Great expectations

The Government has high hopes for its shake-up of the legal complaints procedure, but will the proposals take the profession back into the realms of Dickens’ Bleak House? By Graham Reid

What can be more worrying to lawyers than the threat of professional negligence?

This topic has gone to the heart of several cases this year as a number of high-profile, high-value claims against solicitors have reached court. Pinsent Masons has been fighting an £18m claim brought by pension trustees Capital Cranfield; Nicholson Graham & Jones (now Kirkpatrick & Lockhart Nicholson Graham) has faced a £8m case from Fulham Leisure Holdings; and Barlow Lyde & Gilbert and Maclay Murray & Spens have faced a £3m claim over their allegedly negligent handling of a shipping insurance claim.

This Professional Negligence Special Report examines the expected impact of the Government’s reform of the legal complaints procedure, including the creation of the Office for Legal Complaints. It will also review the judgment in Aer Lingus, which pushed the limits for contribution claims, and the likelihood of the Company Law Reform Bill awarding auditors their sought-after limited liability.

The Government’s white paper, published last October, outlined proposals for the reform of the regulation of legal services. In particular, it aims to get tough on consumer complaints and on the causes of consumer complaints. A “profession-centric” approach to the regulation of the legal professions is out, to be replaced by one that focuses on consumer needs. Lawyers will no longer “…act as both team manager and referee” when it comes to consumer complaints. Instead, there will be a new structure that will provide independent, timely and consistent complaints handling.

Although the details of these proposals have yet to be set out, it is clear that they have the potential to affect the manner in which the legal sector is regulated and disciplined radically.

At the base of this new regulatory structure there will be the individual practitioners, such as solicitors, barristers and legal executives, who supply legal services to the public. These individuals will be regulated by front-line regulators (FLRs). It is anticipated that the Law Society, the Bar Council and the Institute of Legal Executives will apply to become the FLRs of the future.

At the top of the hierarchy lies the Legal Services Board. The board will watch over the FLRs with a view to ensuring that they comply with the Government’s main objectives of putting consumers first, simplifying regulation and providing new ways to deliver legal services.

In between the FLRs and the board, there will be an Office for Legal Complaints (OLC). This office will be responsible for a single, independent complaints handling service that covers all providers of legal services. Its purpose will be to provide quick and fair redress for consumers. To achieve this it will have similar powers to those given to the Law Society’s Consumer Complaints Service and the Solicitors Disciplinary Tribunal. It will be able to require individuals to provide it with information and documents and compel the attendance and examination of witnesses. It will even be able to extract an apology from a legal practitioner.

The office will not be simply a supercharged consumer complaints’ service. The important message is that it looks as if the Government is positioning the office to become a centre of dispute resolution. The model is the Financial Services Authority’s Financial Ombudsman Service (FOS) and, if this comes to fruition, it could change the landscape for those who deal with professional negligence claims.

There are four clues in the white paper as to the potential role for the office. The first is that it is to be funded on a ‘polluter pays’ principle, just like the FOS. This involves a general levy on the professional sector coupled with a complaint-specific fee payable by the legal service provider, regardless of the complaint’s outcome. Estimates suggest that the latter fee could be as much as £800 per complaint.

The second clue is in the proposal to increase the maximum award for inadequate professional services (IPS). Last year, the ceiling was £5,000, but this was increased to £15,000 with effect from 1 January this year. The Government now wants to increase it to £20,000 and the white paper quotes approvingly the example of the FOS’s limit of £100,000. There appears to be little in the way of justification for this increase, especially when the average IPS award has equaled around £400.

The third clue can be found on page 61 of the white paper, where the Government talks of the office’s “…power to make decisions in all the circumstances of a complaint”. There will no longer be a distinction between IPS complaints and negligence claims. “Consumers do not make these distinctions: they simply want redress for what they consider has gone wrong”, states the paper. This strongly suggests that the office will only refuse to handle an IPS complaint where its value exceeds the compensation limit, or if it involves complex issues of negligence.

The final clue is in the remit of the office. It will only look into IPS complaints. Allegations of professional misconduct are to remain the province of the FLRs. This separation has struck many as unworkable. What if a complaint involves factual circumstances that invoke both IPS and conduct issues? Will the FLR have to follow the factual findings made by the new office on an IPS complaint? And what about the risk of inconsistent findings?

Perhaps the real reason for this separation is that it will free up the office to focus on fast, efficient justice for consumer complaints, untroubled by difficult and sensitive conduct allegations.

So, where will this leave law firms and their insurers? The Law Society’s ‘minimum terms’ already provide that a qualifying insurer must indemnify solicitors against defence costs incurred in disciplinary proceedings and against certain sorts of compensation awarded by regulatory authorities, such as the Legal Services Ombudsman. If that continues, professional indemnity insurers may see an increasing proportion of their premium income spent on IPS awards. Those awards will arrive much faster than normal claims if the office lives up to its standards of fast, efficient justice. They may also be more generous than the courts if, as we expect, the office will hand out summary justice for all, administered by non-lawyers.

None of this is necessarily a bad thing. Faster resolution of complaints will free up lawyers to carry on their own business. Likewise, insurers may welcome IPS awards as they are much less likely to include significant sums towards a complainant’s costs. That could provide real savings.

As with so many Government proposals, the vision for the OLC is clear enough – the white paper hopes to cut through the current regulatory maze and provide consumers with an efficient, consistent and transparent mechanism for dealing with their complaints. There are signs, however, that this brave new world might end up no different from Bleak House.

Graham Reid is an employed barrister at Reynolds Porter Chamberlain