Lawyers Covered - July 2022

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.

Acting in good faith no bar to wasted costs award

In Rushbrooke UK Ltd v 4 Designs Concept Ltd [2022] EWHC 1687 (Ch) the High Court made a wasted costs order against an applicant's solicitors on the basis that they had brought an interlocutory application without their client company's authority.

The application had been for an injunction to restrain the presentation of a winding-up petition against the company, and the solicitors had taken instructions from one of the two company directors. However, the Court dismissed the application on the basis that the director had no authority to give instructions on the company's behalf. The respondent sought a wasted costs order accordingly.

HHJ Paul Matthews applied the three tests for wasted costs set out in CPR Practice Direction 46 paragraph 5.5. He found that the solicitors' conduct had been improper and unreasonable on the basis that they had not considered the company's articles, or any legal textbooks or cases, to establish the position on authority at the time of the purported instructions; he found that this conduct had caused the respondent to incur wasted costs because if the solicitors had acted properly, the application would not have been brought nor the costs incurred. Finally he found it was just to make the wasted costs order given that the applicant company was insolvent and so unable to pay the respondent's costs, and that the solicitors had brushed aside the respondent's representatives' concerns over authority in earlier correspondence. He awarded wasted costs in the sum of £7,920 accordingly.

HHJ Paul Matthews accepted the solicitors' evidence that they had acted in good faith throughout but noted that good faith was not on its own a defence; there was no requirement that the relevant conduct be vexatious or designed to harass opponents.

The Judge also noted that in addition to wasted costs, the respondent had jurisdiction to bring a potential claim for breach of warranty of authority, namely that the solicitors were in breach of their implied warranty that they had their client's authority to bring the application. Whilst it was not necessary to decide the point in the respondent's favour, HHJ Paul Matthews stated that he could "see no reason why I would not have done so" if needed. He made clear that in this jurisdiction liability was strict and it would not have been necessary to prove that the solicitors knew or should have known of the lack of authority.

This case is a timely reminder of the need for solicitors to undertake proper investigation into the source and scope instructions received from corporate entities. Failure to do so may have serious consequences.

SRA, SLAPPs and Whistleblowing

SLAPPs, also known as Strategic Lawsuits Against Public Participation, are a form of litigation where the main objective can be characterised as harassment, intimidation and financial and psychological exhaustion of an opponent. Often, they are claims brought by extremely wealthy individuals or corporations and may be associated with clamping down on free speech and the reporting of events. RPC's Rupert Cowper-Coles recently gave evidence to the Justice Select Committee on this issue given RPC's media team's work and their experience of defending such cases.

SLAPPs litigation has recently become a focus for the SRA. In March 2022, the SRA issued guidance on the conduct of disputes and highlighted concerns around the use of SLAPPs – making clear that, amongst other things, excessive or meritless claims and aggressive and intimidating threats may be considered a misconduct issue.

Late last month, it was reported that the SRA is currently investigating more than 20 possible cases of potential misconduct in relation to SLAPPs. It also emerged that the SRA wishes to make it easier for law firm staff to blow the whistle on their employers in this area. As part of these efforts, the SRA intends to seek statutory designation as a "prescribed person" under the Public Interest Disclosure Act. This means that a mechanism will be established to allow workers to make a public interest disclosure to an independent body where the worker does not feel able to disclose directly to their employer. The SRA hope that this will encourage reporting about SLAPPs and other concerns and give enhanced rights to whistle-blowers.

Whilst further detail of the proposals is awaited. This, together with the SRA's increasing focus on law firm culture, may be seen as a further push by the SRA to call out conduct which it considers unacceptable.

Double warning for legal professionals: do not cut corners with disclosure

A recent decision by the Bar Standards Board to suspend a "top criminal silk" from practice brings to light important guidance from the Court of Appeal which serves as a warning to legal professionals of the absolute importance of disclosure and the implications of failing to comply with their obligations. Both the court and the regulator have made clear that the duty is strict and those who are non-compliant run the risk of serious – perhaps the most serious – consequences. Although the professional in this case is a barrister, the decision is of wider relevance/application for litigation practitioners and the Insurance market. You can read our full update here.

Another failed Damages Based Agreement…

Solicitors owe a duty to advise their clients on funding options, but Damages Based Agreements (DBAs) continue to be difficult to recommend due to the complexity of the regulations and uncertainty about their enforceability. As a result, many firms are simply not willing to risk acting on a DBA basis. The Court of Appeal recently considered the novel question of whether it is permissible under the regulations for a firm to act for a defendant in litigation on the basis that the defendant will pay the firm a percentage of the money or asset that the defendant has successfully resisted having to pay to the claimant. In a further blow to fate of DBAs, the Court of Appeal ruled the agreement unlawful and unenforceable. The unsuccessful solicitors commented that the decision demonstrates an unjust inequality of arms between claimants (who can fund their claims by DBAs) and defendants (who cannot; at least, not in the way envisaged by the parties in this case).

The solicitors in Candey Limited v Tonstate Group Limited [2022] EWCA Civ 936  agreed to act for Mr Wojakovski (the Client) in complex shareholder litigation involving a claim against him by his parents-in-law (the Claimants). The Client was previously represented by Mishcon De Reya, but became unable to pay his legal fees, so he approached the solicitors in this case, Candey. Candey agreed a DBA with the Client whereby they would be paid 25% (later increased to 29%) of any benefit the Client derived from the proceedings. The Client lost most of the litigation and was declared bankrupt, but did retain a minority shareholding in Tonstate Group Limited as part of a settlement agreement. Candey contented that it was on the basis of the valuation of these shares that its contingency fee should be calculated. Having examined Tonstate's accounts, Candey invoiced the client for £2m.

Candey argued that the Damages Based Agreements Regulations 2013 permitted solicitors to act for defendants on a DBA basis and that the percentage contingency fee could be calculated by reference to property a defendant retained as a result of successfully defending a claim (i.e. the Client's shares). The first instance judge disagreed, and the Court of Appeal upheld his judgment, finding that the Courts and Legal Services Act 1990 (as amended by LASPO 2012) only removed the common law prohibition against contingency fee agreements in relation to claimants. A successful defendant had not derived a benefit (as required by the regulations and the terms of the instant DBA) from successfully defending proceedings because he had not received any property. He had retained the property that he owned all along. A defendant only derived benefits where they actually received property from their opponent. The Court found that, even if the regulations had permitted a DBA of this nature, the drafting of the DBA did not achieve what Candey contended. An actual recovery from the Claimants was required to trigger the payment provision under the agreement. In particular, shares in private companies were often of contentious value and the Court found that the provisions of the agreement did not cater for the appointment of forensic accountants to value the shares.

Solicitors wishing to consider acting for a client on a DBA basis may find it worthwhile taking specialist legal advice prior to doing so – or even outsourcing the drafting of the DBA itself (RPC would be delighted to assist in either case!). In this case, the court's ruling meant that the solicitors were unable to recover £2m, so the costs of seeking advice at the outset would have been easily justifiable! Read more on this decision here.

"No choice" – a help or a hindrance?

The Bar Standards Board published its strategy paper 2022 to 2025 on 14 July 2022. One of its strategic aims for the next three years is access to barristers' services, with one key area identified as "Undertaking research better to understand how solicitors choose clients on behalf of their clients and reviewing whether regulation is needed to ensure greater transparency or choice". This arises from evidence that clients are "often offered no choice" in the referral of barristers by solicitors or other legal professionals.

The BSB's research will involve gathering information from solicitors as to the factors which influence their choice of barrister, and/or the extent to which they offer clients more than one recommendation, or indeed to what extent they take into account a client’s views when choosing a barrister. This data will then form part of their review as to whether additional regulation is required to ensure that clients have as much transparency and as broad a choice as possible in the instruction of counsel.

The importance of transparency and informed choices is paramount across any industry. This strategic aim of the BSB will of course be warmly received and supported by clients and the legal profession alike – but perhaps with the need for some caution.

There is usually an abundance of choice in a barrister, even where a particular specialism is required. This can be overwhelming for the instructing solicitor - let alone a client. There is a risk in allowing a client to be left to their own devices in the instruction of a barrister, even where they are presented with a shortlist of candidates. For example, clients may not appreciate the fine difference in skill sets, they may be more persuaded by comments or a recommendation from a colleague, or simply prefer someone that they have heard of or used previously to great success.

Clients can, and do, suggest barristers but ultimately tend to defer to the guidance and recommendation of the solicitor – and for a very good reason, as the solicitor is usually more experienced and best placed in selecting counsel who would be the most suitable to the case and the agreed strategy. A solicitor is of course under a duty to act in the best interests of their client, which extends to the instruction of counsel most appropriate to the case.

It will be interesting to learn of the fruits of the BSB's research and whether it identifies the need for any additional regulation in this area which will truly be of benefit to clients.

Hong Kong – Courts (Remote Hearing) Bill

In June 2022, the judiciary administration announced a three-month public consultation regarding a Courts (Remote Hearing) Bill. The draft Bill provides a legal framework for the use of remote hearings for all courts and various statutory tribunals in Hong Kong.

Since the outbreak of the Covid-19 pandemic in Hong Kong, the courts have adopted an incremental approach for the use of remote hearings, whether by a live audio or live audio-visual medium. While there are no legal impediments to the use of remote hearings in civil proceedings, there are no express rules providing for their use.

There are legal impediments to the use of remote hearings in criminal cases given that the physical attendance of the defendant is generally required. Specifically, as regards criminal cases, the consultation document proposes an incremental approach and that physical hearings should continue to be used where a defendant is required to attend court – for example, for a bail application, to enter a plea or to attend trial or a sentencing hearing.

While the consultation document proposes that the default mode for a hearing remains a physical hearing, a key provision in the Bill is that a court may (on its own motion or on an application by a party) make an order for a hearing to be conducted remotely. The court's decision is an exercise of case management discretion applying criteria set out in the Bill.

The Bill also provides for the administration of oaths and affirmations by a person at a remote hearing. Where a hearing which is open to the public is conducted remotely the Bill provides that the court must make provision for public access.

It is anticipated that the Bill will be introduced into the legislative council by the end of the year and become operative in 2023.

Additional contributors this month: Simon Love, Daniel Austin, Sharon Law, Catherine Zakarias-Welch & Sally Lord.

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.