Lawyers Covered - August 2024

It can be tough for busy lawyers to find enough time to service clients, make it safely through the regulation obstacle course, win new work and keep up-to-date with developments, but we've got you covered! Welcome to the August edition of our Lawyers Liability & Regulatory Update, in which we highlight the last month's key developments affecting lawyers and the professional risks they face.

RSVP ASAP: join us on 25 September 2024

Join us for RPC's 2024 GC Law Firm Risk and Liability Conference on 25 September 2024, at Tower Bridge House, London. This premier event is designed for General Counsel and senior risk and compliance professionals from leading global and national law firms. It offers a unique opportunity to gain insights from top industry leaders and network with peers.

The conference will feature two keynote speakers: The Rt Hon. the Lord Peter Hain, who will discuss reputation management challenges in Westminster politics, and Lindsey Simpson, Founder and CEO at 55/Redefined, who will explore the benefits of an intergenerational workforce and the importance of law firm reputation in attracting the best talent.

Panel discussions will cover crucial topics, including:

• Reputational Management: With Jamie Hamilton (News Editor at Roll on Friday), Jonathan Coad, and Kimberley Nanson (RPC).

• Cyber Threats: Featuring Richard Breavington (RPC), Vijay Rathour (Grant Thornton), Nic Daley (Fleishman), and Lizzy Stewart (4 New Square).

• Litigation Abuses, Including SLAPPs: With David Hooper, Sammy Thompson (RPC), and Antony Dunkels (Brunswick Group).

• Lateral Hires and Firm Acquisitions: Moderated by Tim Shepherd, with Reshma Raja (RPC), Barry MacEntee (Hinshaw), and Viv Williams (Viv Williams Consulting).

• Anatomy of an Investigation: Led by Graham Reid and Rachel Street (RPC).

Don’t miss out on this invaluable opportunity to stay ahead in the evolving legal landscape. Secure your spot now!

Virgin Media v NTL Pensions Trustees II - implications for lawyers

The Court of Appeal's recent judgment in Virgin Media v NTL Pensions Trustees II Ltd [2024] EWCA Civ 843 has confirmed the necessity of s.37 actuarial confirmation for amendments that affect member benefits in contracted out pension schemes. The court has made it clear that the absence of this confirmation renders any such amendment void, irrespective of whether the confirmation would have been granted if requested at the time. As a result, numerous Defined Benefit schemes may now find themselves in a position where previously made amendments are invalid, potentially leading to an obligation to pay additional benefits that were intended to be reduced.

Key considerations for lawyers and insurers

The ruling has significant implications for actuaries and lawyers.  Given the ruling, there is an increased risk of claims emerging from s.37 related issues. Scheme employers, now liable for any additional benefits arising from these void amendments, may pursue claims against the advisors responsible for implementing these changes

Employers or trustees might seek to hold advisers accountable for their roles during the amendment process when the valid actuarial confirmation was not obtained. This could extend to claims against later advisers if the limitation for claims against those who dealt with the original amendment has lapsed

Schemes may incur legal costs if they seek to clarify unresolved questions about what constitutes acceptable actuarial confirmation or to understand the implication of any confirmation obtained after the amendment's effective date.

Is this the end of the road?

Whilst there is hope among pension professionals for an appeal to the Supreme Court that could overturn the decision, it is widely considered that the Supreme Court is unlikely to grant permission. Nevertheless, it remains possible that the new government could introduce legislation – potentially through the Pension Schemes Bill – that addresses the adverse consequences of this ruling, particularly for amendments invalidated solely due to a lack of written actuarial confirmation.

Should the ruling remain intact, we expect ongoing discussions – and possibly litigation – regarding what constitutes "actuarial confirmation". The Court of Appeal indicated that a formal certificate is not required, only "written confirmation", raising questions about whether informal correspondence with the actuary meets the necessary criteria and whether it must explicitly indicate that the reference scheme test has been satisfied. In addition, pension professionals may explore the feasibility of relying on actuarial confirmations issued after the effective date of the amendment, which raises further questions about the retrospective applicability of such confirmations.

Could Third-Party Managed Accounts become compulsory?

Since November 2019, the SRA has allowed firms to use third-party managed accounts (TPMAs) instead of holding client funds. Now, due to Axiom Ince's recent collapse and a 250% increase in SRA interventions over the past couple of years, the SRA has indicated it may impose stricter regulations on how law firms manage client money, potentially even mandating the use of TPMAs.

While there have been concerns regarding entrusting client funds to third parties, it is argued that TPMAs actually provide enhanced security for clients. For instance, TPMAs are regulated by the FCA and should therefore adhere to strict regulatory requirements, significantly lowering the risk of money laundering and other financial crimes. Additionally, TPMA providers should conduct spot checks on transfers between TPMAs and the law firm’s operational accounts to reduce the risk of firms misappropriating client funds.

Moreover, firms may be able to gain numerous benefits from using TPMAs, including exemption from contributing to the SRA’s Compensation Fund, which is set to increase by 336%. Firms may also enjoy reduced insurance premiums due to the increased security provided by using an FCA-regulated tool.

For now, we must await completion of the SRA's review to see the extent of their policy solutions. Should the SRA decide to implement fundamental changes to their Accounts Rules, conducting impact assessments, formal consultations, and obtaining approval from the Legal Services Board will take considerable time. Nevertheless, some proactive firms may choose to start preparing for these anticipated changes.

Under attack: to pay or not to pay?

UK law firms are reported to have suffered the second highest (after the US) number of ransomware attacks on their systems. Given the nature of our work, the number of records and the sensitivity of the data affected by such attacks can be devastating – not just financially but also reputationally for both the victim law firm as well as its clients.

It is therefore unsurprising that the level of the ransom demands are astronomically high – the average demand being $2.47 million and the average payment being $1.65 million according to a recent report by Comparitech. The highest known ransom demand on a UK law firm (Ward Hadaway) is reported to be $3 million (although the record for this is reported to be Grubman Shire Meiselas & Sacks in the US for $21 million which was then doubled when the ransomware gang realised that the stolen data included that of Donald Trump).

The reactions and counterattacks by law firms vary: from the negotiation and payment of the ransom demand, seeking an injunction, to a refusal to engage. Rightly or wrongly, payment of the ransom is likely the most attractive option to law firms as a response to such an attack: it very quickly restores the firm's system and restricts the impact of a data breach.

Irrespective of the approach taken by the law firm under attack, there remains the need to give serious consideration to any subsequent regulatory action as well as to its insurance position (both in terms of whether the firm may recover any of its outlay under the policy as well as its future risk profile).

The need to remain vigilant to any suspicious activity is of utmost important – as is the need for law firms to be aware of the rapid evolution of technology which continues to introduce new ways for cybergangs to penetrate the barriers and processes in place to safeguard their systems.

An uncertain future for the Litigation Funding Agreements (Enforceability) Bill - What are the impacts on litigation funding? 

Last month, the King's Speech announced 40 new bills for the government's legislative agenda. However, several bills from the previous administration were left behind, including the Litigation Funding Agreements (Enforceability) Bill (the Bill).

The Bill was intended to reverse the impact of the Supreme Court decision in the PACCAR case, which has been regarded as a severe setback for the litigation funding industry and, consequently, for access to justice. For more details on the PACCAR decision, see our update here.

In short, the PACCAR judgment held that many litigation funding arrangements constitute damage-based agreements (DBA) for the purposes of the DBA Regulations 2013. As the funding sector had previously assumed litigation funding agreements (LFAs) were not classified as DBAs, these agreements were not drafted with satisfying the regulations in mind. As such, many LFAs are now unenforceable.

With concern as to when the Bill might be revived, if ever, Conservative peer, Lord Sandhurst put a written question to the Ministry of Justice asking whether the new government plan to reintroduce the bill. Lord Ponsonby responded that the Bill will be re-visited following the conclusion of the Civil Justice Council's review of the litigation funding market. The Civil Justice Council is considering issues, including how to ensure access to justice in large-scale and expensive cases and how to set up adequate safeguards to protect claimants from unfair terms. A report is anticipated in the Summer of 2025.

Therium, funders for the sub-post masters' class action, commented that the government's decision to de-prioritise the Bill was "deeply disappointing". Meanwhile, commentators have noted that the practical effect of PACCAR is that LFAs are now seeking returns in terms of multiples rather than a percentage of sums recovered. This means that litigants are likely to be paying higher and perhaps disproportionate prices for funding in comparison to the position before PACCAR.

Claimants pursuing professional negligence claims are often supported by LFAs. Following PACCAR, where LFAs are now increasingly priced in terms of multiples, to avoid the DBA regulations, claimants being subjected to dearer funding agreements may be encouraged to seek more aggressive settlement sums or damages figures as they factor in higher deductions under these agreements.

The legal and funding industries will be anticipating the Civil Justice Council report and more importantly the government's response to its recommendations.

SRA introduces new rules to restrict fees recoverable in financial mis-selling claims

The SRA has taken steps to bring law firms and CMCs into line through the introduction of a cap on fees solicitors are able to recover from their clients when acting on their behalf in relation to financial mis-selling claims. Read our article explaining the new rules and considering their potential impact here.

Hong Kong: Litigation – Recent sentences for civil contempt of court 

Litigation practitioners and their clients should be familiar with the basic notion that the courts have an inherent or statutory jurisdiction to apply sanctions to compel compliance with court orders and punish disobedience. Proceedings for contempt of court in civil cases are not uncommon in Hong Kong. There have recently been several cases where disobedience of court orders has resulted in (among other things) fines or sequestration proceedings against corporate entities and sentences of imprisonment for individuals.

In Hong Kong there are no sentencing tariffs as such for civil contempt – rather, the courts have a wide judicial discretion applying settled legal principles. That stated, recent court sentencing decisions show a notable degree of consistency. Where disobedience of a court order is serious (for example, a deliberate breach of an order contained in an injunction or in the nature of an injunction) and there are no good mitigating factors in the contemnor's favour, a sentence of imprisonment measured in months rather than weeks is a starting point. So-called lesser acts of contempt can attract substantial fines (often measured in HK$ six figures).

Parties that test the courts' patience and seek to evade the courts' jurisdiction can be sentenced in their absence. Parties that find themselves in disobedience of a court order should deal with the position immediately and obtain legal advice – good advocacy can help ameliorate the situation.

The procedures for substantive contempt proceedings and sentencing hearings can be difficult to understand for inexperienced practitioners and clients. A critique was published in Lexology (UK) on 22 July 2024 – "What's gone wrong with the law of contempt?" (by Helen Evans KC and others); which should be of interest to practitioners in Hong Kong given that the legal principles and procedures are similar.