Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 184
P422/11	OPINION OF LORD UIST in the Petition of GERARD KELLY for Judicial Review of a decision of the Law Society of Scotland dated 12 June 2008 ­­­­­­­­­­­­­­­­­________________

Petitioner: Party

Respondent: Moynihan QC; Dundas & Wilson

11 November 2011

Introduction
[1] In this application for judicial review the petitioner, a solicitor practising in Glasgow who has held a practicing certificate since 1983, seeks reduction of a decision of the Law Society of Scotland (the respondents) dated 12 June 2008 and intimated to him by letter dated 15 July 2008 (6/3 of process). The decision, which was in fact taken by the respondents' insurance committee, was to refuse a request by the petitioner under Rule 9 of the Solicitors (Scotland) Professional Indemnity Insurance Rules 2005 (the 2005 Rules) to waive the provisions of the master policy which had required the petitioner to pay penalty insurance premiums totalling £15,517.87 in addition to his normal annual premiums in the insurance years 2003/04, 2004/05, 2005/06 and 2006/07.

Background
[2] The factual background to the request made by the petitioner is that in or about March 2002 a claim was intimated against his firm, Kelly & Co, by a former client of the firm. In terms of the master policy of insurance arranged by the respondents such a claim had to be reported by him to the master policy brokers. He duly reported the claim to the brokers. As a consequence of that a reserve was placed on the claim. In terms of the master policy the placing of a reserve on the claim resulted in his being required to pay penalty premiums calculated in terms of the Rates and Rating Factors therein amounting to £15,517.87. The claim against the petitioner did not proceed and accordingly the insurers did not require to indemnify him. The request for a waiver of the provisions of the master policy was refused by the respondents' insurance committee by letter dated 15 July 2008 following upon their meeting of 12 June 2008 at which they considered written and oral submissions from the petitioner.

The master policy
[3] The master policy is a single collective insurance policy arranged by the respondents. There is a separate contract of insurance for each year. The year runs from 1 November and premiums are calculated on the basis of figures produced in July. The insurers charge a single, global premium which is allocated among the insured "practice units" in accordance with the Master Policy Rates and Rating Factors Rules for each insurance year. Those rules determine whether a practice unit qualifies for a discount or is liable to pay a penalty loading. The aggregate payable by all practice units is equal to the global premium payable to the insurers. The insurers therefore do not receive any increase in premiums in the event that a solicitor has been charged a penalty loading and nor do the respondents profit in that event. The benefit of any penalty loading is received by the practice units that qualify for a discount. Prior to the insurance year 2008/09 solicitors had a right of appeal in respect of the premium charged to them which lay to the Premium Appeal Committee of the respondents. In none of the four relevant insurance years in which the petitioner alleges that he was charged excessive premiums did he appeal to the Premium Appeal Committee.

[4] For the period 1 November 2003 to 31 October 2004 the Master Policy Rates and Rating Factors provided in para 1(a) that the standard premium for each practice unit where the number of partners or principals was between 1 and 3 fell to be calculated by adding to a fixed sum of £1,261 the sum of £3,215 for each partner or principal. Para 2(a) made provision for discounts and loadings on the premiums. It provided as follows:

"A practice unit...shall be entitled to a discount on the Standard Premium or shall suffer a percentage increase according to the following formula:-

(i) There shall be calculated the total amount ("Relevant Claims Total") of (aa) the total of all payments made by the Master Policy insurers as at 1 July 2003 in respect of all claims on the record of each Practice Unit with the reference prefixes M1998, M1999, M2000, M2001 and M2002 and (bb) the total of all reserves placed by the master policy insurers as at 1 July 2003 on all claims on the record of the same Practice Unit with the reference prefixes M1998, M1999, M2000 and M2001.

(ii) There shall be calculated the total ("Relevant Premium Total") of (aa) the whole of the premiums paid by the Practice Unit for the insurance years commencing 1 November 1998, 1999, 2000 and 2001 (bb) two thirds of the premium paid by the practice unit for the insurance year commencing 1 November 2002. The relevant figure in each case is the premium excluding Insurance Premium Tax and any rebate of brokerage.

(iii) There shall be calculated the "Loss Ratio" of each practice unit, being the Relevant Claims Total divided by the Relevant Premium Total expressed as a percentage.

"Circumstance" matters are not taken into account for Loss Ratio assessment."

A "circumstance" is something that could potentially give rise to a claim but did not constitute a claim. It did not affect the premium. An actual claim could give rise to a loading on the premium. There were equivalent provisions for the three subsequent insurance years.

[5] In the case of the petitioner, in the year 2003/04 the insurers placed a reserve of £40,000 on the claim and a commensurate loading of £11,995 was applied to the petitioner. In the year 2004/05 the reserve placed on the claim was £20,000 and the loading on the premium was reduced to £1,971. In the year 2005/06 the reserve had fallen to £5,000, resulting in no loading. The respondents were unaware if there had been any discount in the subsequent two years.

The relevant statutory provisions
[6] Section 44 of the Solicitors (Scotland) Act 1980 provided as follows at the material times:

"(1) The Council may make rules with the concurrence of the Lord President concerning indemnity for solicitors...against any class of professional liability, and the rules may for the purpose of providing such indemnity do all or any of the following things, namely -

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

(b) authorise or require the Society to take out and maintain insurance with an authorised insurer;

(c) require solicitors....to take out and maintain insurance with an authorised insurer.

(2) 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 the rules.

(3) Without prejudice to the generality of subsections (1) and (2) rules made under this section -

(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 (1)(a) and require solicitors ... to make payments to any such fund;

(c) may require solicitors ... to make payments by way of premium on any insurance policy maintained by the Society by virtue of subsection (1)(b);

(d) may prescribe the conditions which an insurance policy must satisfy for the purpose of subsection (1)(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;

...

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

[7] The Solicitors (Scotland) Professional Indemnity Insurance Rules 1995 (the 1995 Rules), which came into operation on 1 May 1995, provided, so far as relevant, as follows:

"Master Policy

5 - (1) The Society shall take out and maintain with authorised insurers to be determined from time to time by the Council a master policy in terms to be approved by the Council to provide indemnity against such classes of professional liability as the Council may decide. The Council at its discretion may amend the terms of the master policy from time to time.

(2) The master policy shall provide indemnity for all solicitors to whom these rules apply ...

(3) The limits of indemnity and the self insured amounts under the master policy shall be as may be determined from time to time by the Council.

Provided that nothing in these rules shall prohibit any solicitor from arranging with the insurers to extend the cover provided by the master policy if and on such terms as the insurers may agree.

Contingency fund

6 - (1) The master policy may provide for the intimation to the brokers of circumstances affecting a practice unit which have not given rise to a claim under the master policy but which may reasonably be expected to do so, and the terms of the master policy may provide for such circumstances to be taken into account in calculating the premium payable by practice units.

(2) The Society may establish a fund (in these Rules referred to as the "contingency fund" for the purpose of refunding to practice units such portion of the premiums paid by them as may be attributable to circumstances intimated in accordance with the master policy if and when the brokers are satisfied that no claim will result from such circumstances. The terms and conditions upon which such refund shall be made shall be determined from time to time by the Council.

(3) Every solicitor to whom these rules apply shall contribute such sum (if any) as may be required by the Council to establish and maintain the contingency fund. Every such solicitor shall produce along with each application for a practicing certificate such evidence as the Council may require that he has paid such contribution as aforesaid.

....

Waiver

8 - The Council shall have power in any case or class of case to waive in writing any of the provisions of these Rules and to revoke any such waiver.

...

Professional practice

10 - Failure to comply with these rules may be treated as professional misconduct for the purposes of Part IV of the Solicitors (Scotland) Act 1980."

[8] The 1995 Rules were revoked by the Solicitors (Scotland) Professional Indemnity Insurance Rules 2005, which came into operation on 1 June 2005. Rule 1(4) provided as follows:

"All acts done under or pursuant to the 1995 Rules shall be treated as having been done under or pursuant to these Rules, except in so far as they are inconsistent with these Rules."

Rules 5, 9 and 11 of the 2005 Rules were generally in the same terms as Rules 5, 8 and 11 of the 1995 Rules. The 2005 Rules did not make any provision for a contingency fund.

[9] The Solicitors (Scotland) Professional Indemnity Insurance Contingency Fund Rules 2007, which came into operation on 1 September 2007 made provision for monies which remained in the contingency fund as at that date. Rule 3 provides as follows:

"Contingency Fund Monies

3 - (1) The Society shall manage and administer the contingency fund monies.

(2) The Society may use the contingency fund monies for any professional indemnity purpose.

(3) The Society may use the contingency fund monies to pay costs and expenses reasonably incurred in connection with the management and administration of those monies or with their use for any professional indemnity purpose."

The terms of the decision
[10] The letter from the registrar of the insurance committee of the respondents dated 15 July 2008 stated as follows:

"The Committee was most grateful to you for your oral presentation as well as the question and answer session which followed the presentation. Your paper and presentation have assisted the Committee in carefully considering your request for a waiver from the Rates and Rating Factors regime under Rule 9 of the Solicitors (Scotland) Professional Indemnity Insurance Rules 2005.

The Committee carefully considered and noted the following matters in relation to your waiver request:-

1. That in terms of the scheme for the master policy for professional indemnity insurance for Scottish solicitors, as the then sole principal in the firm of Kelly & Co, Solicitors, Glasgow you intimated a claim against your firm to the master policy insurance brokers, Marsh.

2. That as a result of your decision to intimate the claim to the brokers this matter was then advised to the Lead Insurers RSA under the master policy. The consequence of this decision by you to intimate the claim was that you transferred the risk of payment against this claim to the insurers. The Committee noted that the 'transfer of risk' from your firm to the insurers resulted in a reserve being made against this claim. As a consequence of your decision to transfer this risk to the insurers your firm had declined the option of carrying this risk itself and thereby wished to use the underwriting facility of the master policy.

3. That there had been a validly made claim against your firm of Kelly & Co, Solicitors, Glasgow which had resulted in the lead insurers placing a reserve of £40,000 against this claim. .

4. The Committee noted that your firm in intimating this matter to the brokers and thereafter by the brokers to the lead insurers had been treated no differently from any other firm of Scottish solicitors which is insured under the master policy for professional indemnity insurance.

5. The Committee noted that prior to the intimation by you of this claim against your firm that your firm had benefited from the application of the discount/loading scheme under the master policy for professional indemnity insurance whereby your firm has received discounts on its master policy premium based on its no claims record.

6. The Committee noted that once a reserve had been set by the lead insurers against the claim made against your firm that you had decided not to challenge the reserve. This is because you accepted that the reserve figure was both fair and reasonable.

7. The Committee also noted that you have accepted as being fair and reasonable the Rates and Rating Factors regime operated by the Society under which the global premium for the master policy for professional indemnity insurance is allocated amongst individual firms.

8. The Committee noted that in the course of your presentation on Thursday 12 June 2008 you stated that a request for a waiver was an opportunity for the Society to show that the master policy was robust and can deal with any allegations of unfairness where the application of the Rates and Rating Factors regime may appear to have resulted in a disproportionate result. The Committee is of the opinion that it is the application of the Rates and Rating Factors regime (which is reviewed on an annual basis) which in itself shows that the master policy is robust and applies equally and fairly to all firms.

9. The Committee noted that in your presentation on Thursday 12 June 2008 you stated that bodies such as the Monopolies and Mergers Commission, the Office of Fair Trading, the Financial Services Authority and the Scottish Legal Complaints Commission may have an interest in the operation of the master policy for professional indemnity insurance. This is a correct statement of fact as many of these bodies have at some time in the recent past had dealings with the Society with respect to the master policy for professional indemnity insurance. Please note that the Office of Fair Trading launched a formal investigation into the master policy for professional indemnity insurance and concluded in 2005 that: -

"Under current arrangements for professional indemnity insurance there may be a benefit to the Law Society of Scotland, its members and their clients, of collective bargaining by the profession to secure uniform and affordable professional indemnity insurance for Scottish solicitors. It was not clear, given the scale of the profession in Scotland, that the apparent benefits of England and Wales' arrangements, in terms of greater freedom to solicitors to seek insurance directly from an approved pool of insurers, could simply be achieved in the context of solicitors in Scotland."

Please also note that the Financial Services Authority approved the Society's arrangements for professional indemnity insurance through the master policy prior to granting the Society status as a designated professional body under the Financial Services and Markets Act 2000. There has also been a recent meeting between representatives of the Society and the Commissioners of the Scottish Legal Complaints Commission on the master policy for professional indemnity insurance at which their oversight responsibility for the master policy was discussed.

10. The Committee also noted that if a 'qualifying insurer' regime were in operation in Scotland (similar to that currently in operation for solicitors in England and Wales) instead of the current master policy arrangements it is likely that insurers would have imposed some level of premium loading on account of the claim intimation/reserve and that insurers would not have returned or refunded any part of the premium loading if, at a later stage, the matter was resolved at no cost to the insurers concerned.

Given all of the above matters which were very carefully considered by the Insurance Committee, the Committee agreed on an unanimous basis to refuse your firm's request for a waiver and refund of the discounted/loading insurance premiums of £15,517.87 on the basis that this additional premium was equitable based on the Rates and Rating Factors scheme operated by the Society."

The petitioner stated that he strongly disputed that, as the Committee noted in para 7, he accepted as being fair and reasonable the Rates and Rating Factors regime.

Appropriateness of judicial review
[11] The respondents, both in their written answers and in the oral submissions made by Mr Moynihan on their behalf, submitted that the petitioner had failed to exhaust his remedies and that the current application for judicial review was unjustified. Reliance was placed on the following statement at para 12.01 in Clyde and Edwards on Judicial Review (2000):

"As a general proposition it may be said that judicial review is not available if there is an alternative means of relief open to the applicant. One example of such a case is where there is a contractual remedy open to the complainer."

It was submitted that in each of the four insurance years concerned the petitioner had had the opportunity to appeal to the Premium Appeal Committee (subsequently abolished) but did not do so. Accordingly, the present application by way of judicial review was inappropriate as he had failed to take advantage of the appropriate remedy at the time. As he had failed to avail himself of that remedy, it was not open to him now to proceed by way of judicial review.

[12] In response the petitioner stated that he could not have pursued the option of an appeal to the Premium Appeal Committee as he had never disputed the level of the reserve. Clause 4(b) of the master policy provided that a firm which disputed the level of the insurers' reserve or the insurers' classification of an intimation as a claim rather than a circumstance could instigate an appeal under the procedure set out therein. He made no criticism of para 6 of the respondents' decision letter. He did not dispute that what was involved here amounted to a claim rather than a circumstance. Clause 4(b) of the master policy did not apply as he was not challenging the Rating Factors. The request for a waiver under the 2005 Rules could cover the years in which the 1995 Rules were applicable in view of Rule 1(4) taken with Rule 9 of the 2005 Rules. There was no time limit covering the application for a waiver.

[13] In my opinion it cannot be said that resort to the supervisory jurisdiction of the court is excluded in this case on the ground that the petitioner failed to avail himself of an alternative remedy. As he pointed out, he was not challenging the Rates and Rating Factors and Clause 4(b) of the master policy therefore did not apply. The insurance committee of the respondents did not question the competency of his application for a waiver to them and proceeded to deal with the substance of it. That being the case, I see no reason why their decision should not be open to challenge by way of an application for judicial review if they erred in law or exceeded their powers in reaching it. Accordingly, I hold that this application for judicial review cannot be described as being inappropriate or unjustified on the ground of the existence of an alternative remedy of which the petitioner failed to avail himself.

The merits of the application
[14] The petitioner challenged the lawfulness of the decision of the insurance committee on the grounds set out in statement 18(a) to (g) of the petition, with the exception of ground (d). In brief, the grounds were that the decision to refuse the waiver request was one which no reasonable body in the position of the respondents could have reached, that in reaching their decision the respondents took into account certain irrelevant considerations, that the decision lacked proportionality, that the respondents fettered their discretion by rigid adherence to the master policy Rates and Rating Factors and did not exercise the discretion given to them by Rule 9 of the 2005 Rules, that the decision to adhere to the terms of the master policy imposed upon the petitioner was unlawful and amounted to an abuse of power as the petitioner was not given any freedom of choice as to which insurer should provide insurance or what the policy terms and conditions should be and, lastly, that in refusing the waiver request the respondents breached the petitioner's legitimate expectation that a no loss claim would not result in penalty premiums not being returned, the major exclusion clause in the insurance contract not having been brought to his attention.

[15] For the respondents it was submitted that the insurance committee had looked at the equities of the case and decided that there was nothing inequitable in the application of the Rules in force at the material time. What the petitioner was attempting to do by way of his application for judicial review was to achieve a retrospective adjustment of a closed commercial transaction.

[16] In my opinion, on the assumption that the application to the insurance committee under Rule 9 of the 2005 Rules was a competent one (about which I express no view as it was treated by the committee as being competent), it cannot be said that the respondents erred in law or exceeded their powers when deciding to refuse the petitioner's request for a waiver. They did not fail to take relevant matters into account and they did not take into account any irrelevant matters. Moreover, from a practical point of view I do not see how they could ever have refunded the petitioner premiums which they had not received. It is evident that the petitioner is opposed to the system of the master policy arranged by the respondents as he perceives that it has resulted in injustice to him, but it is not for me to enter into what are in substance policy matters for the respondents and their membership. The petitioner was obliged to comply with the 1995 and 2005 Rules as any failure to do so could have been treated as professional negligence on his part. The insurance committee properly considered the merits of the application for a waiver and I cannot detect any illegality or irrationality in the decision which they reached.

Decision

[17] I shall dismiss this petition.