A murmur of discontent is rippling through the legal profession and may trigger the unthinkable: a public court battle between solicitors and the chief justice. Equally remarkably, the controversy is in danger of turning insurance premiums into sexy subject matter. A few weeks ago, solicitors brought years of disaffection to an apparent end by voting against the renewal of a mandatory indemnity scheme, with most lawyers arguing it was an unfair sapper on their bank balances. Instead, the profession would be able to go to a list of insurers approved by the Law Society and negotiate their own indemnity terms, otherwise known as a 'Qualified Insurers Scheme'. However, the reality is less than straightforward: the chief justice must sign off on this change, and the government has made it clear that it would not support it. Events have now taken a political twist, with staunch opponents to the current system flagging the idea of a judicial review should their wishes not be heeded. The prospect of taking on the chief justice is an unappetising one for most solicitors. Much lobbying lies ahead, along with hopes that the government will address wider issues of indemnity in Hong Kong to make the qualified option more palatable. The solicitor's current indemnity scheme, in place since 1986, is a fund. Each lawyer is insured for $10 million per claim, with the profession bound to make up any shortfall should the insurer be unable to. It was a scheme that seemed to work until March 2001, when the profession's insurer HIH collapsed. The fund was left with a $416 million shortfall, and legal claims against solicitors were mounting. Last year, members had to put up $132 million to make sure the fund did not go into the red. The claims are still coming in, and a further call is anticipated. The failure of HIH brought home the stark and expensive reality of the existing scheme: solicitors act as the insurer of last resort. 'We have no problem with compulsory insurance,' says Benny Yeung Yuen-bun, a partner at Cheng, Yeung & Co. 'I think the majority don't mind that, but we think the buck should stop with the insurance company we pay the premium to. We have done our civic duty.' The criticism has long been that the good firms are subsidising the bad ones. Larger practices contribute more: the top 16 firms in Hong Kong pay 25 per cent of the contributions under the current scheme, which depend on the number of partners, solicitors and gross annual incomes. However, it is usually the smaller firms which engage in the profession's most high-risk area, conveyancing. The property market collapse in late 1997 has had a notable effect on the solicitors' fund: claims skyrocketed as home owners sought to back out of deals in a bid to avoid negative equity. An opaque system of land registration, where title is not guaranteed through a centralised mechanism but instead relies on lawyers' legwork to search titles, provided the means for hundreds of lawsuits against solicitors' firms. By 1998-90, nine in 10 claims against the solicitors' fund were related to conveyancing disputes. Although the figure has eased, it was still 58 per cent for 2002-03. Between 1998 and last year, the fund had paid $822.2 million for the settlement of claims. Of this, $246.77 million was paid to the funds' panel of solicitors as their costs, a figure Abel Lau Kwok-hing, partner at Chan, Lau & Wai, takes issue with. He calculates that with these costs in mind, and those of the funds' management, for every dollar paid from the fund only 40 per cent goes to the intended beneficiary. 'Most of the fund goes [on] administration, and it's not in a sense good for the public interest,' he argues. It is the issue of public interest which has created a stalemate with government. As Mr Yeung explains: 'The government now thinks [the existing scheme] is a very good idea, because the public has absolute protection.' In August, Solicitor General Bob Allcock wrote to lawyers to inform them that he thought it 'essential' that mandatory professional indemnity insurance be maintained. As a qualified scheme would expose consumers to the risk of a complete loss if their solicitors' insurer went bust, Mr Allcock stressed that the profession would not have support for this option. Before the vote last month, the Law Society had pointed out the dilemma they could face. The rule-making authority for solicitors is the chief justice, who 'invariably seeks the advice of the administration through the Department of Justice on public policy aspects of changes to the rules', an explanatory note stated. The society backed a Master Policy scheme, which would ensure about four insurers for each solicitor. If one of the insurers were to go bankrupt, consumers would risk losing only 25 per cent of their cover. However, it was voted down. 'The Law Society council itself was divided on it,' says Michael Lintern-Smith, president of the body. 'At the moment, the public has a perfect deal. If a solicitor can't pay, the fund does. If the fund can't pay, all of the other solicitors in town have to pay. It's unique: nobody else has that obligation.' He stresses that there could be a provision built into the rules that says solicitors must have more than one insurer. On a broader note, the government has mooted the introduction of a general policyholders' protection fund (PPF) which would cover claimants in the event of an insurer's insolvency. 'It is the government's policy to introduce a PPF for everybody, so we feel we are squeezed in the middle. We are going to have PPF but it's five years away,' Mr Lintern-Smith says. Title insurance is another possibility being mooted to make a qualified scheme more attractive to the government. This would help ease the pain in relation to conveyancing claims. Although Hong Kong is moving toward a registered land system, it is a slow transition, with a bill passed in the Legislative Council this July more a work in progress than a definitive blueprint. Only new properties will be brought on to the title register, leaving a 12-year transition for older homes. However, title insurers would enable this older land to be brought on to the register at any time, by providing indemnity to the buyer. In the event of a dispute over title, the home owner would go straight to the insurer. Hilary Cordell, a solicitor and chief executive of insurer First American's Hong Kong operation, is a keen advocate, the insurer having successfully introduced the scheme in other jurisdictions. As she points out, solicitors are bearing the conveyancing burden. 'It's a broken fund, and a broken land registration system.' The issue is becoming time-sensitive, with the current indemnity scheme up for renewal in October next year. The Law Society already has a first draft of its qualified insurer rules, which will be put to members in the new year. Should the government fail to back down, there is a remote possibility of a judicial review. At this stage, Mr Lintern-Smith seems reluctant: 'We would consider any means in the interests of many members, but need to be convinced it would be the right thing.' On a lighter note, he adds: 'Also, who is going to judge it?'