Overexposure?

The reform of the legal services market took another step forwards at the end of 2006 with the publication of the latest draft of the Legal Services Bill. This is currently being debated in the House of Lords, and if the legislation receives Royal Assent this summer, as is expected, the regulation of legal services will be transformed and new complaints handling procedures will be made available to the public.

Although the proposals are intended to put the interests of buyers of legal services at the heart of the regulatory framework, the legislation may not adequately address some of the difficulties in the existing regulatory and complaints handling regime from the professional standpoint.

Front-line regulation
Under the current regime, each of the legal professional bodies maintains its own complaints and disciplinary system. In relation to professional conduct and disciplinary matters, the Law Society and the Bar Council regulate their respective members and these ‘front-line’ regulators will continue to do so under the new regime. So as far as complaints about inadequate professional services are concerned, buyers of legal services can currently lodge formal complaints to the Law Society’s consumer complaints service (CCS).

The CCS is empowered to order that solicitors reduce their fees, rectify mistakes and award compensation, although this is limited to £15,000. Similarly, the Bar Standards Board can look into complaints about any aspect of a barrister’s professional work and can require a barrister to apologise to a client, to repay fees or to pay compensation of up to £5,000.

Such complaints handling processes operate in parallel with the option of pursuing professional liability claims against solicitors and barristers through the courts. Aside from the cost risks, the advantage of the litigation option for clients is clear, in the sense that in the courts levels of compensation are potentially much higher. From the professional’s point of view, however, the existence of parallel civil and regulatory proceedings can serve to increase pressure on resources and there is a danger of inconsistent findings where the courts are rigorously applying the established legal principles of tort, which the regulatory complaints bodies may not necessarily always be doing.

A new regime
Under the changes proposed by the bill, regulation of the whole legal services market will be overseen by the Legal Services Board (LSB). A new Office for Legal Complaints (OLC) will be established to deal with complaints against both barristers and solicitors. The OLC will be a separate corporate body reporting to the LSB and will comprise a lay chairman and between six and eight members, the majority of whom will be lay.

The OLC, which is likely to exercise most of its functions through an ombudsman system similar to that which currently exists in the financial services sector, is intended to have wide-ranging powers, including the ability to award compensation for poor service, loss or distress. This system is to be distinguished from the existing Legal Services Ombudsman scheme, the function of which is to ensure that the relevant professional bodies exercise their complaints handling procedures efficiently.

Although levels of awards at the OLC are initially to be capped at £20,000, there seems to be no reason why this should not be increased in the future: the Financial Ombudsman Service (FOS) is currently able to award complainants up to £100,000 in compensation.

Crucially, like the FOS, the OLC-appointed ombudsman will be required to consider complaints by reference to principles of what is ‘fair and reasonable’ in all the circumstances of the case. This is likely to involve the ombudsman taking account of established principles of negligence, including case law, but beyond this there is no obligation actually to apply those principles. As a result, there is plenty of scope for subjective decisions to be made, possibly involving the application of an element of hindsight.

The establishment of the OLC might give rise to concern for two particular reasons. First, the lawyer will have no right of appeal against the ombudsman, so the only option available to the professional will be to consider whether the decision in question is susceptible to an application for judicial review, with all the attendant expense and publicity.

Second, the ombudsman may make a decision based on the somewhat flexible ‘fair and reasonable’ test, and a complainant, encouraged by an adverse finding and having ‘tested the water’, can still reject the decision and pursue a civil claim against the professional, which would of course be determined by a court by reference to a different test.

Subsequent risks
Costs will be a concern for professionals and those who insure them. The legislation will allow the ombudsman to order that the lawyer pay a complainant’s costs. However, there is no reciprocal provision allowing lawyers to pursue the other party for the costs of successfully defending a complaint, although a complainant who has acted improperly or unreasonably can be ordered to make a contribution towards the administrative costs of the OLC itself. The lack of costs sanctions, while understandable from a consumer angle, does carry with it the very real risk that we will see an increase in the number of complaints of an entirely speculative nature.

Overall, it is to be hoped that, although there is at least some potential for pursuing solicitors and barristers on three fronts (civil proceedings, inadequate professional service complaints and professional misconduct complaints), most complainants will not feel the need to try to pursue redress in multiple ways, particularly if the £20,000 OLC cap on compensation is increased.

However, complainants can effectively have a first bite of the cherry by way of OLC proceedings and, if dissatisfied with the outcome, can refuse to accept it, and instead pursue civil proceedings. Furthermore, if disciplinary proceedings have also been initiated, the difficulties of responding to parallel proceedings will remain. If, as is likely, the new regime allows complaints to be pursued more easily, and with less of a financial downside for the client, we can expect to see law firms, barristers and those who insure them to have to invest ever more time and resources investigating and responding to them.
Richard Harrison is a partner and Fergal Cathie is an associate at Barlow Lyde & Gilbert