RONWYN NORTH & PETER NORTH
Published by Streeton Consulting
PO Box 41 Cammeray NSW 2062 Australia
Copyright Streeton Consulting Pty Ltd 1994
About the Authors
RONWYN NORTH LLB
Ronwyth North is Managing Director of Streeton Consulting and a qualified lawyer who specializes in consulting to the legal profession on practice management. Ms. North graduated from the University of Sydney Law School in the mid-1970s and set up a sole practitioner practice in the outer-western suburbs of Sydney. She later became principal of a small city-based legal firm and also taught practical legal education at the College of Law in Sydney and the Leo Cussen Institute in Melbourne. Ms. North started consulting to the legal profession in 1985. Her clients have included leading legal firms in all mainland capital cities of Australia and the legal services units of government and regulatory bodies. Her special interest is how to make lawyering more profitable, more enjoyable and less risky. Ms. North was the principal consultant on the Law Cover Risk Management Project and is currently involved in implementing the project recommendations.
PETER NORTH BE MBA
Peter North has been a leading management consultant for over twenty years, specializing in corporate policy and strategy issues. He started his consulting career with McKinsey & Company Inc in 1968 and formed Streeton Consulting in 1974. Mr. North has advised corporate clients in many sectors of primary, secondary and tertiary industries and has also assisted in the formulation of industry strategies, including submissions to and reports by government industry policy bodies in Australia and North America. He has assisted in the Law Cover Risk Management Project since its inception. Mr. North is a graduate of the University of Sydney in Mechanical Engineering and Master in Business Administration from Harvard University. He has extensive experience as a senior executive and CEO in secondary industry in Australia and North America and has served for many years as a non-executive director and chairman of ASX listed companies.
This is a book about the exposure of Australian solicitors to the rapidly-rising cost of professional negligence insurance and what can be done about it. These claims are not those caused by dishonesty or fraud which feature in newspaper headlines and are covered by the profession's Fidelity Fund.
Professional negligence claims arise when the client's expectations - at the outset or subsequently - are not met by what the solicitor delivers. Claims arise for a wide variety of reasons. They can arise whether the solicitor has been negligent or not. They can arise when the solicitor has made a simple mistake. They often arise when the solicitor has failed to understand and respond to the client's expectations, regardless of whether these expectations are reasonable or not.
Professional negligence claims are not isolated events. Most Australian solicitors will be involved directly or indirectly during their careers in at least one such claim and several 'near misses'.
Risk Management Project
The book is based on the work our firm has done since mid-1992 on the Risk Management Project initiated by Law Cover, the mutual indemnity insurance fund set up and operated by the Law Society of NSW. Law Cover provides professional negligence insurance for all solicitors in NWS, ACT, Western Australian and Tasmania. It currently indemnifies about 40% of solicitors in Australia - some 6000 legal firm principals (of which nearly one third are sole practitioners) and some 6000 other solicitors employed in the firms operated by these principals. Similar mutual indemnity funds are operated by the legal professional bodies in the three remaining Australian states, Victoria, South Australia and Queensland.
In launching the Risk Management Project in 1992, Law Cover was recognizing an inevitable upward trend in claims and premiums and the pressing need for strong action to reduce the frequence and cost of claims.
At the outset of the project, we researched risk analysis techniques and tables produced by many different bodies involved in legal profession negligence insurance in USA, Canada and the UK. This included very extensive work undertaken by the American Bar Association some ten years ago.
We came to the conclusion that virtually all of this vast array of material simply catalogued the characteristics of claims. These included the fields of law or practice involved in claims, the kinds of clients, the specific events and allegations, and the 'causes' in terms of the technical or administrative omissions which prompted clients to seek redress.
However, these 'causes' did not usually provide really useful insights because they seemed to us to describe what went wrong rather than why. They tended to describe apparent causes or 'causal symptoms' rather than the causes themselves. It was clear that if Law Cover's Risk Management project was to arrest the rising incidence of claims, our work had to be more penetrating. We had to discover what it is about the work solicitors do and how they do it, and about the way clients behave, that sets up the conditions in which professional negligence claims are created.
The central thrust of our research was to look beyond the causal symptoms of the claim and thus to probe its underlying causes, using the 'loss causation model' described later in this book. This required in-depth field interviews with a carefully-developed representative sample of solicitors who had been subject to a claim. The sample was representative of more than two thousand claims and reflected typical claims profiles in terms of the type of matter, the kind of practice, the solicitor's claims record and the nature of the allegation.
Each solicitor was interviewed privately and confidentially in his/her regular office by the one lawyer who was experienced in legal practice and interviewing. Most interviews lasted several hours. Each interview examined closely the nature of the matter and how the solicitor usually approaches such work, the nature and evolution of the client/solicitor relationship, the legal issues involved, the solicitor's relevant skills and experience, and the specific events before and after the allegation was made. In most cases, the 'panel solicitor' (the independent specialist solicitor appointed to defend the claim) was also interviewed to seek alternative or confirming interpretations of the course of events and to explore the problems experienced in defending the claim.
Perspective on Results
The interviews allowed us to isolate the common themes in claims and why these themes recur. The results are described as the five 'underlying causes' of claims which form the main material in this book (Chapters 4 through 8). There is invariably not just one single explanation as to why the claim occurred - the typical claim can have more than one underlying cause. There is also usually at least one 'contributing factor' - a factor which increased the probability of the claim arising at all. The three main 'contributing factors' are described in Chapters 9, 10 and 11. It is important to note that, unlike some overseas studies, our research does not suggest that personal stress is significant contributing factor. On the other hand, some solicitors have a 'practice style' that is clearly stress-inducing, as discussed in Chapter 9.
The results of our research overall are certainly unique because they provide important new insights into not only why claims occur but also how they profession exposes itself to claims and what can be done about this exposure.
The results are clearly disturbing. They show how easy it is for the average solicitor - even the solicitor other solicitors would choose and trust - to become entangled in the events that often lead inexorably to a claim. The solicitor's confidence and self-respect is at least shaken and in some cases the personal impact is severe. Yet even those solicitors exposed to this chilling experience usually don't seem to develop easily an understanding of the dynamics of claims (and 'near misses') in which they've been involved. Most solicitors need help to see the patterns and to understand how they should act differently in future to reduce their inherent exposure.
The results are also disturbing because they show clearly that many solicitors no longer use - or use effectively - some reliable and proven practice routines and techniques. These are the very skills and cautions that were once drilled routinely into the head of even the most disinterested articled clerk by the older and wiser members of the firm. Somehow the profession seems to have lost this art.
About four-fifths of the number of claims falls into four dominant groups of causal symptoms. The nature and significance of these four groups is much the same as found in similar studies by the American Bar Association and the Oregon State Bar Association.
Handling Client Interfacre
The first group we have called 'did not handle the client interface appropriately'. It is by far the most significant of the four groups and accounts for about one third of all claims by both number and value.
Claims included in this group are essentially due to failures in how the solicitor and the client set up their working relationship in the matter and how this relationship evolves as the matter progresses. These failures tend to be about:
PROFESSIONAL ATTITUDES TO ENGAGEMENT MANAGEMENT
The most significant cause underlying legal profession negligence claims is the basic professional attitudes of the solicitors involved in the claims to the process of providing the legal service, as opposed to providing the legal 'product' itself.
This is the process we call 'engagement management'. It has five essential ingredients which govern the nature and structure of the solicitor/client relationship from start to finish:
Solicitors who get involved in claims often fail to use one or more of these ingredients effectively or at all, either because they don't understand why they are needed or question the benefit or practicality of using them.
These basic professional attitudes lead directly to failures in the solicitor/client relationship and it is these failures which lead to many professional negligence claims. Further, these professional attitudes tend to be very deep-seated and reflect long-held views going to the heart of how solicitors do business with their clients.
Setting Up the Engagement
A major cause of professional negligence claims is failure of the solicitor to think through right at the outset how to deliver the legal service as a whole. As several Panel Solicitors (2) suggest, many claims occur where the engagement starts going wrong right at the outset and given such a start, the eventual claim becomes almost inevitable. The legal competence of the solicitor to deal with the matter is rarely an issue in such claims.
The first question these solicitors tend to ask of themselves is 'Am I qualified to handle this matter?'. If they decide they are they move quickly to focus almost exclusively on 'getting the facts'. Consequently they tend to become preoccupied with the legal aspects of the matter and fail to see that it is just as fundamental to deal with how to deliver the legal service as a whole.
The central question is not just 'Am I qualified to handle this matter?'. The solicitor must also ask:
Should I take on this matter for this client at this time and on what terms?.
The irony is that if an engineer or management consultant were to ask the same solicitor how to set up a basic contract for professional services, the solicitor should probably advise that a simple contractual letter be routinely exchanged, once the engineer or management consultant is satisfied that:
Solicitor take your own advice!
The solicitors involved in professional negligence claims tend not to heed such basic advice. Some don't even consider the issues as being at all relevant to setting out on the legal task the client has outlined. Yet in many claims, it becomes patently clear in retrospect that by dealing with these issues from the start, the solicitor could have materially reduced the risks inherent in the engagement.
...[There] are many professional negligence claims where the solicitor was clearly unwilling to:
"I couldn't have asked (the client) 'what if the relationship breaks up?' That would have lost them quick smart." (solicitor)
"Are you suggesting I should have asked (the client) 'do you have any (ex-nuptial) children'" (solicitor)
"How could I possibly have asked (the client) 'are you planning to dud your wife?'" (solicitor)
"They become creatures of their instructions without questioning why those instructions are being given." (Panel Solicitor)
Failure to probe deeply enough and/or explain the advice effectively is a particular problem for experienced solicitors when they are dealing with apparently routine matters. They tend to fall into the trap of making up their minds on the legal issues and how to handle them before all the relevant facts or issues are 'on the table.'
... Some solicitors also tend not to devote enough time or effort to giving 'routine' advice. They will suggest, for example, that twenty minutes should have been enough time to explain a land transfer or mortgage document, yet it transpires that a little more patience or effort at the time could have avoided the claim.
Others fail to see the need to tell the client about the existence of a time limit or liability for damages on breach of contract, or fail to ensure that the client understands what is important, what the client has to do and what the solicitor will and will not be doing.