It’s not as improbable as you think… No accountant looks forward to the
prospect of being dragged through the courts by a vengeful client, but it’s a
feature of life that can’t be ignored. As the debate surrounding limited
liability rages, the issue has become even more pressing, especially as
aggrieved companies are being given greater access to huge pools of money to
Not only does professional indemnity insurance protect your business against
compensation sought by a client if you have made mistakes or been negligent in
some or all of your services, it crucially provides cover for the legal costs.
‘I already know that’, you may say, but getting the right legal advice is
key, especially in terms of pre-emptive moves to do all you can to avoid a
The fallout from a claim just being lodged against you by a prominent
company, let alone the eventual repercussions, can be severely damaging in
reputational terms, so your legal representation must be fully aware of the
business climate in which you and your clients inhabit.
These may seem obvious points, but there are key questions you should ask any
prospective legal representation to ensure they are up to scratch if things do
One of the most high-profile cases being dragged through the courts at the
moment involves mid-tier player Moore Stephens. The firm is currently on the
wrong end of a £90m negligence suit over its role as auditor to Stone &
Rolls, a collapsed British company linked to a Croatian businessman Zvonko
Stojevic that is being bankrolled by litigation funding. The claim against Moore
Stephens is being funded by IM Litigation Funding, a UK company.
To date, it is the largest claim in the UK involving independent litigation
Peter Ellingham, a partner at City law firm Kennedys, says: ‘This case
illustrates the growing trend of seeking to blame auditors for the results of
fraud within companies. In that context, litigation funding is a concern to
auditors and their professional indemnity insurers.’
The future for accountants may become a lot more hairy as the legal firms’
involvement in the case is taken up a few notches. Insurers are clearly not
going to welcome the current situation because they are usually responsible for
funding the defence of such claims, but a new form of the controversial funding
could make the situation even more acute.
Sector experts are keeping an eye on the growth of a different litigation
funding mechanism, under which the law firms involved in the case assume a
degree of risk in the outcome of a trial.
The concept of a ‘plaintiffs’ bar’ is an established feature of the US system
of justice. It allows lawyers to share with their clients in the proceeds of
litigation. At the moment, these arrangements are not yet permissible in the UK,
but Stateside there has been a massive growth in litigation funded by
conditional fee arrangements, that is, contracts in which lawyers accept a share
of the risk in the outcome of the litigation in exchange for an uplift on the
fees they would earn in the event of a successful outcome. A number of US
plaintiff law firms have recently set up branch offices in the UK and elsewhere
in Europe or have expressed an interest in doing so.
It’s not all bad news, though. Jeremy Cole, litigation partner at law firm
Lovells, says: ‘The flipside of losing can be severe for the funder. In those
circumstances, the funding used to bring the claim has been lost and the funder
may well pick up some of the other side’s legal costs. This potential exposure
could keep the lid on the funding of marginal claims.’
One important aspect to bear in mind when considering professional indemnity
insurance is that, because there can often be a long delay between an event and
a subsequent claim, you need to be covered both at the time of the event and
when the claim is made. Also, if you plan to change insurers, you will either
need to arrange run-off cover or get agreement from your new insurer to accept
new claims for prior incidents.
Everyone automatically focuses on the aggrieved client, but if the worst
comes to the worst and you lose the case, what can you do if you’re not happy
with the service that your legal eagles have provided?
First, you should write directly to the person who handles complaints in your
solicitor’s business. This person should have been named in the client-care
letter your legal team provided when they started working for you. Outline
exactly what the problem is and ask them to confirm who will deal with it and
how quickly they will do so. If your complaint is about your bill, you should do
this quickly as time limits apply if you need to take the complaint to the next
If you cannot reach agreement through your lawyer’s internal complaints
procedure, you can take your complaint to the Law Society’s Consumer Complaints
Service (CSS). This is an independent body that will try to arbitrate between
you and your solicitor. It can also award compensation if appropriate. You can
find details on how to take a complaint further on the Law Society website
(www.lawsociety.org.uk). The progress of the complaint depends on whether it
involves court action that has already taken place or is forthcoming.
Even if a complaint has not been resolved, you may need to pay at least part
of your solicitor’s bill. Check with the CCS helpline for more detailed advice.
If the CCS cannot resolve the complaint to your satisfaction, you may be able to
complain to the Office of the Legal Services Ombudsman (OLSO) about the CCS.
The OLSO is unlikely to examine your original complaint – it usually only
looks at how it has been handled by the CCS. Do they understand the nature of
your business? If not, it’s often helpful to provide them with a written sum
If a claim goes all the way, you must hope that your lawyers will be able to
see you through the storm, but in this case the journey is almost as important
as the destination.
Key questions you should ask a prospective lawyer
1. Are they happy to take you on as a client and comfortable
with the work you want them to do?
2. Are they qualified to act for you? Do they have a
practising certificate issued by the Law Society?
3. What hourly rate will they be charging?
4. Do they think what you are looking to achieve is
realistic? If so, will they outline the steps they think you need to take to
5. Will they explain things in clear plain language and not
confuse you with legal jargon?
6. Will they provide you with real practical solutions and
not just a legal commentary on your case?
7. Will they agree methods and frequency of keeping in
contact, using face-to-face meetings, telephone, letters or email?
8. Can they provide you with a client-care letter that sets
out their terms of business and complaints procedure?
9. Can they outline what other services the firm may be able
to provide as your business develops?
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