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From the CEO: The cap fits

Every Issue

Cite as: (2004) 78(9) LIJ, p. 6

The Law Institute is preparing its application to administer a professional standards scheme.

State legislation, combined with amendments to the Trade Practices Act 1974 (Cth), means that the Victorian legal profession is moving towards a nationally consistent professional standards scheme to cap liability for professionals. This is the most significant change to the way legal practice has been managed for decades.

The legislation enables a professional association, such as the Law Institute, to make an application to the Professional Standards Council for approval of a professional standards scheme.

If the scheme is approved, then members of the association can cap their liability at a predetermined amount.

In return for the right to cap liability, members of the professional association will be bound by the terms of the scheme which will require them to adopt particular standards of professional conduct, undertake ongoing education, submit to a complaints and disciplinary scheme and participate in risk management arrangements. For the legal profession these requirements will not be onerous as they are all matters to which it is currently subject.

The legal profession is highly regulated and all the requirements sought by the Professional Standards Council are already in place. For example, the complaints, discipline and education procedures presently required of solicitors, we anticipate, would meet the Professional Standards Council’s requirements.

Such professional standards schemes are new to Victoria but have been operating in New South Wales for some years. The New South Wales Law Society sought approval for a scheme in December 1996 and the Western Australian Law Society is currently seeking approval of a scheme. It is expected that other states will follow once they have corresponding legislation in place.

The Institute is currently preparing a draft scheme and application. Our application will be lodged with the Professional Standards Council once the Council is established.

Practitioners are urged to review the scheme posted on the Institute’s website at http://www.liv.asn.au/regulation/practising/.

It is anticipated that it will take six to nine months from the date the application is lodged to get approval.

The key components of the proposed Victorian scheme are:

  1. For solicitors who practise as sole practitioners or in a firm having no more than three principals, the limitation is not less than the amount of professional indemnity cover approved by the Legal Practice Act, currently $1.5 million.
  2. For solicitors who practise in a firm having more than three principals, the insurance cover is not less than the amount of professional indemnity insurance cover approved by the Legal Practice Act and not more than $10 million, being $500,000 multiplied by the number of principals.
  3. For solicitors who select a higher amount of liability limitations than would otherwise apply, an amount being not less than the limitation period otherwise applicable up to a maximum amount of $50 million.

In approving the scheme, the Professional Standards Council will need to be satisfied that the professional association has addressed the following matters:

  • the availability of risk management education presently provided by the Institute and the Legal Practitioners Liability Committee;
  • educational services including compulsory continuing professional development schemes;
  • professional practice and conduct rules in accordance with the Legal Practice Act;
  • guidelines for good practice currently provided by the LIV rules and the Legal Practitioners Liability Committee;
  • existing complaints and disciplinary procedures provided by the Legal Practice Act;
  • counselling and advisory services provided by the Institute; and
  • the regime of trust account inspections currently undertaken by the Institute.

If the Professional Standards Council is satisfied that all these matters have been addressed and following advertising the application for approval of a scheme (and if appropriate conducting a public hearing), it may approve the limited liability scheme.

If a professional’s liability is to be limited by the Professional Standards Act, all documents given by that professional to clients or prospective clients which promote or advertise the person or person’s occupation must carry a disclosure in respect of limitation of liability.

The scheme specifically excludes claims arising from personal injury claims and does not cap liability in the case of fraud. On the approval of the scheme by the Professional Standards Council, firms will be able to apply to join the scheme.

Firms will need to carefully assess whether they wish to participate. However, for most firms the prospect of being able to limit the firm’s liability within reasonable limits must be an attractive option as it will ensure that its clients have the benefit of an insurance policy to protect them while not exposing the firm to unreasonable risks.

John Cain

ceo@liv.asn.au

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