Lawyers Covered - March 2021

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.

Car Park investment scheme sees £100m moved through firm's account

The SDT case of Bujakowski and others (case no. 12091-2020), like many claims we are seeing at the moment, arises out of fractional property investments.

The scheme in question involved the purchase of parking spaces and storage pods which (the Tribunal found) resulted in the firm's client account being used as a banking facility. Whilst it did not appear that the firm's breaches of the Solicitors Accounts Rules and the SRA Principles caused its clients or purchasers any losses, the Tribunal held the firm failed to take any measures to prevent the breaches occurring.

The Tribunal also found that the one of the legal executives involved did not consider if the marketing materials overstated likely returns nor the security provided to purchasers. In addition, one of the partners admitted he caused or allowed contractual documents to be sent to purchasers, some of whom were unrepresented, that were inconsistent with the marketing materials.

This case is a stark reminder of the checks and advice that should be given when instructed in any such scheme. The SRA has issued a warning notice which lists the red flags for these types of transactions, which you can find here. Often solicitors and law firms are used to give credibility to schemes so it is important to have this guidance to hand to ensure you give the right advice. If in doubt, don't act. Don't forget that collective investment schemes are regulated by the FCA, which brings criminal (as well as civil and regulatory) sanctions into play. Click here for the full decision.

 Solicitors can be compelled to attend wasted costs hearings

If a solicitor is facing a wasted costs application, they must be given the opportunity to make written submissions or attend the hearing (CPR 46.8), but can they be compelled to attend (and face cross-examination) despite the constraints upon them posed by legal professional privilege? That was the question before the court in Hunt v Annolight Ltd & Ors. It was argued on behalf of a solicitor (Mr Abid Sarwar of Walker Preston Solicitors) that CPR 46.8 provides a complete procedure for dealing with wasted costs applications and the court had no jurisdiction to make orders outside that procedure. In a decision issued in December (but only recently published) Mr Justice Saini disagreed and held that the court had a discretionary power to compel a legal representative to attend for cross examination. The appeal was therefore dismissed. In this case, the court found privilege had been waived, after Walker Preston's client submitted a witness statement which the court described as "throwing [the firm] under the bus". In cases where privilege has not been waived, it is questionable whether a court would (or should) compel a solicitor to be cross-examined (given the inevitable difficulties that would create for them). A copy of the decision can be found here.

SDLT: a Summer holiday for conveyancers?

Chancellor Rishi Sunak's "stamp duty holiday", announced in last July's mini budget, was due to expire at the end of this month. Given the boost it gave to the housing market, including associated professions, the Chancellor recently announced that the holiday would be extended until the end of June this year. While this may provide respite to conveyancers, currently buried under a mountain of files, the tailback has simply shifted by a few months. Given the pressure caused by increased demand and the complications of remote working, the potential for error is apparent. As a result, claims against conveyancers are likely to follow.

Click here to read our full article on the dangers faced by professionals involved in the conveyancing process and our practical tips to help mitigate the risks.

Win for a law firm against online reviewer

What to do when a former client defames you on a customer review website? Law firms (like other businesses) can feel powerless in this situation. In the (unreported) case of Summerfield Browne Ltd v Waymouth a law firm brought an action against their former client, Mr Philip Waymouth, for defamation. Mr Waymouth had posted a review of the firm on the Trustpilot website, which included allegations of dishonesty. The court granted summary judgment after Mr Waymouth failed to comply with an order requiring him to file an amended defence. The firm was awarded £25,000 in damages and (perhaps more significantly) Trustpilot was ordered to remove the offending review.

Important limitation decision on meaning of "deliberate concealment"

The Court of Appeal's judgment on limitation issues in Canada Square Operations Ltd v Potter (a PPI-mis-selling case) has significance for claims against legal professionals, since it analyses the language of sections 32(1)(b) and 32(2) of the Limitation Act 1980 and gives guidance on the test for "deliberate concealment" in cases where there has been no active concealment (rather a failure by the defendant to disclose relevant failings). Points to note include the conclusions of Lady Justice Rose that:

• for there to be "deliberate concealment" it was not necessary to establish an independent, "free-standing" duty of disclosure (paragraph 75)
• the test for the mental element required for "deliberate concealment" under s.31(1)(b) and s.32(2) is one of "recklessness" – i.e. awareness of a risk of a latent breach (s.32(2)) or duty to inform (s.31(1)(b) and an (objectively) unreasonable decision to take the risk.

We expect some claimants will try to rely on this judgment in claims against legal (and other) professionals where primary limitation has expired. The judgment is available here.

Dishonesty can be established on summary judgment

In an appropriate case, the courts are prepared to make findings of dishonesty on summary judgment – as shown by the decision in Burns v Burns & Ors. The case concerns the wrongful application of funds intended for a self-invested personal pension by the SIPP managers and the facts were striking. However, the lesson that (in extreme cases) the courts are willing to make findings of dishonesty on summary judgment is one that legal professionals (and their insurers and advisers) should note.

Click here to read the judgment.

DBAs: a new ball game
Court of Appeal clarifies termination provisions in Zuberi v Lexlaw [2021] EWCA Civ 16

Damage Based Agreements (DBAs) were first permitted in litigation in England and Wales in 2013 as part of the Jackson reforms. DBAs enable lawyers to claim a percentage of a client's damages if their case is won but nothing if they lose. Such an arrangement would otherwise be prohibited. However, there was little uptake. This was perhaps partly due to ambiguity in the Damages-Based Agreements Regulations 2013 (the Regulations). Contravention of the Regulations renders the arrangement unenforceable making them unattractive.

One particular drawback of DBAs was the early termination provisions. It was unclear whether lawyers would recover payment for any fees and disbursements if the client terminated the retainer.

The underlying claim concerned Mrs Zuberi's DBA with her solicitors, Lexlaw, in respect of a dispute with her bank. The DBA provided that Lexlaw was entitled to 12% of Mrs Zuberi's damages if she succeeded (plus disbursements). Under the DBA, Mrs Zuberi could terminate the DBA early, but, in that event, she would be liable for Lexlaw's fees and disbursements. Mrs Zuberi's claim settled and she argued the termination clause contravened the Regulations (clause 4(1)) and therefore invalidated the entire retainer.

The Court of Appeal held that lawyers are entitled to recover payment for fees and disbursements when DBAs are terminated. They found that DBAs should be construed narrowly, dealing with payments out of damages, not the whole retainer. This means that clauses which do not deal with the percentage of damages lawyers can claim are excluded from clause 4(1) of the Regulations. Lexlaw could therefore recover fees and disbursements incurred when Mrs Zuberi terminated the retainer.

Whilst not all risk has been extinguished, and further regulations would be welcome in that regard, this decision will be welcome news for legal professionals keen to provide a DBA funding alternative for claimants.

Law Society undertakes largest ever law firm intervention in Hong Kong

In December 2020, the Law Society of Hong Kong intervened in the practice of a law firm which had one of the biggest conveyancing practices in Hong Kong – a city in which property (residential and commercial) dominates. The intervention is the largest ever undertaken by the Law Society in its history (of over one hundred years). In short, the intervention is a wake-up call for partners or practitioners to ensure that all staff – including staff who are not legally qualified, such as clerks – are being properly supervised.

Please click here for our latest blog on this matter.

US lawyers get more detailed advice on how to approach conduct issues
with thanks to Noah Fiedler, partner at Hinshaw & Culbertson LLP, our US alliance firm

In recent months, the American Bar Association Standing Committee on Ethics and Professional Responsibility have published a number of opinions on the application of the Rules of Professional Conduct. Formal Opinion 498 (March 10,2021) addresses virtual practice and the related ethical duties of competence, diligence, and communication in light of technology much different than was available when the Rules were originally written. Of particular note, the Opinion addresses reasonable efforts to prevent inadvertent or unauthorized disclosures of information relating to the representation and the duty of supervision requiring that lawyers make reasonable efforts to ensure compliance by subordinate lawyers and nonlawyer assistants with the Rules of Professional Conduct. Formal Opinion 497 (February 10, 2021) addresses Model Rules of Professional Conduct 1.9(a) and 1.18(c), which apply to conflicts involving representing a current client with interests “materially adverse” to the interests of a former client or prospective client on the same or a substantially related matter. While neither Rule defines “materially adverse,” some materially adversity is obvious: “negotiating or litigating against a former or prospective client on the same or a substantially related matter, attacking the work done for a former client on behalf of a current client, or, in many but not all instances, cross-examining a former or prospective client.” The Opinion provides guidance in determining material adversity in situations not so clear-cut.

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