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Episode 04
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Ethics and Professional Responsibility
Risky Business: Handling Professional Responsibility Complaints and Claims
Law as stated: 1 July 2020
What is this?
This episode was published and is accurate as at this date.
This interview with a Lawcover claims solicitor discusses your Lawcover professional indemnity policy and how to handle a complaint or claim made against you or your firm.
Ethics and Professional Responsibility| What area(s) of law does this episode consider? | Risk management for lawyers: this episode considers the most common claims against lawyers and provides practical tips for reducing the risk of a claim. |
| Why is this topic relevant? | Many lawyers will be exposed to a professional negligence claim during their career. This can cause stress and anxiety for the lawyer(s) involved; often this is borne from an absence of knowledge about how to respond to a potential claim. This episode: provides a summary of the most common claims against lawyers, describes a couple of unusual claims (where you can’t help but feel sympathy for the lawyers involved), explains how a LawCover policy operates and provides practical guidance on how to mitigate claims. |
| What legislation is considered in this episode? | Legal Profession Uniform Law (NSW) Australian Solicitors’ Conduct Rules 2015 |
| What cases are considered in this episode? | The Law Society of New South Wales v Gathercole [2016] NSWCATOD 27: This case concerns disciplinary proceedings against a solicitor who was approached by an existing client (the husband) to witness the signature of another (the wife, whom he had never met) on mortgage documents and sign legal advice certificates. The wife’s signature had been forged and the solicitor was ultimately found guilty of professional misconduct. In this case, indemnity was denied on the basis of fraud, not by the fraudster, but by the solicitor. Zakka v Elias [2013] NSWCA 119: This is an appeal commenced by Mr Zakka about the dismissal of a claim made against Mr Elias (sole practitioner who traded as Cadmus Lawyers) regarding advice provided by Ms Rahe (a solicitor employed by Mr Elias). While holding an unrestricted practising certificate, Ms Rahe provided advice to Mr Zakka, a relative who was lending money to third parties. She concealed her actions from her employer. Issues arose and Mr Zakka sued Ms Rahe; one of the issues on appeal which Jennifer refers to is whether Mr Elias was vicariously liable for Ms Rose’s negligence. The Court found that this was “a clear case of a solicitor engaging in a frolic of her own or at her own whim…. It is an act Ms Rahe was not authorised to take as an employed solicitor of the firm. There was not, in my opinion, a sufficient connection between that unauthorised conduct and Ms Rahe’s employment to bring this within the scope of the doctrine of vicarious liability…” at [142]. Legal Services Commissioner v Michael Vincent Baker [2005] LPT 002 |
| What are the main points? |
but may in some stances respond to claims for compensation.
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| What are the practical takeaways? |
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| Show notes | Law Society – Fidelity Fund – Current Notices The Law Society of New South Wales v Gathercole [2016] NSWCATOD 27 Zakka v Elias [2013] NSWCA 119 Legal Services Commissioner v Michael Vincent Baker [2005] LPT 002 |
[1] According to the Office of the Legal Services Commission this includes threatening or abusive behaviour, failing to comply with an undertaking, non-disclosure of costs and poor advice and representation.
[2] According to the Office of the Legal Services Commission this includes gross overcharging, acting contrary to instructions, misleading and deceptive conduct in or outside court, and misappropriation of trust money.
| David Turner:
1:00 | Hello and welcome to Hearsay, a podcast about Australian laws and lawyers for the Australian legal profession, my name is David Turner. As always, this podcast is proudly supported by Assured Legal Solutions, a boutique commercial law firm making complex simple. It’s a call no lawyer wants to make. Giving notice of a potential claim under your professional indemnity insurance policy. That everyone makes mistakes in the steps that you take after a claim comes to your attention can make a world of difference to the outcome at the end of the process. Joining me today to talk about handling professional indemnity insurance claims made against you or your practice is Jennifer McMillan from LawCover. Jennifer thanks so much for joining us on Hearsay. |
| Jennifer McMillan: | Glad to be here, thanks David. |
| DT: | Now Jennifer what are the most common kinds of claims made on board cover policies? |
| JM:
| We get claims that really go right across the gamut of legal practise but we look quite closely to see which areas of practise we get the most claims, and conveyancing is right up there with about 26% of the claims that we get will be for people who have had some kind of mistake in relation to either the preparation of a contract, or in the advice that was given to a purchaser in a conveyance. The next biggest area of claims for us is litigation. And that can be things like for example failing to commence proceedings in time, so beyond your limitation period. Or it could be for example an allegation that there was a failure to properly advise in relation to a proposed settlement of litigation. |
| DT: 2:00
| That’s such a tricky one, that last one, I imagine that there’s just such animus and natural conflict in litigation that I suppose everything can be done better in hindsight in that situation but settlement offers must be a really tricky one because of course that’s the one area where you can’t cease to act for someone if they don’t follow your advice. Do you have any insights on how those claims often work? Those ones involving a settlement offer that was or wasn’t taken with or against advice? |
| JM:
3:00
4:00 | Yes, in fact it’s those kinds of claims that we’re seeing a little bit of a spike in at the moment. Where the client walks away with settlement regret having settled, and then seek to improve their position by saying ‘if I’d been properly advised I never would have agreed to that settlement.’ I think it puts a lot of pressure on solicitors engaged in litigation because very often these discussions are taking place on the steps of the court. It’s often quite a big ask to expect solicitors to take the sorts of careful file notes in that situation that we’d like to see on their files around what advice they’ve given to the client before the offer was accepted. But actually, maintaining file notes of those kinds of conversations can be really really critical. I’m even starting to come around to the idea of suggesting to people that they seek the clients consent to record that conversation that they have about a settlement, because having no written evidence to refute the client’s version of the lack of advice they were given, puts the solicitor in a really difficult position. TIP: As Jennifer suggests, it’s important to obtain consent before you record any conversation, not just because it’s the polite thing to do but also because, generally speaking, it’s an offence under the Surveillance Devices Act to record a conversation with someone without their consent, if you intend to communicate what was recorded to a third party later. Once you have that consent though, recording advice given over the phone or in a meeting is a great idea. It’s the perfect way to capture an accurate record of the conversation, without relying on your own recall or being distracted by taking notes during the meeting, and it can easily be stored electronically. |
| DT: | It’s probably the first thing, or one of the first things, we’re taught at college of law, starting up our practise that I need to take a file note of every conversation and it’s so easy to do that when you’re sitting in your office, on the phone, or after coming back to your office from the board room, but it’s very different as you say on the steps of the court or just outside of the courtroom when you’re hurriedly negotiating that settlement offer. |
| JM: 5:00 | That’s exactly right and file notes is a message that we bang on about quite a lot at LawCover, but just thinking about the way that people are working from home at the moment during COVID-19, I can imagine that when you’re away from your office it might be one of those situations where you’re perhaps a little less inclined to keep to your usual processes and be as careful as you might otherwise be to make sure that you’ve made a note of a phone conversation and then had that note of the phone conversation actually end up on the file somewhere, whether it’s electronic or in physical form. |
| DT: | Absolutely. I suppose that highlights that for firms that are now working remotely, that impacts work remotely into the future. The importance of having a system of recording those file notes that isn’t just relying on a paper file sitting on your desk somewhere. |
| JM:
6:00 | That’s right, and of course having smart phones makes it very easy. We’ve all got a recording device at the ready even if we don’t have an old fashioned Dictaphone, so I think it’s really important for people to just be mindful of how critical that written evidence of advice might turn out to be, and make sure that if they don’t have a pen and paper handy, they at least dictate something into their smartphone. |
| DT: | The other area that you said was quite a common one for claims was conveyancing. Is it usually the solicitors acting for a purchaser who are pursuing those claims? |
| JM:
7:00 | The claims where a solicitor is acting for a purchaser do tend to be the ones where the amount incurred is fairly high because it might be, for example, a failure to advise about the terms of an easement and because of the terms of that easement the purchaser can’t do what they wanted to with the property and their version of events is that they would never have proceeded with the purchase. So, you can be talking about larger dollar amounts, but funnily enough particularly in a falling market we get a lot of claims against vendors, solicitors and often that’s about not attaching the correct prescribed documents to the contract because in a falling market you’ve got a purchaser who’s motivated to get out of the contract. They can rescind if there’s any irregularity with the prescribed documents, and then the vendor resells but sues the solicitor for the shortfall. TIP: I’m now going to ask Jennifer about the most common cause of complaints. The cause of a complaint is even more important than the complaint itself, because as lawyers we can’t reduce the number of complaints without first understanding the underlying causes. |
| DT: | Now those are the most common kinds of claims, what are the most common causes of claims? |
| JM:
8:00
9:00 | Yeah, we really like to look under the type of claim and try and get to the nub of what could have been done differently to produce a different outcome in a situation. And so, we ask for every claim we ask our claims solicitor to identify what the underlying cause is, and the biggest underlying cause of claims has something to do with poor communication between the solicitor and the client. So, it might be that the instructions weren’t properly followed, or there was a failure to give advice that should have been given, or perhaps a failure to be clear about what the extent of your retainer was. So those sorts of things account for, by far, the largest number of claims, but other causes of claims that frequently occur are things like document problems. So, errors with drafting, not checking documents before they leave the office, or sometimes it’s a document control issue where you might have had a commercial contract go back and forth and back and forth and then for some reason it’s not the final version that gets executed. And then the third biggest reason why claims are made is something to do with systems, and often that will be a failure to properly manage calendars, a failure to make sure that important dates aren’t missed, it could be hearing dates and they might be costs thrown away that lead to personal costs orders against a solicitor, or it could be things like the last day for filing a statement of claim, or the last day for exercising an option to purchase property, those sorts of things and not having a system where files are brought up for review consistently, or not having a good system for supervising junior solicitors, those sorts of things can really lead to claims. |
| DT: | It’s so interesting that those are the three most common causes because I imagine when a solicitor is waking up in a cold sweat at night dreaming or having a nightmare about the possible claims that might be made against them, the common fear is that you’re going to get a legal answer wrong. That you will give advice and it turns out to be contrary to law, but it sounds like generally we get the law right, and that it’s communicating that’s the problem. |
| JM: 10:00 | Yeah we do have a certain proportion of claims where we would say that not knowing the law adequately is the real reason behind the claim, but that would come in fourth after those other three causes of claims. And the solicitors who are most susceptible to those kinds of claims will be the ones who are dabbling in an area that’s really outside their area of expertise. I think it’s very difficult particularly for sole practitioners these days who run a general practise to keep up to date with all the different areas of law in which they might be expected to accept instructions. |
| DT: | There is increasingly a pressure to specialise isn’t there because it’s so difficult to keep track of increasing regulation in so many areas. |
| JM:
11:00 | I’m a big fan of specialising. I think if you can, it’s good for you and it’s good for your clients. It’s a way of differentiating your firm from other firms around, and if you have an area that you practise in exclusively, or mainly then you can develop the expertise so that you’re not having to necessarily go back and consult the books every time. |
| DT: | That’s right, it’s not just a claims management task, it’s also a marketing benefit. |
| JM: | All kinds of benefits. |
| DT: | Efficiency as you say in not having to reinvent the wheel every time. But you know the other interesting thing that your answer highlights for me there is that administration and being a good project manager is so important to practise confidently. I think a lot of people say well I’m a technical specialist, I’m an expert in my field, I don’t need to worry about managing my calendar or taking file notes, but you know that’s where you can really trip up. |
| JM:
12:00 | That’s absolutely where you can trip up and I think that the lawyers who run their practises really well in a way that’s not at all likely to be claims prone, are the ones that have an eye to risk management, and who perhaps run their files on a project management kind of basis. And these aren’t things that you’re taught in law school. I think one of the difficulties is that once you start practising law, if you don’t have a good mentor who sets you on the right path and who gives you a chance to develop those skills that will help you to minimise risk, it can be very difficult to just come up with those things for yourself. |
| DT: | Did you often see claims where it’s clear that the policy holder there hasn’t had the benefit of that kind of on the job training about project management? |
| JM: | Unfortunately, yes. I think we’ve got a lot of practitioners who set up as sole practitioners after doing the minimum period of supervised practise and that is one of the things that does cause us some concern. I think good operators get lots of experience preferably in a couple of different firms before they start practising on their own account. |
| DT: | I know it’s a trend that the legal services commissioner is concerned about as well. |
| JM: | Doesn’t surprise me. |
| DT: 13:00 | Now the vast majority of our listeners on Hearsay will have LawCover policies, very briefly how does it work? |
| JM:
14:00 | OK so the policy covers the firm. So, if the firm is sued whether it’s a partnership or an incorporated legal practise, then the policy covers them. It will also cover any employees of the firm or employees of the service company related to the firm. The base level of cover is $2,000,000 for each and every claim inclusive of costs and we cover pretty much any sort of civil liability so very often claims will be made in contract for breach of retainer, in tort for failure of duty of care, occasionally we’ll see misleading and deceptive conduct claims, and there are also sometimes claims for compensation made in connection with a complaint that might be made to the legal services commissioner. For example, we covered things like personal costs orders as well for solicitors to the extent that it exceeds their excess, that policy will jump in. |
| DT: | And the cover amount is $2,000,000 inclusive of costs, but of course that’s also the limit of the professional standards legislation. |
| JM:
15:00 | In fact, it’s $1.5 million in the professional standards scheme, but that I guess allows $500,000 to play with for costs. TIP: The Professional Standards Scheme is a statutory scheme – in NSW, it’s governed by the Professional Standards Act and the Professional Standards Regulation – that allows a participating member to limit damages in respect of an occupational liability claim to an amount of $1.5 million. The scheme is not an insurance scheme and does not displace the requirements for solicitors to obtain professional indemnity insurance; but it does operate to cap the quantum of a claim against the participating member to $1.5 million against the participating member, which is relevant given that the cover under a LawCover policy is capped at $2 million. There’s an interesting interplay between that professional standard scheme and the base level of cover and in very many instances if the professional standards scheme applies then you can be comfortable that that will fall under the policy limit. But of course, we do encourage practises to turn their minds to whether the sorts of work they are engaging in might mean that they should take out top-up insurance so that they’re covered for larger claims. |
| DT: | Now suppose the worst has happened for one of our listeners, they’ve received an email or a letter or a phone call from a client that suggests that a claim is or about to be made, what’s the first thing that that policyholder should do? |
| JM: 16:00
17:00 | Give us a ring. The first thing that you should do is just contact the claims team at LawCover. We’ve got a bunch of claim solicitors who all have loads of experience in dealing with claims against solicitors, and even if you think that the threat by the client is going to come to nothing, it’s still worth having a conversation with the claims team, making a notification, getting a file open, it may well go nowhere. About half of the notifications that we get go nowhere, but it gives you an opportunity to have a conversation with an experienced claims solicitor who will be able to talk you through a bunch of things. They’ll be able to talk you through, for example, that difficult conversation that you might need to have with the client if you’ve discovered a mistake and the client doesn’t know about it yet. Because that is quite confronting thing to have to do. The claims team are also really experienced in helping solicitors work out whether they’ve got a conflict of interest in continuing to act in a matter it might be that it’s something that’s capable of resolution and the inclination is always I think to fix it yourself before it turns into anything bigger. And the other thing that the claims solicitors might also be able to help with, they will have seen everything before. They will have seen every kind of mistake that might be made, and they might have a strategy for mitigating the risk for the particular kind of issue that’s arisen for you. |
| DT: | That’s a great point Jen that you should make a call first. I think a lot of people, if you ask them what’s the first thing you should do if you think a professional indemnity claim is going to be made against you, they say oh make a notification, and of course you should do that as early as possible, but the idea is speaking to a claims solicitor to give you one that kind of emotional comfort that this is a path forward, but also as you say to mitigate loss and take some proactive steps before that claim is even made is a really powerful move. |
| JM: 18:00 | Yeah they’re a really great team of solicitors in the claims team at LawCover and they’ve got so much experience and they’re also very much used to talking to solicitors have just had a sleepless night because they’ve been worried about something that’s come to their attention the day before and that they haven’t known what to do about. |
| DT: | Let’s talk about that difficult conversation with the client where you’ve discovered a mistake. So, let’s talk about that difficult conversation with the client in a circumstance where you’ve discovered a mistake that you’ve made, but the client isn’t yet aware of it. It must be awful, perhaps even worse than hearing from the client, that you’ve made a mistake. Do you have some tips for managing that conversation? |
| JM:
19:00 | Yes absolutely, and I would encourage you to talk to one of our claims team about it, but I think that the important thing to remember is that you really owe your client a duty to be frank with them about what’s happened. So, the worst thing you can do is to try and cover up or conceal a mistake. It’s really important to be frank with the client about what’s happened. There is a clause in the policy that says that you mustn’t admit liability without LawCover’s consent and again good reason to talk to a claims solicitor about how to have that conversation. But the other thing that you should be doing when you have that conversation with the client is pointing out to them that they should perhaps seek independent legal advice. |
| DT: | I suppose you don’t want to get yourself into a position of having given advice on potentially a claim against you. |
| JM: | That’s right, that’s not something to be encouraged. |
| DT: | That’s probably an entirely separate issue to lose sleep over. |
| JM: | But it does kind of highlight how conflicted you can become in that situation where your interests may not any longer be aligned with your client’s interests. |
| DT: | And I suppose there’s a temptation for some solicitors who discovered a mistake on their part and we still have the trust and confidence of the client to minimize or even conceal it. |
| JM: 20:00 | I think concealing is never a good idea. There may be some circumstances where you can take some steps for the client. Let’s take an example, let’s say you’ve got a client who has overpaid stamp duty because you made a miscalculation of that stamp duty. You should tell the client what’s happened and then you might say to the client I think I can liaise with state revenue to organise for that money to be refunded to you. Do I still have your confidence? Are you happy for me to take that step? Would you like to seek separate legal advice? And in that situation where the client is fully informed about what’s happened, I think that it’s probably OK to go ahead and see if you can recover that money from state revenue. If you can’t then you might get to the point where you have to say I think you should seek separate legal advice. |
| DT: | Yeah absolutely. The policy is a claim notified policy, how soon do you need to notify under your LawCover policy in order to be covered? |
| JM: 21:00 | The policy wording says that you should notify as soon as practicable and we would definitely encourage people to notify early if they got wind of a claim happening. Just so that we can be as prepared as possible when the process actually kicks off. Having said that, we do occasionally get claims where we don’t hear about it until after proceedings have been issued and it doesn’t mean that you would not be indemnified. I can’t think of a circumstance where late reporting would lead to a failure to indemnify unless perhaps there’s been some real prejudice to the case. |
| DT: | I suppose even if it doesn’t involve, you’re not being indemnified, reporting late can still lead to forensic disadvantage for you or for the insurer in those proceedings. |
| JM: 22:00 | Absolutely, it’s so much better too notify as soon as practicable as the policy says because it gives us an opportunity to engage in that evidence gathering process and be ready to deal with the claim when it comes in, whether that means fighting it to the death or settling it very early. |
| DT: | And as you said before mitigating loss. Sometimes there can be steps that can be taken at that very early stage to reduce or even to nullify to a large extent, the quantum of the claim made against you but it’s almost impossible to do that after a statement of claims concerned. |
| JM: | That’s right, so it might well be that you’re able, for example, with a problem with a document, to seek a rectification and it might not have occurred to the solicitor that that’s a path that’s available to them. Or my practise area is wills and estates and sometimes there will have been some problem with the way that the will was executed, and rather than having a panic about it you can make an application for the court to dispense with the requirements for due execution. But if you’re not aware of the availability of that process because for example it’s not something you’ve done before, then things can barrel out of control. |
| DT: 23:00 | Yeah absolutely, and I suppose it’s hard to convince a plaintiff who’s now commenced their professional negligence proceedings to abandon those proceedings in favour of an alternative, but whilst all of the options are available to them at an early stage, it’s much easier to have that conversation in a solutions focused way. |
| JM: | I think that’s right, and I think that it leads to a better outcome generally for the insured and often a better outcome for the claimant as well. |
| DT: | You said earlier that there are many kinds of claims that are covered, professional negligence claims, misleading and deceptive conduct claims, even claims in respect to personal costs orders, but there are some kind of claims that aren’t covered, aren’t there? |
| JM:
24:00
25:00 | That’s right. So, the big exception under the policy is for fraud and dishonesty. I can give you an example of where that might come up. In fact, when I first heard about this fraud and dishonesty exclusion, I thought that would be people ripping their clients off for personal gain, but very often it’s not. And the example I’m thinking of is a solicitor who had a client coming to see him with some mortgage documents, needed to take out a loan urgently, the documents were already signed by the client and by the client’s wife and he was expecting the solicitor to witness those signatures and provide a certificate to say that it explained the effect of the documents to the clients, but the wife wasn’t there. So, her signature on the documents, the client says I really need you to do this urgently and puts lots of pressure on the solicitor and the solicitor just has a lapse in judgement and caves and signs as a witness without having seen the wife sign the document. It turns out the wife signature was forged; the wife suffers a loss because there’s now a second mortgage on her property that shouldn’t be there. She sues the solicitor and unfortunately that’s an instance where the policy, LawCover, would deny indemnity in that situation where the solicitor has really overstepped the mark by purporting to witness a document where the signatory was never seen. |
| DT: | It’s an interesting example, isn’t it, because you always think of fraud as a situation where the lawyer is acting expressly against their client’s wishes. But it’s clear that you can engage in fraud in support of your client’s interests. |
| JM: | Yeah and unwittingly. I mean wittingly to the extent that he knew that he shouldn’t do this thing, but he, I’m sure, did not realise that that was a forged signature and that he was facilitating a fraud. |
| DT: | Probably thought what are the odds this will ever come up. |
| JM: 26:00 | I think he had plenty of time to regret that decision because of course it led to disciplinary proceedings against him as well. TIP: Jennifer is rereferring here is the case of The Law Society of New South Wales v Gathercole,[1] a 2016 decision of the Occupational Division of the NSW Civil and Administrative Tribunal. The solicitor was found guilty of professional misconduct, reprimanded and fined $5,000. |
| DT: | That’s a situation where the LawCover policy wouldn’t respond but the plaintiff who suffered the loss there wouldn’t be left in the lurch because the fidelity fund would respond for that. |
| JM:
27:00 | Well the fidelity fund is really there to respond where there’s been problems with trust accounts. That wasn’t the scenario here so I think in fact that the solicitor might have been personally liable in that situation. Not a good situation to find himself in, and all for bending over backwards to please a client who was putting pressure on him. TIP: The Law Society publishes notices about claims on the Fidelity Fund on its webpage – these notices invite anyone who has suffered pecuniary loss because of the default of the legal practice in question to make a claim on the Fidelity Fund – we will provide a link to this page in the Show Notes. |
| DT:
| I find that example so interesting because it’s an example of a solicitor who while doing it in a misguided way, was trying to assist their client and was trying to as you say bend over backwards to support them in their interests. Something else that can happen is solicitors, often younger solicitors, wanting to help their friends and family who might have legal issues. But as you said the LawCover policy covers the practise itself and there are some pretty dire consequences for people who give negligent advice or otherwise make a mistake when they’re practising outside of their employment contract. |
| JM:
28:00
29:00 | Yeah and there’s one example that springs straight to mind from a few years ago where a fairly newly admitted solicitor was at a family function and was put under some pressure by her brother to do some legal work for a distant relative. And she obviously didn’t feel like she could charge this distant relative for what she was doing. She actively concealed from the firm where she was working the fact that she was doing this work to the extent that she opened a separate InfoTrack account so that it wouldn’t turn up in the books. So, there was no file opened, there was no conversation with her supervising principal about the fact that she was doing this work. The client in inverted commas never darkened the door of the practise and would go and see her at home for what she was doing. And of course, it all went pear shaped. What he was doing was borrowing money and securing it on a home that he’d inherited from his mother and the money that he was borrowing was going entirely to a third party. It was a very improvident transaction and he should have been warned in the strongest terms not to do it. And sadly, for the young solicitor involved it went to the Court of Appeal who said that her employer wasn’t vicariously liable for what she had done when she was off on a frolic of her own, and so she didn’t have the benefit of the insurance policy. TIP: Jennifer is referring to the case of Zakka v Elias [2013] NSWCA 119. This is a terribly sad case and you can’t help but feel sympathy for the newly admitted lawyer, but also for her employer who became the defendant in litigation – we will provide a link to this case in the show notes. |
| DT: | Also, I suppose it’s now the subject of a reported Court of Appeal judgement- |
| JM:
30:00 | That’s right, yes, that’s right. It’s not a good way to start your legal career. As I said I think it’s a lot of younger lawyers who tend to fall into this trap of doing work for friends and family because there is a lot of pressure put on people when they’re newly admitted or even before they’re admitted, when they’re in law school. |
| DT: | That’s right. Do you have any tips, or have you seen anything in the course of dealing with some of these claims in terms of managing that pressure? I suppose not just from friends and family but even from clients to do something that’s outside of one’s professional response. |
| JM:
31:00 | Yeah, I think if you are an employed solicitor you need to really take on the professional mantle and assume responsibility for the fact that what you do, you do as an employee of the firm you work for. So it’s important to have a strategy for social occasions you know you find yourself at a party and somebody asks you for some advice about a practise area that you might be really familiar with or you may not be very familiar with but a party is not the place to give that advice either way. So, I’m not suggesting that you need to turn away prospective clients that you meet in a social situation, but don’t engage in giving legal advice in that situation. Formalise the arrangement, have them come and see you at your office, or arrange to have a phone call at another time when you can have a proper private conversation and get fully briefed on the background to the situation. It’s off the cuff advice in a social situation that causes lots of problems for people. |
| DT: | Such a common story isn’t it, that people think they’re just having a conversation at a party and give some offhanded tip that’s later construed as solemn legal advice. I suppose what a practitioner sees as this conversation at the dinner party can be seen by a quote unquote “client” in that situation very differently. |
| JM: 32:00 | Yeah and I think that it’s often a misconception that people won’t sue you in that situation and I’ve had people say to me, but we never had a cost agreement, we never invoiced them how can I be liable? And well the fact is you are being sued in tort, not in contract, and that’s how you can be liable. |
| DT: | Absolutely, and it’s probably more of an issue for a practitioner than it is for the plaintiff there. |
| JM: | Absolutely. |
| DT: | Now we talked a bit about notification and the kind of claims that LawCover receives, let’s flash forward now, LawCover has been notified of the claim, what happens next to the policyholder? |
| JM:
33:00
34:00 | Okay well it depends whether the claim has actually turned into a litigated claim or not. If things are at an early stage, if it’s clear that if it did go to litigation that the solicitor would be liable, then we might attempt to settle without it going to litigation. But if for example a statement of claim has been issued, what will normally happen will be that the client solicitor will refer the matter to one of our panel firms who will then go through an exercise of really investigating the claim. So, they’ll want to spend time gathering evidence with our insurance firm, they’ll be looking through files, they’ll be interviewing people who were involved in the matter and then they’ll make some recommendations about how the litigation should be approached and whether settlement might be appropriate or not. The times when it actually does take quite a toll on the insured is when we take a matter all the way to hearing and very often there will be solicitors who need to give evidence in a matter and that can actually be a pretty gruelling experience being cross examined in a negligence suit. So, we, I mean, we do settle a lot of the vast majority of claims. We either go away or we settle them but there’s always some that end up going to a hearing and they’re the ones where I think it’s particularly difficult for our insurance. |
| DT: | It must be a real conflict for the insured there. On the one hand you would feel like you wanted the vindication of a verdict for the defendant at final hearing, on the other hand it is an awful experience being in the box and that’s not lessened in any way by being a practising solicitor. |
| JM: | That’s right and I think you know people sometimes say that doctors make the worst patients and I think some lawyers really don’t enjoy being the client. |
| DT: | No absolutely not. Maybe solicitors don’t make the best witnesses. |
| JM:
| Some are great, and some, as with everybody, some come across very well in the witness box and some come across very poorly and the same goes for claimants, some of them come across very well and others come across very poorly. |
| DT: 35:00 | I do remember a number of years ago being involved in a case which, it wasn’t a professional indemnity claim, but it did involve an error in drafting so it was a rectification claim and the solicitor who prepared the document came across incredibly well and had prepared fantastic file notes, the best file notes I’ve ever seen, far better than mine I have to say, about their instructions about preparing this document. And it was really critical to succeeding in the rectification suit and ultimately a good result for their client that they had a contemporaneous record of what the document was intended to say. |
| JM:
| Absolutely and I think file notes again, they can really stand a solicitor in very good stead in rectification proceedings as you say, but also in professional negligence proceedings. |
| DT:
36:00
37:00 | Now sometimes, not always, but sometimes the circumstances that give rise to a professional indemnity claim can also give rise to a claim of solicitors engaged in unsatisfactory professional conduct or even professional misconduct. TIP: You’ll probably recall that lawyers can be disciplined for “unsatisfactory professional conduct” or “professional misconduct”. The first one, “Unsatisfactory professional conduct”, is defined in section 296 of the Legal Profession Uniform Law as conduct of a lawyer that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer. According to the Office of the Legal Services Commission this includes threatening or abusive behaviour, failing to comply with an undertaking, non-disclosure of costs and poor advice and representation. “Professional misconduct” is much more serious. It’s defined in section 297 of the Legal Profession Uniform Law as including:
According to the Office of the Legal Services Commissioner, this includes gross overcharging, acting contrary to instructions, misleading and deceptive conduct in or outside court, and misappropriation of trust money. How does LawCover deal with those kinds of disciplinary proceedings? Are policyholders covered for those proceedings? |
| JM: 38:00 | So the policy doesn’t cover you for disciplinary proceedings, so we can’t provide you with representation there, but if in connection with a complaint that was made to the legal services commissioner there is a claim for compensation, that’s when the policy will answer so to the extent that a claim for compensation might be made, then you can make a claim on the policy. |
| DT:
| We talked a little bit earlier about some of the more common areas where claims are made and some of the areas where claims are being made increasingly, claims in conveyancing matters by vendors in a falling market for example, and claims to do with advice about settlement offers in litigation, have you seen any other trends in professional indemnity claims recently? |
| JM:
39:00 | Look, we’ve got our eyes on these things all the time and certainly back 10 years ago I would have been talking to you about in the family law context about prenuptial financial agreements causing a lot of claims and they certainly caused loads and loads of claims several years ago. We’ve seen that contract a little bit but still about half of the claims that we get in family law matters relate usually to prenuptial financial agreements and I think it’s almost just in the nature of the thing that when the relationship turns sour, somebody is not happy with that agreement that was signed and looks for a way to get out of it and the lawyer gets dragged in whether they’ve dotted every I and crossed every T or not. |
| DT: | Yeah absolutely, it’s just almost a necessity. If you’re going to attack that document, it’s very difficult to do so without attacking the advice that one of those parties has received. |
| JM:
40:00 | That’s right. And in terms of other trends we haven’t actually seen it yet but we’re anticipating that coming out of this COVID caused recession that we’re finding ourselves in, that we might find that there’s a bit of a spike in claims against solicitors who advised vendors as deferred insolvencies come into play. Mistakes will be discovered at that point that if there was no default on loans, it would never come to light. That sort of thing we can anticipate sort of following on from economically bad times. |
| DT: | More on that transactional work being scrutinised later. I think that’s so often the case that litigators look at the work that a transactional lawyer has done on the front end and really only seen it when it’s being viewed in a very different light and always with hindsight. |
| JM: | That’s right and there’s nothing like hindsight, everybody could have done a better job of course. |
| DT: | The better drafting approach is just so obvious when you’re sitting at the final hearing. Now prevention is better than a cure and we’ve talked about a lot of ways to access the cure or if not a cure maybe a salve for a professional indemnity insurance claim, but what can our listeners do to minimise the likelihood that they will be the subject of a claim in the future? |
| JM: 41:00
42:00 | Look I think it really helps to have front of mind when the situation should have red flags for you. So being alert to those sorts of situations where communication might be difficult. Dealing with clients for example who have English as a second language, we know that poor communication causes lots of claims. Don’t hesitate to involve a qualified interpreter or translator in those situations. That’s a risk management tool for the solicitor, even though the client will have to pay for it. You need to remember that sometimes you don’t want the client to say no to something because you need it to manage your risk, so having in mind that a really important part of your role as a solicitor is to also protect yourself as well as act in the best interests of your client, is important, and just having good systems in place. So, having a good file review system, it’s back to basics but it’s really critical. Being absolutely sure that you keep and retain file notes or send a confirming letter particularly if you’ve given advice to a client who hasn’t wanted to hear that advice. That’s a situation where you just need to think I’ll just need to add in a couple of paragraphs about that in the letter to my client just to make sure that there’s a record that I’ve given advice that what they are proposing is not something that you would recommend, that kind of thing. |
| DT: | Let’s talk about file review for a second, because I mean that’s a good way of discovering if there is a mistake that exists before it has irreversible consequences. What is LawCover looking for in a good file review system? |
| JM: 43:00
44:00
45:00
46:00 | Well I think firstly that there is one. You’d be shocked to discover that some firms don’t seem to operate on a file review, on a systemised, file review system. Making sure that files aren’t put away for long periods of time without being looked at in between. I think it’s really important particularly when somebody is in their supervised period of practise that the supervising practitioner is as intimately acquainted with what’s going on the file as the supervised solicitor, and these are great learning opportunities and teaching opportunities for newly admitted practitioners. But I think it’s really also important not to let the wheels fall off when you’ve got a few more years’ experience under your belt and perhaps not being supervised as closely. Peer review is a fantastic thing if you are able to have a system where another solicitor in your office casts an eye over files on a regular basis just to make sure that things are being done properly. Having checklists further for routine kinds of files so that you can look at a glance and see ah okay we’ve got that date in there something needs to happen. Those sorts of things are really good at preventing claims before they happen. TIP: I’m now going to ask Jen about claims arising as a result of inadequate supervision of junior lawyers. As many of you may be aware, section 49(1) of the Legal Profession Uniform Law (NSW) imposes a statutory condition on the practising certificate of newly admitted lawyers to be supervised for the first two years of practise. Once this supervisory period is completed, the junior lawyer can make an application to have the condition removed. The standard of supervision required is set out in Rule 37 of the Australian Solicitors’ Conduct Rules 2015 which provides: ‘[a] solicitor with designated responsibility for a matter must exercise reasonable supervision over solicitors and all other employees engaged in the provision of the legal services for that matter.’ The legislation does not define what is ‘reasonable supervision’, and much will depend on the particular circumstances. In Legal Services Commissioner v Michael Vincent Baker [2005] LPT 002 at [42] it was held: “A practitioner should properly supervise all legal professional work carried out on their behalf. Vicarious liability aside, a practitioner’s legal and fiduciary duties to a client are not avoided or reduced by delivering that client into the care of an employee, whether or not that employee is legally qualified. The supervision required however varies according to the employee’s experience, qualifications and role and with the type and complexity of the work”. This case shows that the determination of what is “reasonable supervision” will be considered on a case-by-case basis, but more supervision will be required for less experienced staff, and less supervision will be required for more experienced staff. |
| DT:
| When you said earlier that there are some claims that come from poor supervision of junior solicitors, that must be so hard for the newly admitted lawyer who they’re doing their best and using their own professional skills but at the end of the day you know they’re really relying on their principle to ensure that they’re not making mistakes. |
| JM: | That’s right, they’re on a learning curve and it really is disheartening to see a supervising practitioner try and lay the blame on for somebody that they should have been supervising more closely. |
| DT: | It’s not the approach that you’d expect of a professional, is it? |
| JM: 47:00 | No that’s right, but it’s also when mistakes are discovered I think it’s a really good opportunity for supervising solicitors to do some great mentoring about how you respond to mistakes. So, about the importance of bringing them to the light early and discussing them and strategizing around how best to deal with them. Those sorts of things can make a really important and positive impression on a young solicitor and will also leave that newly admitted solicitor in no doubt that they can go to their supervisor when they discover that something’s gone wrong, and that’s really important. The last thing you want is a junior solicitor who’s hiding mistakes. |
| DT: | Yeah of course, because I imagine that’s where a lot of claims come from some years down the track- |
| JM: | – and disciplinary proceedings as well come out of that sort of thing. |
| DT:
48:00 | Which would be an even worse way to start a career in law. Do you have any other tips about supervision? I know it’s something that even if it doesn’t result in a professional indemnity insurance claim, it’s something that a lot of young lawyers have a concern about they’re not being supervised adequately or they’re not receiving the mentoring that they were expecting. |
| JM:
49:00
| I think part of that difficulty comes from the fact that people will tend to supervise junior lawyers in the same way that they were supervised when they started in practise. And if they didn’t have the best experience at that time, then it’s quite likely that they’re going to perpetuate those poor systems. I think it’s really good to actually even have a written set of guidelines for what the supervisor expects of the junior solicitor and what the junior solicitor expects of the solicitor supervising them. So that there’s some ground rules there around, you know, accessibility, around when do I want you to contact me, around perhaps do some research before you contact me about this that kind of thing, so that you’re encouraging the younger solicitor to develop some skills but also leaving them in no doubt about the fact that you’ve got a steak in their matters and that you’re keenly interested in ensuring that they’re handled properly. |
| DT: | It’s really part of the education piece that you strike that balance between helping them solve problems themselves and grow as a practitioner but also having the safety net to know that they’re not going to be making a notification to LawCover because they’ve been left on their own. |
| JM: | That’s right. |
| DT: | That’s right. We’ve talked about a lot of things today about what our listeners can do if they do receive a claim, what they can do to prevent ever receiving a claim, hopefully. If there’s one thing you want to leave our listeners with before we finish up today Jen what would that be? |
| JM: 50:00 | Look, I think that everybody makes mistakes. It’s really you know it’s an extraordinarily lucky practitioner who manages to get through a whole career without having some kind of mistake. The best mistakes are the ones that are dealt with before they leave your office. But if it looks like you’re going to get a claim against you because of something that’s happened, or it might even be that you don’t believe it’s a mistake but you’ve got an unhappy client who’s threatening to make a claim, just don’t hesitate to contact LawCover. I think having a conversation with a claims solicitor about where to next is always going to be a good thing. |
| DT: | Jennifer McMillan thanks so much for joining me on Hearsay. |
| JM: | Pleasure. |
| DT:
51:00
52:00 | You’ve been listening to the Hearsay The Legal Podcast. I’d like to thank our guest Jennifer McMillan from LawCover for coming on the show. If you liked this episode about professional ethics, listen to our episode about advising clients with special vulnerabilities, which touches on similar issues, specifically the use of interpreters. Or, for something different, listen to my interview with Jonathan Prideaux and Paul Bartholomew about how technology and organisational innovation are changing the legal practice. If you’re an Australian legal practitioner, you can claim one continuing professional development point for listening to this episode. Whether an activity entitles you to claim a CPD unit is self-assessed, but we suggest this episode constitutes an activity in the ethics field. If you’ve claimed 5 CPD points for audio content already this CPD year, you may need to access our multimedia content to claim further points from listening to Hearsay. Visit htlp.com.au for more information on claiming and tracking your points on our platform. The Hearsay team is Tim Edmeades our audio engineer, Kirti Kumar our chief researcher, Araceli Robledo our head marketer, and me David Turner your interviewer. Nicola Cosgrove is our executive producer and brings it altogether. Hearsay The Legal Podcast is proudly supported by Assured Legal Solutions, making complex simple. You can find all of our episodes as well as summary papers, transcripts, quizzes and more at htlp.com.au. That’s HTLP for Hearsay The Legal Podcast.com.au. Thanks for listening. |
[1] The Law Society of New South Wales v Gathercole [2016] NSWCATOD 27.
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