The Gazette 1992

GAZETTE

DECEMBER 1992

Compensat i on Fund

- the Real i t ies

Legitimate concern among members

of the profession as a result of

recent publicity, some of it

inaccurate, highlighting claims before

the Compensation Fund requires

comment.

As members are well aware the

Society has a statutory obligation

under the Solicitors Acts 1954/60

firstly to maintain a Compensation

Fund at a mi n imum level of £25,000

and secondly, to make payments out

of that Fund to any person

sustaining loss in consequence of

dishonesty on the part of a solicitor

in connection with that solicitor's

practice or in connection with any

trust of which that solicitor is a

trustee. The amount of the

compensation must represent, in the

opinion of the Society, full

indemnity for such loss. In practice

the Society maintains a Fund greatly

in excess of its legal obligations and

has to date never failed to pay out

on any claim.

Thus the Fund provides a guarantee

to the ordinary clients of solicitors

and is a powerful testament to the

decency and integrity of the vast

majority of members of the

profession. No other profession, in

so far as I am aware, operates an

open-ended Fund of this kind

providing full indemnity and the

profession should feel extremely

proud of it. However, the sheer size

of recent claims calls into question

the whole concept of the Fund as it

is structured at present.

Excluding the large claims which

give rise to the present difficulty, the

Compensation Fund has paid out

since 1 January, 1980 a total of £4.7

million with annual payments

increasing from £100,000 to over 10

times that amount within that

period. At all times the Fund has

been reinsured for a multiple of its

actual size but, with its claims

experience to date and the

potentially large claims now

threatened, the Society sees a real

danger that reinsurance may become

prohibitively expensive or not be

possible from here on. The cost of

such reinsurance has risen

dramatically over recent years forcing

the Society to scale down the level of

reinsurance and it may well be that

reinsurance will, in any case, not be

cost effective.

Already a number of steps have been

taken by the Society to deal with the

problem of dishonesty in the

profession and to modify the law

relating to the Fund.

• The Society now has a total of

seven full time investigating

accountants whose sole function is

to investigate solicitors' accounts

and practices.

• Careful monitoring by the Society

has increased compliance with the

Accounts Regulations so that an

average of 97% of solicitors each

year have their accountant's

certificates in order and furnished

within the statutory period.

• At the Society's request cases

prosecuted before the High Court

by the Disciplinary Committee are

now publicised and it is intended

that the Society will from

January, 1993 carry reports of the

outcome of disciplinary cases in

the form of legal-style reports in

the

Gazette.

• An amendment to the Solicitors

Bill has been accepted whereby

"clients" of Solicitors only rather

than "persons" will have the

protection of the Fund and claims

will only be possible in future in

respect of monies

entrusted

to a

solicitor.

• A further amendment under

negotiation by the Society seeks to

impose a limit (cap) on any

individual claim. This amendment

has not yet been accepted by the

Government.

Despite these efforts, the total

amount of claims notified this year

stands at £2.9m. From the

information available at the moment

the best estimate is that all proper

and provable claims can be met in

full out of the Fund and that for

next year the annual contribution to

the Fund will not be increased from

this year's level of £475.

Nevertheless, the substantial increase

in both the number and extent of

current claims gives rise to serious

concern. The time is ripe to

investigate the principle on which the

Fund was established almost 40 years

ago, namely to protect the ordinary

citizen, against the present

circumstances whereby the law

abiding members of the profession

must carry the open-ended and

continuous liability of guaranteeing a

tiny minority involved in calculated

and massive fraud. New concepts

must be found to give effect to the

original principle of the Fund while

at the same time seeking to make its

operation fair and equitable.

As promised, I have established a

Compensation Fund Policy Review

Committee under the Chairmanship

of the Junior Vice-President,

Laurence

Shields,

to carry out a

wide ranging investigation of the

Fund and its present constitution

and operation and to examine

possible options which might lead to

new concepts. The membership has

been chosen to be as representative

as possible with both a mixture of

firms and sole practitioners, urban

and rurally based. This Committee

has its first meeting in early

December and will be happy to take

on board any views or suggestions

any member might have. Members

are requested to forward their views

in writing to the Secretary of the

Committee,

Mary Keane,

Blackhall Place.

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