Lawyers Covered - January 2023

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.

Another increase to SRA fining powers proposed – and it's a big one
 
The SRA's power to fine solicitors is set for another huge increase. Just months after the cap on SRA fines was raised to £25,000, new legislation now proposes to grant the SRA potentially unlimited fining powers for disciplinary matters relating to "economic crime".

If passed, the Economic Crime and Corporate Transparency ("ECCT") Bill will remove the cap on the regulator's fining powers in respect of various economic offences and allow it to issue limitless penalties for solicitors who facilitate them (whether by act or omission). While the detection and prevention of economic crime is rightly a priority for the regulator and the Government, the Law Society has questioned whether this move will deter economic crime to an extent that justifies the regulatory burden it will place on firms.

The ECCT Bill is intended to prevent criminals from "using companies and other corporate entities to abuse the UK's open economy", and to "strengthen the UK's broader response to economic crime". To that end, it defines certain acts as "economic crime offences", and the list is wider than one might suspect: it ranges from money laundering / tipping off, through to straightforward Theft Act offences. Risk teams should be careful to read the list carefully and ensure fee-earners and accounting / finance staff do the same.

Under the new legislation, solicitors will be vulnerable to unlimited fines if the SRA considers they have either failed to comply with a conduct rule "relating to" the prevention or detection of economic crime, or been guilty of an "act or omission which had the effect of inhibiting the prevention or detection of economic crime". This is another potentially wide-ranging definition, and we await further guidance from the regulator on how it will approach the use of these prospective new powers.

At present, while the SRA has welcomed the proposals, we note the Law Society's concerns over the notion of the SRA wielding unlimited fining powers without the independent scrutiny of the SDT. The Law Society has also pointed to "little evidence that [the] parallel increase in the Financial Conduct Authority fining powers – or the large fines they have applied – have aided the fight against financial crime".

We will monitor the Bill's progress, and the SRA's likely consultation on new powers and rules arising from it. For now, the ECCT Bill is not yet the law of the land, but we would be happy to speak to any firms looking to get ahead of the curve and plan for this significant regulatory change.

In addition, Sam Tate (Partner at RPC specialising in anti-corruption, financial crime and fraud) has recently been discussing the wider impact of the Bill on UK businesses generally in the fight against economic crime.

Litigant in Person ordered to pay £17,500 in Small Claims Track
 
In the recent case of Reed v Boswell (2022) a district judge ordered a claimant (who did not properly set out her claim or cause of action) to pay a substantial amount of the defendant's costs, describing the case as "a cautionary tale for litigants in person". The decision is unusual and of note because, in most cases allocated to the small claims track, the parties are expected to bear their own costs. This is because the small claims track is designed to minimise financial risk for individuals by enabling them to litigate in person without using a legal representative. Costs orders for a losing party to pay the winning party's legal costs are therefore very unusual in the small claims track. However, the case of Reed v Bosewell serves as a cautionary reminder that, where a party has behaved unreasonably, the court can order that party to pay the other side's costs.

The background to the case involved a claim by Mrs Reed (the Claimant) against Mr Boswell (the Defendant) for providing a favourable reference about a tenant. The Claimant said the reference had caused her to agree a tenancy with Mr Fernandes, who turned out to be an unsuitable tenant, causing damage to her property and accruing rent arrears. However, the Claimant had not properly set out the heads of claim or specified a cause of action. The judge dismissed the claim and criticised the way the Claimant (who was herself a criminal solicitor, acting in person) had presented her case and evidence. The claim was described as "misconceived and unclear", a difficulty often faced when dealing with claims brought by litigants in person.

The successful Defendant applied for costs under CPR 27.14(2)(g) which applies, in rare circumstances, where the paying party has behaved unreasonably. The judge found that the Claimant's conduct was indeed unreasonable, having made allegations of fraud and dishonesty against the Defendant, which she persistently refused to amend or withdraw.

While the case is only a County Court decision, it may provide a useful reference for those dealing with difficult litigants in person who try to use the Small Claims Track to bring a misconceived claim without facing the risk of adverse costs.

For our more detailed analysis on this decision click here.
 
A gamble on Part 36
 
Part 36 offers should be simple, but we often see lawyers in difficulties when they get it wrong. In a recent decision, the practical and theoretical implications of a purported Part 36 offer, which incorporated damages relating to a head of loss that had not been properly pleaded at the point an offer was made, was debated. In this case, the Defendants had something of a Pyrrhic victory, leaving lessons to be learnt across the litigation landscape.

Our detailed analysis on this decision will follow shortly.

Scope of duty to third party in spotlight again
 
A recent Court of Appeal decision has addressed a solicitor's duty of care to a non-client third party. The case Ashraf v Lester Dominic Solicitors serves as a reminder that a solicitor can owe a duty of care to non-clients where they step outside their normal role and act for all parties.

A lender bank had instructed the respondent firm of solicitors to act in effecting the transfer of a property. On the Land Registry paperwork, the respondent firm confirmed that each party was represented by a conveyancer. This was incorrect as the seller was not so represented. This confirmation on the paperwork enabled the Land Registry to rely on the fact that the seller's listed conveyancer would have taken steps to verify the identity of their client. The seller subsequently passed away but, in 2016, his estate brought proceedings over claims that his signature on the TR1 had been forged; they claimed that the respondents were negligent in registering the transfer and charge, which caused the estate loss of the property. The respondents argued that they owed no duty of care to the deceased and were granted summary judgment on this basis.

This summary judgment was overturned on appeal. The Court of Appeal held that, in filling in the relevant form, the respondent was "arguably not acting just for the benefit of the Bank but for the benefit of all parties, and thereby stepping outside his role as solicitor for his client" [84] so as to also owe a duty to the deceased. The case will now proceed to trial.

For our detailed analysis on this decision, click here.

Court allows costs challenge after 12-month deadline set out in Solicitors Act 1974
 
The High Court has allowed an appeal in Menzies v Oakwood Solicitors Limited on the issue of whether a solicitor's fees can be challenged after the 12-month time limit for detailed assessment set out in section 70(4) of the Solicitors Act 1974.

The Respondent acted on a Conditional Fee Arrangement (CFA) for the Appellant in relation to a personal injury claim in which the Appellant accepted a settlement offer for £275,000 in damages plus reasonable costs.

The Respondent provided the Appellant with an interim statute bill for £73,700, of which £38,000 was recovered from the Defendant to the personal injury claim. The Respondent retained approximately £58,000 to cover any potential shortfall in costs and eventually deducted around £35,000 in respect of its own costs, paying the rest to the Appellant.

The Appellant did not understand the basis of the payment of the Respondent's fees, and more than 21 months after the final payment was received from the Respondent, initiated proceedings seeking assessment of the final bill.

Section 70(4) of the Solicitors Act 1974 provides that assessment of a bill will always be provided if an application is made within a month of delivery of the bill. In addition, assessment may also be ordered if that application is made after one month but before 12 months of delivery or any payment of the bill. Assessment will only be ordered after 12 months in "special circumstances".

At first instance Costs Judge Rowley ruled that the Appellant's application was time-barred by Section 70(4).

However, on appeal the High Court ordered assessment. It found that whilst the Appellant had in principle authorised payment of the Respondent's fees by a deduction from the damages by way of the CFA, the Respondent was still required to obtain the Appellant's agreement to payment of the shortfall to show that the account was settled. It was also found that the Respondent had not provided a sufficiently clear explanation that the Appellant could object to the deduction within a reasonable time.

The High Court's decision highlights the importance of providing a client with a detailed explanation of the position whenever a solicitor is paying their fees out of damages being held on account.
 

Hong Kong

Decision on Overseas Lawyers not qualified to practise in Hong Kong appearing in "national security" cases
 
In the December 2022 edition, we reported on the Hong Kong Chief Executive's request for an interpretation of the National Security Law (NSL) by the relevant legislative body in Mainland China – namely, the National People's Congress Standing Committee (NPCSC). In short, the question posed by the interpretation was – could an overseas lawyer not qualified to practise in Hong Kong participate in a case concerning an offence of endangering national security in Hong Kong?

On 30 December 2022 the NPCSC provided its interpretation. The interpretation consists of three main paragraphs. It confirms (among other things) the following:

• pursuant to Article 47 of the NSL, when a question arises as to whether an act involves national security or state secrets the courts in adjudicating relevant cases are required to obtain a certificate from the Hong Kong Chief Executive (being the head of the Hong Kong Special Administrative Region government);
• the question whether an overseas lawyer not qualified to practise generally in Hong Kong can serve as defence counsel or legal representative, in a case concerning an offence of endangering national security, is a matter that requires certification pursuant to Article 47 of the NSL;
• the High Court shall obtain a certificate from the Hong Kong Chief Executive before it can approve an overseas lawyer's ad hoc admission for the purpose of appearing in a "national security" case.

The Chief Executive's certificate is binding on the courts. In effect, in the absence of a certificate an overseas lawyer's ad hoc admission cannot be approved. The NPCSC's interpretation should have no bearing on overseas lawyers who are qualified to practise in Hong Kong or on overseas lawyers (such as King's Counsel) seeking ad hoc admission to represent parties in cases in Hong Kong not involving "national security".

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.