Lawyers Covered - July 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.

Halsey Revisited – Will Churchill v Merthyr Tydfil pave the way for compulsory mediation?

Churchill v Merthyr Tydfil involves a dispute between a proprietor and a local authority about Japanese knotweed.  The local authority disputed the claim on the basis that the claimant should have followed its internal complaints process before engaging in litigation.  The County Court rejected this argument, but Lady Justice Andrews permitted a challenge directly to the Court of Appeal as the case: 

"…raises an extremely important issue relating to access to justice, namely whether a claimant who unreasonably refuses to engage in ADR in breach of the requirements of the Practice Direction (Pre-Action Conduct and Protocols) can be precluded from bringing or advancing a claim in court".

The Civil Mediation Council, Chartered Institute of Arbitrators, and Centre for Effective Dispute Resolution have all intervened in the hope of overturning the previous Court of Appeal decision in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 and paving the way for compulsory mediation in civil litigation. 

In Halsey the following (potentially obiter) comments made by Lord Dyson on whether the court has the power to order parties to mediate against their will has attracted much criticism over the years: 

"…It is one thing to encourage the parties to agree to mediation, even to encourage them in the strongest terms. It is another to order them to do so. It seems to us 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… and therefore a violation of Article 6 [the right to a fair trial]…". 

Interestingly, two of the judges in Halsey have since suggested that it may be time to revisit the case. Lord Dyson himself has suggested that his comments might now require some modification as "it is clear that in and of itself compulsory mediation does not breach Article 6".  However, he and several other judges have suggested that denying litigants who refuse to mediate access to the courtroom may be a step too far which would fall on the wrong side of Article 6. 

The Civil Justice Council in its report on Compulsory ADR in June 2021 disagreed, concluding that "any form of ADR which is not disproportionately onerous and does not foreclose the parties' effective access to the court will be compatible with the parties' Article 6 rights".  It referred to various procedural rules which establish some form of compulsory ADR, such as the ACAS Early Conciliation process in employment claims. It also pointed to the fact that courts routinely make orders requiring parties to do things that they would rather not as a condition of continuing with their claim or defence, such as providing disclosure or witness statements. Its view is that ADR should no longer be treated as separate or alternative to the court process and should instead form part of it. 

The Ministry of Justice (MoJ) has embraced that suggestion as it announced plans to impose compulsory mediation for all County Court claims last Summer. The consultation on its proposal closed in October 2022 and the responses are yet to be published. The MoJ intends for the scheme to cover all claims for less than £10,000 in the first instance with a view to expanding to cover all County Court claims. Although parties will not be able to opt out of the scheme "simply because they wish to" they will be able to apply to the judge for an exemption which will be assessed on a case-by-case basis.  In cases where a party has continuously failed to comply with an order for mediation a judge will be able to either impose a costs sanction or strike out the claim or defence.  For more detail about the MoJ's proposals, see our previous article here.

It is currently unclear whether such plans would comply with litigants' Article 6 rights.  It is hoped that the Court of Appeal in Churchill will provide a definitive answer to this question. There has been a general shift in judicial attitudes in recent years in favour of mediation with the result that it may now be time for the decision in Halsey to be overturned. We can see the benefit in that particularly in low value claims given the savings in the time and costs involved in litigation which could be saved if more cases were mediated.

HMG updates guidance on proposals to remove the statutory cap on SRA's fining powers

HMG has recently updated its policy paper in relation to the removal of the statutory cap on financial penalties that can be imposed by the SRA (here).  Currently, the financial penalty limit that the SRA can impose without going to the SDT is £25,000.  It has long been published that The Economic Crime and Corporate Transparency Bill 2022 will remove this cap in relation to economic crime matters.  However, earlier this month the government also confirmed that this power will extend to strategic lawsuits against public participation (so called SLAPPs).  See here.

For further information, please contact Graham Reid.  

Under Attack: Sharp's the Word, Quick's the Action

The Legal Ombudsman (LeO) recently fined a law firm for failing to act timeously following a cyberattack and for failing to have appropriate policies and safeguards in place to mitigate such risks.

The email account of a law firm's client was hacked by criminals.  The client transferred deposit monies for a property purchase to the fraudsters' account after it received a spoof email (purportedly from the firm requesting payment into the alternative account).  Despite being asked to confirm safe receipt, the firm only checked its accounts a week later when the scam was then revealed.  The client contacted his bank but only a portion of the money was recovered since the majority of funds had been removed from the fraudster’s bank in the time that had passed.

The client complained to the LeO, which determined the following:

• More money would have been recovered if the bank had been notified sooner;
• The solicitor with conduct of the matter primarily worked from home on a personal device;
• The firm did not have policies in place for homeworkers and how information should be safeguarded;
• Security checks were not carried out on the solicitor’s systems; and
• The client was not given any warnings about the risks of cybercrime.

The client was awarded £27,000 to reflect the irrecoverable loss and £500 compensation for poor service.

With cybercrime on the rise – and evolving in more sophisticated and innovative ways - professionals must be all the more vigilant in handling client monies.  It is crucial that steps are taken to safeguard payments made by clients, such as verifying the details and source of the payment and receipt through phone calls or security codes.  There is a clear duty to alert clients to the risks of cybercrime and advise them accordingly.

It is also imperative for professionals to have robust systems and procedures in place – not only to prevent and mitigate the risk of cybercrime but also for quick and decisive action in such an event.  The consequences of failing to address a cyberattack immediately and properly are far more serious and far-reaching than the loss of money: data breaches can be catastrophic to a business and its reputation – to both the professional firm and the client.

The Law Society has provided guidance on what to do after a cyberattack.

Recognising the impact of cyberattacks and the critical importance of reacting to any data breach, RPC created ReSecure, a 24/7/365 integrated data breach response service to enable users to manage, investigate, resolve, and recover from a data security breach.  With one call, ReSecure provides access to a combined team offering data breach management, technical forensic investigation, legal advice, notification, web and credit monitoring, and public relations services.  ReSecure has been a valuable resource to insurers in ensuring their insureds' businesses are well placed and prepared to react to any cyberattack. 

Please contact Richard Breavington for more details.

Hong Kong: Lawyer regulator succeeds on important appeal of Solicitors Disciplinary Tribunal sanction

Regulators tend to think long and/or hard about commencing appeals against disciplinary bodies' decisions – particularly, decisions regarding disciplinary sanctions.  Disciplinary bodies usually have a wide discretion as regards the sanctions that they can impose. However, the Law Society's decision to appeal the Solicitors Disciplinary Tribunal's sanction in Law Society of Hong Kong v A Solicitor [2023] HKCA 694 has been fully vindicated.  As a result of the appeal the regulator has obtained confirmation of some important points of principle.

In Law Society of Hong Kong v A Solicitor [2023] the tribunal suspended from practice (for two years), censured and fined a sole proprietor for (among other things) numerous serious breaches of the Solicitors' Accounts Rules – the breaches included the misappropriation of significant amounts of client monies. On an appeal to the Court of Appeal (pursuant to section 13(2A) of the Legal Practitioners Ordinance), the court set aside the tribunal's suspension order and substituted it with an order that the solicitor be struck off from the roll of solicitors. The judgment emphasises the following:

• the public interest is paramount – particularly, regarding solicitors' handling of client monies;
• the court's power to overturn the tribunal's sanction is not restricted to cases where there is "a very strong case" for doing so. The court can also impose their own sanction where the tribunal's sanction is clearly wrong; for example, where the sanction is manifestly inadequate; and
• where solicitors act dishonestly, orders striking them off from the roll should generally be imposed, save for exceptional circumstances where suspension may be justified – there were no such circumstances in this case.

The outcome in the appeal should serve as a precedent going forwards and as a clear warning to sole proprietors and partners of law firms in Hong Kong.

Additional Contributors: Catherine Zakarias-Welch, Sally Lord & Aimee Talbot

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.