Lawyers Covered - May 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.

Court of Appeal gives clarity on limitation and "contingent" loss

When a party enters into a defective transaction that sets in chain a series of events leading to a disaster, when does the "loss" occur for limitation purposes: the date of the transaction or the date of the disaster? Answer: it's the date of the transaction, according to the Court of Appeal in Elliott v Hattens, a case in which RPC acted for the successful appellant.

The facts of this case were simple. The defendant (Hattens) advised the claimant (Ms Elliott) on the sub-lease of a property. It was alleged the defendant made two mistakes: (a) failing to get a guarantee in place and (b) failing to tell the claimant that it was her responsibility to insure the premises. The underlease was executed on 24 February 2012. The property burned down on 6 November 2012. Proceedings were issued on 10 April 2018 – more than 6 years after the execution of the lease and less than 6 years from the fire. There were no latent damage or s.14A issues.

The claimant relied upon Law Society v Sephton to say that there was a contingent loss and that the claimant did not suffer a loss until the date of the fire. The claimant won in the lower courts. On appeal, Newey LJ affirmed what might be thought of as the traditional approach – i.e. the loss occurs the moment the defective transaction is completed. The claimant did not get what she bargained for. Her bundle of rights was less than the bundle of rights that she should have had. She had suffered a loss on 24 February 2012 and therefore was out of time. The judgment is a helpful affirmation of the law in an area where simplicity is to be welcomed. We take a closer look at the case here.

Time's up for Covid excuses

The pandemic has now been with us for some time and firms can be expected to have adapted their working practices to deal with its challenges. Rarely (if ever) will Covid provide a good reason for missing a deadline. That is the message of two recent (unrelated) cases.

In Carole Scott -v- Fisher Jones Greenwood LLP & Others (an Employment Tribunal case) a conveyancing solicitor claimed unfair dismissal against her employer law firm. The claim form was received on 18 December 2020 while the defendant was closed for Christmas. The response was served two days late. In asking the court to grant an extension of time, the defendant gave a number of reasons for the delay, including disruption caused by Covid-19. The Employment Tribunal was not impressed and stated in its judgment that: 'the Covid related excuse is without merit. In essence it is that the pandemic has caused much work to adapt practice. The 4th Respondent was able to take a 3 week break over the Christmas/New Year period, which makes this reason risible".

Nor was the Employment Tribunal persuaded by any of the defendant's other reasons for delay and it stated that: "time limits are not aspirational but are deadlines, and parties are expected to meet them, the more so for respondents who are solicitors". The Employment Tribunal refused to grant the defendant an extension of time and decided the claim in favour of the claimant.

In Boxwood Leisure Limited and Gleeson Construction Services Limited & Other a trainee at the firm representing the claimant sent the defendant an email attaching particulars of claim and response pack but, crucially, omitted the claim form. Once the mistake was realised (after the deadline for service) a further email was sent to the defendant's solicitors attaching the claim form. The defendant made an application to validate service and sought to rely on disruption caused by Covid (amongst other things) as a reason for the error.

The court accepted that "working away from the office during the pandemic would reduce the oversight for more junior practitioners that would be normally present and could allow mistakes to slip through the net". However, the court noted the defendant was aware that limitation was a live issue and the claimant had already rejected applications for an extension of time for service. It found the defendant should have paid greater heed to the deadlines and ensured the claim form was served on time.

Whilst the courts may have been lenient at the start of the pandemic, having to cope with similar issues themselves, firms are expected to be up to speed with developing risk management practices so as to continue to work as normal, especially when dealing with court deadlines.

 Court reminds litigants to consider adjudication

In Beattie Passive Norse Ltd & Anor v Canham Consulting Ltd, the court has heavily criticised parties for not engaging in the professional negligence adjudication scheme before litigating.

The Professional Negligence Bar Association ("PNBA") Adjudication Scheme is a voluntary form of ADR, under which parties can agree to refer their dispute to a barrister specialising in professional negligence for a determination. The parties can agree in advance whether the determination will be final and binding.

In Beattie Passive Norse Ltd the claimant had succeeded on what the judge described as a "weak and speculative" claim by recovering £2,000, as against a claim for £3.7 million. The judge considered it "a great pity" that the parties did not use the scheme as "it would have been far quicker and much more economical, than conducting a High Court trial which lasted over three TCC weeks, with all the costs to the parties that such a trial entails". As such, the scheme "would have been a far better way for the parties to have proceeded". Although there were contested issues of fact, an adjudication could have accommodated oral evidence and cross examination. The costs judgment is not yet available, but it will be interesting to see whether the claimant is penalised on costs.

The judgment is a welcome reminder from the courts of the value of the adjudication scheme. Adjudication has clear advantages for the parties in appropriate cases but our experience is that claimants are often reluctant to engage with the scheme. Hopefully, this case may serve to focus claimants' minds on the benefits of the scheme (and the risks of ignoring it).

 Ground rent claims: latest legislative developments

The recent Queen's speech included the announcement of a new law that will ban substantial ground rents in new, long residential leases. Under the new Leasehold Reform (Ground Rent) Bill ground rents will be set in law at a peppercorn and freeholders who flout the rules could face fines of up to £5,000.

The new law will not have any impact on existing leases. However, separately, the CMA is taking enforcement action against some developers as it takes the view that ground rents which double every 10 to 15 years violate consumer protection law. Meanwhile, the government has promised further reforms of leaseholders' rights to enfranchise, but detail of the proposed legislation is still awaited.

Negligence claims against solicitors concerning ground rents in residential leases have increased sharply in recent years, and regular readers will know that we are tracking these developments closely.

Court examines payment triggers in DBA

The High Court recently held in Tonstate Group Limited and others v Wojakovski and others that a client ("C") was not required to make payment to its solicitors ("S") under the terms of a damages-based agreement ("the DBA"), and consequently dismissed S's application for a transfer of shares by way a security for the payment that S contended was due.

The defendant had settled one aspect of the litigation, which allowed it to retain a number of shares – S argued that the retention of those shares was a benefit arising from the proceedings and that this triggered payment under the terms of the DBA. In rejecting S's argument, Zacaroli J concluded that (1) the DBA was drafted in such a way that "proceeds" only included benefit obtained or recovered from the other party to the litigation and (2) the retention of the shares was not capable of meeting that criteria because D's ownership of the shares pre-dated the proceedings. Given the level of scrutiny applied by the court, firms are well advised to review the wording of their DBAs in the wake of this decision.

A reminder of the risks of misleading the court

The decision of the Solicitors Disciplinary Tribunal in SRA v Peter Gray (case no. 12018-2019) gives a stark reminder of the potential consequences solicitors who deliberately mislead the court.

The SDT found the solicitor in this case deliberately and dishonestly misled the court by failing to draw its attention to an error in evidence that was instrumental to the granting of a freezing order. The SDT concluded the solicitor made a ‘strategic decision’ to rely on the inaccurate evidence instead of bringing it to the court's attention, despite knowing that that the basis on which the case was being pursued was flawed.

The solicitor was struck off the roll and ordered to pay £42,525 in costs. The case serves as a warning to solicitors that if you allow misleading evidence to be put before the court for strategic reasons and are caught, severe consequences will follow.

Click here to read our full article on the fundamental duty not to mislead and our practical tips to help navigate some of the issues that can arise in practice.

Hong Kong: Regulatory regime in the news

In Hong Kong, solicitors, solicitor advocates and foreign lawyers are regulated by the Law Society of Hong Kong. The regime is "self-regulatory" – while the Law Society is a representative body, it also acts as regulator, in order (among other things) to establish regulatory standards and ensure compliance by its members. Recently, the self-regulatory roles of the Law Society and the Bar Association (which regulates self-employed barristers) have attracted media attention in Hong Kong, especially with respect to comments attributed to the incoming Chair of the Bar Association regarding the National Security Law, which was introduced in Hong Kong last summer.

It is important to note that while the regime is self-regulatory, the Law Society and the Bar Association do not determine complaints. Rather, where appropriate, they refer complaints to the convenor of the relevant tribunal panel – namely, the Solicitors Disciplinary Tribunal and the Barristers Disciplinary Tribunal. Both tribunals are independent, established by statute, include a lay representative and have their own disciplinary rules. The Law Society handles many more complaints than the Bar Association – this is not surprising as there are approximately ten times as many solicitors, trainee solicitors and foreign lawyers as there are barristers in Hong Kong.

Given the one size fits all approach to independent regulation in Hong Kong, there is much to be said for self-regulation. The profession's independence is highly valued by most stakeholders. However, this is not to suggest that improvements cannot be made. For some time there has been criticism that the regulatory function (particularly, the investigation of complaints) is too bureaucratic and slow. It is important that these concerns are addressed by the two professional bodies by, for example, focusing on more serious incidents of professional misconduct – particularly, those involving dishonesty or (in the case of solicitors or foreign lawyers that handle client money) a failure to keep proper accounts.

If these concerns are not addressed, it is possible that recent calls for more independent regulation will grow louder and the initiative for reform will be taken out of the hands of the professional bodies to their detriment.