Lawyers Covered - January 2026

It can be tough for busy lawyers to find enough time to service clients, make it safely through the regulation obstacle course, win new work and keep up-to-date with developments, but we've got you covered! Welcome to our Lawyers Liability & Regulatory Update, in which we highlight the last month's key developments affecting lawyers and the professional risks they face.

Finally, stability after PACCAR?

On 17 December 2025, the government announced its long awaited plans for legislation to remove the barriers created by the PACCAR, the Supreme Court decision which concluded litigation funding agreement are legally classed as damage based agreements (see our 2023 update here). This meant that such an agreement could only be valid if it satisfied certain rules and that they were banned from certain group claims.

Although action was previously confirmed by the government, this was delayed during the general election.

In a statement, the Minister of State for Justice, Sarah Sackman KC MP, said

"I would like to inform the House that this government intends to take action to mitigate the impact of the 2023 Supreme Court judgment in PACCAR and implement proportionate regulation of third-party litigation funding agreements (LFAs).

Third-party litigation funding plays a vital role in ensuring access to justice. It enables people to bring complex claims against better-resourced organisations, which they could not otherwise afford. Sir Alan Bates, for instance, has spoken openly about how without such funding he could not have brought his claim against the Post Office. The Supreme Court judgment in PACCAR introduced significant uncertainty about whether LFAs remain valid and the regulatory regime that applies to them. This uncertainty could be preventing significant numbers of claimants from accessing justice."

The Minister also confirmed that, the government intends to accept the CJC's two primary recommendations, legislating that Litigation funding agreements are not damages based agreements and then will introduce proportionate regulation of Litigation Funding Agreements.

Whilst no time frame has been given, the government has indicted it will take place 'when parliamentary time allows' meaning we will need to watch this space for further developments.

Court of Appeal considers scope of duty in buyer-funded developments case

On 5 January 2026, the Court of Appeal handed down judgment in Afan Valley Ltd v Lupton Fawcett LLP [2026] EWCA Civ 2 (the “Judgment”). The case concerned allegedly negligent advice by lawyers in connection with the regulatory implications of certain proposed buyer-funded property development schemes (the “Schemes”). Some twenty-two Schemes, and £68,000,000 of investor monies, were involved.

The judgment will be of interest to professionals and insurers as an example of the application of the scope of duty test, as refined by the Supreme Court in Manchester Building Society v Grant Thornton [2021] UKSC 20 (“MBS”).

Read our analysis of the decision here

Is your compliance officer compliant?

The Solicitors Regulation Authority’s announced a thematic review of compliance officers (COLPs and COFAs) that shines a light on regulatory exposure for law firms and their leaders. Visiting 25 firms and interviewing 36 role-holders, the SRA examined how firms choose compliance officers, whether they understand and meet their obligations and the key risks they face.

Overall, the SRA found that competition for appointments can be rare, as well as turnover in the positions being low, yet only one COLP could outline all their core responsibilities. In addition, only half of officers had confirmed they had read the SRA’s reporting and notification guidance and 19% had read its enforcement strategy. More than half reported stress, and fewer than half felt their role was acknowledged by their firm.

Whilst it was acknowledged that most firms do have manuals, training, file reviews and audits, the SRA emphasises that Codes of Conduct require COLPs and COFAs to take reasonable steps to ensure compliance (including prompt reporting) and that compliance duties are firm-wide and cannot be delegated. What was highlighted is that many firms have weak systems and poor reporting discipline.

What happens next? The SRA has confirmed it will be promoting the review’s lessons and will use the findings to advance its Consumer Protection Review and comply with Legal Services Board directions. Firms can learn from the Review and ensure their compliance officers fully understand what their role entails and its risks, as well as those risks being acknowledged by the firm.  Firms must also maintain adequate reporting processes to ensure compliance.

Dodgy disclosure but not quite dishonesty…

The recent Solicitors Disciplinary Tribunal (SDT) decision in the case of Solicitors Regulation Authority v Nasar Hussain (Case No. 12688-2024) offers important lessons for practitioners involved in personal injury litigation and professional regulation. The case arose from Mr Hussain’s personal injury claim, which the trial judge dismissed on the basis of Mr Hussain's “fundamental dishonesty”. However, the SDT ultimately concluded that Mr Hussain’s conduct, while falling short of the standards expected of solicitors, did not amount to dishonesty.

Read our article here for further analysis.

Fixed Recoverable Costs extension not fit for purpose?

Well, the Law Society appears to think so. In a press release on 12 January 2026, it confirmed that the extension to the Fixed Recoverable Costs (FRC) regime 'has not provided the costs certainty it promised'.  One of the major concerns cited was the impact of the extension on vulnerable parties, which the Law Society considers needs a full assessment.

This statement was published in response to the government's FRC Interim Implementation Stocktake, which called for views on the extension of the regime, which it indicated would feed into a subsequent full review of the whole regime. That call for evidence closed on 6 January 2026.

The Civil Procedure Rules Committee, along with the Ministry of Justice, have confirmed they will be reviewing the FRC regime later this year.  We will keep you updated with its progress.

High-Volume Claims: Regulatory Reform

The Solicitors Regulation Authority (SRA) has published updated guidance on its regulation of high-volume consumer claims, which it deems a sector increasingly central to access to justice, yet fraught with risks for both consumers and legal practitioners. This note sets out the SRA’s actions to address systemic shortcomings, particularly around consumer protection, transparency, and the financial stability of firms that operate in this space.

This consultation follows the thematic review published in August 2025 (see our September issue for more information) and the discussion paper that called for feedback between 19 September and 14 November 2025.  

In response, the Legal Services Consumer Panel (LSCP) stated that it broadly supports the SRA’s direction but urges more robust, evidence-based reforms. Its key recommendations include:

• Prohibiting standalone use of “no win, no fee” and mandating standardised risk warnings.
• Adopting FCA-style vulnerability guidance within SRA regulations.
• Implementing a permanent, proactive compliance regime, including mystery shopping and data-led targeting.
• Developing a specialised code of conduct for high-volume claims firms.

What could this mean?

• Lawyers may face a stricter obligation to ensure that clients fully understand the costs, risks, and funding arrangements associated with high-volume claims. There could be the introduction of a mandatory, consumer-tested Key Facts Document and interactive onboarding checklists, which would mean that mere disclosure is insufficient. It will be incumbent on lawyers to be proactive in ensuring they have documented that clients have genuinely understood the terms before proceeding.
• Any enhanced financial oversight will require firms to routinely report on third-party funding arrangements and demonstrate financial stability. Firms will need to ensure their policies and processes are up to date and comply with any new requirements.  This may include providing clear information to clients about deductions, insurance premiums, as well as the liability for costs, especially in the event of withdrawal or firm failure.

Overall, the high-volume claims practice area is looking at a more rigorous regulatory environment, which prioritises transparency and robust client communication. 

Hong Kong – "Legal professional privilege is a fundamental right which the courts will jealously protect"

"Legal professional privilege is a fundamental right which the courts will jealously protect" is how the High Court judgment in Lee v Song [2025] HKCFI 5895 (3 December 2025) begins when summarising the principles that underpin legal professional privilege ("LPP").

The case concerned the plaintiff's application for disclosure of documents in support of contempt proceedings against the defendant. The disputed documents included confidential communications between the defendant and her previous lawyers. While the onus of establishing LPP is on the party claiming it (in this case the defendant), as the judgment notes (at paragraph 35), this is not an "onerous burden". In the absence of any iniquitous purpose regarding the disputed documents, the court had little difficulty in dismissing the plaintiff's application.

The judgment is a very strong endorsement of the common law principles that underpin LPP. In an increasingly challenging business and regulatory environment, the judgment is important because it confirms that LPP is a fundamental and absolute right. Therefore, once a document or communication is privileged that protection cannot be undone by balancing any competing policy in favour of disclosure. There is no comparison or "balance" to be had between the protection afforded by LPP and the interest in disclosure. As the judgment states in applying Hong Kong Court of Final Appeal precedent (which, in turn, applies leading English case law):

"31. LPP does not involve any balancing of interests. It is absolute and is based not merely upon the general right to privacy but also upon the right of access to justice: Secretary for Justice v Florence Tsang (2014) 17 HKCFAR 739 at §§27-29 (per Ribeiro PJ)."

That "access to justice" is underpinned by the administration of justice and the right of every person and legal entity to confidential legal advice.