Lawyers Covered - December 2023

What could be more festive than our December edition of Lawyers Covered – so here it is, a gift from the Lawyers Liability and Regulatory Group at RPC, to all of you, our lovely readers! If you have any feedback or ideas for topics that you would like us to cover in the newsletter or in our seminars, please let us know. Happy holidays!

All I want for Christmas is... compulsory mediation?

Ever since the Court of Appeal's 2004 comment that "to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the court” (Halsey v Milton Keynes General NHS Trust), a dispute has been simmering over whether compulsory ADR breaches a party's Article 6 rights. The Court of Appeal in the recent case of Churchill v Merthyr Tydfil [2023] EWCA Civ 1416 concluded that it was lawful for the Court to order the parties to engage in ADR, provided it does not interfere with the claimant's access to a judicial determination.

The case was widely expected to lay down principles governing the Court's powers to order parties to engage in ADR and to overrule Halsey; however, the Court of Appeal declined to lay down any definitive guidelines for use of the Court's power to order parties to engage in ADR and concluded that the principle from Halsey was not binding, paving the way for judges to order ADR in other cases. We anticipate that Churchill will make it easier to obtain a stay for ADR and may lead to an increase in Court-ordered ADR. Even if it does, it remains to be seen how effective ADR will be if the Court has to order it.

Last Christmas, I gave you my Part 36 offer

We are all well versed in the benefits of a well placed Part 36 offer in the course of litigation or detailed assessment, but how does Part 36 apply to Solicitors Act assessments? Costs Judge Leonard has the answer. He recently held in Zuhri v Vardags Ltd [2023] EWHC 3050 (SCCO) that the automatic consequences prescribed by Part 36 have no place in a solicitor/client costs assessment under s70 Solicitors Act 1974.

Costs Judge Leonard found that "s70 of the Solicitors Act 1974 provides its own checks and balances, and is, in many ways, its own self-contained code". CPR Part 36 is not capable of displacing this primary statutory provision in its current form. However, s70 of the Solicitors Act 1974 also contains discretion available to the court in 'special circumstances'. A Part 36 offer may well therefore be sufficient to persuade the court of a special circumstance and therefore attract adverse costs orders against those who fail to beat a Part 36 offer. A Part 36 Offer is therefore more likely to be considered as an admissible offer under the court's general discretion.

Interestingly Costs Judge Leonard provided additional food for thought in his parting comment. In circumstances whereby the Solicitors Act Assessment had arisen during the course of Part 7 proceedings for recovery of outstanding fees, Part 36 may well apply to those proceedings. As such, a party could, theoretically, revive the Part 7 proceedings to reap the benefits of a well-placed Part 36 offer.

Hopefully, this state of affairs will not persist for too long as the Government is expected to review the outdated and problematic Solicitors Act 1974 in 2024.

"AI", the Herald angels sing: SRA report on AI in the legal sector

One of the key themes of discussion of 2023 has been the increasing sophistication of artificial intelligence (AI), and the advantages and dangers this spells for society as a whole. Indeed, the Collins Dictionary word of the year for 2023 is AI, and the increasing popularity of ChatGPT has led to both celebration and concern in numerous industries. The legal sector is thought to be one of the areas which could be most impacted by technological developments in AI.

Last month, the SRA published a new report on the pros and cons of the use of AI in the legal services sector. The report outlines current and potential future developments, and what law firms need to do in each area to consider how they may be affected.

Of course, AI can make (and in some areas has already made) administrative tasks more efficient for lawyers, leading to speed and costs savings. However, the SRA also notes that it can lead to risks, including accuracy and bias problems, the maintenance of client confidentiality and data security, as well as accountability.

The report also addresses potential barriers for firms in adopting AI in a useful manner, including issues of cost as well as insurance: it notes that the insurance market's approach to covering the use of legal AI is still emerging, and firms will need to engage closely with insurers to make sure misunderstandings do not cause unnecessary costs.

Ding Dong Merrily on High: Increase in guideline hourly rates from 1 January 2024

The Master of the Rolls, Sir Geoffrey Vos, has endorsed the Civil Justice Council's review on costs. The 2021 Guideline Hourly Rates (GHR) will increase from 1 January 2024 by about 6.5% to reflect inflation and will then be increased annually in line with the Services Producer Price Inflation (SPPI) index. The MR also confirmed that a small working group will be established to examine the methodology underlying the GHRs.

Prior to the 2021 reforms to the GHR, the rates were often approached tentatively by costs judges as the profession accepted that they were out-of-date; however, with updated rates being increased annually, we can expect to see costs judges applying the GHRs more confidently with less scope for dispute. However, increasing the GHRs will not avert all disputes as the GHRs are "broad approximations only" (according to the 2021 Guide to the Summary Assessment of Costs). Whether, and when, to depart from the GHRs remains a contentious issue. The 2021 Guide states that "a significantly higher" hourly rate may be justified in "substantial and complex litigation" where factors such as the value, complexity, urgency or importance of the litigation are in play. Case law on this point continues to develop, with the Court of Appeal in Samsung Electronics Co Ltd v LG Display Co Ltd in 2022 commenting that where rates in excess of the GHRs are being sought, a "clear and compelling justification" must be provided. In 2023, the Court of Appeal in Various Claimants v News Group Newspapers Limited confirmed that the Court would have regard to the "seven pillars of wisdom" in CPR 44.4 when deciding what hourly rates are appropriate.

The new rates are as follows, with the current (or soon to be former) rates in brackets.

O Come [to jail] All Ye Faithful: solicitor who tipped off client over SFO investigation gets suspended prison sentence

On 30 November 2023 the SFO prosecuted a solicitor for “tipping off” his client about a money laundering probe.

Following a five-day trial at the Old Bailey, a solicitor, William Osmond, director and money laundering reporting officer for his law firm Osmond & Osmond Solicitors Ltd, was convicted for tipping off under the Proceeds of Crime Act 2002. The judge found that he had tipped off his client James Redding Ramsay about an SFO investigation into Ramsay’s loan of £4 million towards the purchase of a house in Mayfair. The judge also found that Osmond had forged a retainer letter that set out his role as solicitor for a British Virgin Islands company which was purchased by Ramsay. Despite having been warned three times by the SFO investigator not to tell his client about the investigation, Osmond met Ramsey multiple times over five months to discuss the matter. He flew to Ramsay’s home in Malta and met him at a private dining club in west London.

Osmond’s actions were discovered after SFO investigators searched his office in April 2019 and found handwritten notes about his discussions with Ramsay and computer files that showed his forgery of the legal letter.

He was sentenced to nine months in prison, suspended for 18 months and must comply with a community order of 100 hours of unpaid work. He must also pay a contribution of £5,000 towards the SFO’s costs.

The SRA has confirmed that it had been awaiting the outcome of the SFO's prosecution and will now "collect all relevant information before deciding on next steps". This coincides with the new Economic Crime and Corporate Transparency Act 2023 becoming law on 26 October 2023 permitting the SRA to impose unlimited fines on law firms, solicitors and employees in cases related to economic crime.

This is the first ever time the SFO has prosecuted a solicitor for tipping off a client. A stark reminder that solicitors can not only be struck off and fined but also imprisoned if they do not abide by legislation.

Away in a Manger: Updates from Hong Kong

"Greater Bay Area" Legal Professional Exam – In our May 2022 update we reported on the pilot scheme for the Guangdong-Hong Kong-Macao Greater Bay Area legal professional exam for Hong Kong lawyers who are at least five years qualified, permanent residents of Hong Kong and Chinese citizens. In September 2023, the State Council of the People's Republic of China announced that the pilot scheme had been extended for a further three years and that the admission criteria had been reduced to a minimum of three years post-qualification experience. On passing the examination and being registered in the GBA, a Hong Kong lawyer can advise on certain civil and commercial legal matters in the nine Mainland cities of the GBA. Given the increased economic activity between the GBA and Hong Kong, the pilot scheme is becoming more important to locally qualified lawyers in Hong Kong. From a profession of approximately 13,000 Hong Kong practising lawyers, approximately 375 have successfully obtained a licence to practice as a "GBA Lawyer".

"Cross-Boundary" enforcement of Judgments between Mainland China and Hong Kong – In our March 2023 update we reported on the enactment of the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance. The Ordinance implements the "Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region", signed between Mainland China and Hong Kong authorities in January 2019. On 10 November 2023, the Hong Kong government announced that the Ordinance will come into effect on 29 January 2024. In preparation, the Chief Judge of the High Court has approved the relevant rules, which provide for: (i) applications to register and enforce a relevant Mainland judgment in Hong Kong; and (ii) applications to obtain a certified copy of a Hong Kong judgment to facilitate recognition and enforcement in Mainland China. The Arrangement in Mainland China will be implemented pursuant to a judicial interpretation of the Supreme People's Court.

Additional contributors this month: Aimee Talbot, Sally Lord & Catherine Zakarias-Welch.

Disclaimer: The information in this publication is for guidance purposes only and does not constitute legal advice. We attempt to ensure that the content is current as at the date of publication, but we do not guarantee that it remains up to date. You should seek legal or other professional advice before acting or relying on any of the content.