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Commercial Question

The Legal Ombudsman Scheme: an alternative to litigation

updated on 18 February 2014

Question

How do you navigate the Legal Ombudsman Scheme?

Answer

Potential claimants against solicitors are now looking to more economical alternatives to bring claims without risking the substantial costs of litigation. This is why more people are beginning to turn to the Legal Ombudsman Scheme (the LeO).

Solicitors are often regarded as an easy target when, for example, a commercial transaction goes wrong. Professional indemnity insurance is a necessary requirement for a solicitor to practise and, in turn, is viewed as a lucrative target for potential complaints. The Jackson Reforms have brought an end to the widespread system of ‘no win, no fee', or conditional fee, arrangements and after the event (ATE) insurance (to cover the opposition's costs if the case is lost) for litigation against solicitors, by doing away with the recoverability of success fees and ATE premiums.

An Ombudsman is a different, cheaper and increasingly more popular means of making a claim. However, solicitors and potential complainants (the Ombudsmen equivalent of a claimant) need to be aware of the different procedures that apply to the Ombudsman compared to the court.

Introduction to Ombudsmen

The Ombudsman's power derives from the statute under which it was created. Parliament enacted the LeO under Part 6 of the Legal Services Act 2007 and established the Office for Legal Complaints to design the Scheme rules. The Scheme rules, along with the act, are the source of the LeO's powers.

Ombudsmen are created as inquisitorial rather than adversarial bodies, enjoying wide ranging discretion over evidence and directions to the parties. Their determinations are based upon what is, in their opinion, fair and reasonable in all circumstances of the matter. They must take into account:

  • what decision a court might take;
  • the relevant approved regulator's rules of conduct at the time of the act or omission; and
  • what they consider to have been good practice.

The Ombudsman's overriding consideration is what is fair and reasonable. They are not bound to follow case law, but they must have a regard for it.

Eligibility

The LeO's remit to consider complaints is extensive and covers a broad range of legal services, not just barristers and solicitors. Costs lawyers, legal executives, notaries, registered European lawyers, patent attorneys and claims management companies are all included.

To be eligible to bring a complaint against a legal service provider, the complainant must be either (a) a consumer; or (b) a micro-enterprise (someone who employs fewer than 10 people and has a turnover that doesn't exceed €2 million.)

Time limit

The LeO can only be accessed once the legal service provider's internal complaints procedure has been exhausted. Eight weeks have to be allowed for the legal service provider to respond to the complaint. If the complainant is not satisfied with the response after this period, they have six months to bring a claim.

For a claim to be within the limitation periods of the LeO, the complaint must relate to events on or after 6 October 2010, unless the complainant was not aware of the problem before that date. Unlike ordinary claims in court, there is no 15-year longstop limit to bring a claim. The LeO can hear a claim from 1980 if the complainant was not aware of the problem.

Time limits are a contentious area that resulted in a challenge to the Financial Services Ombudsman in the High Court (R (Bankole) v Financial Ombudsman Service (2012)) in which the refusal of that Ombudsman to investigate a complaint made outside one of the prescribed time limits failed. Similar disputes may arise with the LeO.

Evidence

The LeO has extensive powers over evidence due to the inquisitorial nature of the process. The LeO can accept information in confidence where it considers this to be appropriate and, in some cases, only an edited version or description may be given to the legal service provider.

The LeO will give directions on the issues on which evidence is required and how it is to be organised. Evidence can be admitted to the LeO which would be inadmissible in court proceedings and the LeO can also exclude evidence which would be admissible in court.

Determinations

In 2012 to 2013, just over 55% of complaints to the LeO resulted in no financial award and only 1% of complaints resulted in an award of over £20,000. Most awards are in the £0-£300 range. The financial cap on LeO awards has recently been increased from £30,000 to £50,000. However, financial compensation is not the only determination that can be made against a legal service provider. Other awards available include:

  • apologies; and
  • refunding, remitting or waiving of available fees.

The determination must be prepared as a signed written statement by the LeO containing the reasons for the determination. The complainant is required to notify the LeO by a specified date as to whether he or she accepts or rejects the determination.

A final and binding determination by the LeO can be enforced through the High Court.

Judicial review

Ombudsmen such as the LeO have wide ranging discretion based on whether the actions of the respondent were fair and reasonable. However, their discretion must be exercised in accordance with the statutory framework under which the power was granted and on a reasonable basis.

If an Ombudsman exceeds its power or acts unreasonably, the aggrieved party may apply for a High Court judicial review of the determination. The determinations can also be challenged on the basis of illegality, irrationality or procedural impropriety. An application for judicial review must be brought promptly - within three months of the LeO's decision at the latest.

There are two broad groups of reviews: (i) those challenging the fairness of the procedure, and (ii) those challenging the substance of the decision.

Procedural challenges

The claimant must show that the procedure was actually unfair. There are a number of possible areas of challenge and the main areas are:

  • failure by the Ombudsman to give a party an adequate opportunity to make representations;
  • a failure to give proper reasons for the determination;
  • not allowing an oral hearing in certain circumstances; and
  • the application of time limits.

Substantive challenges

Because an Ombudsman has discretion to deal with a complaint by reference to what is - in his/her opinion - fair and reasonable in all circumstances of the case, the court will not readily overturn its decision on the grounds that it was not fair and reasonable. The court will only interfere if the LeO's decision was so unreasonable that no reasonable person acting reasonably would have made that decision. This is a very high hurdle and reviews of LeO decisions very rarely succeed on this basis. However, they may be successful if it can be shown that the determination was so inconsistent with the evidence as to be irrational.

Practical tips

  • Study the Legal Services Act 2007 and the Scheme rules to be knowledgeable on the intricacies of the LeO. This article is an overview of the process and is not intended to cover all the relevant issues and considerations.
  • Analyse the evidence and documentation relating to the complaint very thoroughly. Good preparation and a thorough approach are often the key to success.
  • It is best to engage with the opponent and exhaust the internal complaints procedures first.
  • A judicial review is a last resort, as it will very rarely succeed and can be costly.
  • Be aware of the time limits.
  • It is up to the complainant or respondent to make the system work to their best advantage. The LeO system is flexible and the parties can gain by engaging with each other and the Ombudsman.

Matthew Pearson is a first-year trainee at Clyde & Co's London office.