Lawyers liability briefing Summer 2015

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1 Professional liability Lawyers liability briefing Summer 2015 Contents Landscape for lawyers liability (and what s over the horizon) Page 1 Lawyers liability: a global perspective Page 7 Landscape for lawyers liability (and what s over the horizon) Members of Clyde & Co s Lawyers Liability team held its second roundtable discussion on the environment for lawyers liability claims (see our Summer 2014 Briefing for details of our first roundtable). Richard Harrison, Sarah Clover, Andrew Blair, Neil Jamieson, Fergal Cathie, Gaby Kaiser, Tom White, James Preece, Tony Nurse Marsh, Clive Brett and James Preece share their views on the current landscape and scan the horizon for future issues. Claims trends Following the spike in professional negligence claims after the financial crisis, we are no longer seeing the same elevated levels of claims against solicitors. What is clear however, is that there has been a significant increase in the numbers of complex claims, and in the quantum claimed across the board. We have seen a number of notable reports in the legal press of firms facing multi-million pound litigation from clients, and it is our experience that claimants are generally seeking more, whether in routine relatively straightforward matters or in multi-party international litigation. As a result of the increase in complexity, we are seeing the necessity for expert evidence in lawyers claims on a more regular basis, in relation to specialist issues such as competition law, insolvency and restructuring, tax or on quantum issues. This also means that the claimant s legal costs and the defence costs are higher, and e-disclosure issues in particular are still adding significantly to the costs of defending a claim notwithstanding the Jackson reforms (more about which later).

2 Types of claim In our previous edition of the Lawyers Liability Briefing, we flagged that the globalisation of law firms had led to an increase in multi-jurisdictional claims against solicitors. This is something that has continued unabated, and there have been many publicised examples of claims spanning a number of jurisdictions. In our view, international firms can face particular risks when setting up in overseas jurisdictions without necessarily considering the expertise or experience levels of the partners and staff in the new office. It can be tempting for firms to agree to provide services to established key clients of the home office in a small overseas office that is not necessarily set-up to provide a full service so for example, a litigation lawyer established in the jurisdiction to service a particular niche market finds himself being asked to advise the client on corporation or tax law. The case of Earl of Malmesbury v Strutt & Parker makes clear that if a firm holds itself out as having competence in a particular area then it will be held to that standard, even if the individual advising does not have the specialist knowledge necessary to advise. Furthermore, even if there are attempts to ring-fence the liability of the London office from the other parts of the law firm, this will by no means ensure that the head office in another jurisdiction will not face a claim in respect of the advice given in London. For example, witness the attempts in the US against the accountancy firms to establish liabilities against the US member firm for negligence alleged against members of the network in other jurisdictions. It is also of course very important that an international firm setting up in the UK understands the regulatory environment in England & Wales, elements of which, such as entity regulation, can be very surprising to those from jurisdictions such as the US. Tax and pensions law remain two perennial sources of claim. These are both areas where the law is often subject to change, which leads on to claims when those changes are not properly understood by the lawyer, explained to the client, or implemented. Following the recession, there was a crackdown on large scale tax avoidance schemes in the UK by the government and regulators as it became unacceptable in popular opinion for big businesses and wealthy individuals to be seen taking steps to avoid tax. As a result large scale tax avoidance schemes (such as the film-finance schemes) have effectively come to an end, and we are no longer seeing a boom in tax-counsel being asked to bless such schemes. However, issues relating to these schemes have a long tail and are still working their way through the system. HMRC has a large backlog of claims. Until the client has had their appeal dealt with and is required to make a payment to HMRC then they may not yet have considered suing their advisers. Clients may allege that they were not given appropriate warnings about the risks of entering into a scheme, or did not understand what they were getting into. Of course, the advice that they should have been given will be judged on the basis of the position at the time of that advice, and there have been clear changes in the approach to such schemes, with the Courts taking a more purposive approach. History tells us that claims relating to tax avoidance are cyclical, so that when political and economic factors lead to tax rises, tax planning also increases as it becomes more worthwhile to try to find a way around taxation. It is likely that we will see these types of claim coming to the fore again in the future. On the pensions front, we continue to see claims arising from failure to implement changes properly to pensions schemes in accordance with the terms of the power of amendment. Putting it simplistically, if amendments are not made to a scheme at the time intended then it is not possible to amend benefits retrospectively, leading on to claims against advisers who were instructed to implement the changes. We are seeing claims relating to amendments in a number of areas, and failure to equalise pension ages between men and women still remains an issue. Going forward, an area where we foresee potential claims against those advising on pensions is in relation to the closure of schemes to future accrual, and the issue of the employers duty of good faith. There have been several cases where the courts have considered the effect of the employers duty in this regard, and we expect to see more. Following on from these cases there may be negligence claims against law firms if it is due to their advice or actions that changes to the scheme were not correctly dealt with. Another area where we have seen an increase in claims is where firms are falling foul of fraudsters, who are contacting law firms and using confidence building methods to obtain bank details, including log-ins and passwords, which they will then use to remove money 2

3 from the client accounts. It is clear that their methods for doing so are becoming increasingly sophisticated, and the SRA issued a warning about such frauds in April this year. If money is improperly withdrawn from a client account, then, under Rule 7 of the Solicitors Accounts Rules, all principals of the firm will be under a duty to replace the money promptly, which extends to using the principal s own resources. This obviously places pressure on firms and their insurers from a timing point of view. Law firm systems and procedures There are several current issues we have observed that have an effect on claims. We are increasingly seeing a lack of attendance notes on files, even on litigators files, where traditionally lawyers were more exacting in keeping notes than their corporate counterparts. This may be down to time and costs pressures faced by fee earners, who are not taking the time to dictate notes. There is also a tendency by lawyers to see attendance notes as replaced by s to clients or colleagues recording a conversation, but the detail of exactly what was explained to the client and their instruction may not necessarily be recorded as well as in a traditional attendance note. The difficulty is of course, that (although there is no obligation to record advice in writing) without a proper record of instructions and advice, it can be much more difficult to rebut a claimant s assertions in circumstances where, by the time a claim is made (potentially some years down the track) the fee earner no longer has much or any recollection of relevant conversations. In the case of Wellesley v Withers the court recently rejected the claimant s assertion that a lack of attendance notes would count against a solicitor in forming a view as to where the truth lies in relation to a claim, however this case is subject to appeal. Issues also arise in relation to electronic filing systems operated by law firms. These systems can be unwieldy, policies or methods of using the system vary from office to office, and there are always individuals who might seek to circumvent the electronic filing system because they are unwilling or find it difficult to use them. This can create evidential issues when it becomes difficult to track down the documents in relation to the claims, and can of course push up the cost and time of dealing with a case. Finally, we continue to see a fair number of matters where there are no retainer letters or terms of business sent to clients. This causes obvious issues when seeking to argue for example, that the scope of the work was limited, or that a limitation of liability applied. Given the increase in cross-border work, it also opens up the possibility of being dragged into litigation in other jurisdictions, as the firm will not have the protection of any jurisdiction clause contained in the TOBs. Litigation procedure and the Jackson reforms The Jackson reforms took effect in April 2013 and have therefore now been in force for just over two years. Despite this, we are still seeing cases with pre-jackson funding arrangements, so the conditional funding agreement (CFA) uplift and ATE insurance premium will still be recoverable from the defendant, now heading towards trial. Despite one of the aims of the reforms being a crackdown on increased litigation costs, our experience is that the courts are currently very willing to allow the submission of supplemental witness statements and expert reports, and to allow claimants to amend their pleadings at a late stage of a case, after receipt of expert reports. This obviously adds to the defence costs as it is necessary to respond. The old pre-jackson regime caused particular issues in relation to professional negligence claims. This was because certain claimants and their lawyers would use the threat of the fact that the defendant professional would, if they lost, be required to pay such a disproportionate sum in costs compared to the amount claimed (due to the requirement to pay the claimant s CFA uplift, often 100% of base costs and the ATE premium). As such, the outcome of the case of Coventry v Lawrence is of interest. In this case the Supreme Court is due to rule whether the old regime violated defendants rights under Article 6 of the European Convention on Human Rights. Should the Court decide that there was a violation, there may be a right of redress for defendants against the government. Again, despite the Jackson reforms, our experience remains that the issues arising from and costs and time of dealing with electronic disclosure present a real challenge. This can easily turn into an area of satellite litigation, with issues arising between the parties as to what comprises a reasonable search for electronic documents, for 3

4 example, whose accounts and devices should be searched, appropriate keywords, disclosure of metadata and so forth. Although the reforms introduced a menu of potential disclosure options that the courts could order, in our experience it still very much remains the case that standard disclosure remains the default. The Professional Negligence Pre-Action Protocol has recently been amended (Clyde & Co partners Sarah Clover and Tom White were members of the drafting committee). Our experience of the Protocol is that it works well for professional negligence claims, and it is not uncommon for claims to be resolved at the pre-action stage once the defendant has had the opportunity to set out its position to the claimant. Fortunately, some of the more claimantfriendly amendments to the Protocol were rejected and the changes are fairly minor. Only two are particularly noteworthy: Where the claimant has not sent a letter of claim, there is now a requirement that they must update the defendant on whether they intend to pursue the claim or inform the defendant of the time at which they intend to take the decision whether to pursue the claim. This updating procedure takes place six months following the preliminary notice. This may assist in bringing clarity as to whether some matters will be pursued, or can be closed There is now a stock take provision in the Protocol, meaning that once the parties have complied with the Protocol (if it has not resolved matters), they must review the papers and evidence to see if proceedings can be avoided or the issues narrowed. It is difficult to see what this adds to the process, and it is likely that by the time this provision comes into play the parties will have already considered carefully all of the evidence in deciding how to proceed There is also currently in progress a pilot adjudication scheme for solicitors negligence claims similar to that which already exists for construction disputes. This was lobbied for by the Professional Negligence Lawyers Association. The pilot scheme launched on 01 February Mr Justice Ramsay is looking to gather feedback from 3 pilot cases by June The pilot is aimed at solicitors negligence claims where the claim is worth less than GBP 100,000 excluding costs. At the end of the pilot, the Ministry of Justice will be considering whether to include adjudication of professional negligence claims as part of civil procedure. This reflects a developing trend we are seeing in which lower value claims are being pushed towards non-judicial resolution by way of adjudication, mediation and Ombudsman schemes. Regulation There has been a big change in the approach of the Solicitors Regulation Authority ( SRA ) over the past few years. It is now much more pro-active, and appears very conscious of the need to be seen to be taking action. As such, if there are reports in the legal or mainstream press of issues relating to a particular case or law firm, then the SRA will shortly thereafter be in contact to ask for an explanation. The SRA is also of course, undertaking focussed work in particular areas, and for example is currently visiting firms in order to look at their compliance with anti-money laundering rules. Generally speaking, our experience is that firms are now more conscious than ever of the need to report material regulatory breaches to the SRA, particularly following the introduction of the COLP regime. The SRA itself is very keen to make clear that it wishes to be seen as having more of a partnership with firms, and emphasises that firms should approach it at an early stage with a problem. As a result, it is not at all uncommon in the current climate to find that firms are facing parallel civil and regulatory proceedings. There are a number of issues to be alive to in these circumstances, such as which documents created in relation to the regulatory investigation are disclosable to the civil claimant and vice versa. The most appropriate strategy for dealing with the regulator and the civil claim may not be the same, and the effort of dealing with both can put considerable strain on witnesses involved. It is unlikely that a firm can get either the civil claim or the disciplinary proceedings stayed whilst the other proceeds, and therefore it is important to find a way around these issues. 4

5 The crystal ball: predictions for future claims We consider that in the current climate the following may be factors in future claims: Economic uncertainty is always likely to create an environment in which we see an increase in claims. Following the recent election, it is now likely that we will see a referendum on membership of the EU in the next two years. It has also been reported in the press that, given the SNP success in the general election, a further vote on Scottish independence is a real possibility. Even the fact of looming referendums may cause the financial markets to become jittery and investors to lose confidence, to say nothing of what the position would be should there be a Brexit or break-up of the Union. Situations such as these mean that bad legal advice is uncovered as mistakes are not masked by rising markets, commercial parties look to break deals or disappointed investors look to the professionals to recover what they have lost The spectre of collective action is something that lawyers might one day face. Although we have nothing even approaching the US collective action and the plaintiff bar, the nearest process is the Group Litigation Order ( GLO ) which permits multiple claims against a defendant to be grouped into a single action, provided the court is satisfied that the claims give rise to common or related issues of fact or law. We have seen a recent trend of GLO actions in the financial services arena. There are currently GLOs making their way through the courts in relation to several different claims, including for example a claim by retail and institutional investors in Lloyds Bank claiming that the directors breached tortious and fiduciary duties owed to the shareholders by telling them the merger was in shareholders best interests. There is also a threatened action in relation to the overstatement of profits by supermarket Tesco Although we have not yet seen a GLO in the area of professional negligence, this is becoming increasingly likely. This is particularly the case given the potential backing by litigation funders and overseas capital. Third party funders are becoming more significant in relation to professional negligence claims. By way of example, we have recently seen it reported that Bentham Europe, a subsidiary of an Australian funder, and backer of the Tesco shareholders litigation, is eager to fund more GLOs in the UK Professional negligence claims can be attractive to funders as they may be of significant value and offer a good potential return on investment, in the right claim, and their involvement in claims looks set only to increase. The only possible dampener might be funders concerns about being ordered to pay a defendant s legal costs if a claim is unsuccessful We consider that the area of sanctions is one where law firms may find themselves in difficulties. (Sanctions are political sanctions or embargos imposed by the UN and EU and include for example prohibiting transfer of funds to a sanctioned country, or to certain individuals, corporate entities or governments.) As clients are becoming more and more global, and given current political issues such as between Russia and the West or in relation to instability in the Middle East, sanctions law is an area where firms increasingly have to advise. Or, even if not being asked to consider this area specifically, law firms may fail to take sanctions into account putting themselves and their clients in breach. The sanctions regime is a complex one, and there are significant differences in approach between the US and in the UK which can trap an unwary lawyer It is a continuing trend that law firms are outsourcing certain services, whether overseas or to other parts of the UK (so called near-sourcing ) that are cheaper than running them from their London offices, and whether to external companies, or to other parts of their own business. This is an area where issues can arise. There is easily the possibility of misunderstandings and disconnects where the parties involved in a matter are only speaking over the phone. For example, the senior lawyer based in the City of London office fails to get across to the team of paralegals carrying out a document review in Ireland the emphasis to be placed on a particular search term, or exactly when to refer queries back. This leads to the potential for claims 5

6 There is a likelihood that we will see claims relating to the failure of litigation lawyers to advise claimants on all of the funding options in relation to a claim. Particularly in the pre-jackson era there would seem to be very little for most claimants to lose in taking out CFA and ATE insurance, given that this lay almost all of the costs risk at the door of the defendant and the claimant was unlikely to be liable for anything no matter what the outcome of the litigation. Even if the solicitors were themselves unwilling to offer a CFA on the facts of the case, there may have been a duty to advise the client that other firms might do so. We have seen claimant lawyers flagging up, and actively looking for these types of claims to pursue Similarly, there may be claims for failure to advise on the possibility of litigation funding. Where there are funders in a claim, issues may arise as to the extent of the duties of solicitors conducting the claim to those funders Costs issues are becoming ever more significant in relation to litigation, and costs lawyers involvement is much more marked, and necessary than previously. We remain of the view that the costs budgeting rules (where solicitors are required to submit costs budgets to the courts at an early stage of a claim, which they will be held to unless permission is sought for revision) will be a source of claims. This is an area where it will be very easy for the lawyers to make a mistake, or fail to identify properly all of the necessary issues or complexities of a claim. If the budget is too low, and the court does not accept the reasons for this and allow amendments, the client is likely to ask questions Conclusion The current climate for claims against law firms is not one where we are seeing elevated numbers of claims, but it is very notable that there has been an increase in complex claims and in the amounts claimants are seeking to recover. This trend seems likely to be here to stay, particularly given the amount of cross-border litigation that we are seeing in relation to lawyers professional negligence claims. Looking forward, the conduct of litigation seems to be developing into a more costly and complex process, notwithstanding the Jackson reforms. Meanwhile, it will be a significant day for lawyers liability if and when we see the first GLO in this area. With potential choppy waters on the horizon from an economic point of view, due not least possibility of landmark political events such as a positive response to a referendum on leaving Europe, these remain interesting times for lawyers liability. 6

7 Lawyers liability: a global perspective Clyde & Co now has 40 offices worldwide. In this round-up we provide snapshots of the key lawyers liability rules around the world. Australia Jenni Priestley, Partner, Sydney A key issue of concern for PI insurers generally remains the increasing prevalence of class action litigation. It is clear that the existence of insurance is a key driver in the commencement of many claims. Relative procedural simplicity combined with readily available third party funding has resulted in class actions being a major source of significant claims in Australia. In addition, there has also been a significant increase in the value of settlements achieved. Nevertheless, there has been neither an avalanche of claims nor any radical shifts or changes in the law of liability recently, and the prevailing market conditions are currently steady as she goes. In this regard, the High Court of Australia has provided welcome certainty in its recent (13 May 2015) judgment in the long running case of Selig v Wealthsure Pty Ltd [2015] HCA 18. The case concerned claims of negligent financial advice and the consequential application of the proportionate liability regime to various sections of the Corporations Act. The High Court found that an apportionable claim was limited to the specific sections of the Corporations Act providing for the apportionment of damage and did not extend to breaches of other sections simply because the damage claimed was based upon the same underlying conduct and resulted in the same loss. The decision provides clarity in relation to the application of the proportionate liability regime following on from a number of previously conflicting decisions at the appellate level. The case is also of interest to the wider PI market because the High Court held that the circumstances justified an award of costs against the Respondent s PI insurer (a nonparty to the proceedings). The Court found that the decision to appeal the first instance judgment in circumstances where the respondent s cover under its policy was capped meant that monies that it would otherwise have been required to pay to the appellants were diverted to the insurer s litigation costs. The High Court held that as the insurer had acted in its own interest in appealing there was no reason it should be immune from a costs order. This will no doubt be cause for concern going forward for PI and other insurers funding the cost of appeals in Australia. Finally, a further issue to watch is the rise of litigation concerning the scope of professional indemnity policies and professional exclusion clauses in other policies. Canada Trevor McCann, Partner, Montreal Canadian law firms are increasingly facing class action claims framed in negligence rather than as negligent misrepresentation, an important distinction since it allows such claims to pass through the scrutiny of class action certification. Such claims are especially brought in relation to allegedly negligent advice on tax strategies, on the basis that the advice assisted in bringing the strategy to market, even though the class members do not allege reliance on its terms and are not the lawyers clients. This has led to large settlements in some instances and an increased appetite on the part of the class action plaintiffs bar to bring these claims. Another area of rapid development is conflict of interest law. The law surrounding legal conflicts, confidential information, and presumptions of communication absent ethical screens is 25 years old. However, the scope of the lawyer s duty of loyalty to clients and former clients has been the object of three Supreme Court decisions, each of which has nuanced the law set out in earlier ones, and numerous lower court decisions across Canada. One branch in which this has developed, illustrated in the McKercher decision, concerns the scope of the lawyers duty not to act adversely to a client or former client, and the replacement of 7

8 the professional litigant exception to the bright line rule by a test focusing on the objective but contextually assessed reasonable expectations of the client. The professional liability implications of these developments have only begun to be felt. France David Meheut, Local Partner, Paris A potential source of claims exposure, particularly for law firms, is cyber and data protection. Law firms are regarded as a weak point. The French Data Protection authority is looking at inadequate databases (e.g. containing private data) and has taken action, including against large firms. It has the power to initiate investigations, not simply to act following a complaint. Inadequate protection exposes the law firm to administrative and criminal fines and publication of the action taken with reputational consequences. Whilst action has historically not been regularly taken, the amounts at stake will get much higher when the EU DP regulation comes into effect in late 2017/ early The base point in France is that fines are uninsurable (there is a first instance decision on the point and the Insurance Regulator said in the 1990s that they were uninsurable as a matter of public policy) but the issue is not clear cut and is the subject of academic debate. Some controversy arose three years ago in a decision of the French Supreme Court which concerned a sentence imposed by the Financial Markets Regulator. The insurer has argued that the matter involved intentional wrongdoing so was not insurable as a matter of public policy and the court agreed, leaving it open for some to argue that it was the intentional wrongdoing that was focussed on, not the issue of whether the fines were uninsurable as a matter of public policy per se. Hong Kong Patrick Perry, Partner, Hong Kong Hong Kong continues to be seen by professional service firms as a key jurisdiction, both as a domestic marketplace in its own right and for servicing mainland China. In this latter regard, Hong Kong s economy is intrinsically linked to that of Mainland China. For Hong Kong s professionals, it is the largest export market for their services. In turn, the (relatively new) wealthy Mainland Chinese see Hong Kong as a safe harbour to invest their cash. This cross-border activity, involving different legal systems and different cultural and business attitudes, creates the risk of claims. Due diligence of Chinese assets is particularly problematic, and there is a stark difference in the approach to regulation between the two countries. Access to the too big to miss Chinese markets is both an opportunity for Hong Kong s professionals and their insurers, and their greatest challenge. Hong Kong has the second largest stock market in Asia and is a dominating force in IPOs, and this creates a substantial demand for professional services. As a result, it has a wellestablished legal sector with a turnover in excess of USD 1.5 billion. Solicitors are therefore, together with accountants, the professional firms who are most exposed to claims. This is not a new trend, but reflects the maturity of these sectors in Hong Kong, and the demand for these types of professional services. However, the majority of claims against solicitors relate to conveyancing and litigation work and are generally low value. Separately, there is an ever increasing willingness to sue barristers, and although there has been no decision abolishing advocates immunity, arguments are being mounted that it should no longer apply. While the environment is not as litigious as in the United States and the United Kingdom, it is also not as benign as other Asian territories, such as Singapore and Thailand. Middle East Mark Beswetherick, Partner, Dubai The Middle East continues to be a relatively benign place for lawyers to practise in terms of their potential exposure to negligence claims. Claims have traditionally been few and far between and the legal profession (both the local and international firms that operate around the region) has avoided the sharp increase in claims following the financial crisis that has affected the profession around the world, but nonetheless the incidence of such claims is gradually increasing in the region. Lawyer s PI is, however, still generally considered a low risk area of business by PI underwriters operating in the Middle East because claims are not common. 8

9 The reasons for the past reluctance to pursue claims against lawyers in the local courts may include factors such as the lack of recoverability of costs for successful parties, lack of clarity within the law as to the scope and meaning of negligence and lengthy delays in the litigation process. The fact that some local firms do not carry professional indemnity cover, and are not required to do so (unlike international firms operating in the region), also means that pursuing claims against them may not be worthwhile for commercial reasons. The rise of specialist financial centres such as the Dubai International Financial Centre (DIFC) based on the Common Law model of the UK Courts has had an important impact on the general picture; the first significant DIFC negligence claim against a major international law firm was launched in the DIFC Courts in mid Negligence claims against other professionals, such as auditors and financial institutions in the DIFC Courts are more common. The recent decisions in Corinth Pipeworks SA v Barclays Bank PLC (which related to alleged misrepresentation made by a bank s employee as to goods supplied by Corinth) and Al Khorafi v Bank Sarasin Alpen (ME) Ltd (which related to a negligent mis-selling claim against a Swiss and DIFC Bank) have also altered the liability landscape for firms operating in the DIFC who may find themselves sued there even in respect of advice given outside the DIFC. However, in relation to lawyer s PI, both onshore in the UAE (to a lesser degree) and in the DIFC, for now at least, the claims environment in the region remains relatively benign. Singapore Ian Roberts, Partner, Singapore Vanessa Kilner, Associate, Singapore The establishment of the Singapore International Commercial Court (SICC) in January 2015, which has jurisdiction over claims of an international and commercial nature, is also a development to take note of. The SICC is empowered to determine questions of foreign law which can be based on submissions made by appropriately qualified foreign counsel, rather than being proved by way of expert evidence in the traditional manner. This therefore provides parties transacting in Singapore and in the region even greater choice in determining how to resolve disputes, and could well have an impact on the landscape for handling professional liability disputes in South East Asia. From the perspective of insurers, there is enormous potential for growth in South East Asia in light of the number of emerging markets in the region with large populations in a rapidly expanding middle class in respect of which insurance penetration levels remain low. Against this backdrop, Singapore is ideally positioned as the gateway to those markets and has successfully established itself as an insurance hub from which insurers are well placed to execute a range of strategies to tap into the domestic as well as regional markets. This makes for a dynamic and competitive marketplace, with an influx in recent years of (re)insurers choosing to set up their regional headquarters in Singapore. Furthermore, in the same way that Singapore has emerged as an insurance hub, it is also very much a hub in relation to general commercial and financial operations in South East Asia, with professionals in Singapore commonly acting across the region. Consequently, (re)insurers in Singapore will typically be looking to underwrite PI risks across the region as a whole, and will therefore need to be aware of not just the nuances within the Singapore market itself, but across all of South East Asia. This might include legal as well as cultural differences, both in terms of assessing and pricing the risk, but also in terms of handling claims. An obvious example arises from the hybrid mix of legal systems that underpin the countries in the region, which can encompass both common law as well as civil law. Furthermore, as a number of countries in the region require (re)insurance contracts covering local risks to be subject to local law, this issue cannot necessarily be side-stepped simply by introducing a different law and jurisdiction clause into the policies. Other notable features of underwriting PI risks in this region include the insureds tendency to buy based on price, the lack of awareness amongst insureds as to how PI policies operate, and cultural differences which encourage insureds to resolve disputes privately prior to informing insurers. South Africa Max Ebrahim, Partner, Cape Town In a rare motion, former clients have recently applied for the suspension of a renowned father and son duo of personal injury solicitors (the Bobroffs), pending an investigation into the firm s billing practices and its business and trust accounts. 9

10 The application is novel in that such action has, until now, usually been within the sole remit of the regulatory authority. However the applicants argue that the regulator has been dithering for years, such that direct action is required. As part of the motion, the applicants have asked the court to order the appointment of a curator to run the law firm and investigate fees charged historically. The motion follows the decision of the South African Constitutional Court, in 2014, which declared the Bobroffs billing practices unlawful. The pair acted almost exclusively on a contingency fee basis. Since 1998, contingency fee arrangements in South Africa have been regulated by the Contingency Fees Act (66 of 1997) but some attorneys, including the Bobroffs, took the view that that one could circumvent the prescripts of the legislation by entering into so-called common law contingency agreements, in respect of which fees in excess of those prescribed in the Act were charged. The Constitutional Court unanimously rejected this contention and held the Bobroffs liable for the total value of fees charged in excess of the statutory limits. This judgment has cast a spotlight on the way contingency work is carried out in the jurisdiction where access to justice is not freely available to the largely indigent population. Spain Ignacio Figuerol, Partner, Madrid The majority of claims against lawyers in Spain continue to be based on the filing of court actions or appeals after expiry of the relevant deadline, which in Spain cannot be extended. Remarkably, the Spanish Supreme Court has also considered a lawyer liable for his client s inability to enforce a judgment because the lawyer had not advised the client to apply for an interlocutory order at the beginning of the proceedings so as to attach the assets of the defendant. From the regulatory perspective, Spanish law societies are not as active as they may be in other jurisdictions, although two partners of a well-known firm were disqualified for a period of time for breach of the rules of conflict of interest in a matter in which the firm had been initially retained by a company undergoing insolvency proceedings, but subsequently acted on behalf of the directors of the company in defending claims brought against them for liability to the company. From the insurance perspective, the PI insurance market will most likely need to address the proposed changes to the law of insurance contracts in Spain, which is currently predicted to become law by mid Most pertinently for PI insurers, the law will require that all liability policies provide for a 2 year discovery period, and insurers will have 40 days from notification to either make an interim payment on account or reject cover. Defence costs of the insured will be in addition to the policy limit if it is agreed in the policy that it will be for the insurer to take over the conduct of the defence of the claim. United States of America Jessica Kelly, Senior Counsel, San Francisco The trend of the global law firm is on the rise and growth is most often achieved through mergers and lateral hires. In the first quarter of 2015, there were 29 announced law firm mergers in the United States. These mergers affected almost 21,000 lawyers worldwide. With this significant increase in the number of lateral moves, global risk management becomes more complex and important, and highlights the challenges of checking and identifying potential conflicts of interest. In several publicly available cases, law firms have been disqualified from cases after potential conflicts were identified post-merger and inadequate or no conflict waivers were obtained from the clients pre-merger. These cases most often arise when incomplete conflicts checks are completed prior to a merger or lateral acquisition. We anticipate that as law firm mergers continue to increase in frequency, law firms will be compelled to implement more extensive conflict check requirements, at an increased cost, and more law firms will face claims and/ or disqualification arising from potential conflicts. Similarly, the lateral movement of lawyers among law firms creates added burdens on risk management requirements to identify not only clients that present potential conflicts of interest but transferred clients who might raise risk management red flags. The initial client acceptance program in most law firms includes vigorous financial and background reviews and checking; with lateral partners there is an inherent risk that only conflict checks will be performed and the balance of a client risk is simply assumed in the transfer. Knowing your clients is a key to managing law firm risk; with global mergers and the fluid movement of partners across firms, there is a risk that the acquiring firm s new clients could be a ticking time bomb. 10

11 Further information If you would like further information on any issue raised in this briefing please contact: London Richard Harrison E: Andrew Blair E: Fergal Cathie E: Sarah Clover E: Neil Jamieson E: Gaby Kaiser E: Garrett Moore (Ireland) E: James Roberts E: Andrew Scott E: Tom White Manchester James Preece E: Spain Ignacio Figuerol E: Oxford Clive Brett E: Tony Nurse-Marsh E: Jim Taylor E: Australia John Edmond E: Jenni Priestley E: Jenny Thornton E: Hong Kong Patrick Perry E: Simon McConnell E: Mun Yeow E: Singapore Ian Roberts E: South Africa Max Ebrahim E: Shanghai Ik Wei Chong E: Middle East Mark Beswetherick E: India Sumeet Lall E: France Gildas Rostain E: David Meheut E: Canada Jo-Anne Demers E: John Nicholl E: Trevor McCann E: US Bill Casey E: Joan D Ambrosio E: Eric Moon E: 11

12 Our offices Clyde & Co offices Associated offices 40 Offices across 6 continents 300 Partners, over 1,500 fee earners and 2,500 staff For full office details please refer to the Clyde & Co website Asia Pacific Europe Americas Beijing Brisbane Chongqing* Hong Kong Jakarta* Melbourne Mumbai* New Delhi* Perth Shanghai Singapore Sydney Ulaanbaatar* Guildford London Madrid Manchester Nantes Oxford Paris Piraeus St Petersburg* Atlanta Caracas Montreal New Jersey Newport Beach New York Rio de Janeiro* São Paulo San Francisco Toronto Middle East/ Africa Abu Dhabi Cape Town Dar es Salaam Doha Dubai Johannesburg Riyadh* Tripoli *Associated offices Clyde & Co LLP accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co LLP. Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority. Clyde & Co LLP 2015 Clyde & Co LLP CC May 2015

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