An Update on the Professional Indemnity Scheme

The Professional Indemnity Scheme (“PIS”) provides compulsory professional indemnity to Hong Kong law firms against losses arising from civil liability incurred in connection with their practices. The terms and conditions of the PIS are set out in the Solicitors (Professional Indemnity) Rules (Cap. 159M) (“PIS Rules”) where indemnity is currently provided by the Hong Kong Solicitors Indemnity Fund established by the Law Society.

The Council has been conducting an on-going review of the scope and operation of the PIS and the PIS Rules, and has approved the following proposals in principle:

A. Increasing the limit of indemnity under the PIS from the existing HK$10 million per claim to HK$20 million per claim with no change to the PIS contribution calculation formula.

B. Improving the coverage of the PIS by:

(i) narrowing the “principal fraud / dishonesty” exclusion (ie, para. 1(2)(c)(iii) of Schedule 3 to the PIS Rules) so that the exclusion will not apply to an “innocent partner”; and
(ii) providing indemnity for costs incurred in responding to or defending:

(a) an investigation or inquiry (except for any disciplinary proceedings by or under the authority of the Law Society) by law enforcement agencies; and
(b) criminal charges (but only if the Indemnified is acquitted of such charges).

C. Amending the PIS Rules to:

(i) expressly set out the general current practice regarding appointment of defence solicitors in respect of claims made under the PIS – an Indemnified must appoint defence solicitors from the panel of firms of solicitors appointed by the Council under r. 17 of the PIS Rules, unless the Hong Kong Solicitors Indemnity Fund Limited agrees otherwise in writing;
(ii) clarify that where two Hong Kong law firms are in association, the practising certificates of solicitors working concurrently for both associated firms will be suspended if any one of such associated firms does not have a valid receipt under the PIS (as per r. 6(2) of the PIS Rules).

In addition to the above, changes are being made to the PIS Rules whereby foreign lawyers employed in Hong Kong firms will be treated no differently from assistant solicitors or consultants in the PIS contribution and deductibles calculation formula. When Solicitors Corporations are introduced as a new mode of operation, the PIS Rules will also be updated to cater for this new mode of business operation.

We endeavour to keep the PIS under continuous review to assist our members in overcoming challenges they may face when running their practices. Any comments on the above or any other suggestions on the PIS can be directed to adpis@hklawsoc.org.hk.

Jurisdictions: