of urgency and, where you can, book in completion dates ahead of 30 June 2021. As well as ascertaining whether they need notice and, if so, how much, check whether they have also included a clause that mortgagors can only proceed if the SDLT concession is available.
Be realistic and ensure clients are advised that completions may not take place in time so that they are prepared. If clients haven't already taken tax advice on the implications of not completing by the deadline, they should be advised to do so. They can then decide whether to proceed if their purchase goes through late.
It is important to discuss the position across the chain due to the potential impact of one failing to complete in time. Speak to estate agents and ask them for regular updates.
Clients need to be kept abreast of the situation and the guidance provides talking points to avoid the pitfalls. If there are any penalty clauses, discuss these with clients and explain the effects.
PII
Residential conveyancing gives rise to the highest number of PI insurance claims, with SDLT reliefs one of the main areas of concern. The Law Society has also set out the issues conveyancers should consider as PI insurers are concerned over the number of conveyancing transactions taking place under time pressure due to the SDLT concession. As insurers are more risk averse in a hard market, this may prove tricky at renewal. The Law Society recommends making a note of how you are working, future working, how issues are overcome and the promotion of wellbeing at firms. This note, alongside the proposal form, may assist to show your firm's resilience.
The end is in sight and property transactions should be easier to manage to September and beyond.
Lack of expertise? Don't accept the instruction…
This month the SRA published its conclusions from an investigation that commenced in August 2018 on a London firm. During the investigation, the SRA identified numerous failings in the handling of at least one of its cases. The SRA identified the firm had been instructed on a probate matter but did not actually have the requisite (or indeed, any) experience to deal with it.
The COLP and COFA of the firm was also the manager and therefore had a duty to ensure his staff were supervised appropriately. Unfortunately, the SRA's investigation concluded there was 'no supervisory oversight' of the matter which lead to numerous failings in the case. In particular, the SRA referred to the failure to carry out any client due diligence (a key obligation at the outset of any matter) and, moreover, the firm had received client money but did not in fact have a client account. The manager accepted he was unaware the firm had held client monies or that the office account had been used to distribute estate funds.
In addition to the above, the firm failed to identify the potential beneficiaries of the estate and inappropriately paid out sums prior to satisfying the estate debt.
By way of agreed outcome, the manager admitted he had failed in his duties as COLP and COFA and to adequately and appropriately supervise his staff. He was ordered to pay £2,000 in fines as well as the costs of the investigation and conditions were put on his practicing certificate.
The takeaway from this decision is never to accept instructions for matters in which you have no experience! Firms need to have a clear risk management strategy and policies in place to prevent finding themselves in this situation. If you are the COLP/COFA, you must take your obligations seriously and ensure you are aware of exactly what is going on in your firm.
SRA postpones indemnity fund closure for 12 months
The Solicitors Indemnity Fund (SIF) provides post-six-year run off cover for claims against firms that have closed without a successor practice. Post-six-year cover is separate from the requirement for all firms to have six-year run off cover.
Previously, the SRA announced that it was considering closing the fund because its future financial viability was in question (despite the fund being £22.5m in credit as at October 2020). The SIF has already been extended on a number of occasions, with the first date for closure having been September 2017. Consideration was therefore given to alternative products that could manage any remaining liabilities. However, the SRA announced on 15 June 2021 that the SIF is being extended for a further year. During this period the SRA is going to launch "a consultation on the future of post six-year run-off cover".
The Chair of the SRA Board, Anna Bradley, has urged all those affected to engage in their consultation.
Legal Ombudsman recovery plan in dealing with complaints as delays increase
The Legal Ombudsman ("LEO") has published its business plan for 2021/22 and has deemed it a 'two-year recovery plan' in order to help resolve the lengthy delays consumers are facing when they raise complaints.
LEO's Chief Ombudsman has stated "Our forecasting shows that in 2021/22 this investment will reduce the backlog, reduce waiting times for all case complexities and increase case closures. By the end of 2022/23, as a minimum, we will reduce wait times for all case complexities by 32% and increase the number of case closures by 73%."
LEO has always struggled with response times; however, the pandemic has (as with many businesses in the same situation) had a large impact on their response times. In the plan, the Chief Ombudsman confirms that "the numbers of customers waiting for an investigation began to rise to an unacceptable level and the number of cases declined" and that the number of consumers with their complaints on-hold pending investigation had risen to 2,464 in April 2020, with this figure only predicted to increase as the months roll on. It will be no easy task to reduce these figures; however, LEO seems confident that with the strategy set out in its plan, it will improve its service. We will need to watch this space (closely along with the LSB who has confirmed it is monitoring the situation) to see if the wait times improve.
So, what can law firms do in the meantime? The best option is simply: try to make 'reasonable offers' now so any complaints can be dealt with promptly.
Court clarifies effect of midnight deadlines on limitation
Under the Limitation Act 1980, actions brought in tort, contract, and breach of trust must be brought within six years from the date on which the cause of action accrued. But what if the cause of action accrues at midnight – should the following day be included in the calculation of the limitation period? The Supreme Court has confirmed the answer is yes. In other words, time for limitation purposes starts running on the day following a midnight deadline.
In Matthew and others v Sedman and others, former professional trustees had missed a key deadline which expired on Thursday 2 June 2011. The issue for the court was whether Friday 3 June 2011, the day commencing immediately after expiry of the midnight deadline, counted towards the six-year limitation period. If so, the claim brought by the current trustees on Monday 5 June 2017 would be out of time and statute barred. If not, the claim was brought in time (allowing for the weekend closure of court offices).
As a general rule, where a cause of action accrues halfway through a day, that day is ignored in calculating the limitation period. The appellants argued that their cause of action accrued just after the stroke of midnight, and that even a fraction of a second would constitute part of a day. The Court rejected this and confirmed there is an exception to the general rule where the deadline is at midnight. In a midnight deadline case, "even if the cause of action accrued at the very start of the day following midnight, that day was, for practical purposes, a complete undivided day". In reality, there is no 'fraction of a day' in these cases, and the day following a midnight deadline is included in limitation calculations.
Hong Kong – Update on ad hoc admission of Overseas Barristers
The recent case of Re Simpson QC raises an important point of professional regulation in the context of an application for ad hoc admission to the Hong Kong Bar.
Applicants for ad hoc admission in Hong Kong are eminent Queen's Counsel. The legal principles that determine such applications are set out in Re Flesch QC [1999] 1 HKLRD 506 – in short, the public interest is paramount and this includes the maintenance of a strong and independent Bar. A condition is attached to a successful application that the applicant appears together with a "local barrister".
For the first time on an application for ad hoc admission, in Re Simpson QC the applicant's lawyers challenged the condition that the applicant had to appear with a local barrister. They did so on the basis that the applicant would appear with a solicitor advocate who had equivalent "higher rights of audience". While the application for ad hoc admission was successful, the Court of First instance ([2019] HKCFI 2689) refused to vary the condition. That decision was upheld by the Court of Appeal ([2021] HKCA 22), which also refused permission to appeal.
Interestingly, the Secretary for Justice (who acts as the proponent of the public interest) agreed that the applicant should be able to appear with a solicitor advocate and not a local barrister – as did the Law Society of Hong Kong (having intervened in the appeal). The applicant and the Law Society have applied to the Appeal Committee of the Court of Final Appeal for permission to appeal, which is due to be heard on 14 July 2021. Whether permission to appeal is granted will depend on the Appeal Committee agreeing that the imposition of the condition raises a question of public importance – for example, whether there is any material distinction between a barrister or a solicitor advocate in the context of an overseas barrister being admitted to appear together with a "local advocate".