The Gazette 1992

MARCH 1992

GAZETTE

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Compensation for Claims or Licence to Steal?

The Annual Report to November 1991, which was sent to each solicitor, gives the full facts and figures. The Society voluntarily reinsures the Fund over the excess of £1M which we ourselves carry, to a sum of £4M, at an annual premium of £135,000. In previous years it was insured to a level of £6M. We had to bring down the level to reduce costs. Because of the fact that very large claims have been notified in the last two years but not yet considered, our insurers have had to make reserves and this has had a substantial impact on our re-insurance premium. The reinsurance of this Fund on 1 May, 1992 may be difficult to negotiate, or require a much higher excess, or be very expensive. The overall costs of keeping this system in place are only too well known to solicitors and I would detail them as follows:- • £475 paid by each solicitor • A huge commitment in manpower by the Finance Department, the Director of Finance, the Accountant, the five Investigating Accountants, and support staff. • A massive volume of voluntary work done by the Chairman and members of the Compensation Fund Committee (this Committee generally sits from 12 noon until very late evening). These talents could be better employed to the benefit of the Society • Administration costs within the Law Society come to £421,466, including salaries, legal costs of intervention in a practice etc. The Options The Solicitors (Amendment) Bill, 1991 changes the definition of the word "person" to "client" and we thank the Minister and the Department for effecting this change.

The issue of the Compensation Fund, in financial and administrative terms, is reaching serious proportions. Concern has been expressed by every solicitor and this is reflected within the Society, as we strive to come to grips with and control a deepening problem. It may be helpful to reflect on the existing situation and explore future options under a number of headings. Society to maintain a Fund, at a level of £25,000 (net of liabilities), from which compensation would be paid to persons who have suffered loss through the dishonesty of solicitors. The Society is obliged to provide an indemnity, but has a complete discretion on when this is paid. We have an opinion from counsel which indicates that, should the Fund become exhausted, the membership of the profession and the assets of the Society are immune from claims by unsatisfied claimants. There is not, in the existing law, any requirement that we should "reinsure" the Fund in order to provide that, on substantial defalcation, there would be monies available to meet a claim. Each solicitor, every January, pays the same contribution to the Fund. In this current year, 1992, it is £475. The Law The Solicitors Act, 1954 requires the The Facts In the year ended 31 December, 1990 solicitors contributed £1.39M to the Fund. In the same year, almost £800,000 was paid out in claims. The level of claims has been increasing steadily from about £240,000 in 1986 to a point where it is now veering towards £1M a year.

The Bill requires that the Fund be maintained, at a given time in the year, at £1M. That is already being achieved and can be complied with. The Bill contains many procedures to strengthen the hand of the Compensation Fund Committee, the Investigating Accountants, and the Court generally, in dealing with relevant cases. The Society has been unable to identify any other profession which has an "open-ended" Compensation Fund procedure:- • Stockbrokers have a Fund which is limited or capped to £48,000 Stg. in each case. • In New York, Lawyers pay in $360 per annum, their Fund has $2M in assets and claims (verified) of $30M. For many reasons we will be insisting that Government recognise the extreme dangers of a complete collapse of the Fund and that they will agree to a cap of £50,000 in the Bill. If this is not done there is a real danger that the Fund could be burst and the profession virtually bankrupt. The Society can go on employing more Investigating Accountants at additional cost to the profession. This service is useful, not merely in detecting defalcators, but in assisting genuine solicitors in the establishment of correct procedures and practices for the management of their clients' accounts. The Society is considering publishing the names of solicitors against whom claims are paid and the Bill will make it obligatory on the Society to publish the outcome of disciplinary cases.

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