Paris Class action legislation has recently been enacted which permits claims to be brought on behalf of consumers by certain consumer associations. There is a potential for it to gain ground in the professional indemnity arena generally, for instance in connection with mis-selling of financial products and tax exemption schemes in relation to property investments, a source of abundant litigation against professionals in the recent years. There is the potential for this type of action against professionals to grow, although we understand that consumer associations are currently generally in the position that they do not have sufficient means to bring these actions.
In common with other jurisdictions, tax continues to be a significant claims hotspot for all professionals, including lawyers, which has not been assisted by scandals such as Mossack Fonseca.
From a risk point of view, cyber and data security also remain an issue for law firms which are often perceived to be a weak spot. Social engineering frauds, involving impersonation of a CEO in order to convince an employee to transfer funds, is a growing problem in France. Like all businesses, law firms will need to be aware of the new anti-corruption law, known as Sapin II, in effect from 10 November 2016. Sapin II represents a significant extension of French jurisdiction to tackle bribery and corruption. It applies extraterritorially, allowing French authorities to prosecute acts of corruption committed abroad by any company that carries on business or part of its business in France. While the law does not go as far as the UK’s Bribery Act 2010, in creating strict liability for acts committed by associated persons, it does oblige companies with over 500 employees and revenues of at least €100m to adopt compliance policies and procedures. Failure to do so can lead to a fine of up to €200,000 for individuals or €1m for companies. The new law will be enforced by a new anti-corruption agency, the Agence Française Anticorruption (AFA). The AFA will have the power to request documents from companies and interview employees but not to initiate investigations or impose criminal penalties, which remains the responsibility of prosecutors. There is also a form of DPA encouraging companies to report voluntarily.
In February, as a reaction to the Federal Constitutional Court’s decision on the protection of lawyers from monitoring measures, a new draft for a revision of the German Federal Criminal Office Act was adopted. The monitoring measures are intended to fight terrorism and include the secret visual and acoustic surveillance of living quarters, online searches and surveillance of telephone calls. Under the current law, only criminal defence lawyers benefit from complete protection from these measures. The Court held that the provision was contrary to the principle of proportionality as the measures in question were not measures of criminal prosecution but rather aimed at averting danger. Under the new law, all lawyers will benefit from complete protection from monitoring measures.
Another long-awaited development is the so-called “small reform” of the Federal Lawyers’ Act. The German Parliament has finally adopted the act on the fifth attempt. We are expecting the act to come into force this spring and end a legislative procedure which has been dragging on for an exceptionally long time. The implementation deadline expired in January 2016 and the European Union has since initiated infringement proceedings against Germany. The delay is mostly due to the controversial topic of obligatory further training including fines for non-compliance. While many were in favour of compulsory training for lawyers, the motion was not successful. Similarly, the proposal to incorporate professional indemnity law into legal training was dismissed. The most noticeable change will be the compulsory use of “beA”, an electronic mailbox for lawyers, which takes account of the ongoing digitalisation. Apart from that, so far the “small reform” has shown to be much ado about nothing.
For the next legislative period beginning in 2018, the Federal Government has announced a “large reform” of the Federal Lawyers’ Act. In particular, the reform will introduce changes to lawyers’ corporate law, including conditions for holding company shares and provisions on voting rights in law firms.
More broadly, claims against professionals, including lawyers, have been getting larger in line with the increasing complexity of instructions. A developing exposure is claims brought by insolvency administrators of corporates that were clients of the targeted firm, sometimes in circumstances in which the firm has brought an action for fee recovery. Claims brought by administrators have been a feature of the landscape for directors for some time, but have only been seen recently against advisors. Claims relating to tax advice are another hotspot, as is investigation and regulatory action by the tax authorities against law firms and others arising out of cum/ex trades. The issues relate to the claiming of tax refunds in connection with stock trades conducted around the time of a company’s dividend date and specifically trading and selling back the right to claim a dividend with the result that the tax refund is claimed twice but the tax only paid once. Whilst there has been speculation that Germany may see a professional liability claim funded by third party funders, we have not yet seen this materialise.
Lawyers’ PI claims have remained relatively uncommon and this is still considered a low risk area of business by PI underwriters operating in the Middle East. However, as the awareness of rights increases in the region generally, we expect to see a corresponding increase in claims. This is particularly so in the UAE, with the coming in to force of Ministerial Resolution No. 666 of 2015 on the Code of Ethics & Professional Conduct of the Legal Profession (Code of Ethics).
The reasons for the comparatively low volume of claims against lawyers in local courts includes the lack of recoverability of costs for successful parties, lack of clarity within the law as to the meaning of negligence and the lengthy litigation process (conducted in Arabic). The fact that some local firms are not required to and do not carry PI cover (unlike international firms operating in the region) also means that pursuing claims against them may not be commercially worthwhile.
In the UAE, however, the Code of Ethics requires legal consultancy firms to set out the details of any PI cover held in their terms of engagement. A similar requirement is contained in the Government of Dubai Legal Affairs Department’s draft Charter for the Conduct of Advocates and Legal Consultants (DLAD Charter). While this appears to fall short of requiring these firms to obtain PI cover, the provision (in Dubai, at least) is supplemented by the requirements of Administrative Resolution No. 236 of 2015 (adopting the bylaw concerning the licensing of legal consultancy firms in the Emirate of Dubai) which specifies that all legal consultancy firms must, for licensing purposes, obtain PI insurance cover. We anticipate that these requirements will lead to more active policing of law firms’ insurance arrangements by the Dubai regulator (the DLAD), but it remains to be seen whether this will be the case in the other Emirates.
The rise of specialist common law financial centres, such as the Dubai International Financial Centre (DIFC), continues to have an important impact. Negligence claims against international law firms and other professionals in the DIFC Courts are more common. A recent decision saw the DIFC Courts make an award for wasted costs against the DMCC branch of Gateley UK LLP as a result of its conduct in the underlying proceedings. This is an example of both the DIFC courts’ willingness to more stringently police effective case management by law firms operating within the DIFC, and the increased willingness of the courts in these financial centres to hold law firms to best practice standards.
In general, however, both in onshore UAE and in the DIFC, the claims environment remains relatively low. Despite this, we expect to see an increase in claims over the next 18 to 24 months, owing to increased awareness of both consumer rights and of the obligations of lawyers in the UAE to comply with the requirements of the Code of Ethics and, once published, the DLAD Charter.
Liability claims against lawyers in South Africa are generally dealt with by the Attorneys Insurance Indemnity Fund (the “AIIF”). According to a recent survey done by the AIIF, three trends have arisen in the profession. These include claims for failing to:
1. pay adequate attention to matters;
2. pay for professional services; and
3. to reply to correspondence.
The first category appears to have housed the most professional indemnity claims over the past 12 months which have included a large number of the claims that have arisen as a result of junior staff members being given too much professional freedom. As a result of this, professional indemnity claims for prescription are fast becoming a trend in South Africa, especially in cases of cross-boarded disputes which involve complex contractual matrices. Ultimately, a large portion of these professional indemnity claims for prescription could have been avoided if the practitioners had precise and diligent measures in place to avoid a claim becoming prescribed.
According to the AIIF, the general inclination when attempting to clarify why the practitioner allowed the claim to prescribe is that the file was moved around amongst practitioners who have since left the employ of the firm and, as a result, the file was not appropriately maintained. Hence, proactive and hands-on micromanagement of junior staff members is critical when it comes to mitigating the risk associated with the failure to pay proper attention to matters.
There appears to be a healthy appetite in South Africa at the moment for taking on more than one can deal with, this is particularly the case when it comes to the more sought-after practitioners. To counter this, practitioners must be reminded that they have an ethical duty when it comes to accepting an instruction to decide whether or not they have the capacity required to professionally execute their mandate. The old saying of “biting off more than you can chew” bears significance here.
The Supreme Court of Canada recently heard the appeal of the decision in Livent v Deloitte & Touche, a landmark decision on auditor liability with broader implications for other professionals, including solicitors, on the question of who can bring a claim on behalf of an insolvent company, and for what. The Court is expected to rule on whether a claim directed by the receiver in Livent’s name to recover moneys owed to creditors (directing the receiver) can be claimed from the company’s auditors. The parties also argued the illegality defence, which attributes the illegal conduct of a company’s directing minds to the company itself and provides a defence to a claim by the company – fraudulent through the attribution – against merely negligent third parties. A decision in this case will be rendered this year.
The class action Trillium Motors Ltd v General Motors of Canada Ltd continues to wind its way through the courts and create waves. In 2015, the Ontario Superior Court found the law firm Cassels in a conflict of interest for having agreed to the following retainers in the context of the 2008 GM bailout in Canada and for not disclosing the conflicting retainers: for the Canadian government which required a reduction of GM dealerships, for GM dealers faced with the possibility of having to close their dealership through wind-down agreements (WDAs), and for the GM dealers who actually executed the WDAs. The Court ordered Cassels to pay the class of dealers CAD 45m. The appeal of that judgment has been recently heard.
Also in Trillium, the Supreme Court of Canada rendered a judgment in 2016 that will likely create new jurisdictional risks for lawyers. Cassels third partied 150 law firms across the country, including 83 non-Ontario firms, that advised the individual dealers about the WDAs. Several non-Ontario law firms challenged the jurisdiction of the Ontario courts. The majority of the Supreme Court held that a connection between the claim and a contract, i.e. the WDA, made in the province where the party seeks jurisdiction will suffice for jurisdiction, even though the alleged tortfeasor law firms were not parties to the WDAs at issue.
Over the past year, a series of security breaches involving US law firms made headline news, some following familiar patterns of phishing scams and foreign hackers. Since lawyers and law firms rely on confidentiality and discretion, such breaches are devastating to the fundamental practice of law, and firms increasingly are focusing on their potential exposure to security breaches, including ways to protect themselves through risk management and insurance from the reputational and economic fallout that can result.
It is not in doubt that law firms are viewed as targets for attackers due to the large volumes of valuable and sensitive information they maintain, including financial information, intellectual property data, and other confidential information such as healthcare records and other personal identifiers. Size also does not seem to matter; in addition to large firms, firms with 10 to 49 attorneys increasingly are targeted by hackers.
Nevertheless, in our experience, lawyers often lack understanding regarding the realistic potential exposure resulting from a breach, such as first-party expenses associated with forensic investigations and legal analysis required to confirm and carry out regulatory and client notifications. In addition, attorneys also face potential third-party claims following a breach. In the US, we are beginning to see movement in this area from the plaintiffs’ bar with lawsuits filed against law firms, even without a breach event, claiming the firms had inadequate security measures.
While this problem is not unique to US-based law firms, this is an area that is increasingly regulated in the US and, thus, law firms and insurers around the globe are looking to the US to understand how this risk evolves and how best to respond to it.
It remains the case that the claims environment for solicitors in Hong Kong is benign. Hong Kong’s economy is highly dependent on financial markets and real estate, law firms and other professionals have become well established in the jurisdiction to support these sectors. There are some pessimistic forecasts for the economy going forward and predictions that the property bubble may burst. If this proves to be the case there may be an increase in claims against solicitors’ firms, because, as in other jurisdictions, there tends to be a correlation between economic downturn and an uptick in litigation, and we may at that point also see some higher value claims against major law firms. At present, any litigation there is tends to relate to low value conveyancing and litigation work.
Singapore In general, the claims environment against lawyers in Singapore is still relatively benign.
In January 2017, legislation was passed to put into effect a framework to permit third party funding for international arbitration proceedings. The legislation at the same time clarified that the torts of maintenance and champerty are no longer actionable in Singapore. Although abolished as torts, contracts involving maintenance or champerty continue to be against public policy and are unenforceable, save in relation to international arbitration proceedings. It remains the case that lawyers are not permitted to enter into contingency fee arrangements with clients. This is underlined by the suspension of a lawyer from practice earlier this year for entering into a contingency fee arrangement with a client pursuing a negligence claim. Lawyers are also prohibited from receiving any commission, fee or share of proceeds from a funder. Lawyers are not permitted to have any share or ownership interest in a third party funder which they have referred to a client or which has a funding contract with a client. When conducting any international arbitration proceedings, a lawyer has a duty to disclose to the court or tribunal and every other party to those proceedings the existence of any funding contract. As more international law firms set up base in Singapore to service their clients in the region, and as a substantial number of these may have arbitration clauses in their letters of engagement, the availability of third party funding for international arbitrations in Singapore may lead to professional third party funders taking an interest in viable claims against such firms, where the arbitrations are seated in Singapore, knowing that awards will usually be met by insurance.
The surge in cyberattacks in Singapore (on both private sector and government bodies) in recent years, leading to personal data being compromised, is a worrying trend. As a leading financial centre, Singapore is a valuable target for cyber criminals. The managing director of the Monetary Authority of Singapore warned in March this year that the next financial crisis could be triggered by a cyberattack. Professional services firms in Singapore, including law firms, have data of significant value and are an obvious target for cyberattacks. Earlier this year, the Law Society of Singapore issued a guidance note on the use of cloud computing services by law firms. In a case decided by the Singapore Court of Appeal earlier this year, there was an issue as to whether legally privileged documents of one of the parties that had been uploaded on WikiLeaks after its server had been hacked into could be admitted into evidence (Wee Shuo Woon v HT S.R.L.  SGCA 23). The Singapore Court of Appeal held that the court had, as part of its equitable jurisdiction, the discretion to restrain a breach of confidence in relation to the privileged documents. This case did not involve a cyberattack on the law firm but on the client of the law firm, and there is to date no publicly-known major cyberattack on a law firm in Singapore. Singapore’s Personal Data Protection Act 2012 requires organisations to make reasonable security arrangements to prevent unauthorised access to personal data under their control, and the regulator currently has the power to impose a fine of up to USD 1 million for non-compliance.
In the past 12 months the High Court of Australia has considered the operation of the advocates’ immunity principle on two separate occasions. Unlike other common law countries (e.g. England, Canada, New Zealand, South Africa and the United States), the advocates’ immunity principle has not been abolished in Australia. It was curtailed in the decision of Attwells & Anor v Jackson Lilac Lawyers Pty Limited  HCA 16, where the majority of the High Court found that the immunity can only attach to conduct of the advocate which contributes to a judicial determination and that there must be a “functional connection” between the advocate’s legal work and the judge’s decision. That case involved the lawyer giving advice on settlement which the High Court found did not move the case towards judicial determination and therefore it was outside the scope of immunity. The curtailed scope of the immunity was recently reaffirmed by the High Court in Kendirijan v Lepore  HCA 13, where it was held that advice given by a lawyer and barrister on a settlement offer made during a hearing did not fall within the scope of the immunity.
It is common for professional liability claims against solicitors and other professionals for breach of contract and negligence to be complemented by a statutory claim for misleading and deceptive conduct. Australia has strong consumer protection legislation containing provisions prohibiting persons and corporations from engaging in misleading or deceptive conduct in trade or commerce. In general terms, in a commercial context a person will have a statutory cause of action in respect of loss or damage caused by the misleading or deceptive conduct of another.
In establishing a cause of action, it is not necessary to prove that the conduct was fraudulent, intentional or negligent – simply that it was misleading or deceptive (or likely to be so) and that the conduct resulted in loss or damage. This enables many causes of action to be maintained in Australia that could not be pursued in other jurisdictions. Such claims are often deployed by plaintiffs to attempt to overcome any contractual caps on damages that might otherwise be applicable to a particular professional service contract. In recent years the largest and most significant pieces of litigation either pursued or settled against professional services firms in Australia have all included claims for misleading and deceptive conduct.
Australia also permits litigation funding and class (or representative) action proceedings. There has been a proliferation of these claims over the last decade resulting from favourable funding laws and an increasingly specialised plaintiff bar. There is little doubt that plaintiff lawyers in the class action context will look for ways to extend what might ordinarily be single defendant litigation to attribute liability to include professional advisors, including solicitors, accountants and auditors. With their extensive insurance programmes, professional services firms are perceived as useful deep pocket defendants. One of the most common claims against professional services firms in the class action (and particularly securities class action) context is a claim for misleading and deceptive conduct, where law firms who have given advice to a corporation face a particular vulnerability in connection with prospectus documents/initial public offerings, capital raisings and/or advice regarding the corporate entity’s obligation to keep the securities market informed of information that is material to investors.