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SMDF: Vote no

The Council of the Law Society of Ireland has proposed that the members of the Law society vote for the following proposal:

“That [the members] approve[s] the recommendation of the Society’s Council to provide financial support to the Solicitors Mutual Defence Fund…”

Surprisingly for lawyers, the Council seems not to recognise that it carries a risk of non-persuasion. This is evidenced in its several failures to treat the members respectfully.

Why did the Council submit the proposal to the members, rather than adopt it at the Council? The Council elided the question, but the answer is very relevant. Many of the Council members are also members of the SMDF and would therefore, be conflicted. A vote by persons with a conflict of interest would be easily overturned in the appropriate forum. In short, the Council could not lawfully adopt the proposal.

The Council has not been restrained in its advocacy of the proposal. It has urged its adoption on the Law Society members. It is using the resources of the Law Society to procure its adoption. It is doing this without declaring the conflict of interest of the Council’s SMDF members. It is the fiduciary duty of corporate directors to avoid conflicts and they are further bound to disclose them.

The proposal is of doubtful legality. The SMDF, the Council of the Law Society says, is a private independent body, not controlled by the Law Society. The funding of the SMDF bailout will not be voluntary. It will be enforced by a planned refusal of the Law Society to make it a condition, of the receipt of an annual practicing certificate, that solicitors pay a levy for the bailout.

The Council has, it says, received legal advice from Counsel that the proposal is lawful. It has not disclosed that advice to the members, and clearly the Council has no intention of disclosing it now. It is not credible, without full disclosure, that the Council has such advice.

The claimed source of the law validating or empowering the proposal is Section 26 of the Solicitors (Amendment) Act 1994. A bailout of the SMDF was never in the contemplation of the Oireachtas in passing Section 26. None of the provisions of Section 26 authorise the Council’s proposal. Indeed, special mention, in Section 26, had to be made of SMDF because it does not fit with an essential ruling idea in the Section; that solicitors be indemnified. An indemnity, legally, implies a right to indemnity, usually in contract. It is generally admitted that the members of SMDF have, and had, no right to indemnity from SMDF; its benefits were available only at the discretion of the directors of SMDF.

There is something more immediate to throw the Council’s proposal into questionable light; is the SMDF insolvent?

The Council asserts it is, but there are reasons to doubt this. The Council itself discloses that the regulations governing SMDF preclude the SMDF directors from making any payment resulting in insolvency. In addition, the SMDF itself has not claimed it is insolvent. This is not surprising because there could be malign consequences for the directors of SMDF if that were the case. The issue is not a minor one; much of the Council’s case is predicated on the un-foreseeability of the actions of the inevitable liquidator of SMDF. But, if there is no insolvency, there is not likely to be a liquidator. (For lawyers, “insolvent” has a precise meaning; that the entity is unable to pay its debts when they fall due.) A letter from SMDF to some practitioners dated 27th May 2011 is confirmation that SMDF is not insolvent; it says…

”It should be understood that the Fund has no immediate difficulties…”

If there is a problem in the SMDF, why do its members, including those on the Council of the Law Society, not solve their own private problem?

Even if the SMDF is not insolvent, it is possibly suggesting that it will not pay out on some at least of valid claims against solicitor members of the SMDF. Why do the members not top-up the “mutual fund” that is the SMDF, to meet those claims? On the figures provided by the SMDF, this would cost the members approximately €1000 per year. According to the Council of the Law Society, the prospects of them agreeing to this are “slim”, but they have not been tested.

Separately, the members of the SMDF could seek real professional indemnity insurance elsewhere. They will have to do this anyway at the end of the current year; the SMDF says it will not take on any business after this year; (we now see “business” here is a misnomer).

If SMDF members have poor claims histories they can apply to enter the “Assigned Risks Pool”, a device provided for in the Solicitors (Amendment) Act 1994. This allows solicitors with very poor claims records to continue in practise.

Consequently, there is no immediate problem. According to the SMDF, it has re-insured 100% of the risks for this year. In previous years it re-insured 90% of the risks. We do not, in the light of those facts, know why SMDF is taking the extreme step of ceasing “business” at the end of this year, but it is.

Here again, the Council of the Law Society has failed to properly inform the members as to what the problem is, and its implications.

The members of the Law Society should vote no to the Council’s proposal.