UK: Lawyers' Liability Briefing - Summer 2015

Landscape for lawyers' liability (and what's over the horizon)

Members of Clyde & Co's Lawyers' Liability team held its second roundtable discussion on the environment for lawyers' liability claims (see our Summer 2014 Briefing for details of our first roundtable). Richard Harrison, Sarah Clover, Andrew Blair, Neil Jamieson, Fergal Cathie, Gaby Kaiser, Tom White, James Preece, Tony Nurse Marsh, Clive Brett and James Preece share their views on the current landscape and scan the horizon for future issues.

Claims trends

Following the spike in professional negligence claims after the financial crisis, we are no longer seeing the same elevated levels of claims against solicitors. What is clear however, is that there has been a significant increase in the numbers of complex claims, and in the quantum claimed across the board. We have seen a number of notable reports in the legal press of firms facing multi-million pound litigation from clients, and it is our experience that claimants are generally seeking more, whether in routine relatively straightforward matters or in multi-party international litigation.

As a result of the increase in complexity, we are seeing the necessity for expert evidence in lawyers claims on a more regular basis, in relation to specialist issues such as competition law, insolvency and restructuring, tax or on quantum issues. This also means that the claimant's legal costs and the defence costs are higher, and e-disclosure issues in particular are still adding significantly to the costs of defending a claim notwithstanding the Jackson reforms (more about which later).

Types of claim

In our previous edition of the Lawyers' Liability Briefing, we flagged that the globalisation of law firms had led to an increase in multi-jurisdictional claims against solicitors. This is something that has continued unabated, and there have been many publicised examples of claims spanning a number of jurisdictions.

In our view, international firms can face particular risks when setting up in overseas jurisdictions without necessarily considering the expertise or experience levels of the partners and staff in the new office. It can be tempting for firms to agree to provide services to established key clients of the home office in a small overseas office that is not necessarily set-up to provide a full service so for example, a litigation lawyer established in the jurisdiction to service a particular niche market finds himself being asked to advise the client on corporation or tax law. The case of Earl of Malmesbury v Strutt & Parker makes clear that if a firm holds itself out as having competence in a particular area then it will be held to that standard, even if the individual advising does not have the specialist knowledge necessary to advise. Furthermore, even if there are attempts to ring-fence the liability of the London office from the other parts of the law firm, this will by no means ensure that the head office in another jurisdiction will not face a claim in respect of the advice given in London. For example, witness the attempts in the US against the accountancy firms to establish liabilities against the US member firm for negligence alleged against members of the network in other jurisdictions. It is also of course very important that an international firm setting up in the UK understands the regulatory environment in England & Wales, elements of which, such as entity regulation, can be very surprising to those from jurisdictions such as the US.

Tax and pensions law remain two perennial sources of claim. These are both areas where the law is often subject to change, which leads on to claims when those changes are not properly understood by the lawyer, explained to the client, or implemented. Following the recession, there was a crackdown on large scale tax avoidance schemes in the UK by the government and regulators as it became unacceptable in popular opinion for big businesses and wealthy individuals to be seen taking steps to avoid tax. As a result large scale tax avoidance schemes (such as the film-finance schemes) have effectively come to an end, and we are no longer seeing a boom in tax-counsel being asked to "bless" such schemes. However, issues relating to these schemes have a long tail and are still working their way through the system. HMRC has a large backlog of claims. Until the client has had their appeal dealt with and is required to make a payment to HMRC then they may not yet have considered suing their advisers. Clients may allege that they were not given appropriate warnings about the risks of entering into a scheme, or did not understand what they were getting into. Of course, the advice that they should have been given will be judged on the basis of the position at the time of that advice, and there have been clear changes in the approach to such schemes, with the Courts taking a more purposive approach. History tells us that claims relating to tax avoidance are cyclical, so that when political and economic factors lead to tax rises, tax planning also increases as it becomes more worthwhile to try to find a way around taxation. It is likely that we will see these types of claim coming to the fore again in the future.

On the pensions front, we continue to see claims arising from failure to implement changes properly to pensions schemes in accordance with the terms of the power of amendment. Putting it simplistically, if amendments are not made to a scheme at the time intended then it is not possible to amend benefits retrospectively, leading on to claims against advisers who were instructed to implement the changes. We are seeing claims relating to amendments in a number of areas, and failure to equalise pension ages between men and women still remains an issue. Going forward, an area where we foresee potential claims against those advising on pensions is in relation to the closure of schemes to future accrual, and the issue of the employers' duty of good faith. There have been several cases where the courts have considered the effect of the employers' duty in this regard, and we expect to see more. Following on from these cases there may be negligence claims against law firms if it is due to their advice or actions that changes to the scheme were not correctly dealt with.

Another area where we have seen an increase in claims is where firms are falling foul of fraudsters, who are contacting law firms and using confidence building methods to obtain bank details, including log-ins and passwords, which they will then use to remove money from the client accounts. It is clear that their methods for doing so are becoming increasingly sophisticated, and the SRA issued a warning about such frauds in April this year. If money is improperly withdrawn from a client account, then, under Rule 7 of the Solicitors' Accounts Rules, all principals of the firm will be under a duty to replace the money promptly, which extends to using the principal's own resources. This obviously places pressure on firms and their insurers from a timing point of view.

Law firm systems and procedures

There are several current issues we have observed that have an effect on claims.

We are increasingly seeing a lack of attendance notes on files, even on litigators' files, where traditionally lawyers were more exacting in keeping notes than their corporate counterparts. This may be down to time and costs pressures faced by fee earners, who are not taking the time to dictate notes. There is also a tendency by lawyers to see attendance notes as replaced by emails to clients or colleagues recording a conversation, but the detail of exactly what was explained to the client and their instruction may not necessarily be recorded as well as in a traditional attendance note. The difficulty is of course, that (although there is no obligation to record advice in writing) without a proper record of instructions and advice, it can be much more difficult to rebut a claimant's assertions in circumstances where, by the time a claim is made (potentially some years down the track) the fee earner no longer has much or any recollection of relevant conversations. In the case of Wellesley v Withers the court recently rejected the claimant's assertion that a lack of attendance notes would count against a solicitor in forming a view as to where the truth lies in relation to a claim, however this case is subject to appeal.

Issues also arise in relation to electronic filing systems operated by law firms. These systems can be unwieldy, policies or methods of using the system vary from office to office, and there are always individuals who might seek to circumvent the electronic filing system because they are unwilling or find it difficult to use them. This can create evidential issues when it becomes difficult to track down the documents in relation to the claims, and can of course push up the cost and time of dealing with a case.

Finally, we continue to see a fair number of matters where there are no retainer letters or terms of business sent to clients. This causes obvious issues when seeking to argue for example, that the scope of the work was limited, or that a limitation of liability applied. Given the increase in cross-border work, it also opens up the possibility of being dragged into litigation in other jurisdictions, as the firm will not have the protection of any jurisdiction clause contained in the TOBs.

Litigation procedure and the Jackson reforms

The Jackson reforms took effect in April 2013 and have therefore now been in force for just over two years. Despite this, we are still seeing cases with pre-Jackson funding arrangements, so the conditional funding agreement (CFA) uplift and ATE insurance premium will still be recoverable from the defendant, now heading towards trial. Despite one of the aims of the reforms being a crackdown on increased litigation costs, our experience is that the courts are currently very willing to allow the submission of supplemental witness statements and expert reports, and to allow claimants to amend their pleadings at a late stage of a case, after receipt of expert reports. This obviously adds to the defence costs as it is necessary to respond.

The old pre-Jackson regime caused particular issues in relation to professional negligence claims. This was because certain claimants and their lawyers would use the threat of the fact that the defendant professional would, if they lost, be required to pay such a disproportionate sum in costs compared to the amount claimed (due to the requirement to pay the claimant's CFA uplift, often 100% of base costs and the ATE premium). As such, the outcome of the case of Coventry v Lawrence is of interest. In this case the Supreme Court is due to rule whether the old regime violated defendants' rights under Article 6 of the European Convention on Human Rights. Should the Court decide that there was a violation, there may be a right of redress for defendants against the government.

Again, despite the Jackson reforms, our experience remains that the issues arising from and costs and time of dealing with electronic disclosure present a real challenge. This can easily turn into an area of satellite litigation, with issues arising between the parties as to what comprises a reasonable search for electronic documents, for example, whose accounts and devices should be searched, appropriate keywords, disclosure of metadata and so forth. Although the reforms introduced a menu of potential disclosure options that the courts could order, in our experience it still very much remains the case that standard disclosure remains the default.

The Professional Negligence Pre-Action Protocol has recently been amended (Clyde & Co partners Sarah Clover and Tom White were members of the drafting committee). Our experience of the Protocol is that it works well for professional negligence claims, and it is not uncommon for claims to be resolved at the pre-action stage once the defendant has had the opportunity to set out its position to the claimant. Fortunately, some of the more claimant-friendly amendments to the Protocol were rejected and the changes are fairly minor. Only two are particularly noteworthy:

  • Where the claimant has not sent a letter of claim, there is now a requirement that they must update the defendant on whether they intend to pursue the claim or inform the defendant of the time at which they intend to take the decision whether to pursue the claim. This updating procedure takes place six months following the preliminary notice. This may assist in bringing clarity as to whether some matters will be pursued, or can be closed
  • There is now a "stock take" provision in the Protocol, meaning that once the parties have complied with the Protocol (if it has not resolved matters), they must review the papers and evidence to see if proceedings can be avoided or the issues narrowed. It is difficult to see what this adds to the process, and it is likely that by the time this provision comes into play the parties will have already considered carefully all of the evidence in deciding how to proceed

There is also currently in progress a pilot adjudication scheme for solicitors' negligence claims similar to that which already exists for construction disputes. This was lobbied for by the Professional Negligence Lawyers Association. The pilot scheme launched on 01 February 2015. Mr Justice Ramsay is looking to gather feedback from 3 pilot cases by June 2015.

The pilot is aimed at solicitors' negligence claims where the claim is worth less than GBP 100,000 excluding costs. At the end of the pilot, the Ministry of Justice will be considering whether to include adjudication of professional negligence claims as part of civil procedure. This reflects a developing trend we are seeing in which lower value claims are being pushed towards non-judicial resolution by way of adjudication, mediation and Ombudsman schemes.

Regulation

There has been a big change in the approach of the Solicitors Regulation Authority ("SRA") over the past few years. It is now much more pro-active, and appears very conscious of the need to be seen to be taking action. As such, if there are reports in the legal or mainstream press of issues relating to a particular case or law firm, then the SRA will shortly thereafter be in contact to ask for an explanation. The SRA is also of course, undertaking focussed work in particular areas, and for example is currently visiting firms in order to look at their compliance with anti-money laundering rules.

Generally speaking, our experience is that firms are now more conscious than ever of the need to report material regulatory breaches to the SRA, particularly following the introduction of the COLP regime. The SRA itself is very keen to make clear that it wishes to be seen as having more of a partnership with firms, and emphasises that firms should approach it at an early stage with a problem. As a result, it is not at all uncommon in the current climate to find that firms are facing parallel civil and regulatory proceedings. There are a number of issues to be alive to in these circumstances, such as which documents created in relation to the regulatory investigation are disclosable to the civil claimant and vice versa. The most appropriate strategy for dealing with the regulator and the civil claim may not be the same, and the effort of dealing with both can put considerable strain on witnesses involved. It is unlikely that a firm can get either the civil claim or the disciplinary proceedings stayed whilst the other proceeds, and therefore it is important to find a way around these issues.

The crystal ball: predictions for future claims

We consider that in the current climate the following may be factors in future claims:

  • Economic uncertainty is always likely to create an environment in which we see an increase in claims. Following the recent election, it is now likely that we will see a referendum on membership of the EU in the next two years. It has also been reported in the press that, given the SNP success in the general election, a further vote on Scottish independence is a real possibility. Even the fact of looming referendums may cause the financial markets to become jittery and investors to lose confidence, to say nothing of what the position would be should there be a "Brexit" or break-up of the Union. Situations such as these mean that bad legal advice is uncovered as mistakes are not masked by rising markets, commercial parties look to break deals or disappointed investors look to the professionals to recover what they have lost
  • The spectre of collective action is something that lawyers might one day face. Although we have nothing even approaching the US collective action and the plaintiff bar, the nearest process is the Group Litigation Order ("GLO") which permits multiple claims against a defendant to be grouped into a single action, provided the court is satisfied that the claims give rise to common or related issues of fact or law. We have seen a recent trend of GLO actions in the financial services arena. There are currently GLOs making their way through the courts in relation to several different claims, including for example a claim by retail and institutional investors in Lloyds Bank claiming that the directors breached tortious and fiduciary duties owed to the shareholders by telling them the merger was in shareholders' best interests. There is also a threatened action in relation to the overstatement of profits by supermarket Tesco

    Although we have not yet seen a GLO in the area of professional negligence, this is becoming increasingly likely. This is particularly the case given the potential backing by litigation funders and overseas capital. Third party funders are becoming more significant in relation to professional negligence claims. By way of example, we have recently seen it reported that Bentham Europe, a subsidiary of an Australian funder, and backer of the Tesco shareholders litigation, is eager to fund more GLOs in the UK

    Professional negligence claims can be attractive to funders as they may be of significant value and offer a good potential return on investment, in the right claim, and their involvement in claims looks set only to increase. The only possible dampener might be funders' concerns about being ordered to pay a defendant's legal costs if a claim is unsuccessful
  • We consider that the area of sanctions is one where law firms may find themselves in difficulties. (Sanctions are political sanctions or embargos imposed by the UN and EU and include for example prohibiting transfer of funds to a sanctioned country, or to certain individuals, corporate entities or governments.) As clients are becoming more and more global, and given current political issues such as between Russia and the West or in relation to instability in the Middle East, sanctions law is an area where firms increasingly have to advise. Or, even if not being asked to consider this area specifically, law firms may fail to take sanctions into account putting themselves and their clients in breach. The sanctions regime is a complex one, and there are significant differences in approach between the US and in the UK which can trap an unwary lawyer
  • It is a continuing trend that law firms are outsourcing certain services, whether overseas or to other parts of the UK (so called "near-sourcing") that are cheaper than running them from their London offices, and whether to external companies, or to other parts of their own business. This is an area where issues can arise. There is easily the possibility of misunderstandings and disconnects where the parties involved in a matter are only speaking over the phone. For example, the senior lawyer based in the City of London office fails to get across to the team of paralegals carrying out a document review in Ireland the emphasis to be placed on a particular search term, or exactly when to refer queries back. This leads to the potential for claims
  • There is a likelihood that we will see claims relating to the failure of litigation lawyers to advise claimants on all of the funding options in relation to a claim. Particularly in the pre-Jackson era there would seem to be very little for most claimants to lose in taking out CFA and ATE insurance, given that this lay almost all of the costs risk at the door of the defendant and the claimant was unlikely to be liable for anything no matter what the outcome of the litigation. Even if the solicitors were themselves unwilling to offer a CFA on the facts of the case, there may have been a duty to advise the client that other firms might do so. We have seen claimant lawyers flagging up, and actively looking for these types of claims to pursue
  • Similarly, there may be claims for failure to advise on the possibility of litigation funding. Where there are funders in a claim, issues may arise as to the extent of the duties of solicitors conducting the claim to those funders
  • Costs issues are becoming ever more significant in relation to litigation, and costs lawyers' involvement is much more marked, and necessary than previously. We remain of the view that the costs budgeting rules (where solicitors are required to submit costs budgets to the courts at an early stage of a claim, which they will be held to unless permission is sought for revision) will be a source of claims. This is an area where it will be very easy for the lawyers to make a mistake, or fail to identify properly all of the necessary issues or complexities of a claim. If the budget is too low, and the court does not accept the reasons for this and allow amendments, the client is likely to ask questions

Conclusion

The current climate for claims against law firms is not one where we are seeing elevated numbers of claims, but it is very notable that there has been an increase in complex claims and in the amounts claimants are seeking to recover. This trend seems likely to be here to stay, particularly given the amount of cross-border litigation that we are seeing in relation to lawyers' professional negligence claims. Looking forward, the conduct of litigation seems to be developing into a more costly and complex process, notwithstanding the Jackson reforms. Meanwhile, it will be a significant day for lawyers' liability if and when we see the first GLO in this area. With potential choppy waters on the horizon from an economic point of view, due not least possibility of landmark political events such as a positive response to a referendum on leaving Europe, these remain interesting times for lawyers' liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.