Offshore Lawyers' Liability: Recent Developments


Offshore lawyers (including international “offshore magic circle” firms, sole practitioners, high street firms, and boutique practices) are exposed to significant risks in the course of their work, particularly in the following areas:


• The conduct of civil and commercial litigation and arbitrations;


• The defence of criminal prosecutions;


• The conduct of property transactions (particularly in those offshore jurisdictions that have not yet moved to a registered system of land ownership);


• The holding of client money;


• The negotiation and drafting of commercial agreements;


• The management and administration of companies and trusts, including cases where trustees, directors and corporate secretaries are provided by the law firm’s fiduciary/corporate services subsidiary; and


• The detection and reporting of fraudulent schemes or suspicious transactions, such as money laundering.

The frequency and volume of claims against offshore law firms appears to be growing, including claims being fought all the way to trial. Historically, a relatively low level of reported claims against offshore law firms was linked to three factors:


• the strong economic conditions that prevailed in offshore jurisdictions in the two decades prior to the global financial crisis;


• the costs, risks and difficulties associated with initiating and pursuing claims against offshore professionals; and


• the fact that meritorious claims were normally settled confidentially, prior to litigation.


Since the global financial crisis, however, clients are now much more willing to challenge the size of their lawyers’ legal bills, and to complain about the quality of the legal services being provided. Wasted costs applications are more common. Third party litigation funding and conditional fee arrangements for professional negligence claims are also increasingly available.


The Isle of Man courts have been particularly busy considering lawyers’ liability issues recently.


The Privy Council’s decision in Holt v Attorney-General [2014] UKPC 4 provides a stark example of the risks that offshore lawyers face. An Isle of Man advocate (and English barrister) faced the full force of the criminal legal process for allegedly failing to detect and report a suspicion that legal fees were being funded out of the proceeds of crime, and for allegedly falsifying file notes. Although the Privy Council quashed the lawyer’s convictions on appeal, due to an inadequate summing up by the trial judge, the case highlights the importance of offshore lawyers complying with ever-increasing anti-money laundering regulations, and the criminal and civil liabilities associated with a failure to do so. 


In Akhavan v Quinn Legal, 19 November 2013, the Isle of Man court dismissed a claim brought by a client against a law firm for the alleged negligence of its advocate at a trial in civil litigation. The case is interesting for its review of the authorities on advocates’ negligence and “loss of a chance” claims. It also discusses the degree of latitude which should be given to advocates in the conduct of court work (including the making of submissions and the handling of witnesses). 


In Islamic Investment v Cains Advocates, 19 November 2013, the Isle of Man appellate court dismissed an appeal against an order striking out a claim for negligence and other economic torts against an Isle of Man law firm, arising out of the conduct of its advocacy on an application under section 61 of the Trustee Act 1961.


In AG v D, 7 December 2010, the Isle of Man Court of General Gaol Delivery had made various wasted costs orders against both the prosecution and defence advocates involved in interlocutory hearings and a trial in criminal proceedings. These wasted costs orders were quashed, on appeal to the High Court of Justice, by a judgment delivered by Deemster Doyle on 5 December 2012, in Taylor and Neale v Court of General Gaol Delivery. Deemster Doyle note that: “where wasted costs proceedings taking up many days of court time … and the judgments in the wasted costs proceedings cover over 260 pages … it is apparent that something has gone wrong”.


The Bermuda courts have also been busy dealing with lawyers’ liability issues, although mainly in cases of relatively modest value.


In Bermuda Investment Advisory Services Ltd v Aurelia Research (Bermuda) Limited [2013] SC (Bda) 48 Civ, the Supreme Court of Bermuda made a wasted costs order against a Bermuda lawyer personally, and against his firm, relating to the negligent conduct of litigation. The Court was troubled by the question whether both the lawyer personally, and his firm, should be liable for the wasted costs order, but concluded that both were directly liable, jointly and severally, given the wording of the relevant Bermuda rules (RSC Order 62).


In Swan v Woolridge [2014] SC (Bda) 9 Civ, the Supreme Court of Bermuda gave judgment in favour of a former client against her lawyer, in circumstances where the lawyer had charged the client an excessive amount of default interest, at the rate of 60% per year (or up to 69% per year, if compounded). The Judge’s findings were critical of the lawyer, rejecting his evidence, and describing his communications with his client as “misleading”. The Judge ordered repayment by the lawyer of all sums that had been overcharged, with interest at the statutory rate of 7%.


Similarly, in Harshaw v Reid [2012] SC (Bda) 18 Civ, the Supreme Court of Bermuda dismissed a lawyer’s claim for unpaid fees against a former client, in circumstances where the lawyer sought to charge his client 18% per annum default interest. The Judge’s findings were critical of the lawyer, rejecting his evidence and describing his billing practices as “very deceptive and no doubt confusing”. The Judge also held, in dismissing the lawyer’s claim, that the client “did not receive value for the money she has been charged”, in that the lawyer had “failed to adequately advise” or “carry out [the client’s] instructions”, and “generally protracted the matter to the detriment of the [client]”.


It remains to be seen how an offshore Court will react to a “bet the house” professional negligence claim being asserted against one of the major “offshore magic circle” claims, but it can only be a matter of time before such a claim emerges for consideration.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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