Michael Murphy

In both Ireland and England, where a solicitor makes a mistake and their insurer authorises them to seek to resolve the deficiency, where that is possible, the client must:

• Be fully advised in relation to the error and proposed solution and
• The agreement to this must be freely made by the client.

That is, until the recent decision of the SDT in England in Howell Jones LLP 11846-2018; this decision suggests that this course of action is no longer permissible and that, in all such circumstances, the client must be sent to a new firm.

Facts of the Howell Jones LLP Decision

Howell Jones acted for a husband in divorce proceedings and, acting on the firm’s advices, the husband settled the financial aspects of the divorce. However, he subsequently complained about the settlement so the firm sought counsel’s advice. This corroborated that the settlement was unfair to the husband, could be set aside at a forthcoming hearing and that the firm faced a clear conflict of interest.

The firm notified their insurers who agreed to the proposal to write to the husband to accept that poor advice had been provided, explain that he was entitled to seek independent legal advice but to propose that they would continue to act for him in seeking to overturn the settlement at their own expense.

The husband agreed to this proposal, including an indemnity against any adverse costs if the application failed. Unfortunately, the application did fail, leading to costs of £35,000 being awarded against the husband which the firm discharged (on top of absorbing their own fees). The husband became disaffected and complained both to the firm and the Legal Ombudsman which saw fit to award him £50,000 against the firm.

The Solicitors Regulatory Authority then instigated an investigation and brought the firm before the SDT which led to a £5,000 fine and costs of £26,850. The SDT described the firm’s misconduct as moderately serious and involving an own client conflict in that it had not ceased acting when it should have done which was criticized as an error of judgment.

Commentary on the decision

Writing in the Law Society Gazette, Gregory Treverton-Jones QC described himself as speechless at the outcome. He noted that the husband would have had to go through the application in any event in accordance with his obligation to mitigate his losses – the difference being that he would have had to do so at his own expense and, ultimately, at greater expense to the firm as the cost of the application would have been incorporated into the husband’s professional negligence claim against the firm. He also suggests that the decision may not be correct in law on the basis of authorities such as Connolly v Law Society [2007] EWHC 1175.

In that case, Stanely Burton J. accepted the difficulties of exercising professional judgements in such delicate situations and the necessity to avoid conflicts of interest which could give rise to disciplinary offences; he specifically advised: “If a solicitor does not honestly and genuinely address the issue, he may be guilty of an offence. And if his decision is one that no reasonably competent solicitor could have made, it may be inferred that he did not (or could not) properly address the issue.”

Potential implications of the decision

This may very well be a case where the regulator in England did not see the ‘woods for the trees’ by not affording Howell Jones more latitude for the honest and genuine manner they had acted with the benefit of counsel’s advice in light of what was perceived objectively as a reasonable opportunity to cure the conflict. The decision could have unintended consequences such as a chilling effect upon solicitors in similar circumstances as the firm, as no solicitor (nor their insurer) will wish to bring about a finding of professional misconduct.

The decision could be a retrograde step for clients wishing to bring about the earliest possible commercial resolution of their dispute at the least possible financial cost by continuing to have the same solicitors acting for them. Insurers may also feel that this decision disincentivises early admissions of liability where their insured solicitor will not be afforded the opportunity to work with the client to bring about a cost effective, early, pragmatic resolution of the claim. Indeed, for some clients who may be of limited financial means, it could present an unwanted obstacle to resolving their dispute by having to retain new, costly legal representation at an earlier point than might otherwise have been necessary.

How could this Decision affect Irish Solicitors?

As this is an English decision, it is not binding on Irish solicitors – but will be viewed with some trepidation by the Irish legal sphere and their insurers as it could be of persuasive authority.

The Guide to Good Professional Conduct for Solicitors emphasises that solicitors must retain their professional independence and their ability to retain their clients fearlessly and objectively; it further states that a solicitor should not act where there is a conflict of interest and that, if there is even a perception of a potential conflict, the solicitor should consider whether it would be in the client’s best interests to instruct a different solicitor to avoid any detriment to the client’s case.

However, the Guide equally acknowledges that the circumstances of each case must be examined and the matter decided on a case-by-case basis. It is conceivable that the Irish legal regulatory authorities may ultimately focus upon the client having provided an informed consent to allow the solicitor to continue to act whilst being advised of their entitlement to seek independent legal advice. However, there may still be a threshold at which it becomes essential for the solicitor to insist upon stepping aside. The fact that the solicitor is effectively wearing ‘two hats’ could lead to a deterioration in the client relationship and the possibility always exists that a proposed settlement could be tabled which might be seen to favour the solicitor to a greater extent than the client.

Conclusion

Solicitors will always be wary of any situation where a mistake has been made on a file and it is understandable that opportunities to resolve same with the prior authorisation of clients and insurers will typically be explored to limit the effects of the mistake. The English decision in Howell Jones will raise inevitable concerns as to whether such pragmatic windows of opportunity will still be available to English solicitors.

With the recent establishment of the Legal Services Regulatory Authority, there will already be uncertainty for Irish solicitors as to how complaints will be investigated and this decision will only add to the unease for Irish solicitors when faced with such sensitive predicaments.

• Michael Murphy is a partner in the litigation department at HOMS Solicitors.