Disciplinary proceedings can have calamitous career and personal consequences for solicitors, even when SRA prosecutions fail. Reputational damage, mental health struggles and financial ruin are all established risks.
Respondents typically bear their own defence costs, which are rarely recoverable from the SRA, and usually SRA prosecution costs too – along with fines and higher professional indemnity insurance (PII) premiums. Insurance for defence costs is generally excluded from PII minimum terms.
In 2024, Paul Sharma, Law Society Council member for central London, persuaded the Society to set up a special committee of inquiry to consider extra support for solicitors subject to disciplinary proceedings. Sharma, who has sadly since died, said solicitors should be entitled to equality of arms before the SDT, just as legal aid helps pay for legal advice, mediation or representation in court. He pointed to the example of the British Medical Association, which offers employment advice and support to doctors on conduct matters.
The committee, which reported a few weeks ago, emphatically ruled out paying for representation out of Society funds, on the ground that this is not a permissible use of members’ money under the 2007 Legal Services Act. Chancery Lane also concluded that directly funding defences against SRA proceedings would ‘undermine public confidence in the profession and pose risks with the potential to compromise the Society’s reputation for upholding standards’.
The committee also rejected the reinstatement of compulsory SDT defence cost cover in the PII minimum terms and conditions (MTCs). This was removed more than a decade ago, creating a divide between large firms that often have some cover and small firms that do not. The SRA sets the PII MTCs, not the Society, the committee stressed, pointing out too that insurers would in any case seek compensatory changes that would reduce overall protection.
That appeared to be that. But not quite. The Society did agree to commission research on whether solicitors would support an independent defence union – and, just as importantly, be willing to stump up the necessary financial contributions.
Could a voluntary indemnity fund be made to work? And how is the market operating now in this area?
The Gazette asked four renowned experts in the field.
Paul Bennett, Bennett Briegal
Insurance for solicitors facing the Solicitors Disciplinary Tribunal is currently a failed market; it has never worked commercially for underwriters. Radical thinking is therefore needed, because it is in the public and the profession’s interest for regulation to work effectively and to carry the public’s and the profession’s confidence. Only a tiny percentage of solicitors are ever subject to an SRA disciplinary investigation and are pursued to an SDT hearing. Inevitably, this means that, commercially, an insurance solution has never worked for insurers, individual solicitors or firms. If professionals cannot access advice, trust in the system is undermined.
Over the past 15 years or so, the regulator has become increasingly focused on regulatory action and financial penalties for what is perceived as non-compliance, which often is human error and misunderstanding. Periodically, it is sensible to review the provision of advice options, potentially through a defence union. The SRA’s approach to enforcement has been both ineffective and overzealous, but that doesn’t mean the proposal for a defence union will succeed. There are significant barriers to its success, including the amount of funds needed and the number of solicitors who would need to sign up. If I contrast our profession with doctors, where defence unions are much more common, I still get contacted by doctors without cover because they thought they would never need it. If a defence union is formed, it’s likely to fund cases at a relatively modest hourly rate, which means that the current position of those who can afford the best advice will continue to seek it elsewhere.
At present, I’m unpersuaded that a voluntary defence union is the right approach. I would strongly support blanket coverage for all practising solicitors through the practising certificate fee, with reasonable costs, so that many pay to protect the profession’s reputation by ensuring that disciplinary investigations and actions are reasonable, proportionate and fair. Why? The SRA has lost the profession’s trust. It will be interesting to see, in light of the changes at the SRA in recent months, whether it can adopt a conciliatory and credible approach to start the long journey to rebuild some trust with the profession while ensuring very high professional standards, which is its statutory obligation under the Legal Services Act 2007, but which often gets overlooked by the regulatory focus. What both the public and the profession need is simplification of regulation to support the overwhelming majority of individual solicitors and law firms who uphold very high standards as a matter of course.
I’m intrigued to see where this opportunity and review go; they need to ensure the public’s and the profession’s interests are aligned.
Paul Bennett is a partner at Bennett Briegal, a specialist adviser to professional practices, and a former Law Society Council member
Gregory Treverton-Jones KC, 39 Essex Chambers
Those with long memories will remember that when the minimum terms and conditions were introduced in 2000, insurers were obliged to include cover for disciplinary proceedings. Following pressure from the insurance industry, the Law Society agreed to remove that provision some years later. The controversial decision of the Court of Appeal in Baxendale-Walker in 2006, which replaced a ‘costs follow the event’ practice in the Solicitors Disciplinary Tribunal with a default position that successful respondents in the SDT would not ordinarily obtain a costs order against the SRA, also affected the ability of solicitors to contest disciplinary allegations against them.
The overall result has been the creation of a very uneven playing field. The SRA is well resourced and can choose which cases to bring and against whom, with little concern about adverse costs orders against it. The large firms can purchase appropriate insurance cover, whereas for the small firms, such cover may prove to be unaffordable. And the SRA, in common with all regulators, prefers to take on the profession’s smaller fry, rather than its big beasts. As the years have gone by, the SRA has reached into previously virgin regulatory territory, such as sexual misconduct, social media posts and the like, to say nothing of sting operations against immigration solicitors by the tabloid press. To my mind, it is essential that solicitors facing disciplinary proceedings should be able to defend themselves properly, to ensure equality of arms.
I also note that it took the Law Society committee 18 months to produce its report. This illustrates the snail-like pace of regulatory decision-making about which I have complained in the pages of the Gazette more than once.
Gregory Treverton-Jones KC specialises in regulatory issues concerning legal professionals and has appeared in many leading cases. He is co-author of successive editions of The Solicitor’s Handbook and co-author of Disciplinary and Regulatory Proceedings
Frank Maher, Keystone Law
Solicitors’ firms may have the benefit of the firm’s management liability cover, but typically that is likely to be for those in the larger firms, though even they may find that policy limits are on occasions inadequate for the risk they face.
Defence costs in cases which proceed to the Solicitors Disciplinary Tribunal are rarely published, save for the few where a successful respondent applies for, or is occasionally awarded, a costs order payable by the SRA. The few reported cases show that costs are often in six figures (and on occasions more).
However, the total exposure for any scheme would likely be significantly more. There are many cases where an investigation is started but is abandoned by the SRA. That may be down to the quality of the response. Independent professional advice can be critical; it may come at a cost, but no price can be put on preserving a professional reputation, reflected in one of the problems of having a practice defending solicitors – the greatest successes are not the published wins, but where the SRA has accepted ‘there is nothing to see here’.
Insurance involves the many paying for the few, and the emphasis is on the ‘many’. It follows that a defence scheme is unlikely to be viable unless it is supported by tens of thousands of members. Insurance brokers’ experience of marketing such schemes is that there is low take-up. My view is that a Law Society-backed scheme is the only realistic prospect of there being sufficient take-up. That, however, is unlikely to be achieved unless the Society’s charter is amended.
Given the separation of regulation following the Legal Services Act 2007 and feelings expressed by many that the Society’s ability to fulfil a membership role is curtailed, perhaps now is the time to investigate amendment to the Royal Charter, which was granted in 1845 and last amended in 1954.
Frank Maher, a partner at Keystone Law, has over 40 years’ experience of advising law firms, insurers and other professions on professional regulation and indemnity insurance coverage disputes
Marc Rowson, Lockton
Insurers were never going to say no to the invitation of diluting coverage. [Removing defence costs from cover] was a covert and subtle move by the SRA.
Some firms (typically, but not limited to, larger firms) are able to take advantage of an extension of professional indemnity (PI) coverage, which will provide a smaller sub-limit for defence costs in the event of a regulatory investigation. In most cases, this is between £100k-£250k, which can erode very quickly in the event of an investigation. And this is also only cover for the firms’ costs, not the other side. This extension of coverage tends to be more available in more favourable market conditions and is still limited in terms of firms having such a choice.
There are also some scenarios whereby insureds will be supported by PI insurers in the defence of a regulatory investigation. This is typically whereby an insurer will make a risk assessment and commercially decide that the costs of defending the matter will be in their interest, as an adverse tribunal decision for their insured could lead to a flurry of negligence claims linked to the investigation.
Directors and officers (D&O) liability insurance can be misleading on this. There is some coverage, but typically policies will exclude any investigation where the subject of investigation is linked to a professional service matter, i.e. an investigation into work undertaken. Where a D&O policy will protect a firm is for investigation costs whereby a regulatory body has issue with a supervisory issue.
Mark Rowson is a partner at insurance broker Lockton
No comments yet