New age negligence

A new consumer complaints system will be in place later this year. Nick Bird and Andrew Williamson say the rules could mean headaches for some law firm leaders

It will be based in Birmingham. It will be up and running in the second half of 2010. It will be led by a former prisons ombudsman. And it now has a name: The Legal Ombudsman. Welcome to the new regime of consumer legal complaints.

The name may be short on suspense and many of the 350 employees may be cut and pasted from the Legal Complaints Service but the regime is going to change radically the way in which small claims against lawyers are determined.

There is now a blueprint of how the Office for Legal Complaints envisages that the scheme will work. First is the establishment of the eligibility and scope of the complaint. The complaint will then to be allocated to a member of staff in the ‘resolution centre’.

There is then a ‘Resolution’ stage where “OLC investigation staff” will try to facilitate an informal settlement in some cases using mediation techniques. If this does not resolve the complaint the investigator will prepare a short report of findings and recommend a solution.

Either party can reject this and the claim will then be forwarded to an Ombudsman for a formal decision. This formal decision will be binding on the lawyer but not on the complainant. The lawyer’s only remedy then is by way of judicial review. 

The draft scheme rules provide for the Ombudsman to have a range of powers including the ability to require the lawyer to pay compensation plus interest and costs, make an apology and rectify mistakes.

These determinations will be limited to a financial cap of £30,000 but the expectation is that this will be increased relatively quickly into the life of the scheme. Indeed, Bridget Prentice MP said on introducing the Bill on 15 October 2007: “…the [Legal Services Board] can virtually on day one if it so chooses, consider whether the limit ought to be further increased. …”. The anticipated convergence of the scheme with the Financial Ombudsman Service suggests that there will be some pressure to increase the limits to £100,000.

Do we mind that much? Perhaps that depends on who we are. For large law firms with corporate clients the regime is unlikely to keep managers awake at night.

The complainant must be an individual or certain charities, clubs, trustees and personal representatives. The small potential wrinkle in that is the intended request to the Lord Chancellor to add jurisdiction for ‘micro-enterprises’ (broadly an undertaking with fewer that 10 staff and a balance sheet less than €2m).

For others with a greater number of eligible clients there may be some disadvantages under the new regime. The complainant can accept or reject both the recommendation the investigator and the determination of the Ombudsman; the lawyer can only reject the recommendation.

The complainant may get his costs; the lawyer cannot. The Ombudsman may publish a report of its investigation and determination of the complaint in which the complainant can choose to remain anonymous; the lawyer cannot.

The Ombudsman will determine a complaint by reference to his opinion of what is “fair and reasonable in all the circumstances of the case”. He is not bound by the decision that a court may take.

In 2005 theFinancial Ombudsman Service awarded compensation for loss that would not have been recoverable if the case had been determined in accordance with the House of Lords decision in SAAMCo.

So yes – we probably do mind. This is a more hostile regime than the court system and will force some firms to focus more attention on the various risk management techniques for avoiding it altogether.

This is not least in the run up to the implementation of the scheme which the OLC tells us will itself generate a number of complaints merely as a result of the publicity. It is worth remembering though that the time limit for complainants seeking to take advantage of the regime is only one year from the later of the date of the act and the date of knowledge of the claim.

Looking further into the future (and perhaps depending on the General Election result) we will have the introduction of Alternative Business Structures (ABSs).

This will present particular issues for underwriters trying to assess the different types of risk that will emerge – the new professional conduct rules governing ABSs, the risks associated with greater competition, interaction between the different types of cover needed, the risks associated with outside ownership.

The overall shape of the 2012 ABSs will look completely different from a conventional law firm in both form and feel. And its regulatory regime will be significantly different too. It will undoubtedly present the biggest single challenge for risk managers in firms seeking to make the change.

Nick Bird is a partner and Andrew Williamson is an assistant in the Legal Practices Group at Reynolds Porter Chamberlain