Politically and economically 2016 was a seminal year, dominated by one shockwave after another. Whilst not in the same league as national and global events, 2016 was also a pivotal year for the legal profession.

At the beginning of a new year we reflect on developments on solicitors' liability and coverage issues over the last 12 months and look to the horizon for what may be to come.

Retainer issues

2016 was dominated by reported cases on the scope of solicitors' duties, many centred on the retainer.

The accepted mantra for professionals is that a properly formulated letter recording the scope of the retainer is the most effective means of controlling risk on issues of duty. However, this often "falls by the wayside" in practice. In these circumstances, issues of scope tend to be settled by the courts in favour of the lay client.

2016 saw a shift in favour of the professional. Cathal Anthony Lyons v Fox Williams LLP [2016] and Caliendo v Mishcon de Reya [2016] dealt with solicitors' retainers and reflected the courts' growing concerns about retrospectively seeking to impose broad obligations on solicitors. The findings in both cases saw the courts reverting to the substance of the retainer and rejecting moves to impose additional implied obligations on solicitors.

A welcome development for a profession which, in recent years, has come to expect the balance to be weighted heavily in favour of the client.

Barker v Baxendale Walker Solicitors and Paul Baxendale-Walker [2016] considered a solicitor's duty to warn - in this case to highlight the risk that, in advising on statutory interpretation, the solicitor's opinion could be wrong. The court rejecting this argument, commenting:

"it is difficult to see that solicitors whose interpretation is likely to be correct are nonetheless in breach of duty for failing to warn the client that they might be wrong."

For further particulars of these decisions, click here.

Where liability is likely to be established against a solicitor, there are limited avenues for reducing exposure. One option is to blame another professional. However, a potential stumbling block for solicitors seeking recovery is limitation.

The court considered limitation in Spire Healthcare Limited v Nicholas Brooke [2016] in the context of a contribution claim where an interim payment had been made in the underlying litigation pending determination of quantum. The court found that the relevant date for limitation calculation on a contribution claim in these circumstances was not the date of the interim payment but the date on which the final settlement sum had been agreed.

For our recent article on this case see: Limitation - when is it too late for professionals to claim a contribution?

Claims against solicitors often require the courts to speculate on what would have happened had the solicitor provided appropriate advice. In essence the courts look to evaluate the chance of a particular event occurring.

The Court of Appeal took the opportunity provided by McGill v The Sports and Entertainment Media Group [2016] to revisit loss of chance issues and key principles underlying the doctrine.

In summary, where the claimant's loss depends on hypothetical acts of a third party, the claimant will need to prove that there was a real and substantial chance that the third party would have acted so as to confer the claimed benefit on the claimant. The measure of damages is the sum which the claimant would have recovered in the underlying transaction multiplied by the percentage chance of the claimant making that recovery.

The Court of Appeal also considered remoteness and loss of chance in the recent decision of Wright v Lewis Silkin LLP [2016]. The case related to a loss of chance award of £2m for failure to advise on jurisdiction on an employment contract between the claimant and a foreign company. On appeal the solicitors argued that the loss of chance of recovery was too remote and/or outside the scope of the duty. On the facts, the Court of Appeal agreed, finding that the solicitors would be liable if, at the time of making the employment contract, a reasonably competent solicitor would have had damage of that kind in mind.

For further particulars of these decisions see, click here.

May 2016 saw the relaunch of the Adjudication in Professional Negligence Disputes pilot scheme, aimed at encouraging parties to engage in ADR rather than litigation. Following dismal "take-up" rates on the original scheme in 2015, the rationale behind the re-launch was to make it a more accessible and appealing. The new scheme is open to a wider range of professionals, the claims' limit cap has been removed and adjudicators' fees are limited depending on the value of the claim.

Nevertheless, the jury is still out – there continues to be little interest in the scheme.

For further discussion about the scheme see, click here.

Aggregation

2016 was a significant year for professional indemnity insurers operating in the solicitors' market, with the first instance and Court of Appeal aggregation decisions in AIG Europe Ltd v OC320301 LLP & Ors [2016].

Aggregation clauses in insurance policies allow two or more claims to be treated as a single claim where the claims are connected by a relevant unifying factor. The Court of Appeal's decision on the issue has created uncertainty for professional indemnity insurers operating in the solicitors' market, rendering aggregation extremely difficult in all but a limited number of cases.

The issue came before the Supreme Court in October 2016 and judgment is due to be handed down shortly.

In the meantime, the professional indemnity market "holds its breath" in the hope that the Supreme Court does nothing further to erode confidence in a sector of the insurance market which seems to be increasingly operating on "the law of diminishing returns".

For further discussion on this decision see, click here.

In August 2016 the Insurance Act 2015 came into effect with the aim of updating the law to reflect the evolution of the insurance market over the last hundred years. The rationale is to achieve a fair and balanced regime between insurers and insureds. The Act includes fundamental changes to the approaches to be taken by insureds and insurers in presenting and assessing risks and in addressing coverage issues.

In February 2016 the Solicitors' Regulation Authority released a consultation document proposing an update of Solicitors' Minimum Terms and Conditions (MTC) to ensure consistency with the Act. The MTC (both in its current form and based on proposed amendments put forward in the consultation) is extremely restrictive in terms of insurers' rights to avoid a policy or repudiate a claim, primarily in the interests of public protection.

The consultation has now closed but no formal conclusions have been published as yet. However, the expectation is that the Act will have little significant impact on solicitors' coverage issues.

For further discussion on the Insurance Act 2015 and links to articles detailing changes made by the legislation, click here.

The Enterprise Act 2016 is likely to have more immediate relevance to insurers operating in the solicitors' market once it comes into effect in May 2017. It inserts a new Section 13A into the Insurance Act 2015, implying a term into all insurance contracts requiring the insurer to pay a claim within a "reasonable" time. A "reasonable" time includes a reasonable time to investigate and assess the claim and depends on a number of specified circumstances, including the type of insurance, the size and complexity of the claim, compliance with any relevant regulatory or statutory guidance and factors outside insurers' control.

If insurers breach this provision, the insured has a remedy in damages. The remedy is additional to and distinct from any right to enforce payment of the sums due and any right to interest on those sums.

It is difficult to predict with any certainty what the coming months and years hold for solicitors. The following provides a flavour of potential issues on the horizon:

  • Review of the Bolam test? – The test for standard of care in professional negligence claims is the Bolam test ie whether the professional was “acting in accordance with a practice of competent respected professional opinion”. Bolam dates back to the 1950s and the courts have recently revisited its application in the context of other professionals. With the legal world a very different place in 2017, there is real potential for a review of the application of Bolam to solicitors
  • Changes in the test on remoteness? - 20 years after the House of Lords' decision in South Australia Asset Management Corporation v York Montague Ltd (SAAMCO) [1996], the courts continue to consider recoverable losses against professionals by virtue of the SAAMCO test. In December 2016 Gabriel v Little [2013], involving a review of issues of recoverable loss and remoteness, came before the Supreme Court in proceedings known as BPE Solicitors and another v Hughes-Holland (in substitution for Gabriel). Judgment has yet to be handed down. However, the provision of professional services and role of professional advisers has moved on significantly in the last 20 years and it is highly likely that the Supreme Court will take this opportunity to revisit quantum issues impacting on claims against solicitors and other professionals
  • New scandal for solicitors? – 2015/2016 was dominated by claims arising from "Friday afternoon scams" in which law firms were duped into handing over sensitive information/funds to fraudsters. Potential fertile ground for claims in the coming months arise from solicitors' retainer issues, namely failure over recent years to warn buyers and lenders of soaring ground rents on leasehold properties, impacting on valuation and marketability of properties. With the new build leasehold property sector valued at £2 billion per annum and insurers already seeing multiple claims being advanced, this issue is one to watch
  • Cyber risks - Cyber security experts have long warned professional services firms, including solicitors, that they are high risk targets for attacks due to the data they hold. The rise of cyber-security attacks has been endemic with over 2.5 million cyber-crimes reported in 2015/6. The true figure likely to be far higher. In the meantime, solicitors and their insurers are seeing a significant rise in cyber related claims. Issues include frauds involving hijack of transfer of funds through false payment instructions sent to clients/solicitors and IT failures/encryption of data followed by extortion to return systems to normal. However, cyber risks are by their very nature a "moving target". As the profession becomes increasingly aware of scams and puts in place measures to manage risk, so fraudsters become more innovative and sophisticated in their approach.

For further discussion on these issues, click here.

Brexit negotiations and Donald Trump's forthcoming inauguration will necessarily result in an extended period of uncertainty politically and economically, both on a national level and in the global arena. Depending on one's outlook, this may be accompanied by chaos, new opportunities or a combination of the two.

Whatever the reality, over the coming months and years there will undoubtedly be an increase in the demand for professional services, to include solicitors. Businesses will turn for assistance to professional advisers in this rapidly changing environment.

This comes at a price for solicitors. With new opportunities come greater risks. But, that goes with the territory for us - as professionals who assist clients in managing risk, we have to accept that we also have an exposure. In the current environment, however, an element of that risk is highly unpredictable.