Is a perfect storm on the way?

March 1st, 2021
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I am not aware of any previous period in history, when numerous events taking place simultaneously, have had such a profound impact on legal practice in South Africa (SA). At any other time, predictions of a possible perfect storm approaching would be dismissed as being ‘alarmist’. The current conditions are, in my view, ideal for a protracted stormy period ahead.

The challenges facing legal practitioners include the ongoing COVID-19 pandemic. Several legal practitioners and other role players in the profession have sadly lost their lives due to the pandemic. The losses to the affected families and practices are immense. Many practices are still trying to recover from the financial loss that resulted from the restrictions imposed in the earlier stages of the lockdown, including the inability of practices to operate to their optimum capacity, the closure of courts and quasi-judicial, administrative and regulatory offices (such as the offices of the Master of the High Court, the Deeds Registry, the Companies and Intellectual Property Commission (CIPC) and the Road Accident Fund (the RAF)). The closure of these offices and the restricted services offered at some of their respective branches for protracted periods limited the extent to which legal practitioners were able to render legal services and thus generate income. Some areas of practice were affected to a greater extent than others. The COVID-19 pandemic and its consequences exacerbated other risk factors that already existed for legal practitioners in SA.

The unexpected change in the business operating conditions when the lockdown measures were first imposed at the end of March 2020 caught many legal practitioners unprepared. Nobody had predicted that many businesses would be expected to make such significant changes to their operating models in such a short time and operate remotely. Neither could it be predicted that the changes and components of the ‘new normal’ would last this long. Legal practice has historically been mainly conducted from offices with a large amount of face-to-face interaction internally within the firms and also with clients and other third parties. The change has been a culture shock to many practitioners and their clients. Many small practices, in particular, did not have the required financial resources to invest in the requisite technological infrastructure to enable them to make a seamless transition to operating remotely. The type of work generally conducted by smaller practices also does not necessarily lend itself to remote working. Most legal practices in SA are made up of three practitioners or less. Those who have grappled with the new operating environment would thus make up a significant component of the legal sector.

The downturn in economic performance has left consumers with less financial resources available to spend on legal services. Budgets for legal services may be cut in order to use the funds for other more crucial needs. A decision to engage a legal practitioner may now only be considered when absolutely necessary and only after other possible solutions to resolve the issue at hand would, have been considered or exhausted. Consumers of legal services will now be more circumspect in deciding on whether or not to procure legal services and, also in the decision on which legal practitioner to instruct. It may well become a buyers’ market as the consumers adopt tougher negotiating stances in respect of the cost structure and the ambit of the instruction. Some firms may become more amenable to accepting terms proposed by the clients, which in other circumstances, they would not. The consumers will, however, still insist on a high quality of output and efficiency from the legal practice in meeting their mandates.

Legal practices, on the hand, are facing their own cost and financial pressures. Some firms have had to cease operating, downscale operations or retrench staff. The remaining staff are then expected to meet the client’s expectations while taking on the additional responsibilities previously carried out by those who have left the firm. The firm may decide to outsource some functions, but this also has its own risks.

Budgets for training and development within the firm may also have been cut as this is not seen as a priority, core to the practice or the generation of income. These factors create a fertile ground for errors or omissions to materialise, resulting in claims being brought against the firm. An analysis of professional indemnity (PI) claims brought against legal practitioners shows that, internationally, there is a correlation between prolonged or serious economic recessions and an increase in PI claims. Financial hardship for firms may, unfortunately, also increase the temptation on the part of dishonest legal practitioners or their staff to misappropriate trust and other funds.

The pursuit of RAF related claims makes up a significant component of legal practice in SA. This is evident from the large number of RAF related matters on the various court rolls, the trust income trends of the Legal Practitioners’ Fidelity Fund (the Fidelity Fund), which reflect the interest earned from RAF matters, and the claims statistics of that organisation (the Fidelity Fund) and the Legal Practitioners Indemnity Insurance Fund NPC. This important area of work has experienced a particularly turbulent period in the last year. On the one hand, the RAF decided to terminate the services of more than 100 firms that served on its panel. The matter was the subject of several tranches of litigation in 2020 (see Mabunda Incorporated and Others v Road Accident Fund; Diale Mogashoa Inc v Road Accident Fund (GP) (unreported case no 15876/2020, 30-4-2020) (Davis J), FourieFismer Inc and Others v Road Accident Fund; Mabunda Inc and Others v Road Accident Fund; Diale Mogashoa Inc v Road Accident Fund (GP) (unreported case nos 17518/2020; 15876/2020; 18239/2020, 8-7-2020) (Hughes J) and Road Accident Fund and Others v Mabunda Incorporated and Others and related matters (Law Society of South Africa and Others as intervening parties) [2021] 1 All SA 255 (GP)). Ultimately, the position of the RAF prevailed. The affected firms lost a major client (the sole client for some), which placed their sustainability at risk. On the other hand, the legal practitioners acting for plaintiffs have also been affected. The change in the RAF model resulted in officials of that entity having to deal with litigious matters. Some of the matters had been on the trial roll already and could not be finalised, thus prejudicing the plaintiffs and their legal representatives. Many of the legal practitioners specialising in this type of work act on a contingency basis. The firms concerned would thus have invested their own resources in the matters and paid for the reports and services of the required experts, including the medico-legal experts, actuaries and counsel. The delay in the finalisation of the matters thus places additional financial strain on the firms concerned. The extended delays by the RAF in making payment even after a settlement has been reached or judgment handed down by a court only exacerbates the situation.

Delivering judgment in Taylor v Road Accident Fund and a related matter [2020] JOL 48990 (GJ) on 16 November 2020, Fisher J noted at paras 9 and 10 that:

‘Since May 2020, RAF cases which are currently in their various stages of litigation before the courts have been relieved of external legal representation in the form of the firms of attorneys who ply their trade (some exclusively) in acting for the RAF in personal injury cases. The new policy has been approved by both the Board of the RAF and the Minister of Transport (the Minister). Apparently, it is part of a drive to settle trial matters rather than run them. The premise is that this will save legal costs.

Whilst this may seem to be a cost cutting and thus money saving measure, it has, in my view and experience, rendered the RAF system, which is already on the verge of total collapse, even more exposed and vulnerable to malfeasance and incompetence’.

After finding (at para 129) that the settlement agreements entered into between the plaintiffs and the RAF in the two matters before the court were void ab initio as the RAF officials had not acted lawfully in concluding them, the judge stated at para 130 that:

‘An audit of other matters settled since May 2020 is likely to yield similar concerns to those that arise in these matters. The fact that these settlements are subject to being reviewed and set aside is ultimately prejudicial to the plaintiffs’.

The challenges in an area of work, as widely pursued as RAF claims, affects a significant component of the profession and are risks that could potentially affect the sustainability of many practices and other stakeholders.

The moves by other entities such as banks, estate agents and audit firms to offer services (eg, estate administration, contract drafting, legal advisory services), which were traditionally reserved for legal practices will add to the already uncertain climate in which legal practice is conducted.

Conclusion

In raising the matters above, it is not my intention to be an alarmist or to sound like the proverbial prophet of doom and gloom. The multiple challenges facing legal practitioners must be recognised. Legal practices will need to reconsider whether their existing operating strategies are suitable to the changing environment. The examples cited above are by no means an exhaustive list. Adequate preparation to face the storm will require a concerted effort from all, including legal practitioners, the Legal Practice Council, the voluntary associations and all other interested stakeholders. We all need to batten down the hatches in preparation for the possible storm.

Thomas Harban BA LLB (Wits) is the General Manager of the Legal Practitioners’ Indemnity Insurance Fund NPC in Centurion.

This article was first published in De Rebus in 2021 (March) DR 4.

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