The High Court has found (Regina (Kerman & Co LLP) v Legal Ombudsman) that the Ombudsman can hold firms responsible for responding to complaints first made against predecessor firms. This includes circumstances in which the successor practice has not undertaken the work which is the subject of the complaint.

Implications for law firms

This ruling serves to highlight the importance of effective due diligence on potential merger targets.  We often see clients who know the target firm 'too well' to require formal due diligence, or are simply embarrassed to even suggest that there might be skeletons in the cupboard of fellow professionals. There is also the incentive of seizing an opportunity and 'doing the deal quickly'. These are understandable motivations, but should not cloud commercial judgement.

We have produced practical guidance on mergers and acquisitions, which covers not only the insurance aspects but also the due diligence and risk management issues to be considered prior to completing a merger. 

We can assist with due diligence if required, or simply provide you with advice to ensure that your merger is the right one for you.

Download our guidance, using the link below, log-in to access our full range of guidance and training resources, or Contact Us, to discuss your requirements further.

The Facts

Kerman & Co sought a judicial review of the decision by Legal Ombudsman that Kerman & Co was responsible for dealing with a complaint made in July 2012 against Peter Levy, a sole practitioner practicing as PS Levy and Co, who merged with Kerman & Co in August 2012. The complaint related to the administration of a trust by PS Levy and Co between 1995 and 2010.

The Ombudsman's Scheme Rules state as follows:

Rule 2.9  A complaint is not affected by any change in the membership of a partnership or other unincorporated body.

Rule 2.10 Where authorised person A ceases to exist and B succeeds to the whole (or substantially the whole) of A's business:

• acts/omissions by A become acts/omissions of B; and
• complaints already outstanding against A become complaints against B

unless an Ombudsman decides that this is, in his/her opinion, not fair and reasonable in all the circumstances of the case.

Judicial Review of the Ombudsman decision

Kerman & Co sought a judicial review of the Ombudsman's decision that Kerman & Co was responsible for responding to the complaint on the grounds that Kerman & Co had succeeded substantially to the practice of PS Levy & Co.

Kerman & Co's position was that PS Levy & Co was simply the trading name of Peter Levy and that he, as authorised person A under Rule 2.10 of the Scheme Rules, had not ceased to exist.

Kerman & Co also submitted that it was not in the public interest that the complaint be dealt with by that firm, bearing in mind that Kerman & Co had not provided the services about which Mrs Schroder had complained.

The High Court ruling

Mrs Justice Patterson found that it is for the benefit of consumer protection that Section 132 of the Legal Services Act and Rule 2.10 of the Ombudsman Scheme Rules provide for the continuity of complaints where there has been a change in membership of a partnership or other body.

Mrs Justice Patterson ruled that the effect of Kerman & Co's submission was that a sole practitioner would only cease to exist for the purposes of Rule 2.10 upon death and that this was inconsistent with parliament's intention to protect consumers. She also held that it would not be right that a sole practitioner would no longer be accountable for complaints if they were to move to a new firm.

In relation to the Kerman & Co's second point, she found that it was not unfair for Kerman & Co to be responsible for dealing with the complaint, as they had also received the benefit and goodwill of the business.

We have produced practical guidance on mergers and acquisitions, which covers not only the insurance aspects but also the due diligence and risk management issues to be considered prior to completing a merger.

As a broker, we are also your commercial adviser, helping to ensure that your firm grows successfully without exposing the business or yourself to undue risk.

We can assist with proportionate and timely due diligence if required, or simply provide you with the tools and the advice to ensure that your merger is the right one for the long term.

Download our guidance, using the link below,  log-in to access our full range of guidance and training resources, or Contact Us, to discuss your requirements further.