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July 2012 - Expressions of dissatisfaction - The LeO v Civil liability

Expressions of dissatisfaction – The LeO v Civil liability


Back in the days of the SIF, before the open market, the mantra was that there would be a fair settlement for a fair claim. In that way clients were protected from the negligent failures of their solicitors and the profession was protected from spurious claims draining the reputation and resource of both law firms and the professional indemnity providers, the SIF.

Over time, perhaps quietly and in the background, there came in to focus the concept of Inadequate Professional Service, or IPS to its friends. This was very much a low impact on law firms and involved what some consider to be modest amounts of money to resolve complaints that were not in the zone of allegations of professional negligence but were still instances of unhappy clients of law firms.

All change

In 2006 the level of compensation was raised from £5000 to £15000 with effect from 1 January that year. It was considered by the Government that it was "in the best interests of consumers "to raise the limit. It was noted at the time that if a consumer claimed greater than £5000, the matter must be referred to the Courts. An interesting use of language, especially when we look at how this service to clients has progressed since 2006.

Historically the background to that rise was that it was recommended as long ago as 2003 by Sir Stephen Lander with regard to what was then known as the Consumer Complaints Service. A rather wide all encompassing title one might feel, if you did not know that it was about lawyers and not any random consumer product that you felt had let you down. The Law Society had signalled their agreement to the change but asked to delay the implementation.

One of the concerns of The Law Society was that a change to a figure over £5000 would need Professional Indemnity insurers to be consulted, because it would usually be above the level of policy excess that many firms carry and as such directly impact on insurers. One could argue that it also directly impacted on insured law firms.

This no doubt should also have highlighted that when a law firm failed to pay an award, the Professional Indemnity insurers would have to pick up the tab ( to protect the public ) and then seek reimbursement from their insured.

The LeO

The Legal Ombudsman deals with complaints which allege that the complainant has suffered or may yet suffer financial loss, distress, inconvenience or other detriment.  It was long a distinction from claims against a professional indemnity policy, as they did not insure for alleged distress and inconvenience, with the often cited holiday cases as an example of the difference. As such the LeO perhaps gave a route for compensation to be achieved for elements of dissatisfaction that a civil claim against a law firm could not provide.

There is a distinction between a claim alleging what is commonly known as IPS and one alleging negligence and that continues once a claim is made. The allegation of negligence or breach of duty needs essential elements to be made out by the client, namely duty, breach, damage and causation, to have any reasonable prospect of success. It is often causation that is the sticking point for a Claimant or at least is the factor that causes a remarkable shrinking of the allegation.

Whilst claims for professional negligence may eventually have to take the expensive and unpredictable avenue of using the services of the court ( along with the publicity inherently involved with that )if the pre action protocols, negotiations, arbitrations and mediations have not produced a workable solution, the LeO route to compensation is very different.

Awards up to the current limit of £30000 are not made by a trial judge. Interestingly The Law Society has said that "the LeO is not intended to be a substitute for the court "(Des Hudson) and is concerned that the newly proposed awards could be an alternative method of seeking to resolve what are essentially allegations of professional negligence.

So what are the proposed new awards?

It is proposed by the LeO that the limit rise by 66% to £50000.

For some years now there has been concern that the route of a claimant to large awards of compensation for alleged negligence could be fast tracked, leaving the law firm ( and the profession generally ) with little or no part in the process, or at least not recognisable in comparison with the civil litigation process .

We should really refer to that as the civil dispute resolution process, to reflect the fact that more often solutions are not achieved by litigation, the courts being better saved as the last tool in the bag to use, not the first.

So what about our client?

Some may argue that any process that enables a client, who has received IPS, to be compensated quickly and with minimal cost and distress, is a good step forward.

Whilst compensation was at a £5000 limit and indeed currently at £30000 on the rare times anywhere near that figure is awarded, it was perhaps only just on the radar in comparison to the far larger sums occasionally awarded by the Courts. If the level rises 66% it would be surprising if anyone ignores that.

Time out?

Remarkably then, one may think that to have a low cost (zero cost for the client) speedy service to resolve the complaints of clients` allegations of IPS, it has to be done promptly. Currently the time limit to complain to the LeO is 1 year from the event or from the date of knowledge.

The LeO does have the power to extend that period in certain instances. However the LeO is proposing that the limit is 6 years from the event or 3 years from the date of knowledge. Those insurance lawyers reading that will see a remarkable alignment with the time limits for civil liability claims. All lawyers may take a sharp intake of breath to know that complaints for IPS may come along rather later than before.

Interestingly, if a complaint is about professional negligence or judgment of the lawyer, the OLC will consider on a case by case basis whether it is an issue it can deal with, or whether it is better for a court to deal with. Note who it is that is making that choice. It is not you as the lawyer.

Clients, Consumers and Customers

The client has a choice. Do you go for an award for IPS from the Ombudsman, a route with minimal cost and no exposure to a risk of costs payable to the law firm, or do you take a civil claim?

If these changes are made, it makes it all the more fundamental that lawyers:

  1. Ensure that before any LeO involvement is needed, their complaints system is up to scratch and can therefore seek to resolve disputes without either the lawyer or the client suffering more;
  2. Ensure their client is not put in the position of having to make any complaint in the first place;
  3. Ensure that their internal systems and controls are such that there is not a blame culture, so that all staff and indeed managers and partners feel able to notify a circumstance which in turn can be notified promptly to insurers and brokers.

This highlights the benefits of taking an active approach to risk management and indeed to fundamentally complying with the 10 mandatory principles made by the SRA, especially 4 (act in best interests of your client), 5 (provide proper standards of service), 7 (deal with your regulators and ombudsmen in an open timely and cooperative manner) and 8 (run your business in accordance with sound risk management principles).

Professional Advice

By its very nature professional advice has an element of risk. Indeed taking on a new instruction in a way is going out there to take a risk. There is always the risk of an unhappy client, even if that in fact is a mismatch of expectations caused by communication. It is a people business.

However, as the profession moves rapidly in to the world where clients are consumers of legal services, or are customers where they already deal as customers with law firms more akin to retailers of goods and services, the expectation of high service levels and quick efficient justice will increase.

This is all part of the consequences of the liberation of the legal service market for which many lawyers have called for years.

Professional Indemnity Rules - what do they say?

The Minimum Terms and Conditions ( MTC ) currently require that your professional indemnity insurance must indemnify each insured against any amount paid or payable in accordance with the recommendation of the Legal Services Ombudsman, the Office for Legal Complaints ( including the LeO) to the same extent as it indemnifies the insured against civil liability PROVIDED THAT the insurer will have no liability in respect of any determination by the LeO to refund any fees paid by your client to your firm.

Way to go?

Critically the MTC specifically exclude cover for:

  1. Fines and penalties
  2. Awards of punitive damages
  3. Orders or agreements to pay the costs of a complainant, regulator, investigator or prosecutor of any professional conduct complaint against, or investigation in to the professional conduct of any insured.

Currently therefore if your regulator were to order costs against you, that appears to fall outside the indemnity you have from insurers (and instead firmly in to your cheque book, rather than to your excess erosion process).

As many are aware already from the Gazette and other press, the LeO has power to publish a report of its investigation, consideration and determination of a complaint. That report will not name the complainant unless the complainant agrees. The same words of comfort do not apply to the law firm or indeed the individual lawyer involved.

Publicity is a debate in itself as to the pros and cons, although some observers will recall from the early passionate support for mediation as a new tool, the benefit of a discrete confidential solution rather than the trauma and public spectacle associated with a trial in a court.

We will watch this space as to how this proposal takes shape in the coming weeks and months.

For further information on this and other topics or for a discussion as to how Wesleyan Active Risk Management can help your specific business:

Phone: 0800 107 8171

This article is a general guide and is not a substitute for professional advice. No responsibility can be taken for any loss incurred by anyone acting or failing to act on the basis of this article.

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