Update on the Professional Indemnity Scheme

Professional indemnity cover is a compulsory and an essential element to the practice of every solicitors’ firm in Hong Kong. Such indemnity is provided by the Professional Indemnity Scheme (“PIS”), which operates in accordance with the Solicitors (Professional Indemnity) Rules (Cap. 159M) (“PIS Rules”).

As part of the Council’s on-going review of the PIS, a number of changes are in the pipeline and some have come into operation. This article provides an overall update.

The reforms that were implemented earlier this year related to the following:

i) incorporating foreign lawyers employed in Hong Kong law firms into the formula for calculating PIS contributions and deductibles (effective from 1 July 2019);
ii) increasing the indemnity limit of the PIS from HK$10 million per claim to HK$20 million per claim for claims first notified and first made against an Indemnified (as defined in the PIS Rules) on or after 1 October 2019.

The next change on the list, probably a relatively smaller change, will be to expressly set out in the PIS Rules the current practice regarding the appointment of defence solicitors to handle claims made under the PIS. When a claim for indemnity is made by an Indemnified under the PIS, Managers of the PIS (currently ESSAR Insurance Services Limited) will usually appoint a firm of solicitors to represent the Indemnified to handle the claim made against that Indemnified. Such firm of solicitors is selected from a Panel (“PIS Panel”) appointed by the Council (usually for a term of five years) through open tender. The proposed change will set out clearly that, in relation to a claim for which indemnity is sought under the PIS, an Indemnified must be represented by defence solicitors from the PIS Panel unless the Indemnified has obtained the prior written consent of the Hong Kong Solicitors Indemnity Fund Limited (“Company”, which was established to hold, manage and administer Hong Kong Solicitors Indemnity Fund from which indemnity is provided under the PIS), otherwise no indemnity will be provided in respect of the relevant costs incurred by the Indemnified. The amendments to the PIS Rules effecting this change are currently being finalised pending their gazettal in early 2020. The target commencement date is currently 1 May 2020.

Another proposed change that has been approved in principle by the Council relates to the narrowing of the scope of 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 Indemnified”. Currently, no indemnity will be provided in respect of losses arising out of any claim brought about by the dishonest or fraudulent acts or omissions of an employee of an indemnified firm unless the Company is satisfied that the employee’s dishonesty and fraud did not occur as a result of the recklessness, dishonesty or fraud on the part of any person who was a principal of the firm at the relevant time. The proposal is to change the PIS Rules so that indemnity will still be provided for those indemnified who did not commit, approve or sanction the dishonest or fraudulent act or omission. The legislative amendment exercise is in progress.

Other proposed changes which have been approved in principle by the Council and are being worked on include the following:

i) clarification on where a solicitor is a partner, an employee or a consultant of more than one Hong Kong law firm, his or her practising certificate will be suspended if any one of such Hong Kong law firms does not have a valid receipt as required under rule 6(1) of the PIS Rules;
ii) consequential updates to the PIS Rules in preparation for the introduction of solicitor corporations as a new mode of operation for legal practices;
iii) clarification on how the PIS operates where the receipt of more than one Indemnified responds to a claim made under the PIS.

In addition to the above, the Board of the Company and the Council will conduct a wider policy review regarding suggestions to extend the coverage of the PIS to cover the costs incurred in responding to or defending (i) an investigation or inquiry by law enforcement agencies (except for any disciplinary proceedings by or under the authority of the Law Society of Hong Kong) and (ii) criminal charges (but only if the relevant Indemnified is acquitted of such charges).

The PIS serves to provide our members and the public with protection and the resources to meet unexpected eventualities in the long run. If you have any comments or suggestions, you are welcome to email us at adpis@hklawsoc.org.hk.

Jurisdictions: 

Secretary-General, Law Society of Hong Kong