Mazur v Charles Russell Speechlys: Implications for solicitors' professional indemnity insurers

In Mazur v Charles Russell Speechlys LLP EWHC 2341 (KB), the High Court clarified that non-authorised employees cannot conduct litigation under supervision - they may only support authorised persons.

The case arose when Particulars of Claim were signed by Peter Middleton, "Head of Commercial Litigation" at Goldsmith Bowers Solicitors (GBS), who did not hold a current practising certificate. The proceedings were stayed on the basis that Mr Middleton appeared to be conducting litigation without authorisation - a "reserved activity" under the Legal Services Act 2007 (LSA).

At first instance, the judge lifted the stay, relying on the Solicitors Regulation Authority’s (SRA's) letter stating that GBS's "employees are permitted to undertake reserved legal activities due to section 21(3)" of the LSA. The defendants appealed.

The appeal was allowed. Sheldon J held that section 21(3) defines "regulated persons" for regulatory purposes but "is not extending the definition or scope of who is 'authorised' to carry out reserved legal activities".

The Court distinguished between the following:

• supporting an authorised solicitor in conducting litigation (permitted) and 
• conducting litigation under supervision (prohibited).

Importantly, the claim was not struck out. The matter had been "rectified" - Mr Middleton had been replaced by a qualified solicitor - and striking out would cause "real prejudice" to the claimant.

Mazur confirms that non-authorised employees cannot conduct litigation under supervision. The person conducting litigation must be authorised or fall within an exempt category.

What this means for insurers

1. Claims exposure

Law firms face potential exposure where non-authorised staff have conducted litigation:

• Fee challenges: Clients may challenge entitlement to charge for work conducted by non-authorised employees. Many professional indemnity claims start as fee disputes. 
• Regulatory risk: Carrying on a reserved legal activity without authorisation is a criminal offence under section 14(1) of the LSA.
• Negligence claims: Where litigation has been compromised or additional costs incurred.

2. The uncertain boundary

The SRA acknowledged it "was not able to identify a case in which a Court had to consider directly at what point a non-authorised person ceases merely to support or assist an authorised person but assumes the conduct of litigation".

This creates significant uncertainty. The SRA suggested the key question is "whether the person has assumed responsibility for the conduct of the litigation and exercises professional judgment in respect of it".

The lack of clear guidance on the boundary between "supporting" and "conducting" litigation means firms may have inadvertently breached the LSA. Insurers should enhance due diligence of law firms and prepare for potential claims arising from historical practices.

3. Underwriting response

Insurers should:

• Scrutinise law firms' supervision policies and ratios of authorised to non-authorised fee earners.
• Add proposal form questions about litigation tasks delegated to non-authorised staff.
• Ask questions about other types of reserved legal activity and who is undertaking tasks.
• Review policy coverage.

Some areas have limited scope for change due to the operation of the SRA minimum terms. However, there are areas which Mazur is likely to impact that are not within the minimum terms. The SRA minimum terms are on a “full civil liability” basis, but carrying on a reserved legal activity without authorisation is a criminal offence.

Defence costs are required for investigations and inquiries but not for disciplinary proceedings under the SRA. There are requirements to cover awards by regulatory authorities to the same extent as civil liability is indemnified, but there is no requirement to cover fee refunds.