R (Toovey & Gwenlan) v The Law Society
| Jurisdiction | England & Wales |
| Judge | Mr Justice Stanley Burnton,MR JUSTICE STANLEY BURNTON |
| Judgment Date | 18 March 2002 |
| Neutral Citation | [2002] EWHC 391 (Admin) |
| Docket Number | Case No: CO/3334/2001 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 18 March 2002 |
[2002] EWHC 391 (Admin)
The Honourable Mr Justice Stanley Burnton
The Honourable Mr Justice Stanley Burnton
Case No: CO/3334/2001
Case No: CO/3334/2001
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
Satvinder Juss (instructed by Chronnell Hibbert) for the Claimants
Nigel Giffin (instructed by Norton Rose) for the Defendant
Satvinder Juss (instructed by Chronnell Hibbert) for the Claimants
Nigel Giffin (instructed by Norton Rose) for the Defendant
Introduction
This is an application for Judicial Review of the decision of the Professional Standards Appeals Sub-Committee of the Law Society made on 25 May 2001 rejecting the Claimants' appeal against the decision of Mr Andrew Darby dated 11 October 2000, refusing them waivers under Rule 10 of the Solicitors' Indemnity Rules 1997 and 1998 in respect of their 1997/1998 and 1998/1999 contributions. The contributions in question were paid by the Claimants for the years of indemnity beginning 1 September 1997 and 1 September 1998 respectively. Their amounts were notified to the Claimants during the preceding months, i.e. in August 1997 and in August 1998 respectively.
The facts
The Claimants are solicitors. They were at the times relevant to these proceedings partners in the then firm called Hibberts, a two-partner firm with an office in Hyde in Cheshire. Like all solicitors, they were required, pursuant to Section 37 of the Solicitors' Act 1974, to have professional liability insurance cover provided by the Solicitors' Indemnity Fund. The Fund is managed and administered by Solicitors Indemnity Fund Limited, a company set up by the Law Society to administer the Fund. The company's directors are appointed by the Law Society, and Mr Darby is, and was, at the times material to these proceedings, the company secretary. Solicitors Indemnity Fund Limited is a non-profit making company: its expenses are met out of the Fund. Mr Darby is, and was at the times material to these proceedings, also the Head of the Professional Indemnity Section of the Law Society.
Any insurance must, in principle, be funded by premiums paid by insureds, together with any profits or revenue earned by the insurer by investing premiums received. In the case of the Solicitors' Indemnity Fund, the premiums are called contributions, a term doubtless used because the Fund is a mutual fund, as envisaged by section 37(2)(a) of the Act, administered by the profession for the benefit of the profession and its clients, and does not aim to make a profit. Contributions were payable only by solicitors who were principals (i.e., partners and sole practitioners) in private practice. The Fund, and the solicitors' profession, are governed by the Solicitors' Indemnity Rules ("the Rules"), statutory rules made with the concurrence of the Master of the Rolls under Section 37 of the Solicitors Act 1974 and Section 9 of the Administration of Justice Act 1985. The Rules relevant to the present proceedings are the Solicitors' Indemnity Rules 1997 and the Solicitors' Indemnity Rules 1998.
The Rules defined the cover provided to solicitors and regulated the amounts of contribution payable by solicitors. The provisions of the Rules changed over the period during which solicitors were required to be insured by the Fund. In particular, in 1996 a new loading/discount formula based on the ratio of claims to contributions was introduced. In 1998 a system of risk banding was introduced, and account was taken of reserves against liabilities as well as claims actually paid. Furthermore, as a result of deficits in the Fund, shortfall contributions were introduced from 1998/1999, designed to eliminate the actual or anticipated shortfall of assets against liabilities. In addition, the basic rate of contributions was substantially increased from 1997/1998.
It is obvious that there are many ways of apportioning the costs of insurance equitably among those insured, as the changes referred to in the proceeding paragraph illustrate. There is no single fair means of calculating contributions. It is also evident that any method of calculating contributions must ultimately produce sufficient money as to meet the liabilities of the Fund, and the provisions of the Rules for the calculation of contributions were designed to have this result.
The calculation of contributions in the years in question is described by Mr Darby in paragraphs 17 to 26 of his witness statement, and is helpfully summarised in the Defendant's skeleton argument at paragraph 2:
"(i) First, an 'unadjusted basic contribution' was worked out, based simply on the amount of the firm's turnover.
(ii) Secondly, the basic contribution was adjusted by applying risk factors according to the nature of the firm's work.
(iii) Thirdly, a claims adjustment was made by applying a loading or a discount according to the claims record of the principals in the firm. The maximum loading was 100%, and the maximum discount was 30% in 1997/1998 and 65% in 1998/1999. Contributions would be loaded if the ratio of payments out of the Fund to contributions received during the relevant period was greater than 1.2, and discounted if it was 0.8 or less. � there was a 'cap' on the loading to which a claim could lead."
In 1997/1998, the monetary amount of the loading could not exceed 15% of the value of the claims paid by the Fund. In 1998/1999 the equivalent percentage was 9%. The relevant period in 1997/1998 was the three-year period from 1 September 1990 to 31 August 1993; in 1998/1999 it was the years from 1 September 1991 to 31 August 1996. The loading produced by any single claim could not exceed 45% of that claim: in 1997/1998, 15% in each of the three years in which the claim would be taken into account for the purpose for assessing claims history; in 1998/1999, 9% for each of the five years in which a claim would figure.
The Rules provided for no similar cap on the amount of discount that might be lost by reason of a claim on the fund. A cap on the loss of discount relative to the value of claims paid, similar in effect to the cap on loading, was introduced only in 1999/2000.
The calculation of the Claimants' contributions is described by Mr Darby in paragraphs 28 to 35 of his witness statement. The correctness of that calculation has not been challenged, and it is set out in the Annex to this judgment.
The Rules were changed in relation to the 1999/2000 year. For that year, for the first time, the Rules provided that the 9 per cent cap on the amount of the claims pool which had been applied to the loading of the basic contribution should also be applied to the loss of discount on the basic contribution. The result was that for the first time the Rules provided that the difference between the discount actually given to a practice and the maximum possible discount (55 per cent) should not exceed 9 per cent of the practice's claims pool.
It will be seen that the calculation of contributions in 1997/1998 and 1998/1999 involved any claims paid by the Fund between 1 September 1991 and 31 August 1993 being taken into account in both years. That is, of course, a not unfamiliar experience in insurance, where a premium commonly will depend on claims experience over a number of earlier years.
Rule 10 of both the 1997 and the 1998 Rules gave the Law Society power to waive contributions in whole or in part. It was identical in both years and was as follows:
"Waivers
The Society shall have power in any case or class of cases to waive in writing prospectively or retrospectively any obligation on any solicitor, recognised body or registered foreign lawyer under these Rules and to amend or revoke any such waiver."
It is evident that the Society could not waive contributions wholesale. Since contributions are calculated actuarially to meet the liabilities of the Fund, widespread grant of discounts would in all likelihood result in deficits that would have to be met by increases in contributions in subsequent periods. The Law Society published a booklet entitled "Applying for a Waiver of the Solicitors' Indemnity Rules" setting out their policy on waivers. It included the following:
" Can I apply for a waiver of the Solicitors' Indemnity Rules?
Rule 10 of the Solicitors' Indemnity Rules (at Annex A) enables the Law Society to waive, retrospectively and prospectively, any obligation on a solicitor imposed by the Rules. The Law Society can also amend and revoke waivers that have been granted.
However, Rule 10 does not enable the Law Society to waive the obligation on a solicitor to contribute to the Solicitors' Indemnity Fund (SIF) in favour of finding alternative means of providing cover. (This would require an amendment to the Rules by the Council of the Law Society with the concurrence of the Master of the Rolls).
In general, therefore, an application for a waiver would involve a request that the Law Society relaxes a particular provision(s) of the Rules.
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