Swain v The Law Society

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Diplock,Lord Fraser of Tullybelton,Lord Scarman,Lord Roskill,Lord Brightman
Judgment Date01 Jul 1982
Judgment citation (vLex)[1982] UKHL J0701-1

[1982] UKHL J0701-1

House of Lords

Lord Diplock

Lord Fraser of Tullybelton

Lord Scarman

Lord Roskill

Lord Brightman

Swain and Another
(Respondents)
and
Law Society
(Appellants)
Lord Diplock

My Lords,

1

This appeal is about the way in which the Law Society ("the Society") has exercised its powers under section 37 of the Solicitors Act 1974 in relation to the compulsory insurance of solicitors against liability to third parties arising out of the conduct by them of their private practices. In dealing with the appeal it is, in my view, essential throughout to bear in mind that in performance of its functions the Society acts in two distinct capacities: a private capacity as the successor, incorporated by Royal Charter of 1845 as subsequently amended ("the Charter"), to the Society of Gentlemen Practisers in the Courts of Law and Equity; and a public capacity as the authority upon whom, or upon whose Council elected in accordance with the provisions of the Charter, various statutory duties are imposed and powers conferred by the Solicitors Act 1974.

2

When acting in its private capacity the Society is subject to private law alone. What may be done on behalf of the Society by the Council in whom the management of the Society is vested by the Charter, must fall within the wide description in the Charter of the general purposes of the Society viz. "promoting professional improvement and facilitating the acquisition of legal knowledge". Subject to this limitation, however, the Society acting in its private capacity can do anything that a natural person could lawfully do, with all the consequences that flow in private law from doing it; and in deciding how to act on behalf of the Society in this capacity the Council's only duly is one owed to the Society's members to do what it believes to be in the best interest of those members; and for the way in which it performs that duty the Council is answerable to those members alone. Membership of the Society by solicitors is voluntary; it does not comprise the whole of the profession; your Lordships were informed that some ten per cent of practising solicitors are not members and over these the Society, acting in its private capacity, can exercise no coercive powers.

3

It is quite otherwise when the Society is acting in its public capacity. The Solicitors Act 1974 imposes upon the Society a number of statutory duties in relation to solicitors whether they are members of the Society or not. It also confers upon the Council of the Society, acting either alone or with the concurrence of the Lord Chief Justice and the Master of the Rolls or of the latter only, power to make rules and regulations having the effect of subordinate legislation under the Act. Such rules and regulations may themselves confer upon the Society further statutory powers or impose upon it further statutory duties. The purpose for which these statutory functions are vested in the Society and the Council is the protection of the public or, more specifically, that section of the public that may be in need of legal advice, assistance or representation. In exercising its statutory functions the duty of the Council is to act in what it believes to be the best interests of that section of the public, even in the event (unlikely though this may be on any long-term view) that those public interests should conflict with the special interests of members of the Society or of members of the solicitors' profession as a whole. The Council in exercising its powers under the Act to make rules and regulations and the Society in discharging functions vested in it by the Act or by such rules or regulations, are acting in a public capacity and what they do in that capacity is governed by public law; and although the legal consequences of doing it may result in creating rights enforceable in private law, those rights are not necessarily the same as those that would flow in private law from doing a similar act otherwise than in the exercise of statutory powers.

4

My Lords, it is beyond question that the acts done by the Society that resulted in its receiving a share of the brokerage allowed by insurers in respect of the premium paid by the respondent, Mr. Swain, for insurance cover against liability to third parties arising out of the conduct of his private practice as a solicitor, for which share Mr. Swain seeks to make it accountable to him, were done by the Society in its public capacity. It was exercising statutory powers, conferred upon it by section 37 of the Solicitors Act 1974 and rules made by its Council under that section. That what the Society did in exercise of those powers was intra vires, though vigorously contested in the courts below, was conceded by the respondent in this House. The relevant facts are set out in considerable detail in the judgment of Slade J. at first instance. In the speech to be delivered by my noble and learned friend, Lord Brightman, they are reproduced in summarised form sufficient to make plain his reasons for allowing the appeal. Since I agree with his reasoning, no useful purpose would be served by my providing a paraphrase of what he says in language of my own. I will limit my own comments to what I regard as the initial error, resulting from the way in which the cases of both parties had been presented in the courts below and uncorrected until the hearing in this House, of failing to distinguish between public law and private law and because of that failure seeking to discover the legal relationships between the Society, the insurers, the brokers and the individual premium-paying solicitors by applying to these relationships concepts of private law alone.

5

The relevant provisions of section 37 under which the Society was acting in its public capacity are:

"37.—(1) The Council, with the concurrence of the Master of the Rolls, may make rules (in this Act referred to as 'indemnity rules') concerning indemnity against loss arising from claims in respect of any description of civil liability incurred—

( a) by a solicitor or former solicitor in connection with his practice or with any trust of which he is or formerly was a trustee;

( b) by an employee or former employee of a solicitor or former solicitor in connection with that solicitor's practice or with any trust of which that solicitor or the employee is or formerly was a trustee.

(2) For the purpose of providing such indemnity, indemnity rules—

Part II

  • ( a) may authorise or require the Society to establish and maintain a fund or funds;

  • ( b) may authorise or require the Society to take out and maintain insurance with authorised insurers;

  • ( c) may require solicitors or any specified class of solicitors to take out and maintain insurance with authorised insurers.

(3) Without prejudice to the generality of subsections (1) and (2), indemnity rules—

  • ( a) may specify the terms and conditions on which indemnity is to be available, and any circumstances in which the right to it is to be excluded or modified;

  • ( b) may provide for the management, administration and protection of any fund maintained by virtue of subsection (2)(a) and require solicitors or any class of solicitors to make payments to any such fund;

  • ( c) may require solicitors or any class of solicitors to make payments by way of premium on any insurance policy maintained by the Society by virtue of subsection (2)( b);

  • ( d) may prescribe the conditions which an insurance policy must satisfy for the purposes of subsection (2)( c);

  • ( e) may authorise the Society to determine the amount of any payments required by the rules, subject to such limits, or in accordance with such provisions, as may be prescribed by the rules;

  • ( f) may specify circumstances in which, where a solicitor for whom indemnity is provided has failed to comply with the rules, the Society or insurers may take proceedings against him in respect of sums paid by way of indemnity in connection with a matter in relation to which he has failed to comply;

  • ( g) may specify circumstances in which solicitors are exempt from the rules;

  • ( h) may empower the Council to take such steps as they consider necessary or expedient to ascertain whether or not the rules are being complied with; and

  • ( i) may contain incidental, procedural or supplementary provisions.

(4) If any solicitor fails to comply with indemnity rules, any person may make a complaint in respect of that failure to the Tribunal.

(5) The Society shall have power, without prejudice to any of its other powers, to carry into effect any arrangements which it considers necessary or expedient for the purpose of indemnity under this section."

6

Subsection (1) defines the class of persons who may be required by indemnity rules to be insured, and the risk, which I shall refer to as "Professional liability", that persons falling within that class may be required to be insured against. Crucial to a true and purposive construction of the later subsections is the fact that the Society itself neither falls within that class nor is it subject to that risk. The class is wider than solicitors who are or have been engaged in private practice as principals, for it includes employees and former employees whether qualified solicitors or not; but since the only sanctions for non-compliance with indemnity rules, ( viz. refusal of a practising certificate under section 10 and complaint to the Solicitors Disciplinary Tribunal under section 37(4)) are available against solicitors alone, any obligation to obtain insurance cover for employees who are not themselves solicitors can only be imposed by the rules upon the solicitor who employs them.

7

Subsection (2) specifies in paragraphs ( a), ( b) and ( c), three methods and three methods only, by any one or any combination of which solicitors may be required by indemnity rules to obtain insurance cover against professional liability referred...

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53 cases
4 books & journal articles
  • Public Trusts, Public Fiduciaries
    • United Kingdom
    • Federal Law Review Nbr. 38-3, September 2010
    • 1 September 2010
    ...(4th) 496 which the relationship found was properly characterised as fiduciary only, in the circumstances; see also Swain v Law Society [1983] 1 AC 598. 4 See, eg, Cubillo v Commonwealth (2001) 112 FCR 455, [460]. 336 Federal Law Review Volume 38 ____________________________________________......
  • Mortal dangers, moral hazard and mortgage lending by solicitors: an international perspective
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    • Journal of Financial Crime Nbr. 10-3, July 2003
    • 1 July 2003
    .... . . `(21) See, for example, ss. 31, 32, 34 and 37 Solicitors Act 1974.The rules are subordinate legislation: Swain v The LawSociety [1982] 2 All ER 827, 830b, applied in Mohamed vAlaga and Co. [2000] 1 WLR 1815, 1823. Examples ofrules made include the Solicitors' Practice Rules 1990, theS......
  • Does the Fiduciary Bell Toll?
    • United Kingdom
    • Journal of Financial Crime Nbr. 3-2, March 1995
    • 1 March 1995
    ...(20) [1895] AC 59. (21) Mixnam's Properties Ltd v Chertsey UDC [1965] AC 735 (22) See, in support of this approach, Strain v Law Society [1983] 1 AC 598. Kit Jarvis is at Downing College, Cambridge Page 195...
  • Privity of contract - The benefits of reform
    • Ireland
    • Irish Judicial Studies Journal Nbr. 1-8, January 2008
    • 1 January 2008
    ...other jurisdictions, as a result of any such move. _____________________________________________________ 111Swain v. The Law Society [1983] 1 A.C. 598 at 611....

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