Treating customers fairly is a familiar concept for insurers. Solicitors are bound by similar principles. When a mistake has been made, solicitors will often try to put things right for the client. However, a recent decision handed down by the Solicitors Disciplinary Tribunal casts doubt on this practice. As a result, solicitors and their insurers should be wary of making offers to rectify errors when things go wrong.
Solicitors Howell Jones LLP were retained to act in divorce proceedings by a husband against his ex-wife. Ultimately, the husband was unhappy with the outcome of the divorce settlement and he contacted the firm to express his complaint. The firm tried to do the right thing and put matters right for the client. However, events did not go to plan and the firm's actions in mitigation cost it and its insurers some £130,000, as well many hours of time, a Legal Ombudsman complaint and SRA proceedings: SRA v Howell Jones LLP. We discuss below the case and its practical implications for solicitors and their insurers.
Doing the right thing?
Having received the husband's initial complaint about his divorce settlement, the firm was responsive and considered in how it dealt with the husband's concerns.
Instruction of Counsel
The firm instructed specialist Counsel (at its own cost of £1,100) to review its original advice to the husband. Counsel's advice was that the divorce settlement was unfair to the husband and that he might be able to resile from it at a forthcoming hearing in the Family Court. Counsel also advised that the firm had a conflict of interest in acting for the husband in respect of any attempt to resile from the divorce settlement.
Consideration by the firm's risk partner with insurers
The firm's risk partner then considered the matter and made a precautionary notification to insurers. He proposed two options to insurers for the resolution of the situation. First, the firm could cease acting for the husband and advise him to obtain independent legal advice. Second, the firm could admit to the husband that he had received poor legal advice, explain that he was entitled to seek independent advice and propose that the firm continue acting for him at no cost to the husband. Insurers agreed to the second option on the basis that the conflict of interest would be cured if the remedial option was taken.
Consideration by firm's senior management
The firm's senior management considered the position and concluded that there was no conflict of interest in continuing to act provided the husband was willing to accept the firm's proposal to put things right.
Proposal to the client
The solicitors wrote to the husband (what he later described as a "full and frank" letter) admitting its mistake and recommending that the husband resile from the divorce proceedings.
The solicitors advised that the husband could either (i) dis-instruct the firm and instruct new solicitors or (ii) could continue to instruct them to act at no cost to him. The firm also agreed to refund the fees incurred by the husband to date of £6,284.
The husband was delighted with the solicitors' proposal and accepted it on the same day.
What went wrong?
However, things subsequently started to unravel.
Allegation of conflict of interest
The ex-wife was less than happy at her husband's attempt to resile from the divorce settlement and her solicitors asserted that the firm was acting in a position of own interest conflict. Counsel was asked to consider this point and advised that there was no conflict. Reassured by this advice, the solicitors duly advised the husband that there was no conflict.
At the hearing of the husband's application to resile from the divorce settlement, the judge commented that she did not agree that the initial advice given by the firm was bad nor was she willing to grant the husband's application.
She ordered the husband to pay costs on an indemnity basis. £35,000 was ultimately paid by the firm and its insurers in respect of costs to the ex-wife. This was in addition, of course, to its own costs and those of Counsel which were £8,000.
The husband claimed that he was "emotionally destroyed" by the hearing and made a further complaint to the firm. This ultimately led to a complaint to the Legal Ombudsman which resulted in an award of £50,000 in favour of the husband.
The SRA then investigated the matter and brought proceedings against the firm before the Solicitors Disciplinary Tribunal on the basis that the solicitors wrongly acted for the husband in circumstances where there was an own client conflict and/or failed to adequately advise the husband to seek independent legal advice.
The Tribunal noted that the firm had not lacked integrity and had taken numerous steps to try and resolve the matter but ultimately it found that the firm had not ceased acting when it should have done. The firm agreed to pay a £5,000 fine and costs to the SRA of £26,850.
The solicitors and their insurers spent £132,234 in dealing with this matter. Of that, the solicitors paid £21,284 (comprising the excess of £15,000 and the written-off legal charges) and the remainder of £110,950 was paid by the insurers. This does not take into account the value of the time spent by the solicitors in dealing with the matter.
The conflict issue
Many solicitors and their insurers will have a lot of sympathy for the solicitors in this case. They tried to do the right thing. The client's complaint was carefully considered by senior management and by insurers with advice from Counsel. The firm proposed a solution which everyone involved believed remedied any conflict of interest and treated the client fairly. Independent Counsel (who owed her duties solely to the husband) was closely involved in the application to mitigate any risk of own interest conflict. The client himself was initially delighted with the outcome. The solicitors and their insurers paid for the application and refunded all other costs incurred. He was saved the hassle of instructing another firm to set aside the financial settlement which presumably (based on the outcome of the actual application) would have failed and all at his own cost. He did not give up his right to bring a claim against the firm for damages either
The SRA, however, took the view that the solicitors had an own interest conflict while continuing to act for the husband (in other words, the interests of the firm conflicted with those of the husband). The SRA's Code of Conduct requires a firm to cease acting in these circumstances. Unlike the position with client conflicts, there is no scope to obtain informed consent to continue acting.
Practical implications of the decision
The SDT's decision casts doubt on the longstanding practice of solicitors curing an own interest conflict by offering to correct an error at their own expense whilst making it clear that the client can take independent legal advice.
However, to complicate matters, paragraph 7.9 of SRA's new Code of Conduct which comes into force in November 2019, states that a firm should be "honest and open with clients if things go wrong, and if a client suffers loss or harm as a result you put matters right (if possible) and explain fully and promptly what has happened and the likely impact".
So what should solicitors and their insurers do in circumstances where a mistake has been made which is capable of rectification? The answer must be that, pending further clarification from the SRA, solicitors and insurers should exercise great caution before offering to remedy any mistake in the belief that this will cure a conflict of interest. This is particularly true in cases where the remedy involves an element of risk such as litigation or where there are potential compromises open to the client. The prudent course of action would be to advise the client to take independent legal advice in those circumstances.