Professional liability

Lawyers’ risk and regulatory briefingSummer 2017

Living in uncertain times – what now for law firm claims and regulation?Richard Harrison, Partner, London

John F Kennedy said “The Chinese use two brush strokes to write the word crisis. One brush stroke stands for danger, the other for opportunity. In a crisis be aware of the danger, but recognise the opportunity.” The current economic and political uncertainties, and other threats and “disruptors” such as cyber issues and AI, are likely to create risks and opportunities with which law firms will need to get to grips. We consider below what trends and developments might in due course shape negligence claims and regulatory action.

Levels of claimThe volume of claims against law firms is currently generally down from its height in 2009 post the financial crisis, but ever-increasing claims severity remains a considerable concern.

The impact of changes to funding and in the Court system upon the economic viability of pursuing lower value claims may explain the dip in volumes in part. This in turn has led to an increased appetite for alternatives to litigation such as making a complaint to the SRA or Legal Ombudsman, or perhaps attempting to bolster a complaint via a subject access request under the Data Protection Act. To date, the PNLA adjudication scheme for professional negligence disputes has not taken off.

The anticipated introduction of a fixed recoverable costs regime for claims worth up to GBP 250,000 (and potentially upwards of that figure in the future), might lead to an increase in claims at the lower end of the scale, as well as changing the dynamics in relation to claims under the regime, as the parties will recover less if successful. This may be in force from as early as next year.

Heightened claims severity is undoubtedly in part driven by the complexity and scale of the transactions being done and work carried out by clients and firms operating with an ever-expanding global footprint. Litigation funders are taking an increasing interest in backing high value claims which is driving claims at this level which might not otherwise be brought. For example, we are seeing an increasing incidence of “vulture funds” (who buy up the debt in distressed companies and then take a driving seat in any litigation brought by the company) starting to take root in the professional indemnity arena. We have long predicted

ContentsLiving in uncertain times – what now for law firm claims and regulation? Page 1

Claims against lawyers – recent key issues in case lawPage 6

Diversity and Inclusion in Law Firms – the Why? and the How?Page 11

Lawyers’ liability: a global perspectivePage 13

a group action in the professional negligence field. It has recently been reported that a group negligence claim for more than GBP 500 million is being considered against lawyers who acted for buyers in “help to buy” leasehold housing schemes for allegedly failing to advise on onerous ground rent and other lease terms.

Anecdotally, we understand that large law firms are purchasing ever higher limits of PI cover, and this is undoubtedly a sensible move. As firms expand their operations and are more innovative in their practice there is a need to ensure that cover remains fit for purpose and that the boundaries of professional indemnity cover are properly understood. (See for example the Supreme Court case of Impact Funding (2016), in which it was held that a funding agreement, pursuant to which the funder provided monies to solicitors to pay disbursements, fell within the exclusion in the policy for the supply of goods and services to the solicitor, so that a six figure claim for negligently investigating the merits of claims brought by the funder was not covered.)

Politics and economicsBrexitBrexit, the inauguration of President Trump and the recent and forthcoming elections in the UK, France and Germany have brought new uncertainties into the political and economic climate. However, at the present time it remains difficult to predict what the exact effect may be for law firms and, in particular, negligence claims. That said economic and political uncertainty breeds risk which leads to more claims.

Predictions as to the economic effect of Brexit in the short and long-term vary, and currently there is a higher degree of uncertainty than normal around all forecasts, largely because geopolitical risks are so much greater than normal. However, past experience has shown that any turmoil or deterioration in the financial and property markets clearly creates circumstances where clients are more likely to suffer loss and, in turn, claim against law firms.

In the shorter term Brexit is likely to lead to an increase in work for law firms. Clients will need advice on the legal implications of the changes in law and the EU/UK relationship for their particular business, and this is likely to cross a number of practice areas. The application and interpretation of the law is likely to be uncertain and lawyers may see themselves advising on complex and sometimes

novel areas in an uncertain environment. It will be important to ensure the usual risk management frameworks are in place by, for example, caveating advice appropriately, making clear potential uncertainties such as to the correct interpretation of legislation, and delineating in the retainer the areas that the firm is and is not advising on.

Counterparties to transactions may well be looking to find excuses to get out of deals they find unfavourable in light of Brexit, perhaps due to the unforeseen drop in value of the pound. Consequently, we are likely to see claims that lawyers have acted negligently, for example by failing to consider the impact of Brexit in relation to specific retainers. This might be due to a failure to include (or exclude) a “Brexit clause”, or failing adequately to provide for or advise on the impact of currency fluctuations.

Other risk areas include failing to review whether boiler plate clauses in precedent documents remain appropriate, for example, whether an exclusive English jurisdiction clause in a standard commercial agreement will continue to be enforceable after Brexit.

In many of these cases it is likely that the distinction between commercial and legal advice will be highly relevant. The recent decision in BPE v Hughes Holland (2017) (discussed in more detail in our other article “Claims against lawyers – recent key issues in case law”) is also likely to be of assistance here. Depending on the exact fact pattern and how far in advance of the referendum the negligence is alleged to have occurred, we might also see arguments as to whether the outcome of the referendum was foreseeable. (Case law which considered whether the financial crisis was foreseeable by professionals went both ways (see, for example, Rubenstein v HSBC (2012) and Camarata v Credit Suisse (2011)).

Going forward, there is of course the possibility of a downturn in work with all the familiar attendant pressures on firms to stray outside their areas of expertise. In a major recession there is also the increased likelihood of law firm failure. Failure of a large law firm was considered a risk priority for the SRA a few years ago following the demise of Halliwells and Dewey. This may well be something moving up the agenda again, particularly following recent events at KWM.

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Political scrutinyProfessionals, including lawyers, are increasingly coming under the spotlight in relation to the actions of their clients. The involvement of professional firms in giving evidence to Parliamentary Select Committees in the wake of a high profile corporate collapse is just one example. Worryingly, on occasion, we have also seen that individuals in Parliament have failed to note that lawyers should not be associated with their client’s cases or have criticised a professional firm for protecting the client’s confidentiality and/or legal privilege. The UN Basic Principles on the Role of Lawyers provide that lawyers shall not be identified with their clients or their clients’ causes as a result of discharging their functions. There appears to be no sign of government lessening its focus on professionals as gatekeepers of their corporate clients’ behaviour. For example, the proposed “tax avoidance enablers” legislation (in the event dropped from the Finance Act due to the election), had provided for a penalty for professionals marketing and enabling tax arrangements which were found to be abusive. April saw the Pensions Regulator bringing its first criminal prosecution against a law firm for failure to provide client documents. According to the firm, the documents were initially withheld due to client confidentiality concerns.

InnovationLaw firm practice will continue to adapt and change apace. New models of working, managing or structure, must be assessed from a risk point of view, and existing risk tools adapted to deal with them. Law firm innovation may operate as a risk reducer. For example, the recently introduced practice of blind allocation of work to non-partner fee earners by means of a system that takes into account, for example, capacity and experience would appear to be a step forward, ensuring that particular individuals are not always over-burdened and addressing potential diversity issues.

It is impossible to look forward without addressing the question of what impact artificial intelligence will have on the practice of law. A recent survey in The Lawyer indicated that 56% of the top 100 UK firms surveyed were already using some form of AI or very likely to do so in the next 10 years.

Firms are utilising forms of soft AI or advanced tech (where either the system is applying rules or applying some form of learning) and doing so in innovative ways, including developing systems by investing in legal tech start-ups or

in-house. These include systems that carry out routine work usually undertaken by junior lawyers, and doing so in a fraction of the time, such as analysing or classifying complex legal documentation in the due diligence process or reviewing potentially disclosable documents in litigation. Some platforms are able to apply legal logic to analysing documents such as leases.

AI clearly has the potential to operate as a risk reducer. However, a number of risk concerns also arise, and these are certain to come increasingly into focus as AI encroaches on the work of more senior professionals, such as in the advisory arena. Law firms must now start to grapple with these issues. The scoping, in the retainer letter, of what the firm will and will not do, and avoiding mission creep thereafter, will be as important as ever, if not more so. Likewise, issues will arise about how professionals should satisfy themselves as to the quality of a robot’s work product, and who will bear responsibility for errors which arise from failings in the software or failures in understanding how best to use the software. Law firms obviously need to be careful with regards to their contracts with software providers in relation to issues such as client confidentiality, and liability.

Leading commentators have predicted that the developments in AI will become very significant in the coming years. This will develop into true AI, taking on a role in relation to tasks seen as non-routine and requiring legal judgement, with the traditional role of a lawyer very much altered. For example, lawyers might increasingly work with coders to develop products, or in areas such as project management. If this comes to fruition then this will of course have a significant impact on regulation and traditional PI claims. As this area progresses, there will have to be new bargains/new contracts between providers and clients. Speed, cost and commoditisation of execution will clash with traditional client expectations. There will be questions around how the standard of skill and care will be judged when significant parts of the production leading to the professional service is automated. Firms will clearly face issues in recruiting, training and retaining top quality graduates, and in deciding how many people they will need in their business and with what skill sets, and how much accommodation, and where, they will need to house them. Firms that get it wrong will find their basic business model challenged and perhaps unsustainable.

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Data securityData security will remain a key issue. Perhaps unsurprisingly, the SRA has designated information security one of its priority risks and this was reiterated in its spring update to the Risk Outlook. In the document published by the SRA in December 2016 entitled “IT security: keeping information and money safe” it flagged up that in the last year the SRA had received reports of around GBP 7 million being lost to cyber crime (the true figure is undoubtedly significantly more), and that 75% of reports of cyber-crime were so called Friday frauds. It can be difficult for firms to keep up with a constantly evolving picture, but clearly it is crucial that they do so, and firms must ensure that they are up to date with current regulatory guidance. Data security can extend beyond hacking or other forms of cyber crime, and firms need to continue to attempt to embed data security principles within their firms’ culture to avoid losses caused by human error. For example, we have seen recent fines for barristers who placed client papers in a household bin, and who accidentally uploaded details of client matters to the internet when another household member updated software on a home computer.

Agile working is a particular risk area on a number of fronts: for example:

– ensuring the technology utilised to allow fee earners to access the systems from outside the firm is not vulnerable to criminals;

– considering the issues that might arise when lawyers cross borders with devices that carry access to accounts containing client information where legal professional privilege might not be respected (see, for example, the reported increase in searches of mobile devices being carried out at the US border, and requests for details of social media and other accounts in the US visa waiver form);

– ensuring that lawyers are consistently reminded of the confidentiality and privilege issues that arise from working and travelling outside the office.

RegulatoryIn Autumn last year the SRA published its consultation to overhaul the Handbook, by making a number of significant changes, including shortening the Code of Conduct further, introducing different codes for solicitors and firms and authorising solicitors to work in unregulated practices. The SRA has now published its response to the Consultation and has indicated its intention to press ahead with these changes. The SRA will consult further, later this year including on a new Enforcement Policy and has recently published the results of its previous consultation and the Question of Trust survey in which it sought to obtain views from solicitors and the public in relation to the seriousness of various breaches.

A number of issues emerged from the document, such as the public’s perception of information security and what was considered the most serious misconduct. One of the particular issues brought out by the exercise was that events which occur in relation to an individual’s private life were felt to be a relevant consideration for the SRA in relation to enforcement. We have seen several recent SDT cases in which individuals, who have faced criminal sanctions for non-dishonest behaviour wholly outside of their professional life, have faced further penalties imposed by the SDT for breaches of Principles, including Principle 1 (failing to uphold the law and proper administration of justice). Although there are, without question, some criminal offences that will merit SRA attention and enforcement, at the lower end of the scale there is a grey area that raises questions over the boundaries of what the SRA should or should not be regulating. This also raises issues from a risk point of view, as firms will wish to make clear to staff the extent to which the SRA may consider behaviour that would be considered well outside an individual’s working life. We are likely to see more about the SRA’s approach to this issue in the consultation on Enforcement Policy later this year.

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We continue to see greater enforcement action from the SRA than in the past and a continuing level of focus on systems and control issues within firms. This has the potential to raise coverage issues, as to whether, in certain instances, there would be cover under a PI policy for such failings. The SRA is also increasingly making allegations of lack of integrity against individuals. This raises a number of considerations, including whether lack of integrity can be distinguished from dishonesty (two recent High Court judgments reached different conclusions on this point: Newell-Austin (2017) and Malins (2017), although we understand that permission to appeal has been sought in Malins) and when a lack of integrity by an individual might be attributed to the firm.

Parallel civil and regulatory proceedings continue to present an issue for law firms, and to place pressures on those defending allegations on several fronts. Privilege looks set to remain a key battleground in regulatory proceedings, with a number of thorny issues. These include the issue of privilege in respect of interviews with witnesses as part of an internal investigation, as well as around the extent of the client waiver of privilege in a claim or complaint, whereby a firm will be required to navigate the extent to which it can provide documents to the SRA where there is no client waiver and a section 44B notice has not been served.

Conflicts of interestOwn-interest conflicts continue to present problems for firms. We continue to see instances of failures to realise that the Code of Conduct places an absolute prohibition on acting where there is a conflict between the interests of the firm and the interests of the client. If the firm has committed an act of potential negligence but wishes to continue acting on the matter to put things right, it is possible that the firm cannot do so if this could be perceived to be an own-interest conflict, even if the client understands the conflict and has a strong wish for the firm to continue.

An enduring issue for firms is how to ensure that lawyers take individual responsibility for regulatory compliance and ethical issues arising in the course of their practice, rather than “outsourcing” it to their risk and compliance teams. This is something that seems to be particularly true in the case of conflicts where complete reliance might sometimes be placed on automated searches without much further thought. Further, whilst some developments might more obviously prompt a further conflicts search, such as a new party being brought into a deal, others might not for example, if the firm receives a piece of

advice that their client has a knock-out defence in some litigation they may not turn their mind to the fact that this might potentially shift liability on to another as yet uninvolved party who happens to be a client. Another issue we still see regularly is that firms fail to define the extent of their retainer, or allow it to creep beyond its original confines, taking the firm into territory where there is an unanticipated conflict. Commercial conflicts can also be as important as legal conflicts here.

ConclusionOur world is ever-changing and the pace of change and the complexity of the issues faced by law firms seem to move in only one direction.

We will continue to keep the issues under review and will aim to bring the important likely developments to your attention in good time.

Please feel free to contact me, or your usual Clyde & Co contact, if you would like to discuss any of the matters highlighted above, or any other of your risk concerns.

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Claims against lawyers – recent key issues in case lawTom White, Partner, London

In this article we analyse some of the key themes and issues that have emerged from judgments in relation to claims against lawyers over the past year.

Scope of duty and standard of careWe have seen some positive decisions for solicitors recently that have kept liabilities restricted based on the scope of the duty that the firm owes to the client, including a highly significant decision by the Supreme Court.

Advice v InformationIn BPE Solicitors v Hughes Holland, handed down in March, the Supreme Court considered and clarified the well-known distinction between advice and information cases, known as the SAAMCo principle. The Supreme Court held that:

– Advice cases are those where a solicitor provides advice as to whether to enter into a transaction, and is under a duty to consider all relevant matters and protect against the full range of risks associated with the transaction. In these cases the solicitor will be liable in principle, if negligent, for all the losses flowing from the transaction.

– Information cases are those where the solicitor provides a limited part of the range of information taken into account by the client in forming their decision whether to enter into the transaction. (Information of this sort would include what is commonly understood as advice). In this case, the professional, if negligent, will only be liable for the losses flowing from the specific information being wrong. Further, that will be the case even if the material provided by the professional was known to be critical to the client’s decision to enter into the transaction.

– The “no transaction” cases of Steggles Palmer (1997) and Portman Building Society (2000) were therefore wrongly decided. In those cases it was held that if lenders had been told about certain features they would have concluded that the borrowers were dishonest and would not have lent, and therefore, on that basis, the solicitors were liable for all the losses flowing from the transaction.

– It was also confirmed that the burden of proving that losses fell within the scope of the professional defendant’s duty is on the claimant.

There are a number of implications arising from the case. It is likely to be fairly rare that a lawyer (or other professional) would assume overall responsibility for a transaction and hence be liable for all the losses flowing from it. It is also common for claimants, particularly but not solely in lender claims, to try to get around SAAMCo by arguing that they would not have entered into the transaction at all were it not for the failure to provide certain information, and so the defendant should be liable for all losses on the transaction. This door has now been firmly closed. The decision marks a welcome development and it is likely that claimants will already have had to rethink whether claims remain viable in light of the judgment. Where a Part 36 offer has been made by a professional defending a “no transaction” claim, it is likely to be worth considering whether the offer should be varied or withdrawn.

Sophisticated clientsThe courts have continued to show willingness to take into account the fact that a client is sophisticated when determining the standard of care owed by a solicitor. In Lyons v Fox Williams (2016) one of the issues was whether a solicitor who was retained to advise the client on his claim under an accidental death and disbursement (AD&D) insurance policy, was also required under the retainer to advise on a long term disability (LTD) policy. The High Court found that the retainer letter did not set out that the solicitor would advise on the LTD policy, and that the claimant was an astute businessman, who would have expressed immediate concern if he had been expecting to be advised on the LTD issues. Accordingly no duty to advise arose.

The Court also considered whether, following Credit Lyonnais v Russell Jones & Walker (2002) there was a duty to warn of the LTD risks. The judge found that it had not been objectively unreasonable not to flag any risk arising from the LTD policies. Relevant to this finding was the fact that the claimant was an astute, focussed and commercially minded businessman, who was using the solicitor as a targeted resource not a general legal adviser. This case also flags up the key risk

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management point of issuing clear retainer letters, which set out what the firm is (and sometimes crucially is not) agreeing to advise on. An appeal of the judgment is pending.

Qualifying adviceAnother area of interest in relation to scope of duty was considered in Barker v Baxendale Walker (2016) (which is under appeal). The case concerned advice given to the claimant to enter into a tax avoidance scheme involving an employee benefit trust. The issue here was the extent to which solicitors are required to give a warning, when advising on the interpretation of legislation, that their opinion may in fact turn out to be wrong if the issue were to come before a court for consideration.

Mr Justice Roth was clear that if the construction turns out to be wrong, it does not necessarily follow that it was negligent, unless the advice was glaringly wrong. The correct question is whether a reasonably competent practitioner at the time (on the facts of this case, one with specialist tax experience) applying proper skill and care, could have advised as the defendant did. Whether it is reasonably necessary to give any warning that the courts may reach a different conclusion on the interpretation of legislation or a document depends entirely on the circumstances. Of particular significance is whether the solicitor could be reasonably confident that the interpretation was correct. In Balogun v Boyes Sutton and Perry (2017) the Court of Appeal referred to the Barker case and confirmed that the question of whether there is a duty to warn in these circumstances will clearly be highly fact sensitive.

Bolam issuesThe well-known Bolam test is whether the defendant, acting in the way he or she did, was acting in accordance with a practice of competent respected professional opinion. We have seen a move away from the Bolam test, in certain circumstances, when determining the standard of care owed in the field of professional negligence.

In 2015, the Supreme Court held in Montgomery v Lanarkshire Health Board, that a doctor’s duty in advising a patient on the risk of treatment was to take reasonable care to ensure that the patient was aware of any material risks involved in the treatment and of any reasonable alternative or variant treatments. The test of materiality is whether, in the circumstances of the particular case, a reasonable person in the patient’s position would be likely to attach significance to the risk, or the doctor is, or should reasonably be aware, that the particular patient would be likely to attach significance to it.

In O’Hare v Coutts (2016) (under appeal) this decision was applied by the High Court in the case of a financial adviser. The Court found that in determining the question of the overall suitability of the investments, the Bolam test applied, but that it was inappropriate to determine the required level of communication about the risks of investments by reference to industry standards, and instead the approach in Montgomery applied. This is an interesting development and it seems likely that we may see arguments in this area in relation to solicitors, who also advise clients on the risks of various courses of action.

In the 2015 Court of Appeal of Northern Ireland decision of Baird v Hastings, the court did not specifically address the Bolam test but did refer to Montgomery and draw analogies between the solicitor client relationship and that of a doctor and patient, noting that “as in the medical context, the advisory role of the solicitor must involve proper communication and dialogue with the client”.

Free advice countsFinally, we had a reminder in the case of Lejonvarn v Burgess (2017), which concerned the duty of care of an architect carrying out unpaid services for a friend, that the fact that the work may be undertaken for free outside of a formal retainer, does not mean that the same standard of care will not be owed by the professional to the recipient of the advice or services.

CausationA key battleground in professional liability claims is often causation. Claimants sometimes fail to take into account that, even if there has been some negligence on the part of the solicitor, the claim will still fail if no loss has been caused. We have seen several cases in the past year in which causation has not been established. For example, in Lyons v Fox Williams (2016) it was held that the solicitor in question should have advised that there was no English law and jurisdiction clause in a 2009 settlement agreement, meaning that it would be governed by Russian law and jurisdiction. However, it was found that the claimant was well aware there was no such clause in the agreement and of the risks attendant on this, and he was prepared to run them. Hence, the breach of duty did not cause any loss. In Barker v Baxendale Walker (2016), the judge found the solicitors should have given the claimant, who was entering into a tax avoidance scheme, a general health warning about HMRC’s attitude to such schemes and the fact that, if challenged, there was a possibility that the arrangements would not be upheld. However, it was found that such a warning would not have deterred the claimant from entering into the particular scheme, as he understood that it was an aggressive scheme which would be subject to different opinions, so again there was no causation.

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These cases demonstrate successes for defendants on the causation front but, of course, whether a causation defence is successful depends on the evidence in the particular matter.

Future developments in relation to causation issues are awaited from the Supreme Court in the case of Tiuta v de Villiers (2016), a surveyor’s case but one equally relevant to solicitors’ liability. In the case, a lender made a substantial loan secured by legal charge in reliance upon a valuation prepared by the defendant valuer. Sometime later the lender, in reliance on a second valuation from the defendant, then advanced a further sum, and instead of extending the first loan it redeemed the first loan and entered into a second loan secured by a new charge. The borrower defaulted. The lender claimed in negligence in respect of the second valuation only, and the issue for the purposes of summary judgment was whether it could recover the entirety of its loss (full lending on the second loan less money recovered from the sale) or simply the additional sum lent in reliance on the second valuation. The Court of Appeal held by a majority (with a substantial dissenting view) that the effect of the second loan had been to discharge the first loan, releasing the defendant from any potential liability in respect of the first valuation. Applying the “but for” test of causation, the loss was the difference between the value of the second loan and the security, and was not limited to the amount of the additional lending. The judgment turns on its specific facts, but could be applicable where solicitors are advising on a second loan. The key issue in such a case, and as the law stands, will be to consider how the professional has defined the scope of their duty in relation to the second loan, and whether it is to protect the lender against further losses or to take a view on the security for present lending.

The lender argued that applying Preferred Mortgages v Bradford & Bingley (2002) the valuer’s liability had been wiped out in respect of the first loan, and if a full recovery could not be made in respect of the second loan then the lender’s loss would be sent down a black hole. The Court of Appeal held that it did it not need to consider this as the full loss on the second loan was recoverable under the “but for” test. It will be interesting to see the Supreme Court’s view on the black hole issue, and whether it takes the position that the entirety of the lender/borrower relationship should be taken into account, even if it leads to the lender being able to recover less than its full loss.

DamagesForeseeability2015 saw an important development in the case of Wellesley v Withers. The Court of Appeal found in that case that where there is a concurrent liability on the part of the professional in contract and in tort, the narrower principle of remoteness of damage in contract applies. Professionals will almost always have concurrent duties to their client, and this means that a more restrictive test applies to determining whether damages are recoverable. In contract, damages are recoverable if at the time of making the contract a reasonable person would have had damage of that kind in mind as not unlikely to result from a breach. In tort damages are recoverable if reasonably foreseeable even if highly unusual or unlikely. There were two constasting illustrations of this in 2016.

On the one hand we saw a harsh decision from the High Court in the Agouman case, where a solicitors firm was liable for a failure to protect sums it received in settlement of a claim which were paid into an account on the Ivory Coast. A substantial proportion of the money found its way into the hands of fraudulent third parties, facilitated by a corrupt order of the Ivorian coast. The High Court, applying the contractual test, held that the money was recoverable, as the type of loss that was suffered (monies being acquired by dishonest third parties if not protected) would have been contemplated as a result of the breach. The decision is under appeal.

In Wright v Lewis Silkin (2016) the claim was that the firm had failed to include an exclusive English jurisdiction clause in a contract. The result of this was that the claimant had been forced to engage in court proceedings to establish English jurisdiction, obtained a judgment in his claim later than he otherwise would have done, and so lost the chance to enforce it before his opponent became insolvent. Applying the contractual test, the Court of Appeal found that this damage was too remote to be recoverable. The defendant party was a substantial business and its demise could not reasonably have been contemplated.

MitigationThe Supreme Court has recently given its ruling in Swynson v Lowick Rose (2017), on issues relevant to whether a claimant has mitigated its loss. The difficulty with the Court of Appeal decision was that it had the effect of essentially lifting the corporate veil, in a case comprised of fairly unusual facts.

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Swynson, a company owned by Mr Hunt, made a GBP 15 million loan to EMSL, in reliance on negligent advice given by an accountancy firm. Subsequently, Mr Hunt loaned the amounts due to Swynson to EMSL on the proviso that EMSL used the money to repay the loans. The purpose was to clear up Swynson’s balance sheet and reduce its tax liability. The issue was whether the accountancy firm was still liable in damages where the loan had been repaid. The case turned on the issue of collateral payments. The general rule is that loss is not recoverable as damages where it has been mitigated. However, there is an exception for collateral payments: where loss has been avoided by a payment that has arisen independently of the breach, the law does not consider the loss to have been made good (for example if the claimant wins the lottery this would not satisfy a claim). Overruling the Court of Appeal judgment, the Supreme Court held that the payments from Mr Hunt to EMSL and EMSL to Swynson were not collateral for reasons including: that the transaction discharged the liability that represented Swynson’s loss, and the money that Mr Hunt lent EMSL was not an indirect payment to Swynson but a distinct transaction. The Supreme Court’s finding was that the form of the transaction should not be disregarded, and it avoided the confusing precedent that the Court of Appeal judgment set for collateral payments, which might otherwise have been applied in future professional negligence cases.

We have also seen issues of mitigation considered in the past year in the context of solicitor’s negligence cases at Court of Appeal level: LSREF III Wight v Gateley LLP (2016) and Bacciottini v Gotelee v Goldsmith (2016). In LSREF, the defendant solicitors failed to draw a bank’s attention to a forfeiture clause in a lease over which first legal charge was to be granted to the bank. The issue came to light when the security was enforced. The freeholder indicated his willingness to remove the clause on payment of GBP 150,000 but the claimant (the bank’s assignee) declined the offer. At first instance the judge awarded the claimant GBP 240,000 representing diminution in value of the lease as security and found that there had been no failure to mitigate. The claimant then used GBP 150,000 of the damages to enter into a variation with the freeholder. The Court of Appeal overturned this decision, awarding damages of GBP 157,100 (comprising the cost of varying the lease and associated legal costs) and finding that there had been a failure to mitigate.

The case demonstrates that in a capital loss case the courts will not simply mechanistically assess loss as at the date of the transaction without consideration of subsequent events, and as a matter of common sense will not blind itself to relevant facts that demonstrate the loss thereafter.

LimitationDate of knowledge is a common issue that arises in professional negligence claims. There is an additional limitation period for a claim in tort of 3 years from the date that the claimant had the knowledge required for bringing a claim. There was an interesting, obiter, finding, in Barker v Baxendale Walker (2016) (facts above) that there was no knowledge at a time that the claimant was questioning the defendant solicitor’s advice, and obtained opinions from other legal advisers that there may be issues with the tax avoidance scheme, as this had not been in relation to issues that were relevant to the reason for which the scheme ultimately failed.

Property cases We have continued to see cases arising from property fraud. This is against the backdrop of continued warnings from the regulator about fraud risks. Property frauds take many forms: so-called Friday afternoon frauds, ever-increasingly sophisticated cyber breaches, as well as the more old-fashioned imposter frauds. Solicitors are perceived as good targets for claims due to the strict liability basis of breach of warranty or breach of trust claims. A number of recent cases have examined the liabilities of the solicitors where the seller has turned out to be an imposter.

One of the most recent cases is Dreamvar v Mishcon de Reya and Mary Monson Solicitors Ltd (2016). Mishcon de Reya (MDR) acted for the purchaser of a property and Mary Monson Solicitors (Mary Monson) acted for the purported seller who turned out to be an imposter. The 2011 Law Society Code for Completion applied. The judge found that Mary Monson were not liable to the purchasers in relation to any of the matters alleged. Mary Monson were not liable for breach of trust in relation to the purchase monies, as no trust relationship arose with the purchase under the terms of the 2011 Code. Mary Monson were also not in breach of the undertaking contained in para 7(i) of the Code that states that the seller’s solicitor “undertakes (i) to have the seller’s authority to receive the purchase money on completion.” as this was not an undertaking that the client was the registered owner of the property, nor had the firm warranted that it acted for the registered owner.

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In relation to MDR the court found that they had held the purchase monies on trust and had acted in breach of trust when the monies had been released to Mary Monson, as there was an implied term that they would only be released on a genuine completion. Although the court found that MDR was not in breach of duty to the purchaser and acted with reasonable skill and care, nonetheless the judge refused to grant relief under s61 Trustee Act 1925. This was on the basis of an assessment of fairness that MDR was insured for events like this, whereas the purchaser was not, and the effect of the fraud on him had been disastrous. The purchaser had no recourse against Mary Monson (notwithstanding that they had been responsible for checking the seller’s ID) or any practical likelihood of recovery against the fraudster, and whilst MDR had not done anything unreasonable, they were better placed than the purchaser to consider and achieve greater protection from the fraud. Therefore MDR were required to reconstitute the trust fund, comprising the purchase monies.

The analysis of the court, and in particular the denial of relief on the basis that MDR was insured will no doubt ring alarm bells. An appeal is underway (in this and in an earlier matter arising from similar facts: P&P Property v Owen White & Catlin (2016)) and it is rumoured that the Law Society may intervene.

Privilege Legal professional privilege is well-established as a fundamental right. However, where a client commences proceedings against a solicitor who formerly acted for him, the client impliedly waives the right to claim privilege in respect of documents that are necessary for the solicitor to defend himself. Following Eurasian Natural Resources Corp Ltd v Dechert LLP (2016), the Court of Appeal’s judgment makes clear that this is a limited waiver. As a result, privilege will not have been waived for all purposes and this may have practical implications for a firm. For example, if the SRA were to investigate the same matter that is the subject of the claim, it will not necessarily be the case that the firm can provide the client’s legally privileged material to the regulator on the basis that there has been a claim.

ConclusionJudgments over the past year have been a mixed bag for solicitors and their insurers. We have seen some positive news with the Supreme Court decision in BPE representing the most significant of the cases. The courts have generally been prepared to take a restrictive view of the scope of retainers, and have declined to push them out at the edges as suggested by claimants. The clarification of the foreseeability test has also been helpful in restricting damages recoverable by claimants, as have the findings in the mitigation-related cases.

On the other hand we have seen comments on limitation which have the ability to push back the time bar that claimants face when bringing claims, and a decision on liability in fraud cases with potentially wide-ranging adverse ramifications.

As mentioned above, a number of these decisions are being appealed. There may therefore be further developments in those areas in 2017/18. We await the outcomes with interest.

Diversity and Inclusion in Law Firms – the Why? and the How?Chris Holme, Partner, London Harraj Panesar, Associate, London

Most who work in law firms, in common with people who work for any other employer, whether it be a construction company, an accountancy firm, or in the public sector, know that it is against the law in the UK to discriminate, victimise or harass fellow workers. But what many in law firms, outside of risk and compliance teams, are not aware of (or forget), is that discrimination and diversity are also regulatory issues. In fact, diversity is named as one of the SRA’s priority risks in its Risk Outlook.

But in addition to diversity being a legal and risk issue for firms, it is also clearly a commercial one. Increasingly, clients may consider diversity issues when making law firm panel appointments or considering where to send instructions. So what are law firms doing to comply with their obligations? There is certainly a lot of interest in gender diversity, and many firms have highly publicised programmes in this area. But what success have those programmes had? And what are law firms doing outside of gender?

What are law firms required to do? Lawyers and law firms are required to comply with 10 mandatory principles. These include principles which should hopefully come as second nature – such as upholding the rule of law (Principle 1), and behaving in a way that maintains the trust of the public (Principle 6). But how many solicitors have focused on (or treat as “second nature”) Principle 9 - encouraging equality of opportunity and respect for diversity?

Of course they should do. And a useful starting point is considering what it means. The Law Society1 explains equal opportunities as “maximising employee potential and ensuring that all employees and job applicants receive equal access in relation to employment, terms and conditions, training, promotion and services” and diversity as “recognising, respecting and valuing the differences between individuals. It means treating people as individuals and accounting for inequalities and disadvantages”.

Chapter 2 of the SRA Handbook, meanwhile, expands on Principle 9 and sets out the required outcomes that flow from the principle. Several of these outcomes reflect the duties and obligations of law firms as employers within the UK (which all other employers in the UK have

to meet), for example, not to unlawfully discriminate against others and to make reasonable adjustments for disabled employees who are placed at a substantial disadvantage. However, others are broader in content. For example, two key outcomes are to ensure that your approach to recruitment and employment encourages equality of opportunity and respect for diversity and that appropriate arrangements are in place to ensure that you monitor, report, and, where appropriate, publish workforce data. The SRA Handbook sets out possible ways of meeting these required outcomes, including having a written equality and diversity policy and providing employees with training about equality and diversity.

So what are law firms actually doing? There is little doubt that most law firms comply with the most basic of these requirements by having a written equal opportunities policy and providing training on equality and diversity (perhaps including the more recent trend (important in the authors’ views) to including unconscious bias training). It is also now common place for large law firms to have diversity initiatives, mentoring programmes and flexible working policies. Many have also signed up to the Law Society’s Diversity and Inclusion Charter which requires law firms to make biennial submissions about their diversity data.

However, the key question is whether these practices and initiatives are doing enough to encourage equality of opportunity and diversity within the workplace and whether they are doing what is required to attract and retain a diverse workforce?

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1 http://www.lawsociety.org.uk/corporate-responsibility/equality-diversity/

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Great strides have most certainly been made in relation to the recruitment process, with 57% of all qualified solicitors below partner level in law firms now female and BAME individuals making up 18% of all lawyers in law firms2. However, a criticism could be that these statistics potentially hide stagnation in diversity at the partnership level, and a lack of diversity at the promotion to partner stage, particularly in large law firms (50 plus partners)3:

– Female partners make up only 27% of the partners in large law firms;

– Only 4% of partners in large law firms are of Asian ethnicity; and

– Only 58% of partners in large law firms attended a UK state school.

Given that the proportion of economically active people who are women is 47%, of Asian ethnicity is 7% and attended fee paying schools is 7% (according to research by the Independent Schools Council in 2015), there is clear underrepresentation of women, ethnic minorities and state school educated lawyers at partnership level in large law firms when comparing a law firm’s make up with the population of the country at large.

Perhaps the most stark issue, given the amount of focus that it has received over the last decade, is the lack of progress in the numbers of female partners. This also no doubt feeds into the gender pay gap of 10.3% for legal professionals4.

Clearly there are many complex reasons and issues which are related to the statistics we see - some of which law firms can influence, and others of which they potentially can’t. But in view of these start statistics, what should law firms be doing to comply with their duties to promote equality of opportunity and diversity when promoting individuals?

What should law firms be doing? The Law Society and the SRA clearly think more should be being done as it remains high on their agenda. The Law Society has published a paper on the business case for diversity and inclusion in law firms, together with guidance on using blind and contextual processes for the recruitment of trainee solicitors.

Blind and contextualised recruitment processes offer very interesting but different strategies for promoting diversity and equality of opportunity. A CV blind process removes information from which a recruiter can make judgements on the basis of unconscious (or conscious) bias – including name, date of birth, title etc. This ensures that the individual is judged on the merit of what they have done. On the other hand, contextualised processes ask for more information, such as about the average grades for the school the applicant went to or the postcode they were brought up in so that their performance to date can be put in the context of the support they received at that time.

While many law firms are making moves towards this approach, and this should be encouraged in the authors’ view, these processes do not assist when it comes to internal promotions, or managing careers for those who are already in a law firm.

This highlights the need to review (and to keep reviewing) the statistics at all stages of an individual’s career in a law firm. And to keep considering what more can be done. There is no simple answer, or solution.

Before turning to promotions within law firms though, it is worth noting that the SRA is looking to assist with diversity by offering an alternative to the current system to qualification whereby an individual completes a qualifying law degree, then does the LPC, then does a block training contract. The SRA is looking to introduce a solicitors qualifying examination (SQE) from 2020 at the earliest, under which an individual is able to qualify as a solicitor by passing SQE stages 1 and 2, having a degree (or equivalent qualifications or experience) and completing two years of qualifying legal work (as well as being judged to be of satisfactory character and suitability). The first three requirements can be met in any order.

As to the impact this may have, we will have to wait and see – but any wider assistance given to law firms in relation to diversity is to be welcomed.

Turning to promotions – law firms need to look at how statistics change in their organisation through promotions. If there is a “drop off” of people sharing a certain characteristic at a certain level that should be reviewed, with the aim of identifying the reasons for that, and considering what solutions can be put in place.

Maternity leave, and the far higher statistical likelihood of female employees taking time away from work due to child-care, has long been identified as a contributing factor affecting the promotion of female employees. Law firms need to continue to look at ways to reduce this impact – whether through proper maternity ramp down and ramp up policies, enhanced flexible working arrangements, or potentially new models of working. Technology is giving more options, and law firms need to look at these options with an open mind, ready to trial them. Not all will work, but the law firm which gets it right first will have a huge potential competitive advantage.

Once a law firm has identified areas for improvement, or where new policies can focus, targets can then be put in place to make sure that the commitment to those policies continues. These may include targets for partner promotions which a law firm can be confident are achievable based on reviews which have been carried out and policies which people are behind.

It will be interesting to see if any initiatives which are currently being undertaken actually do work when the Law Society publishes its next Diversity and Inclusion Charter biennial review for 2017. However, do remember that even if parity or greater diversity is achieved in one area, there can be little doubt that, given the muti-faceted nature of diversity, the focus then simply needs to shift to concentrate on another underrepresented category.

2 http://www.sra.org.uk/solicitors/diversity-toolkit/law-firm-diversity-tool.page 3 http://www.sra.org.uk/solicitors/diversity-toolkit/diverse-law-firms.page 4 http://visual.ons.gov.uk/find-out-the-gender-pay-gap-for-your-job/

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Lawyers’ liability: a global perspectiveClyde & Co now has 47 offices across 6 continents. In this round-up we provide snapshots of the lawyers’ liability landscape around the world.

France David Meheut, Partner, ParisClass action legislation has recently been enacted which permits claims to be brought on behalf of consumers by certain consumer associations. There is a potential for it to gain ground in the professional indemnity arena generally, for instance in connection with mis-selling of financial products and tax exemption schemes in relation to property investments, a source of abundant litigation against professionals in the recent years. There is the potential for this type of action against professionals to grow, although we understand that consumer associations are currently generally in the position that they do not have sufficient means to bring these actions.

In common with other jurisdictions, tax continues to be a significant claims hotspot for all professionals, including lawyers, which has not been assisted by scandals such as Mossack Fonseca.

From a risk point of view, cyber and data security also remain an issue for law firms which are often perceived to be a weak spot. Social engineering frauds, involving impersonation of a CEO in order to convince an employee to transfer funds, is a growing problem in France. Like all businesses, law firms will need to be aware of the new anti-corruption law, known as Sapin II, in effect from 10 November 2016. Sapin II represents a significant extension of French jurisdiction to tackle bribery and corruption. It applies extraterritorially, allowing French authorities to prosecute acts of corruption committed abroad by any company that carries on business or part of its business in France. While the law does not go as far as the UK’s Bribery Act 2010, in creating strict liability for acts committed by associated persons, it does oblige companies with over 500 employees and revenues of at least €100m to adopt compliance policies and procedures. Failure to do so can lead to a fine of up to €200,000 for individuals or €1m for companies. The new law will be enforced by a new anti-corruption agency, the Agence Française Anticorruption (AFA). The AFA will have the power to request documents from companies and interview employees but not to initiate investigations or impose criminal penalties, which remains the responsibility of prosecutors. There is also a form of DPA encouraging companies to report voluntarily.

Germany Henning Schaloske, Partner, DusseldorfTanja Schramm, Partner, Dusseldorf In February, as a reaction to the Federal Constitutional Court’s decision on the protection of lawyers from monitoring measures, a new draft for a revision of the German Federal Criminal Office Act was adopted. The monitoring measures are intended to fight terrorism and include the secret visual and acoustic surveillance of living quarters, online searches and surveillance of telephone calls. Under the current law, only criminal defence lawyers benefit from complete protection from these measures. The Court held that the provision was contrary to the principle of proportionality as the measures in question were not measures of criminal prosecution but rather aimed at averting danger. Under the new law, all lawyers will benefit from complete protection from monitoring measures.

Another long-awaited development is the so-called “small reform” of the Federal Lawyers’ Act. The German Parliament has finally adopted the act on the fifth attempt. We are expecting the act to come into force this spring and end a legislative procedure which has been dragging on for an exceptionally long time. The implementation deadline expired in January 2016 and the European Union has since initiated infringement proceedings against Germany. The delay is mostly due to the controversial topic of obligatory further training including fines for non-compliance. While many were in favour of compulsory training for lawyers, the motion was not successful. Similarly, the proposal to incorporate professional indemnity law into legal training was dismissed. The most noticeable change will be the compulsory use of “beA”, an electronic mailbox for lawyers, which takes account of the ongoing digitalisation. Apart from that, so far the “small reform” has shown to be much ado about nothing.

For the next legislative period beginning in 2018, the Federal Government has announced a “large reform” of the Federal Lawyers’ Act. In particular, the reform will introduce changes to lawyers’ corporate law, including conditions for holding company shares and provisions on voting rights in law firms.

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More broadly, claims against professionals, including lawyers, have been getting larger in line with the increasing complexity of instructions. A developing exposure is claims brought by insolvency administrators of corporates that were clients of the targeted firm, sometimes in circumstances in which the firm has brought an action for fee recovery. Claims brought by administrators have been a feature of the landscape for directors for some time, but have only been seen recently against advisors. Claims relating to tax advice are another hotspot, as is investigation and regulatory action by the tax authorities against law firms and others arising out of cum/ex trades. The issues relate to the claiming of tax refunds in connection with stock trades conducted around the time of a company’s dividend date and specifically trading and selling back the right to claim a dividend with the result that the tax refund is claimed twice but the tax only paid once. Whilst there has been speculation that Germany may see a professional liability claim funded by third party funders, we have not yet seen this materialise.

Middle EastMark Beswetherick, Partner, Dubai Lawyers’ PI claims have remained relatively uncommon and this is still considered a low risk area of business by PI underwriters operating in the Middle East. However, as the awareness of rights increases in the region generally, we expect to see a corresponding increase in claims. This is particularly so in the UAE, with the coming in to force of Ministerial Resolution No. 666 of 2015 on the Code of Ethics & Professional Conduct of the Legal Profession (Code of Ethics).

The reasons for the comparatively low volume of claims against lawyers in local courts includes the lack of recoverability of costs for successful parties, lack of clarity within the law as to the meaning of negligence and the lengthy litigation process (conducted in Arabic). The fact that some local firms are not required to and do not carry PI cover (unlike international firms operating in the region) also means that pursuing claims against them may not be commercially worthwhile.

In the UAE, however, the Code of Ethics requires legal consultancy firms to set out the details of any PI cover held in their terms of engagement. A similar requirement is contained in the Government of Dubai Legal Affairs Department’s draft Charter for the Conduct of Advocates and Legal Consultants (DLAD Charter). While this appears to fall short of requiring these firms to obtain PI cover, the provision (in Dubai, at least) is supplemented by the requirements of Administrative Resolution No. 236 of 2015 (adopting the bylaw concerning the licensing of legal consultancy firms in the Emirate of Dubai) which specifies

that all legal consultancy firms must, for licensing purposes, obtain PI insurance cover. We anticipate that these requirements will lead to more active policing of law firms’ insurance arrangements by the Dubai regulator (the DLAD), but it remains to be seen whether this will be the case in the other Emirates.

The rise of specialist common law financial centres, such as the Dubai International Financial Centre (DIFC), continues to have an important impact. Negligence claims against international law firms and other professionals in the DIFC Courts are more common. A recent decision saw the DIFC Courts make an award for wasted costs against the DMCC branch of Gateley UK LLP as a result of its conduct in the underlying proceedings. This is an example of both the DIFC courts’ willingness to more stringently police effective case management by law firms operating within the DIFC, and the increased willingness of the courts in these financial centres to hold law firms to best practice standards.

In general, however, both in onshore UAE and in the DIFC, the claims environment remains relatively low. Despite this, we expect to see an increase in claims over the next 18 to 24 months, owing to increased awareness of both consumer rights and of the obligations of lawyers in the UAE to comply with the requirements of the Code of Ethics and, once published, the DLAD Charter.

South Africa Daniel Le Roux, Partner, JohannesburgLiability claims against lawyers in South Africa are generally dealt with by the Attorneys Insurance Indemnity Fund (the “AIIF”). According to a recent survey done by the AIIF, three trends have arisen in the profession. These include claims for failing to:

1. pay adequate attention to matters;

2. pay for professional services; and

3. to reply to correspondence.

The first category appears to have housed the most professional indemnity claims over the past 12 months which have included a large number of the claims that have arisen as a result of junior staff members being given too much professional freedom. As a result of this, professional indemnity claims for prescription are fast becoming a trend in South Africa, especially in cases of cross-boarded disputes which involve complex contractual matrices. Ultimately, a large portion of these professional indemnity claims for prescription could have been avoided if the practitioners had precise and diligent measures in place to avoid a claim becoming prescribed.

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According to the AIIF, the general inclination when attempting to clarify why the practitioner allowed the claim to prescribe is that the file was moved around amongst practitioners who have since left the employ of the firm and, as a result, the file was not appropriately maintained. Hence, proactive and hands-on micro-management of junior staff members is critical when it comes to mitigating the risk associated with the failure to pay proper attention to matters.

There appears to be a healthy appetite in South Africa at the moment for taking on more than one can deal with, this is particularly the case when it comes to the more sought-after practitioners. To counter this, practitioners must be reminded that they have an ethical duty when it comes to accepting an instruction to decide whether or not they have the capacity required to professionally execute their mandate. The old saying of “biting off more than you can chew” bears significance here.

CanadaTrevor McCann, Partner, MontrealRod McLauchlan, Partner, TorontoThe Supreme Court of Canada recently heard the appeal of the decision in Livent v Deloitte & Touche, a landmark decision on auditor liability with broader implications for other professionals, including solicitors, on the question of who can bring a claim on behalf of an insolvent company, and for what. The Court is expected to rule on whether a claim directed by the receiver in Livent’s name to recover moneys owed to creditors (directing the receiver) can be claimed from the company’s auditors. The parties also argued the illegality defence, which attributes the illegal conduct of a company’s directing minds to the company itself and provides a defence to a claim by the company – fraudulent through the attribution – against merely negligent third parties. A decision in this case will be rendered this year.

The class action Trillium Motors Ltd v General Motors of Canada Ltd continues to wind its way through the courts and create waves. In 2015, the Ontario Superior Court found the law firm Cassels in a conflict of interest for having agreed to the following retainers in the context of the 2008 GM bailout in Canada and for not disclosing the conflicting retainers: for the Canadian government which required a reduction of GM dealerships, for GM dealers faced with the possibility of having to close their dealership through wind-down agreements (WDAs), and for the GM dealers who actually executed the WDAs. The Court ordered Cassels to pay the class of dealers CAD 45m. The appeal of that judgment has been recently heard.

Also in Trillium, the Supreme Court of Canada rendered a judgment in 2016 that will likely create new jurisdictional risks for lawyers. Cassels third partied 150 law firms across the country, including 83 non-Ontario firms, that advised the individual dealers about the WDAs. Several non-Ontario law firms challenged the jurisdiction of the Ontario courts. The majority of the Supreme Court held that a connection between the claim and a contract, i.e. the WDA, made in the province where the party seeks jurisdiction will suffice for jurisdiction, even though the alleged tortfeasor law firms were not parties to the WDAs at issue.

USJessica Kelly, Partner, San FranciscoOver the past year, a series of security breaches involving US law firms made headline news, some following familiar patterns of phishing scams and foreign hackers. Since lawyers and law firms rely on confidentiality and discretion, such breaches are devastating to the fundamental practice of law, and firms increasingly are focusing on their potential exposure to security breaches, including ways to protect themselves through risk management and insurance from the reputational and economic fallout that can result.

It is not in doubt that law firms are viewed as targets for attackers due to the large volumes of valuable and sensitive information they maintain, including financial information, intellectual property data, and other confidential information such as healthcare records and other personal identifiers. Size also does not seem to matter; in addition to large firms, firms with 10 to 49 attorneys increasingly are targeted by hackers.

Nevertheless, in our experience, lawyers often lack understanding regarding the realistic potential exposure resulting from a breach, such as first-party expenses associated with forensic investigations and legal analysis required to confirm and carry out regulatory and client notifications. In addition, attorneys also face potential third-party claims following a breach. In the US, we are beginning to see movement in this area from the plaintiffs’ bar with lawsuits filed against law firms, even without a breach event, claiming the firms had inadequate security measures.

While this problem is not unique to US-based law firms, this is an area that is increasingly regulated in the US and, thus, law firms and insurers around the globe are looking to the US to understand how this risk evolves and how best to respond to it.

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Hong KongPatrick Perry, Partner, Hong KongIt remains the case that the claims environment for solicitors in Hong Kong is benign. Hong Kong’s economy is highly dependent on financial markets and real estate, law firms and other professionals have become well established in the jurisdiction to support these sectors. There are some pessimistic forecasts for the economy going forward and predictions that the property bubble may burst. If this proves to be the case there may be an increase in claims against solicitors’ firms, because, as in other jurisdictions, there tends to be a correlation between economic downturn and an uptick in litigation, and we may at that point also see some higher value claims against major law firms. At present, any litigation there is tends to relate to low value conveyancing and litigation work.

SingaporeIan Roberts, Partner, SingaporeIn general, the claims environment against lawyers in Singapore is still relatively benign.

In January 2017, legislation was passed to put into effect a framework to permit third party funding for international arbitration proceedings. The legislation at the same time clarified that the torts of maintenance and champerty are no longer actionable in Singapore. Although abolished as torts, contracts involving maintenance or champerty continue to be against public policy and are unenforceable, save in relation to international arbitration proceedings. It remains the case that lawyers are not permitted to enter into contingency fee arrangements with clients. This is underlined by the suspension of a lawyer from practice earlier this year for entering into a contingency fee arrangement with a client pursuing a negligence claim. Lawyers are also prohibited from receiving any commission, fee or share of proceeds from a funder. Lawyers are not permitted to have any share or ownership interest in a third party funder which they have referred to a client or which has a funding contract with

a client. When conducting any international arbitration proceedings, a lawyer has a duty to disclose to the court or tribunal and every other party to those proceedings the existence of any funding contract. As more international law firms set up base in Singapore to service their clients in the region, and as a substantial number of these may have arbitration clauses in their letters of engagement, the availability of third party funding for international arbitrations in Singapore may lead to professional third party funders taking an interest in viable claims against such firms, where the arbitrations are seated in Singapore, knowing that awards will usually be met by insurance.

The surge in cyberattacks in Singapore (on both private sector and government bodies) in recent years, leading to personal data being compromised, is a worrying trend. As a leading financial centre, Singapore is a valuable target for cyber criminals. The managing director of the Monetary Authority of Singapore warned in March this year that the next financial crisis could be triggered by a cyberattack. Professional services firms in Singapore, including law firms, have data of significant value and are an obvious target for cyberattacks. Earlier this year, the Law Society of Singapore issued a guidance note on the use of cloud computing services by law firms. In a case decided by the Singapore Court of Appeal earlier this year, there was an issue as to whether legally privileged documents of one of the parties that had been uploaded on WikiLeaks after its server had been hacked into could be admitted into evidence (Wee Shuo Woon v HT S.R.L. [2017] SGCA 23). The Singapore Court of Appeal held that the court had, as part of its equitable jurisdiction, the discretion to restrain a breach of confidence in relation to the privileged documents. This case did not involve a cyberattack on the law firm but on the client of the law firm, and there is to date no publicly-known major cyberattack on a law firm in Singapore. Singapore’s Personal Data Protection Act 2012 requires organisations to make reasonable security arrangements to prevent unauthorised access to personal data under their control, and the regulator currently has the power to impose a fine of up to USD 1 million for non-compliance.

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AustraliaJanette McLennan, Partner, SydneyIn the past 12 months the High Court of Australia has considered the operation of the advocates’ immunity principle on two separate occasions. Unlike other common law countries (e.g. England, Canada, New Zealand, South Africa and the United States), the advocates’ immunity principle has not been abolished in Australia. It was curtailed in the decision of Attwells & Anor v Jackson Lilac Lawyers Pty Limited [2016] HCA 16, where the majority of the High Court found that the immunity can only attach to conduct of the advocate which contributes to a judicial determination and that there must be a “functional connection” between the advocate’s legal work and the judge’s decision. That case involved the lawyer giving advice on settlement which the High Court found did not move the case towards judicial determination and therefore it was outside the scope of immunity. The curtailed scope of the immunity was recently reaffirmed by the High Court in Kendirijan v Lepore [2017] HCA 13, where it was held that advice given by a lawyer and barrister on a settlement offer made during a hearing did not fall within the scope of the immunity.

It is common for professional liability claims against solicitors and other professionals for breach of contract and negligence to be complemented by a statutory claim for misleading and deceptive conduct. Australia has strong consumer protection legislation containing provisions prohibiting persons and corporations from engaging in misleading or deceptive conduct in trade or commerce. In general terms, in a commercial context a person will have a statutory cause of action in respect of loss or damage caused by the misleading or deceptive conduct of another.

In establishing a cause of action, it is not necessary to prove that the conduct was fraudulent, intentional or negligent – simply that it was misleading or deceptive (or likely to be so) and that the conduct resulted in loss or damage. This enables many causes of action to be maintained in Australia that could not be pursued in other jurisdictions. Such claims are often deployed by plaintiffs to attempt to overcome any contractual caps on damages that might otherwise be applicable to a particular professional service contract. In recent years the largest and most significant pieces of litigation either pursued or settled against professional services firms in Australia have all included claims for misleading and deceptive conduct.

Australia also permits litigation funding and class (or representative) action proceedings. There has been a proliferation of these claims over the last decade resulting from favourable funding laws and an increasingly specialised plaintiff bar. There is little doubt that plaintiff lawyers in the class action context will look for ways to extend what might ordinarily be single defendant litigation to attribute liability to include professional advisors, including solicitors, accountants and auditors. With their extensive insurance programmes, professional services firms are perceived as useful deep pocket defendants. One of the most common claims against professional services firms in the class action (and particularly securities class action) context is a claim for misleading and deceptive conduct, where law firms who have given advice to a corporation face a particular vulnerability in connection with prospectus documents/initial public offerings, capital raisings and/or advice regarding the corporate entity’s obligation to keep the securities market informed of information that is material to investors.

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Further information If you would like further information on any issue raised in this briefing please contact:

LondonAndrew Blair E: andrew.blair@clydeco.com

Richard Harrison E: richard.harrison@clydeco.com

Fergal Cathie E: fergal.cathie@clydeco.com

Sarah Clover E: sarah.clover@clydeco.com

Neil Jamieson E: neil.jamieson@clydeco.com

James Roberts E: james.roberts@clydeco.com

Helen Rowlands E: helen.rowlands@clydeco.com

Tom White E: tom.white@clydeco.com

Garrett Moore (Ireland) E: garrett.moore@clydeco.com

ManchesterJames Preece E: james.preece@clydeco.com

Louisa Robbins E: louisa.robbins@clydeco.com

Newcastle/LeedsAnthony Brown E: anthony.brown@clydeco.com

Gordon Walker E: gordon.walker@clydeco.com

OxfordTony Nurse-Marsh E: tony.nurse-marsh@clydeco.com

Clive Brett E: clive.brett@clydeco.com

Jim Taylor E: james.taylor@clydeco.com

Edinburgh

Gavin Henderson E: gavin.henderson@clydeco.com

Peter Anderson E: peter.anderson@clydeco.com

Anne Kentish E: anne.kentish@clydeco.com

SpainIgnacio Figuerol E: ignacio.figuerol@clydeco.com

AustraliaJohn Edmond E: john.edmond@clydeco.com

Jenni Priestley E: jenni.priestley@clydeco.com

Jenny Thornton E: jenny.thornton@clydeco.com

Dean Carrigan E: dean.carrigan@clydeco.com

Lucinda Lyons E: lucinda.lyonsn@clydeco.com

Janette McLennan E: janette.mclennan@clydeco.com

Hong KongPatrick Perry E: patrick.perry@clydeco.com

Simon McConnell E: simon.mcconnell@clydeco.com

Mun Yeow E: mun.yeow@clydeco.com

Singapore Ian Roberts E: ian.roberts@clydeco.com

GermanyHenning Schaloske E: henning.schaloske@clydeco.com

South Africa Max Ebrahim E: max.ebrahim@clydeco.com

Daniel Le Roux E: daniel.leroux@clydeco.com

Shanghai Ik Wei Chong E: ikwei.chong@clydeco.com

Middle EastMark Beswetherick E: mark.beswetherick@clydeco.com

India Sumeet Lall E: sumeet.lall@clasislaw.com

FranceGildas Rostain E: gildas.rostain@clydeco.fr

David Meheut E: david.meheut@clydeco.fr

CanadaJo-Anne Demers E: jo-anne.demers@clydeco.ca

John Nicholl E: john.nicholl@clydeco.ca

Trevor McCann E: trevor.mccann@clydeco.ca

Rod McLauchlan E: rod.mclauchlan@clydeco.com

USBill Casey E: bill.casey@clydeco.us

Joan D’Ambrosio E: joan.dambrosio@clydeco.us

Jessica Kelly E: jessica.kelly@clydeco.com

Eric Moon E: eric.moon@clydeco.us

John R. Gerstein E: jack.gerstein@clydeco.us

David Cutter E: david.cutter@clydeco.us

Eileen King Bower E: eileen.bower@clydeco.us

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40+Offices across 6 continents

375+Partners, over 1,400 lawyers and 3,300+ staff

For full office details please refer to the Clyde & Co website www.clydeco.com/locations/offices

Asia PacificBeijing Brisbane Chongqing Hong Kong Jakarta* Melbourne Mumbai* New Delhi* Perth Shanghai Singapore Sydney Ulaanbaatar*

EuropeAberdeen Edinburgh Glasgow Guildford Leeds London Madrid Manchester Nantes Newcastle Oxford Paris Piraeus

AmericasAtlanta Caracas Chicago Long Beach Montreal New Jersey New York Rio de Janeiro* São Paulo San Francisco Toronto Washington, DC

Middle East/AfricaAbu Dhabi Cape Town Dar es Salaam Doha Dubai Johannesburg Riyadh

*Associated offices

www.clydeco.comClyde & Co LLP

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.

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Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority.

© Clyde & Co LLP 2017

J386755 – June 2017