When there is a change in the law (or more accurately, when the courts clarify what the law always was), the impact can be significant to professional indemnity insurers

It is often said that change is a good thing. However, change can bring disruption. A particular risk will be underwritten based on an assessment of known facts, so when the law changes to expand that risk the goalposts are moved. That said, as professional indemnity policies are written on a claims made basis, the potential impact can be countered on renewal.

The most recent example of a change in the law relevant to professionals is Jones v Kaney, the result of which is that experts have lost their immunity from suit for court work. While the outcome has led to many articles being written, it is not all that surprising given the way courts have gradually eroded professionals’ immunity from suit over time. The principle existed originally on grounds of public interest. In 2000 the decision in Hall v Simons resulted in advocates losing their immunity for court work. Since then courts have shown a keenness to reduce immunity further across the board, and the winds of changes have continued to blow.

Bound by earlier decisions?

Clients often ask how the law can change when a clear precedent exists. Firstly, higher courts are not bound by decisions of lower courts. But also, the Supreme Court is not bound by its own earlier decisions where following a decision would result in injustice or a constraint on the development of the law. This can make advising on outcomes difficult, and involves an assessment of trends as much as an assessment of hard and fast decisions.

Does a later decision have retrospective effect?

In short, yes. Given this, when advising clients, solicitors should be aware of any forthcoming cases/appeals which may impact on the law as it is understood to be at that time. An example of this was the lender litigation in the 1990s when a lot of key issues were known to be going to trial/appeal and resolution of other claims was put on hold pending the outcome.

Anticipating change

The question whether or not a solicitor is under a duty to advise a client on potential changes is not straightforward, and the size of firm concerned is a relevant factor. Williams v Thompson Leatherdale is a good example of this. There, the solicitors (and counsel) were acting on a client's divorce. A settlement was concluded a month or so after final arguments in what became the landmark case of White v White. The client was not advised of this pending decision and sued for negligence on the basis that had she been properly advised she would have delayed settlement until the outcome was known.

The court did not criticise the solicitors for their lack of knowledge of White v White, and placed the onus on counsel for the failure to advise on this issue. The fact that the solicitors were a small firm was also a significant factor, it is unlikely that the same outcome would have arisen had the firm been larger, with greater resources.

The position is complicated for professionals by the availability of information on the internet. For example, commentators on what became the Icelandic banking crisis had started to raise concerns prior to the collapse of certain banks, but does this mean that an IFA who advised a client to invest in one of those banks at that time was negligent? The answer will depend upon a series of factors, including the extent of advice given, the reasonableness of that advice, and most crucially the timing.

A case mentioned in our June edition is also on point. In Amalgamated Metal Corporation plc v Wragge & Co the allegations faced by the solicitors arose from an unauthorised settlement concerning claims for the repayment of advance corporation tax. The claim was part of a group action which arose from a European Court ruling against the Inland Revenue. The terms of the settlement meant that the client could not participate in a claim for compound interest. However, two weeks earlier Sempra Metals Ltd had become the lead claimant in the action and the issue of entitlement to compound interest was to be the core issue. As it turned out, compound interest was later found to be recoverable signalling a change in the law. The court found that, as well as the settlement being unauthorised, the solicitors had failed to give appropriate advice on the potential change in the law.

Conclusions

Concerns around the impact of change can be overstated. The decision in Hall v Simons did not provoke an unprecedented stream of negligence claims against barristers. Only time will tell whether Jones v Kaney will have a greater impact.

The greater concern is around professionals anticipating possible change when giving advice (ie, accountants before any budget, or lawyers when well publicised cases come to trial or appeal). While other factors contributed to the overall outcome in Amalgamated Metal Corporation plc v Wragge & Co, that case resulted in a £7 million plus judgment against the firm and brings home to all the potential exposure that can materialise.

Key points

  • Judges are not bound by the decisions of lower courts, and can overrule earlier decisions from the same court in certain circumstances.
  • Changes in the law are retrospective.
  • Given the potential effect of changes in the law, professionals should be aware of significant/well publicised cases which are coming to trial or appeal.
  • A solicitor’s responsibility to advise on potential changes may depend on the size of firm, resources, and whether or not counsel is involved.