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An LSS investigation has revealed that law firms in England and Wales risk breaching their professional indemnity insurance policies if they provide advice on “sharia law”.
All law firms in England and Wales are regulated by the Solicitors Regulation Authority (SRA). Without authorization from the SRA a law firm is not allowed to practise.
A fundamental condition of SRA authorization is the obligation on a law firm to have in place professional indemnity insurance for all its activities. This protects law firms and their clients.
When applying for insurance, a law firm must declare all the activities it provides advice on, be it residential conveyancing, employment, personal injury, criminal law, or a host of other disciplines. A law firm will be covered from an insurance perspective for the activities it declares to its insurer – and only for those activities.
The LSS has spoken to a number of key stakeholders including insurance providers, insurance brokers, a trade association, the SRA, the Law Society (which is the representative body for solicitors), the Financial Conduct Authority, and law firms.
A clear picture has emerged: if law firms are providing advice on “sharia law” they must specifically declare this to their insurers. If they don’t, they are at significant risk of breaching a key regulatory obligation and also their insurance policy, and they will have no insurance cover for this non-declared activity.
The provision of advice on a non-declared activity therefore places law firms and their professional staff – and in particular law firms’ designated Compliance Officers – at serious financial and professional risk. It also places their clients at serious financial risk because if a client sues a law firm for negligent advice, the law firm is unlikely to be able to meet that claim comfortably as it will not have the benefit of the financial protection which insurance brings.
It is important to distinguish between two categories:
Many English law firms, especially the large international commercial practices, regularly provide advice on foreign legal systems in the context of, for example, multi-jurisdictional corporate transactions or overseas commercial and infrastructure projects.
These large law firms, and also some smaller English law firms, may also provide advice on foreign legal systems in the context of, for example, probate and succession matters where there are foreign assets or issues of foreign domicile.
Although some of these foreign legal systems may be heavily sharia-based, they are at least codified. This means that a law firm would not be providing advice on “sharia law” in a loose and general sense, but specifically on, say, the law of Saudi Arabia, or Qatar, etc.
It is likely that English law firms providing advice under this category will be covered from an insurance perspective, assuming of course their insurance provider has agreed to cover them for dispensing legal advice on those particular legal systems (the English law firms will often do this through or in conjunction with local law firms established in those jurisdictions).
The key area of interest and concern for this LSS investigation is English law firms providing advice on “sharia law” in a loose and general sense, and in a domestic British context, for example in the areas of family law, wills and probate, or arbitration and mediation.
In this context “sharia law” is a highly nebulous, shape-shifting, sectarian, uncodified and often incoherent set of ideas, and it is strongly contested even amongst Muslims themselves. “Sharia law” is not recognized in the English legal system and the LSS would fiercely resist any attempt to do so.
Even law firms who fall into Category 1, and who are likely to be covered from an insurance perspective, must ensure they do not succumb to inadvertent “mission creep” whereby over time their lawyers also gradually dispense advice falling under Category 2.
a) Insurers and brokers
The LSS spoke to numerous insurers and brokers who stated that the provision of sharia advice required declaration on an insurance form.
One individual at a well-established insurance company, with many years’ personal experience of providing cover to the legal sector, said he had never seen or heard of “sharia” or “sharia law” being declared on so much as one insurance form. Considering it is now sadly very common for English law firms to provide “sharia law” advice, and indeed to openly advertise this service, this is deeply troubling.
Similarly, one experienced insurance broker was adamant that sharia would certainly require specific declaration on an insurance form in order for it to be covered, and he also confirmed he had never seen or heard of such a declaration.
The LSS noticed a distinct unease on the part of many insurers and brokers to discuss this issue, to consider it calmly and rationally, and to treat it like any other routine enquiry. A number of insurers immediately suggested speaking to brokers, and a number of brokers immediately suggested speaking to insurers.
b) British Insurance Brokers’ Association (BIBA)
BIBA is a trade association for insurance brokers and intermediaries. It told the LSS:
“It is currently an obligation on any commercial entity that enters into a commercial insurance contract that they disclose any ‘material facts’ (a material fact is one which would influence an insurer in accepting a risk or in determining a premium) to their insurer and failure to do so may invalidate their insurance policy.
“It would certainly appear to be the case that solicitors that provide Sharia Law advice should disclose this to their insurer, so that the insurer understands the specialist area of the law in which they operate. This would equally apply to all areas of specialism e.g. employment law/contract law/family law etc.”
c) The SRA and the Law Society
The LSS also spoke to the SRA and the Law Society, who were both very helpful, although they were reluctant at this stage to provide any formal or detailed response.
The SRA told the LSS it is clear that law firms must have insurance to cover each of their activities and that if they don’t declare an activity, there is a clear risk to law firms and their clients.
The Law Society were extremely interested in this issue and they expressed considerable surprise that no-one had ever raised this before.
d) The Financial Conduct Authority (FCA)
The FCA, under whose regulatory regime some law firms are also likely to fall if they provide advice on “sharia finance” transactions, told the LSS they would clearly be concerned from their own regulatory perspective if a law firm was providing sharia finance advice without having declared that to their insurance provider, because of the lack of insurance cover for a regulated activity in those circumstances.
The FCA stated that if a law firm was providing advice on sharia activities not falling under the FCA’s regulatory remit (for example, in the context of family law), and the law firm wasn’t covered from an insurance perspective for that specific activity, then that would be a clear risk for law firms and their clients but that it wouldn’t of course be of interest to the FCA from the FCA’s own regulatory perspective.
e) Law firms
The LSS spoke to a modest sample of English law firms who openly provide advice on “sharia law” in a domestic British context (i.e. Category 2 above).
The LSS assured these law firms that it would not disclose the name of the law firm or any of its individuals in the public domain, or to the SRA, or to any other organisation. The LSS asked the law firms if they had declared their sharia activities on their insurance forms.
One law firm simply said, “We comply with law”. The other law firms were unable to answer the question, or refused to answer the question, or hung up the phone abruptly.
Commenting, LSS Secretary Charlie Klendjian said:
“The LSS is pleased to kick-start an obviously awkward conversation. The reason that any conversation is awkward is that it is sorely needed. At this stage the LSS can safely conclude, as a bare minimum, that something is not quite right in the marketplace.
“This is a serious issue and so we have brought it to the attention of the SRA and the Law Society. We have asked them to now consider all the implications for our profession and to establish exactly what is happening in the marketplace. We have urged them to engage with law firms, Compliance Officers and the insurance industry to establish a way forward. The LSS would be delighted to be involved in these discussions and is happy to offer its assistance.
“Any law firm that provides advice on “sharia law” must now seriously consider, for their own sake as well as that of their clients, whether “sharia law” is really an appropriate area for that law firm to venture in to. If they believe it is, they must declare it to their insurers and they must be prepared to pay whatever the additional premium is. Similarly, the insurance industry must consider how, if at all possible, they can price the risk of advice on such a nebulous, shape-shifting and uncodified subject.
“The LSS also hopes to raise awareness amongst lawyers of the risks of advising on “sharia law”. We hope our investigation helps to empower lawyers, especially the younger members of our profession, to say “no” if they are leant upon by their employers to get involved in sharia, due to the uncertainty and professional risks that our investigation has revealed. Many young and aspiring lawyers are desperate for work in the legal profession and it is not right that they should be under any pressure to develop their knowledge of “sharia law” – knowledge which is unlikely to be of any use in their future careers.
“Although for the purposes of this investigation we are trying to leave to one side the issue of sharia’s human rights record, which is abysmal, and we are focusing specifically on the insurance dimension, now is as good a time as any to remind law firms, lawyers and the insurance industry of two crucial points.
“Firstly, the legal profession’s two key bodies have recently made their views on sharia perfectly clear. Following the LSS’s persistent campaigning the Law Society completely withdrew its practice note on sharia, it issued a clear and unequivocal public apology for issuing it, and it distanced itself from sharia yet further by deleting all the sharia training courses on its website. Similarly, the SRA, which had previously endorsed the Law Society’s practice note, withdrew its endorsement following pressure from the LSS.
“And secondly, the highest court in our land, the then House of Lords, has held sharia to be incompatible with the European Convention on Human Rights.
“So in addition to urgently establishing their current insurance arrangements there are three questions for law firms to ponder.
“Number one: even if they can obtain insurance cover for “sharia law”, is it really an area of business they want their brand to be associated with?
“Number two: many law firms have “Corporate Social Responsibility” (CSR) policies covering ethical initiatives such as carbon emissions and charity work. How does providing “sharia law” advice sit alongside a firm’s CSR policy?
“And number three: perhaps the time has come for law firms to remind themselves that their role is to advise on actual law and that the provision of Islamic theological advice is best left to Islamic theologians.”
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