Lawyers Covered - May 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.

Wasted Costs – some comfort for professionals

In its recent judgment in Anthony King and others v Barry Stiefel and others, the Commercial Court has considered the circumstances in which wasted costs orders can be made against the legal representatives of a defeated party to a claim.

The defendants to the underlying claim found themselves unable to enforce the costs order made against the claimants and sought wasted costs orders against the barrister and solicitors who had represented the claimants in the underlying claim.

The court dismissed the applications on the basis of their complexity, as they involved reference to lengthy pleadings, voluminous underlying documents, and significant factual causation issues. The court held that wasted costs applications should only be made in respect of straightforward applications which can be dealt with summarily.

The court also applied the general principle that, as the claimants had not waived privilege, the court should be slow to conclude that in advancing a hopeless case the lawyers had acted improperly, unreasonably and/or negligently.

Furthermore, the court confirmed that the underlying decision was only binding upon the parties to those proceedings and therefore not immune from challenge by the lawyers in the context of a subsequent wasted costs application.

The decision is a reminder of the difficulty of bringing a wasted costs application and will be useful to solicitors and barristers who find themselves defending such applications.

Read a detailed analysis of the judgment from Nick Bird and Natalia Jeremiah on our Professional & Financial Risks blog. 

What the fix?!

Despite widespread opposition, simpler, lower value professional negligence claims will be subject to the new fixed recoverable costs ("FRC") regime which comes into force on 1 October 2023.

Under new rules published in draft by the Civil Procedure Rules Committee on 20 April 2023, less complex professional negligence claims issued on or after 1 October 2023 valued between £25,000 and £100,000 will be subject to FRC. A new draft CPR Part 45 contains tables setting out the sums recoverable, which depend on the stage of litigation reached when the claim was determined or settled and which complexity band is assigned to the claim.

The new limits on recovering costs will apply to claims allocated to the fast or newly-created intermediate track regardless of whether the actual sums incurred by the parties are higher or lower than the FRC.

This will have a significant impact on claims valued between £25,000 to £100,000 and will give rise to new tactical considerations. Find out more about the details from Will Sefton and Aimee Talbot on our Professional & Financial Risks blog.

Witness statements case law update – 100% of an opponent's costs on the indemnity basis for 'serious' non-compliance of PD57AC

In yet another example of the potential sanctions for a party's noncompliance under Practice Direction 57AC (Witness Statements in the Business and Property Courts) ("PD 57AC"), the Claimant in Kieran Corrigan & Co Ltd v Onee Group Ltd & Ors [2023] EWHC 649 (Ch) was awarded 100% of its costs on the indemnity basis for the Defendant's failure to comply with PD 57AC.

The court found that the Defendant's witness statements 'contained significant passages of common text' and concluded that there 'must have been a degree of coordination between some of the witnesses'. This harks back to an earlier 2023 judgment (Mackenzie v Rosenblatt Solicitors & Anor [2023] EWHC 331 (Ch)) in which the court made similar criticisms of both parties due to the clear commonality between the various witness statements (see our analysis of Mackenzie here).

The court also highlighted the Defendant's breaches of PD 57AC that were seemingly technical in nature, particularly in respect of a failure to accompany the witness statements with a certificate of compliance and failures contrary to PD 57AC's Statement of Best Practice, but decided that, collectively, the Defendant's breaches of PD 57AC were indeed so serious that the full sanctions should apply. In fact, the judgment makes it clear that those breaches were 'not merely procedural' but 'go to the reliability of the evidence, which PD57AC is concerned to protect'.

Whilst the Defendant was eventually permitted to rely on a re-amended witness statement, this came at a cost that would have been avoided had the initial statements been prepared in accordance with PD 57AC.

This is yet another judgment that demonstrates that the courts are looking carefully at parties' compliance with the relevant rules - especially those applicable to the Business and Property Courts. PD 57AC may appear onerous, but it effectively codifies the existing CPR requirements with a few additions and the courts are less likely to forgive those that fall foul of even the most basic of requirements.

Those responsible for the preparation of a party's witness statements ought to ensure that PD57AC compliance is front and centre in order to avoid any criticism or doubt being cast over the reliability or credibility of their witness evidence. Parties should also be cognisant of the cost consequences, even if their witness statements are ultimately permitted.

Conveyancing giant suffers £7m data breach

"I didn’t do it but, if I done it, I didn’t know it"

There are many businesses whose paths weave very close to the line of what is (or is not) permitted by way of carrying out legal services under the Legal Services Act 2007 and a recent decision has brought these issues to the forefront.

In Craig Baxter v Sarah Doble and Sarah Doble Associates Ltd, the courts were required to decide whether the respondent had been carrying out reserved legal activities, such as conducting litigation.

The respondent's business model (one that is increasingly common) allows clients to obtain legal advice and assistance "behind the scenes" at lower cost. The respondent provided assistance to landlords and tenants in tenancy disputes, as well as advising estate agents on current legislation and requirements. In this case, the respondent had been advising a landlord in its possession proceedings. The applicant (who was the claimant/tenant in the underlying proceedings) sought to bring an action for contempt of court on the basis that the respondent was carrying out a reserved legal activity without authorisation.

The respondent had previously been found to have been in breach of the Legal Services Act 2007 but had liaised with her regulator, Cilex, and amended her business model. Cilex had indicated that it was satisfied with the changes the respondent had made but did not explicitly state that the changes implemented meant that she would no longer be deemed to be conducting reserved legal activities.

Whilst the court found that the respondent had breached the law in conducting litigation, it held that the defence under section 14 of the Legal Services Act 2007 had been made out. Section 14(2) provides a complete defence if the accused can show "that the accused did not know, and could not reasonably have been expected to know, that the offence was being committed".

Throughout the judgment the court comments on the honesty of the evidence given by the respondent and that she "answered all of the questions that were put to her willingly and without hesitation". Had the respondent's evidence been less satisfactory, the court may have reached a different conclusion.

This judgment is worth reading in full as it examines the underlying case law to the Legal Services Act 2007 and serves as a worthwhile reminder, particularly in light of the number of companies adopting similar business models. In this instance, the respondent had achieved a satisfactory outcome for her client in the underlying action; however, this of course, may not always be the case when instructing someone who is not authorised to conduct litigation.

SRA updates wellbeing guidance

The Solicitors Regulation Authority (SRA) has this month added to its code of conduct (both for firms and individual) an obligation to treat colleagues fairly and with respect. There is an additional requirement for managers within a firm to personally challenge any poor behaviours. In addition, the SRA released its updated guidance in support of the new wellbeing at work rules. This is the culmination of a long running project by the SRA to ensure that firms who harbour unsupportive, bullying or toxic working cultures are identified and held to account. It is the SRA's aim to ensure that poor behaviours which encourage bullying, discrimination and/or harassment, and which ultimately can lead to poor outcomes to clients are addressed. A key part of this updated guidance is that the SRA wants to ensure that staff feel safe to speak out on concerns of poor work culture.

The comprehensive guidance sets out in some detail the types of behaviours and instances that would likely require a notification to the SRA. It also explains in more depth the expectation on managers to challenge poor behaviours, and how they can fulfil that requirement. Of particular note is the SRA's wide definition of the term 'colleagues' which will also extend to some third parties (contractors and counsel for example). Firms will now need to ensure that they have comprehensive systems and controls in place as well as underling policies on bullying, harassment, discrimination, and victimisation. In addition, firms will need to ensure there is effective supervision of staff to monitor or identify any concerns on employee wellbeing.

Whilst much of this links together other established Principles and paragraphs from the relevant Codes, it will nonetheless be a concern to firms and managers who perhaps have not taken adequate steps to address any negative behaviours that had led to poor working environments, and who may now find the SRA showing greater interest and seeking to hold to account any serious failures in meeting the updated standards.

In the SRA's press release announcing the new guidance, Paul Philip, (SRA Chief Executive) states "'The legal sector can be a very fast-paced and demanding environment in which to work. While it is up to firms how they run their individual businesses, it does become a regulatory issue if poor working cultures start to impact staff wellbeing, behaviour and ultimately standards of service to the public. That is where we have a duty to act. In order to make sure the public are protected; the rules also clarify the position where a solicitor's health raises regulatory risks. This can include situations where a solicitor is too unwell to take part in an enforcement process."

The new guidance can be found here.

Hong Kong – Snapshot of anti-money laundering developments for lawyers

In the previous six months there has been much activity regarding anti-money laundering (AML) developments in Hong Kong – in particular, with respect to designated non-financial businesses or professions (DNFBP). DNFBP include lawyers, accountants and estate agents. Lawyers assume a high profile in this regard given their role in assisting with setting up corporate vehicles and handling client money.

• In November 2022 the Law Society of Hong Kong confirmed that at least 84% of law firms had replied to its AML risk assessment questionnaire. The questionnaire was part of an initiative to develop a financial crime risk assessment for the legal profession against the background of the fourth mutual evaluation report on Hong Kong by the Financial Action Task Force (FATF – the inter-governmental body) in September 2019.
• The FATF's follow-up assessment in February 2023 confirmed that Hong Kong's compliance rating for FATF Recommendation 28 ("Regulation and Supervision of DNFBP") had been upgraded from "partially compliant" to "largely compliant". This is a significant development which reflects improved risk-based AML and Counter-Terrorist Financing (AMLCTF) supervision of DNFBP in Hong Kong, while accepting that there is a need for more progress.
• The provisions of the AMLCTF (Amendment) Ordinance 2022 became operative on 1 April and 1 June 2023. The legislation introduced miscellaneous amendments (among other things) to align the AMLCTF regulatory regime with the latest FATF international standards. As the regulatory body for solicitors and foreign lawyers in Hong Kong, the Law Society has made significant revisions to Practice Direction P (AMLCTF). The revisions update Practice Direction P in line with the legislative changes and FATF standards.
• Takeaway Point – The regulatory environment in Hong Kong has moved closer to the prospect of periodic AMLCTF risk assessments for law firms to address the FATF's recommendations in its "Guidance for a Risk-Based Approach for Legal Professionals (June 2019)".

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.