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.
RSA v Tughans: Court of Appeal holds that solicitors are entitled to cover for liability in respect of fees to which they are contractually entitled
The Court of Appeal has upheld the High Court's decision that a claim for damages against a firm of solicitors for fees to which they were contractually entitled was covered under the firm's professional indemnity insurance. Lord Justice Popplewell delivered the leading judgment. He held that "a solicitor who has earned a fee, so as to be contractually entitled to it, does indeed suffer a loss if deprived of it by reason of a liability claim". Liability claims which include fees which a solicitor has earned will therefore fall for cover under the firm's professional indemnity insurance. As part of its reasoning the Court of Appeal focussed on the commercial and regulatory purpose of compulsory professional negligence insurance in protecting partners and employees "from their own negligent mistakes and those of their fellow partners and employees, and from the fraud of those others, as well as its function of protecting clients".
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Law Society considering BSA 2022 obligations on solicitors
In a boost to conveyancers and their insurers, the Law Society has announced talks with the Department of Levelling Up, Housing and Communities (DLUHC), PII brokers and insurers, regulators and UK Finance Mortgage Lenders’ (UK Finance) regarding amendments to the UK Finance Handbook and building safety legalisation in light of concerns raised as a result of the complex and significant obligations on solicitors in connection with the Building Safety Act 2022 (BSA). Of particular concern are:
- UK Finance Handbook's obligations on conveyancers and the additional risk they entail;
- expectations on solicitors to explain complex building safety requirements to lender and lay clients;
- implications for PII;
- the need to refer clients to suitably qualified persons to assist with building safety issues adding expense and delay to transactions;
- buyers' solicitors' ability to verify sellers’ claims that leases qualify for leasehold protection under BSA – for example, the difficulty in verifying the number of properties the seller/previous seller held at 14 February 2022, to qualify. This will be important to ensure that the property being purchased will not, at some point in future, be subject to an onerous remediation bill.
As to 1, changes have been made already to the UK Finance Handbook on 21 July 2023 which make it clear that the building safety provisions only apply where a flat is a "relevant building" (i.e. more than 5 storeys or 11m) but the Law Society does not consider that this goes far enough. Further requested changes to the Handbook include:
- obligations on the lender to identify that it considers the flat to be in a "relevant building" and therefore building safety provisions apply, rather than the requirement falling to the conveyancer;
- the lender’s valuer to take account of the leaseholder deed of certificate and the landlord’s certificate when valuing the flat;
- the lender to confirm it is not looking to the conveyancer to verify the validity or status of the leaseholder deed of certificate or the landlord’s certificate. This is helpful in dealing with obligations to the lender albeit this does not assist with solicitors' obligations to their lay clients. In the absence of proposals by the Law Society, RPC have considered recommendations for law firms in this respect here.
There are also proposals to amend building safety legislation including the definitions in the Building Safety (Leaseholder Protections) (England) (Amendment) Regulations 2023, clarification on the status and protection for long leaseholders who have enfranchised since February 2022, and a fixed time limit in which landlords can challenge the validity of leaseholder deed of certificate.
In order to ease the burden of the conveyancer explaining building safety issues and risks to consumers, the Law Society has published standardised information on building safety for flat buyers and is working with the DLUHC on further guidance.
Given that, according to Law Society reports, one in ten of the 43,000 mortgage valuations of UK flats carried out between April and June 2023 required EWS1 forms, the proposals (if put in place) would likely make a measurable difference to risk profiles of residential conveyancing work of law firms going forwards.
RPC will report further on further changes as they arise.
LeO review: focus on client service
The Legal Services Board has conducted research on the challenges consumers face when complaining about the service provided by lawyers and law firms in order to come up with recommendations for improvements. This was prompted by a review of a selection of complaints conducted by the Legal Ombudsman, who found, amongst other things, that 1 in 4 cases accepted for investigation by the Ombudsman showed inadequate first tier complaints handling. The report makes several recommendations on how firms can improve the client experience and complaints process so that clients can openly raise issues with the service they are receiving. One interesting finding was that firms should focus on reducing the likelihood of a formal complaint by focussing on setting and managing clients' expectations, particularly in relation to deadlines and to costs, as well as to invite client feedback and establish a culture of continuous improvement. Key themes to take away are that showing empathy, being frank, and inviting openness, and implementing systems that adopt these principles, may assist with improving the client experience and perhaps prevent a dissatisfied client making a formal complaint or escalating it to the Legal Ombudsman.
The full report can be found here.
Litigant-in-Person vs. Litigant-with-a-Person
Reeves v Pickton & Ors analyses costs recovery for non-solicitor friends
In Reeves v Pickton & Ors, Costs Judge Leonard examined the recoverability of costs for litigants-in-person who had received assistance from non-solicitor entities. This case revolved around assessing the costs of a successful petitioner in a section 994 petition (statutory protection for shareholders who are being 'Unfairly Prejudiced' by the conduct or omission of a company's affairs). Although the petitioner acted as a litigant-in-person, he received substantial support from Berkeley Domecq, a non-solicitor entity. The petitioner’s bill of costs aimed to recover Berkeley Domecq's fees.
Costs Judge Leonard ruled that these costs were not recoverable. The core issue lay in the nature of litigants-in-person and the character of Berkeley Domecq's assistance.
The petitioner's bill, comprising Parts 1 to 4, included Berkeley Domecq's fees, billed as if they were solicitors' fees. This was a critical error. Given the petitioner's litigant-in-person status, the entire bill should have been drawn up accordingly, with Berkeley Domecq's fees claimed as disbursements.
While Costs Judge Leonard already awarded costs to the petitioner, he declined to award further costs for separately addressing the recoverability of Berkeley Domecq's fees. Given the incorrect presentation of these fees in the petitioner's bill and his lack of success on this point, additional costs were deemed inappropriate.
This judgment carries significance for cases where individuals represent themselves but seek help from non-solicitor entities. Drawing on the principles established in Agassi v Robinson (Inspector of Taxes) (No. 2)  EWCA Civ 1507, Costs Judge Leonard concluded that Berkeley Domecq's fees did not fall into the recoverable category. Their contributions did not offer expertise beyond what solicitors routinely provided in similar cases.
Facing opponents acting in person brings unique challenges, so this judgment brings some welcome certainty when it comes to the question of costs.
Education needed for use of NDAs
The SRA has had its eye in recent years on a problem inherent in NDAs: the unfair balance of power weighted firmly in the employer's favour. This problem has been nudged into view through increased public concern arising from the #MeToo movement and various high-profile investigations involving allegations of sexual harassment. There have been widespread concerns that NDAs are being used improperly to prevent employees reporting unacceptable conduct.
Unsurprisingly, employers are able to dictate NDA terms for a number of reasons: they have the benefit of lawyers (where the employee, in contrast is often unrepresented), they use their own standard templates that take no account of the individual circumstances of the case, and they may impose tight time limits which pressure an employee to agree terms.
Since 2018, the SRA has worked on this issue, although with minimal impact initially. After issuing a warning notice to solicitors on the use of NDAs, it transpired that many firms (more than a third, in fact) were unaware of it. A review of the sector followed with a consultation of other stakeholders.
The review found that most NDAs, whether drafted on behalf of clients or entered into by law firms with their employees, were not prepared with the deliberate intention of suppressing reports of wrongdoing.
The SRA recognises, however, that employees need support in order to challenge employers where they have limited influence, knowledge and resources. Solicitors must acknowledge the ethical considerations that should be considered when advising clients on NDAs. To this end, the SRA has proposed a co-ordinated programme of public education across the legal regulators to make sure that employer and employee clients are better informed about their rights, the enforceability of key clauses and the obligations of the legal professionals advising them. It is hoped that this will uphold public trust and confidence in the legal sector.
#Lawfluencers and the risks of informal online advice
New research from TikTok and the University of New South Wales has highlighted the emerging risks of lawyers giving legal advice online. Lawyer-influencers or #lawfluencers are, according to the research, choosing quantity over quality, leading to the risk of "rushed, poor or even inaccurate" legal advice. Lawyers posting information or advice on popular video sharing platforms such as TikTok or YouTube run the risk of inadvertently creating a solicitor-client relationship due to the high levels of interaction from viewers, something which is sought by many content creators as it bolsters their reach. Algorithms used on the sites favour creators who post regularly, and the informal nature of "off the cuff" video creation could lure some lawyers into taking an insufficiently careful approach. Disclaimers are essential to ensure that viewers understand that any interactions are not intended to create a solicitor-client relationship and that the content does not amount to legal advice, particularly where the lawfluencer is not qualified to practice.
Engaging with potential clients in new ways enables lawyers to create community, grow their brand and experiment with their professional identity, with researchers expressing the hope that lawfluencers will "act as the trusted voices within the crowd, filtering out the unreliable sources and information while continuing to ethically adhere to their professional duties."
However, it will be crucial to maintain professionalism when exploring new ways to attract and interact with potential clients. A lawyer posting a few well-researched, carefully prepared videos including prominent disclaimers may not attract as many "likes" as someone posting a lot informal, comedic "off the cuff" content and, as a result, the former will be less likely to generate the same level of revenue or reach as the latter. However, from a risk point of view, the former will obviously be better regarded, both by insurers and by the regulator. The research has also identified that clients instructing lawyers who have built a platform on a video-sharing site and can therefore charge a premium for advice from their brand may be overpaying as they could obtain equivalent legal advice from another firm.
Hong Kong – Arbitrators have same immunity as Judges in Hong Kong
Given the importance of arbitration to the legal community (including, lawyers who sit as arbitrators) the High Court's decision in Song v Lee  HKCFI 1954 should of considerable interest. The court held that arbitrators are entitled to the same immunity that is available to judges in respect of their decision-making in an arbitration (absent fraud or bad faith).
The issue appears to have been a novel one under Hong Kong common law, given that the parties were only able to refer the court to nineteenth and twentieth century English and Canadian cases which did not appear to be consistent.
The court arrived at its decision as much as a matter of policy considerations – for example, the rapid growth of arbitration in the last few decades and courts internationally having generally adopted a pro-arbitration approach with respect to arbitral autotomy.
Following Song v Lee, "arbitral immunity" appears to be comprehensive as a matter of Hong Kong common law and extends to arbitrators being immune from being compelled to testify in relation to how they exercise their functions in an arbitration. Some institutional arbitration rules contain provisions excluding arbitrators or arbitral tribunal secretaries from liability or being called as a witness in any proceedings arising out of an arbitration over which they preside – for example, Article 46 of the Administered Arbitration Rules of the Hong Kong International Arbitration Centre (HKIAC).
The court's decision in Song v Lee is one at first instance and will be welcomed by arbitrators. The issue and scope of "arbitral immunity" as a matter of Hong Kong common law is probably deserving of appellate court consideration; something that will have to wait for the right case.