Lawyers Covered - February 2025

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 our February 2025 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.

Mediation is capable of cracking the hardest nuts

DKH Retail Limited & Ors v City Football Group Limited [2024] EWHC 3231 (Ch)

The claimants in a trade-mark dispute applied for an order for compulsory mediation before trial.  The application was heard at the Pre-Trial Review.  The claimants argued that the parties were about to incur hundreds of thousands of pounds of further costs, and that a one day "short, sharp" mediation might allow the parties to avoid some of those costs.  The defendants fought the application on several grounds, including that it was too late in the day; a judicial ruling was required; and if a settlement was to be reached, it already would have been. 

However, the Court pointed to the fact that mediation was "capable of cracking even the hardest nuts" and that bringing parties together through mediation can overcome an entrenched reluctance to negotiate.  Accordingly, the Court was satisfied this was a case where the parties should be ordered to mediate (the following month). 

The decision signifies the ever-increasing move by the Courts towards compulsory ADR, and the approach appears to have been the right one in this case, as the parties have since notified the court that they have settled their differences.

SRA unlimited fining powers

The biggest development in solicitors' regulation in 2025 is undoubtedly the SRA's new approach to financial penalties. For the first time in history, the SRA will wield unlimited fining powers, and it proposes to use them in a way which could transform the financial consequences of regulatory breaches.

As recently as 2022, the financial penalty which the SRA could impose on a "traditional" law firm (as opposed to an Alternative Business Structure (ABS), to which a different regime applies) was limited to £2,000. Any greater sanction would require a referral to the SDT. That limit increased to £25,000 in July 2022. (See our previous article on this topic here). But now, less than 3 years later, the SRA has the power (granted by Economic Crime and Corporate Transparency Act 2023 (ECCTA)) to impose unlimited fines for rule breaches related to economic crime.

The SRA revamped its approach to financial penalties in 2023. Now, the majority of financial penalties are calculated by reference to annual domestic turnover for firms or annual gross income for individuals. The percentages in question can be hefty (over 25% of turnover or 149% of income in the most serious cases), but the £25,000 cap has until now placed a limit on the resulting fines. Removal of that cap will clear the way for the SRA to impose fines at a level which is as yet unheard of for the profession.

The new powers kick in for breaches related to financial crime which took place on or after 4 March 2024. The SRA's fining powers for regulatory breaches unrelated to financial crime remain capped at £25,000 for the time being, although the SRA is pushing for this limit to be removed as well.

To put the new proposals in context, a worked example in the SRA's consultation paper results in a fine of £2.34m being imposed on a firm. For comparison, the largest fine ever imposed on a firm by the SDT to date was £500,000. Fines for the largest firms (and even some individuals) could in principle reach even higher.

The SRA's proposals have received stiff opposition from, amongst others, the Law Society and the CLLS, and may well be subject to judicial review. However, wherever things may settle in terms of the details of the approach, the SRA's new powers come from primary legislation and are likely be used in some form or other during the coming months.

Read our full article here.

Missing a deadline: relief from sanctions or request for an extension?

Sandra Bailey v GlaxoSmithKline UK Ltd and Brit UW Limited 

Summary of Facts

A publicly funded group claim was brought against GlaxoSmithKline (GSK) alleging defects in anti-depressant medication. Following counsel's merits advice, the public funding certificate was discharged. Many claimants discontinued their claims. Some claimants instructed new solicitors and obtained ATE insurance from Brit to cover any adverse costs liabilities. Their claims were allowed to continue because the ATE insurance meant that there was the prospect that GSK would recover at least some of its reasonable legal costs if the claimants' claims failed or were discontinued.

GSK won at trial. The Judge made an order for the claimants to pay GSK's costs and make a payment on account. He also ordered that, if GSK wished to make an application for a third-party costs order, it should be made no later than 4pm on 31 July 2020.

The claimants paid GSK a sum of money in settlement of their liability for GSK's costs. However, there were costs outstanding. GSK asked the claimants to confirm they had insurance cover. After some delay, it was confirmed that Brit (the ATE insurer) had not received any claim from the claimants and had not confirmed cover. This prompted GSK to issue an application for a costs order against Brit, a non-party to the claim, on 16 August 2023. The application was deemed properly arguable because the ATE had been a relevant factor when the Court decided whether the proceedings could continue in 2015. However, the application was made more than three years after the deadline specified in the order.

Key issues to be decided in the application

There were two key issues for the Court to consider:

1. Was this a case where relief from sanction must be sought under CPR3.9? If so, should relief be granted? 

    

2. Was this application a request for an extension for a decision applying the Overriding Objective under CPR1.1? If so, did CPR1.1 allow granting of the extension?

In the Judge's view, CPR3.9 did not apply to this application. There was no express sanction in the order requiring relief. The position was not that there was an implied sanction in every case eg where, if a step is not taken in accordance with an order or rule or practice direction, permission is required to take it. Neither was this a case where there was an implied sanction which brought CPR3.9 into play.

The Court held the application was a request for an extension to be decided by applying the Overriding Objective and the factors set out in CPR1.1. It was not just or proportionate to allow the application to proceed having regard to the passage of time – more than 3 years between the deadline and the application, together with the lack of sufficient explanation for the delay. The application was subsequently dismissed.

High Volume Claims under scrutiny by SRA

The issue of high-volume claims has once again been a hot topic for the SRA board. In their November bulletin, the SRA recognised the positive role bulk litigation can play in helping people gain access to justice when it works well.  However, they have now reiterated their "serious and increasing concerns" as to the manner in which such claims are conducted.  The SRA has highlighted they now have more than 50 open investigations involving over 150,000 claims.  Their concern is that the issues they are seeing in these claims are systemic across all sectors of the industry.  They are working with fellow regulators and the government in producing guidance to assist both consumers and firms in recognising practices which may expose consumers to inappropriate risks. 

The SRA has identified that "no win, no fee" agreements are of particular concern – perhaps not surprisingly following the SSB collapse.  They want to see consumers are fully apprised of the risks at the outset of a matter.  As part of this, they published a guide for consumers in December outlining the typical risks that might be expected and indicated they plan to continue this work throughout this year to raise further awareness.  We expect this will extend through to all aspects of bulk litigation, with adequate instructions from clients and adequate supervision being of key concern.

Meanwhile, the SRA expects firms to critically examine their operational procedures which might include:

• Clear guidance as to the potential risks of no win no fee agreements – including the limitations of ATE insurance (even where it is arranged by the client themselves).
• Maintaining records of that guidance having been provided and ensuring the client understands the advice they have been given. This, in addition to unequivocal records of the client's instructions, both at the outset and throughout the retainer.
• Ensuring that clear supervisory procedures are understood and adhered to by all employees, again with records of that supervision.

We also suspect, particularly in light of criticism in the courts, the SRA's focus on this will extend to the use of templated documents such as particulars of claim and witness statements.

Good reason or not? Court of Appeal clarifies rule on non-party access to court documents

The Court of Appeal has confirmed that a non-party does not have a right of access to documents on the court record by default (Derek Moss v The Upper Tribunal).  Rather, the non-party must articulate a "good reason" for wishing to obtain the documents, by reference to the principle of open justice (explained below). If the non-party applicant cannot articulate any such good reason, the application must necessarily fail. Coulson LJ's judgment has made clear, however, that the threshold which must be surmounted by the applicant is set low.

Read our full article here.

All together now: Court of Appeal clarifies when multiple claimants can use a single claim form

In Ryan Morris and 131 others v Williams & Co Solicitors the Court of Appeal considered the circumstances in which it is permissible under the CPR for multiple claimants to bring claims in one claim form and one set of proceedings.

Mr Morris and 131 others issued a single claim form against Williams & Co seeking damages for the solicitors' alleged breaches of duty to advise properly in relation to their investments in one or more of 9 separate development projects promoted by the same group of companies.  

The Court of Appeal was required to interpret the proper meaning of CPR19.1, which needs to be read alongside CPR7.3. CPR19.1 provides that "[a]ny number of claimants or defendants may be joined as parties to a claim". CPR7.3 says that "[a] claimant may use a single claim form to start all claims which can be conveniently disposed of in the same proceedings".

The Court of Appeal also needed to consider whether the tests applied in the prior case of Abbott v Ministry of Defence were correct. Ryan referred to Abbott as having decided "that "real progress" towards the resolution of the other claims and/or "real significance" for all the rest of the claims was enough to justify" a single claim form. The claimants rejected that analysis before the Court of Appeal and argued that the test was whether "the determination of common issues would bind all parties".

The Court of Appeal went on to reject the three tests established in Abbott. Sir Geoffrey Vos held:

"I do not think any of these tests is appropriate to exclude cases from the ambit of 19.1. It seems to me that 19.1 and 7.3 must be construed as meaning what they say: any number of claimants or defendants may be joined as parties to proceedings, and claimants may use a single claim form to start all claims which can be conveniently disposed of in the same proceedings. There is no exclusionary rule of real progress, real significance or otherwise. The court will determine what is convenient according to the facts of every case".

The Court of Appeal accepted that multiple claims will probably be capable of being conveniently disposed of in the same proceedings where common issues will bind all or most of the claimants, although that was not a requirement of the CPR. Multiple claimants may issue a single claim form to start all claims which can be conveniently disposed of in the same set of proceedings. Active case management is, however, essential in such cases to ensure the defendant knows the case it has to meet, to facilitate early dispute resolution, and to avoid unfairness to defendants.

The court will determine what is convenient according to the facts of every case. In this case, the Court of Appeal referred to the first instance judge's finding that common questions of law or fact arose in all the claimants' claims and that they all arose out of the same series of transactions. It therefore concluded that the claims brought by the claimants in their single claim form in this case could be conveniently disposed of in a single set of proceedings.

Neurodivergence: new guidance for family law practitioners

The Family Justice Council has recently published guidance for family law practitioners on neurodiversity in the family justice system. The guidance aims to improve access to justice for neurodivergent individuals by promoting fair treatment within the family justice system.

The guidance states that an estimated 15% of the population is neurodivergent and highlights the unique challenges such individuals face in a system primarily designed for neurotypical users. The document provides best practice recommendations, such as making reasonable adjustments in communication, environment, and procedural structures to accommodate neurodivergent individuals. The guidance also points to the legal basis for implementing reasonable adjustments and references the Family Procedure Rules and the Equality Act 2010.

In the foreword to the guidance, the President of the Family Division, Sir Andrew McFarlane says: “Equal access to justice is fundamental to a functioning and fair system…The universally applicable principle upon which the guidance sits, is that understanding an individual’s needs leads to better participation, and more effective justice. This principle encourages a system that, with relatively light adjustments, can improve participation and outcomes for children and families.  I encourage practitioners working within the Family Justice system to read the guidance carefully and to consider how they can adopt best practice.”

SRA consultation on complaints handling

Over the past 10 years law firms have received an increasing number of First Tier Complaints (FTCs) from clients. The SRA has recently turned its attention to how law firms are dealing with them. 

FTCs are complaints raised by clients when they are dissatisfied with the service of a firm. Law firms have eight weeks after receiving an FTC to provide their final written response. If the complaint is not resolved, the clients can escalate the complaint to the Legal Ombudsman (LeO). The role of the LeO is to advise on resolving complaints where poor service is evident. The main reason for FTCs continues to be delays, followed by failure to advise and perceived excessive costs. Possible remedies include apologies, fee refunds, fee waivers and compensation. Complaints relating to negligence or misconduct are handled by the law firm's professional indemnity insurers and the SRA respectively.

In January 2025, the SRA asked Compliance Officers (COLPs) from 750 law firms to provide information on how their firm identifies and handles these complaints. The information gathering exercise comprises an online questionnaire requiring COLPs to respond to various questions by 28 February 2025. The questions include what training has been provided to staff on dealing with the firm's complaints procedures; and whether the firm uses Alternative Dispute Resolution as part of their complaints process. COLPs have also been asked to confirm whether the firm informs clients how and when a report can be made to the LeO and the SRA.

Law firms are required to ensure FTCs are addressed promptly, fairly and free of charge. They are also required to publish their complaints handling procedures on their website as mandated by the SRA Transparency Rules 2018.  The SRA's latest initiative emphasises the need for law firms to handle complaints properly to ensure clients are receiving the service they are entitled to expect.

Hong Kong – Conveyancing: Update on "Payment Arrangements for Property Transactions"

As in England & Wales, the consequences following a regulator's intervention into the practice of a law firm can be severe. The intervened law firm is closed and former clients are not guaranteed the return of their money from the firm's accounts. Such concerns and the adverse publicity that goes with them has had governments and regulators looking for solutions.  In Hong Kong, matters came to a fore in December 2020, following the Law Society of Hong Kong's closure of a law firm that purported to have the largest conveyancing practice in a city where property values are crucial to businesses and much of the population.

In England & Wales, the SRA is consulting on the use of so-called "third-party managed accounts" as an alternative to law firms holding client money.  In Hong Kong, the impetus for change has come from the government with the assistance of the Hong Kong Association of Banks (HKAB). In 2022, the Monetary Authority (Hong Kong's de facto central bank) and the HKAB introduced a pilot arrangement for the introduction of an alternative payment mechanism (known as "Payment Arrangements for Property Transactions" – PAPT); the idea being that rather than mortgage funds on a conveyancing transaction passing through a law firm's accounts the funds would be remitted between banks by direct transfer via the interbank payment system.

On 27 December 2024, the Law Society of Hong Kong issued a circular confirming the latest HKAB proposals for PAPT as regards the sale and purchase of residential properties. While proposals to extend PAPT from an arrangement for payment of mortgage funds to the sale and purchase of residential properties are still subject to consultation, the latest proposals include the following HKAB draft transactions documents:

• template clauses for PAPT for sale and purchase of property transactions;
• interbank protocol;
• simple clauses for facility letters;
• standard clauses for incorporation into the appointee bank-seller contract and buyer contract; and
• terms and conditions in relation to the operation of PAPT.

Thanks to our additional contributors: Poppy Hay, Catherine Zakarias-Welch, Sally Lord and Aimee Talbot