The Gazette 1991

april

1991

g a z e t t e

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

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