The Gazette 1991

g a z e t t e

april

1991

From the Director General

The Compensation Fund

There is understandable concern in

the profession at present about the

Compensation Fund and in parti-

cular about the implications of

recent claims (and possible further

claims) on the cost of Practising

Certificate. This year solicitors are

being asked to pay £890 - of which

£475 represents their individual

contributions to the Fund. This is

substantial both for the individual

sole practitioner and the larger firm.

In England and Wales, the Com-

pensation Fund charge is £125 (for

solic tor in practice for 6 years) and

in Scotland it is £150 (for a solicitor

of 3 years practice). The perception

in the profession is that it is a

spiralling charge; and the demand

is that the Law Society must

add ess the problem - and be seen

to do so - in a serious and

determined way.

Some members believe that it is

time to abolish the Fund and re-

place it w i th a system of fidelity

bonding such as auctioneers and

s t o c k b r o k e rs ma i n t a i n. Many

believe that, whatever happens, a

'cap' must be placed on individual

claims limiting them at a reason-

able level ( £250 , 000 is the limit on

individual claims under the S.M.D.F.

indemnity cover).

There can, perhaps, be few

practitioners who would seriously

maintain that the existence of the

Fund has not in the past been good

- if in recent years costly - for the

profession. As evidence of the

existence of conce rn for t he

highest professional and ethical

standards, it is difficult to think that

t he p r o f es s i on c ou ld p r ov i de

anything better. And in a context

where consideration might in the

future be given to introducing

'licensed conveyancers', I doubt if

any argument would carry more

we i g h t w i t h Go v e r nment for

maintaining the

status quo

than the

plain fact that, when conveyancing

work is done by solicitors, the

public are fully protected against

fraud. So it can be argued that,

even in a limited economic sense,

the Fund has important advant-

ages. In short, it has in the past

given value. The question is can

that be said to-day?

No doubt, as originally con-

ceived, the Fund was defensible.

But the framers of the 1954 and

1960 Solicitors Acts can never have

envisaged - much less intended to

afford protection for - the kind of

cases that can nowadays arise

where, arising from the decision in

the

Trustee Savings Bank

case,*

substantial claims can be made in

circumstances where the money in

question has never been handled,

at least in the physical sense, by the

solicitor. And such claims can be

made by financial institutions who

deal in the commercial world at

arm's length w i th their clients,

assess their risks in accordance

w i th normal business principles

and carry their own insurance - or

ought to - against the risk of fraud.

Can anything be more harsh than

that the ordinary solicitor should be

expected to bear the cost of claims,

that could run to millions, in these

circumstances?

The Law Society has been

actively working to solve this

problem. Its approach has been

essentially two-pronged. First, it

had made vigorous representations

to the Minister for Justice and to

the Attorney General - in writing

and in face to face discussions - to

the effect that the law must be

changed to bring the Fund back to

its original concept, namely, to

provide protection for the client

who trusts his solicitor w i th his

property and suffers loss because

of that solicitor's dishonesty. It has

also urged that there should be a

limit of £250,000 on any one claim.

And the Society believes - and has

said so - that a new criminal

offence should be created wh i ch

would make it easier to prosecute

solicitors who mi sapp r op r i a te

clients' funds.

But the Society has also been

examining the problem from an 'in-

house' perspective to see what

changes might be required in areas

of professional practice and in the

Society's general overseeing of the

profession to enable it to identify

more easily and more quickly the

factors that tend to give rise to

problems that ultimately end up as

Compensation Fund claims. The

vast majority of solicitors are

beyond reproach in their honesty

and professional integrity. That

applies also to sole practitioners;

but t he ev i dence suggt sts,

neve r t he l ess, t h at more sole

practitioners get into trouble than

any o t her c a t e g o ry in t he

profession. In the past 10 years,

9 5% of claims on the Fund have

Noel C Ryan

Director General