Update | Professional negligence: the affect of the Big Bang

The details of the Jackson reforms have been coming out in a piecemeal fashion since the New Year and solicitors have had little time to get to grips with them. Add to this the many uncertainties surrounding the new costs regime and its application in practice and, very quickly, one can see the potential for an increase in professional negligence claims against solicitors.

One area which is particularly likely to lead to disputes is the advice solicitors give in relation to litigation funding arrangements. We have of course had two big changes on the funding front:

the introduction of Damages Based Agreements (DBA), under which solicitors receive nothing by way of fees if the case is lost but are entitled to a percentage of the sum recovered if the client wins (and sums recovered from the other side towards the client's costs will be set against the amount payable to the solicitor); and

subject to excepted categories, a winning party will no longer be able to recover success fees under a Conditional Fee Agreement (CFA) or an After The Event Insurance (ATE) premium from the losing party.
Under the new regime therefore, clients are likely to focus on their recovery and whether it will be sufficient to meet their solicitors' proposed success fee.

There is potential for disputes to arise between clients and their solicitors if the client considers at the end of the case that he has been poorly (or even dishonestly) advised in relation to funding arrangements, or that because the solicitor has had his eye on his own financial interest, he has not acted in the client's best interest.

Take the following example. A claimant solicitor believes a particular case has good prospects of success and is likely to settle early for a high amount. The best fee arrangement for the solicitor may be a DBA since he will need to spend little time on the case but will receive a percentage of substantial damages.
The best fee arrangement for the client may not be a DBA, however, and may well be a straightforward hourly retainer or a CFA. Under a CFA, the client would retain the full amount of his damages.
He would be required to pay a success fee but it would be based on a percentage of base costs which would still be low at an early stage.

A client who is ultimately unhappy with his funding arrangement might bring a claim against his solicitor alleging negligence in the advice given about funding. Such a claim could also be tied up with a negligence claim relating to the advice on the prospects of success of the case generally.
Depending on the circumstances of the claim, the client may argue that the solicitor is in breach of fiduciary duty or that there has been undue influence.

We may see allegations that a solicitor's own stake under a DBA affected the independence of legal advice given. For example, where a reasonable offer is made to a client to settle, but is rejected, it may be alleged that the solicitor pushed a reluctant client on with the case in order to gain more pursuant to the DBA.
Alternatively, there may be allegations that cases were compromised too early in negotiations.
An unhappy client might seek to avoid paying his solicitor's fees altogether by challenging the enforceability of his DBA on the basis that the DBA does not comply with the Damages Based Agreements Regulations 2013.

A client might also complain to the Legal Ombudsman or the SRA that there has been a breach of the Code of Conduct (see in particular outcome 1.6, which sets out that firms should only advise clients to enter into fee arrangements that are suitable and take account of the client's best interests).

While chapter 1 of the SRA Code of Conduct contains obligations in relation to fee arrangements, there is little else in terms of safeguards for a client entering into a DBA nor, at present, is there much guidance for solicitors giving advice on funding arrangements. Given this lack of guidance, solicitors might in appropriate cases consider advising their clients to take independent legal advice on funding to avoid disputes later over whether the arrangement entered into was in the client's best interest. More generally, firms should have a carefully thought out policy in relation to DBAs to ensure that they are only being entered into appropriately and that they are subject to proper scrutiny and safeguards. So there are clearly areas of potential fallout for solicitors from the new reforms.

Transition to the new regime

But what about the potential for disputes arising from the transition from the old regime?

A claim could arise if a solicitor who has been advising on a particular matter has failed to update their client on relevant aspects of the reforms and as a result the client can no longer afford to bring their claim.

It has been reported that, in the run up to 1 April, ATE insurers were inundated with applications for ATE insurance, and that possibly not all ATE policies were issued before the cut-off point for recovery of the premium from the other side. Again, this could lead to allegations of negligence if, for example, the solicitor failed to make the application for the policy swiftly. These are just some examples of the many potential issues arising from the reforms on funding which could lead to disputes.

Case management

Another key element of the reforms that may lead to claims against solicitors is case management. Under the new regime, the court will take a stricter approach to parties who fail to comply with rules or court orders. So it will be more difficult for solicitors to mitigate mistakes (such as failing to comply with an "unless order") by applying to the court for relief. His Honour Judge McKenna recently circulated a note on the reforms quoting Earles v Barclays Bank [2009] EWHC 2500 in which it was stated "those practising in civil courts are expected to know the rules and practice them: it is gross incompetence not to". Sound risk management systems for compliance with court deadlines will therefore be more important than ever.

Where client input is needed to meet a court deadline, they will need to be given a warning of the possible consequences if they do not provide the necessary information or sign-off on time.

Bearing this in mind, it is vital that solicitors are aware of the suite of reforms to court procedure. For instance, solicitors must now file detailed costs budgets in many types of multi-track cases. Failure to do so will mean that costs (apart from court fees) cannot be recovered from the other side.

A failure to get any aspect of the budget right (not just the overall figure), or a failure adequately to revise the budget, is likely also to mean that the costs the client can recover will be restricted. Although we do not yet know exactly how the courts will approach costs budgeting, there is likely to be very little or no leeway if budgets are wrong. This is obviously likely to lead to disputes with clients if they win the litigation but are unable to recover their costs.

On the subject of costs recovery, disputes will no doubt also arise between solicitors and their clients as a consequence of the new rule on proportionality under which costs which are disproportionate to the sums involved in the litigation will not be recoverable even if they have been reasonably incurred. Allegations may well be made to the effect that the solicitor should not have incurred such costs.

So an increase in professional negligence claims will be a likely side effect of the procedural reforms which came into effect on 1 April, particularly given their complexity and the timescale in which they have been introduced. It is likely to be quite some time before all the details and questions of practical application are ironed out. It will therefore be crucial for firms to ensure that solicitors receive ongoing training on the changes.