SOLICITORS (PROFESSIONAL INDEMNITY) RULES

SOLICITORS (PROFESSIONAL INDEMNITY) RULES

SOLICITORS (PROFESSIONAL INDEMNITY) RULES

ARRANGEMENT OF RULES

Rule Page

1. Citation and commencement ............M 2

2. Interpretation .......................................................................................................... M
2
3. The fund .............................M 4

4. Establishment and maintenance of the fund M 4
5. Management and administration of the fund M4

6. Compulsory Indemnity ................. M 5
7. Exemption ............................M 5

8. Production of documents and information M 5
9. Receipt ............................M 6

10. Entitlement to Indemnity ....................................................................................... M6

11. Provision of Indemnity .........1 ...1 M 7

12. Indemnity exclusively from the fund .M 7

13. Disputes ............................ M 8

14. Continued maintenance and release of the fund M 8
15. Failure to make payment .............M8

16. Payment of amounts not covered by scheme .................... M 9
17. Panel of firms of solicitors .........M 9
18. Details reported to the Council ...... M 9
19. The Council ..........................M 9
Schedule 1. Contributions to fund ........ M10
Schedule 2. Management and administration of fund M 14
Schedule 3. Exclusions and conditions .... M 16





SOLICITORS (PROFESSIONAL INDEMNITY) RULES

(Chapter 159, sections 73 and 73A)
[1 October 19891

L.N. 328 of 1989

1. Citation

These rules may be cited as the Solicitors (Professional Indemnity) Rules.

2. Interpretation

In these rules, unless the context otherwise requires-

-authorized insurers' means persons carrying on liability insurance business or
pecuniary loss insurance business and recognized as such by the Society;

'basic contribution' means the amount which is established by applying the formula
set out in paragraph 2(1)(a)(i) of Schedule 1 (and which is represented by the
letter 'C' in such formula) as varied by paragraph 2(3) or (4) of Schedule 1;

'certified public accountant' has the same meaning as in the Professional
Accountants Ordinance (Cap. 50);

'Company' means Hong Kong Solicitors Indemnity Fund Limited;

'contribution' means the contribution referred to in rule 4;

'firm' means the firm as from time to time constituted, whether of a sole practitioner
or a partnership, carrying on the Practice;

'first indemnity period' means the period commencing on 1 October 1989 and
expiring on 30 September 1990, both days inclusive;

'first Master Policies' means the 2 professional indemnity insurance policies entered
into between the Society and authorized insurers effective on 1 October 1986;

'former Master Policy' means the master policy entered into between the Society
and authorized insurers, expiring on 30 September 1986;

'former Practice', for the purposes of Schedule 1, means a Practice which no longer
carries on business practising as a solicitor;

'former principal', for the purposes of Schedule 1, means a principal in a Practice on
the date when such Practice becomes a former Practice;

'former solicitor' means a person who has ceased by reason of death, retirement or
otherwise to be a solicitor in Practice and who has been provided with
Indemnity or insured under any Master Policy or former Master Policy or
whose successors in business have been provided with Indemnity or insured
under any Master Policy or former Master Policy including the estate and legal
representatives of such person;





'fund' means the fund referred to in rule 3;
'gross fee income' means-
(a)all professional fees, remuneration, commission and charges of
any kind whatsoever which are rendered in connection with the
indemnified's Practice; and
(b)all income derived by any service, administrative or trustee
company (other than any company which accepts moneys for
investment other than as a trustee) or trust in so far as its
activities are carried out solely in connection with the Practice
but excluding any income derived by any company within this
paragraph for services rendered to the indemnified's Practice or
to any other company within this paragraph where and to the
extent that such income is included in the gross fee income of the
indemnified's Practice or of such other company as aforesaid;
'indemnified' means the firm, or any principal in the firm, any person
employed in or in connection with the Practice (including any assistant
solicitor, any solicitor who is a consultant in the firm, and any articled
clerk), any solicitor who has ceased by reason of death, retirement or
otherwise to practise as principal in the firm, any former employee
employed in or in connection with the Practice (including any assistant
solicitor, any consultant and any articled clerk as aforesaid) and the estate
and the legal representatives of any of the foregoing, and also includes any
service, administrative or nominee company or trust insofar as its activities
are carried out in connection with the Practice;
'Indemnity' means the indemnity to which the indemnified or a former
solicitor is entitled under rule 10;
'indemnity period' means a period (being a period during which either
Indemnity or insurance under any Master Policy or former Master Policy
has been or is being provided) commencing on 1 October in any year and
expiring on 30 September in the following year, both days inclusive;
'Master Policies' means the first Master Policies and the second Master
Policies, and Master Policy means any of such policies;
'panel solicitor' means a firm of solicitors appointed by the Company to
act on behalf of an indemnified or a former solicitor in respect of any
claim against the indemnified or a former solicitor covered under this
Professional Indemnity Scheme;
'period of indemnity' means the period specified in the receipt issued under
rule 9 or in the case of a former solicitor means the indemnity period;
'Practice' means the business of practising as a solicitor (including the
acceptance of obligations connected with and incidental to such practice as
trustee, executor, attorney acting under a power of attorney, tax agent,
patent agent, trade-mark agent, company secretary or company director)
undertaken by the indemnified or his predecessor in business alone or with





others, provided always that wherever any fees or other income accrue
therefrom they inure to the benefit of that business;

'principal' means a partner or sole practitioner of a firm and shall also include any
solicitor holding out as such a partner or sole practitioner;

'Professional Indemnity Scheme means the professional indemnity scheme set out
in these rules, as from time to time amended by agreement between the Society
and the Company;

'related costs' means all costs and expenses incurred with authorized insurers' or
the Company's consent in the defence or settlement of any claim against the
indemnified or a former solicitor;

'relevant date' means the date when a claim for which Indemnity is provided is first
made against the indemnified or a former solicitor or the date, if earlier, when
circumstances which might give rise thereto first came to the notice of the
indemnified or a former solicitor;

'second Master Policies' means the 3 professional indemnity insurance policies
entered into between the Society and authorized insurers effective on 1
October 1987;

'unqualified staff means persons who are not solicitors.

3. The fund

(1) The Society is hereby authorized to establish and maintain a fund in

accordance with the provisions of these rules.

(2) Subject to these rules, the fund shall provide indemnity against such

loss as is mentioned in section 73A(1) of the Ordinance, in respect of the first
indemnity period and each subsequent indemnity period. (3) The second Master
Policies taken out and maintained and the

certificates of insurance issued under such second Master Policies shall continue to
provide cover subject to and in accordance with their terms in respect of their
respective periods up to and including 30 September 1989.

4. Establishment and maintenance of the fund

The fund shall be established and maintained by contributions which shall

be made or caused to be made by solicitors in respect of the first and each
subsequent indemnity period in accordance with the provisions of Schedule 1.

5. Management and administration of the fund

The fund shall be held, managed and administered in accordance with the

provisions of Schedule 2 by the Company.





6. Compulsory Indemnity

(1) Subject to rule 7, every solicitor who is, or is held out to the public as,
a solicitor in Practice in Hong Kong shall be required to have and maintain
Indemnity.
(2) Any current practising certificate which has been issued to a solicitor
who is required to have and maintain Indemnity and who fails to have
Indemnity shall be suspended and such person shall not be qualified to act as a
solicitor pursuant to section 7 of the Ordinance while he shall fail to have
Indemnity.

7. Exemption

(1) Rule 6 shall not apply to a solicitor or a class of solicitors for the time
being exempted by the Council from compliance with these rules or to a
solicitor or a class of solicitors engaged only in a category or categories of
professional business specified by the Council.
(2) The Council may-
(a)exempt from compliance with these rules any solicitor or any
class of solicitors specified by the Council;
(b)exempt from compliance with these rules any solicitor or any
class of solicitors engaged only in a category or categories of
professional business specified by the Council;
(c)grant such exemption either indefinitely or for a specified period
or subject to such other conditions as the Council may from time
to time determine; and
(d) revoke any exemption granted.

8. Production of documents and information

(1) Subject to subrule (3) every principal who is in Practice in Hong Kong
shall, on or before 15 August in each indemnity period or such other date as
may be allowed by the Council, produce to the Company or to a person
specified by the Company-
(a)a certificate signed by a certified public accountant contain-
ing particulars of the gross fee income in accordance with this
rule attributable to the Practice for the immediately preceding
accounting year of the Practice or, if such certificate for the
immediately preceding accounting year is not available, such
certificate may with the approval of the Council be in respect of
the accounting year of the Practice ending not earlier than 31
March in the preceding year;
(b)a certificate signed by a principal in the Practice containing an
apportionment of the gross fee income of the Practice as certified





pursuant to paragraph (a) into categories of business and the
form of such certificate and the categories of business into which
such gross fee income is to be apportioned shall be as determined
by the Council from time to time; and
(c)such other information in connection with the Practice made up
to 31 July (or such other date as may be prescribed by the
Council) in the same indemnity period as may be required by the
Company for the purpose of assessing the contributions payable
by that Practice.
(2) Production with the approval of the Council of a certified public
accountant's certificate of gross fee income for a period other than the
immediately preceding accounting year of the Practice, in accordance with
subrule (1)(a), shall not relieve any principal thereof of his obligation to
produce to the Company a certificate in respect of the immediately preceding
accounting year of the Practice and such certificate, when available, shall be
produced immediately on demand by the Society or the Company.
(3) If a principal in a Practice supplies particulars of the gross fee in-
come of the Practice, an apportionment thereof and the other information in
connection with the Practice in accordance with subrule (1) or (2), the other
principals in the same Practice shall not in addition be required to supply such
particulars, apportionment or information.
(4) Subject to subrule (3), if such principal referred to in subrule (1) fails
to show reasonable cause for not supplying particulars of the gross fee income
of the Practice or an apportionment thereof or the other information in con-
nection with the Practice, in accordance with subrule (1) or (2)-
(a)such failure shall be an event of professional misconduct on the
part of such principal and the other principal or principals in
such Practice as at the date of such failure; and
(b)without prejudice to any other power or remedy of the Society,
the Council may apply to the Court for an order compelling such
principal or each of the other principals in the Practice to show
reasonable cause why they should not supply such particulars,
apportionment and information.

9. Receipt

Upon receipt of the initial contribution due in accordance with the
provisions of Schedule 1, the Company shall issue a receipt in respect of the
relevant Practice and indemnity period or part of the indemnity period.

10. Entitlement to Indemnity

(1) Upon issue of the receipt referred to in rule 9, the indemnified shall be
entitled to be provided severally with Indemnity out of the fund in the manner





set out in rule 11 and to the extent, and subject to conditions and exclusions, set out
in Schedule 3 against all losses to the indemnified whensoever occurring arising
from any claim first made against the indemnified during the period of indemnity in
respect of any description of civil liability whatsoever incurred in connection with
the Practice or from any such claim made during or subsequent to the period of
indemnity arising out of circumstances notified to the Company during the period of
indemnity as circumstances which may give rise to a claim.

(2) A former solicitor, if not provided with Indemnity under subrule (1), shall be
entitled to be provided with Indemnity out of the fund to the extent set out in
paragraph 3 of Schedule 3 against the losses and in respect of the civil liability
referred to in subrule (1) arising from any claim first made against him during the
currency of the Professional Indemnity Scheme as if a receipt referred to in rule 9 had
been issued to him but no receipt pursuant to rule 9 will be issued and no
contribution shall be payable.

(3) Rules 11, 13 and 16 and paragraphs 1 (except subparagraph (a)), 4, 5 and 8
(except subparagraph (9) of Schedule 3 shall apply to a former solicitor as if he were
an indemnified.

11. Provision of Indemnity

(1) Indemnity shall be provided in any one or any combination of the following
ways

(a)by payment, in or towards satisfaction of the claim or claimant's costs
or both, to or to the order of the claimant making the claim;

(b)by payment, in respect of the claim, claimant's costs or costs and
expenses incurred in respect of the defence, settlement or compromise
of the claim or any combination of them, to or to the order of the
indemnified against whom the claim is made;

(c)by payment, in or towards discharge of costs and expenses incurred
in respect of the defence or settlement or compromise of the claim, to
or to the order of the legal advisers, adjusters or other persons by
whom or in respect of whose services such costs and expenses were
incurred.

(2) Notwithstanding any insolvency or bankruptcy of any indemnified, the
Company may, for the purposes of subrule (1), decide in which or which combination
of the above ways any Indemnity shall be provided.

12. Indemnity exclusively from the fund

(1) Indemnity shall be provided exclusively out of the fund and any claim
thereto shall lie and be made solely against the fund.

(2) The Company shall have no obligation to provide any Indemnity save to the
extent that the same can be provided out of the fund.





(3) In no circumstances shall any claim to Indemnity lie or be made against the
Society or the Council.

(4) Subject to rule 14, the fund shall be available exclusively for the purpose
specified in rule 3.

(5) In no circumstances shall the fund or any part thereof be available or be
treated by any person as available (whether by virtue of any claim, attachment,
execution or proceeding or otherwise howsoever) for or in connection with any
other purpose.

13. Disputes

Any dispute or difference concerning the existence in quantum of any liability
for any contribution to be made or caused to be made by any solicitor in accordance
with rule 4 or concerning any claim or the quantum of any claim to be provided with
Indemnity in accordance with rules 10, 11 and 12 shall be referred to a single
arbitrator to be appointed in default of agreement by the President of the Society for
the time being. Any such arbitration shall take place and be conducted between the
indemnified who is a party to the dispute or difference and the Company
representing the fund, and the arbitrator's decision shall be final and binding.

14. Continued maintenance and release of the fund

(1) Following the expiry of the last indemnity period in respect of which the
fund shall provide Indemnity, the fund shall continue to be held, managed and
administered by the Company for so long as and to the extent that the Society, in the
light of the reports made to it by the Company, may consider necessary or
appropriate for the purpose of providing Indemnity in respect of any claim made or
intimated during any indemnity period arising out of circumstances notified during
any indemnity period as circumstances which might give rise to such claim.

(2) When the Society considers it unnecessary or inappropriate that all or any
part of the fund should be held, managed and administered for such purpose, the
Society may at any time require all or any part of the fund not so required to be
released to the Society.

(3) The Society shall apply such fund released to it, if and to the extent the
Society considers it practicable, in any other way permitted by section 73A(2) of the
Ordinance or for the benefit of the solicitors' profession as a whole in such manner
as it may think fit.

15. Failure to make payment

(1) If any principal liable to make payment under or in respect of the
Professional Indemnity Scheme of any amount for which the indemnified is





not provided with Indemnity without reasonable excuse fails to make payment
of such amount on demand for payment of the same being made by the Society
then such failure shall be an event of professional misconduct on the part of
such principal.
(2) A demand for payment of the amount referred to in subrule (1) shall
only be made by the Society after the Company or their agent has given written
notice to such principal that payment of such sum is required by the Company
for payment into Court, or settlement, or satisfaction of judgment on any claim
and payment is not made within 14 days of such notice being given by the
Company or their agent to such principal.

16. Payment of amounts not covered by scheme

(1) When an amount for which Indemnity is not provided is required by
the Company or their agent for payment into court or settlement or satisfaction
of judgment on any claim, the Company or their agent shall give notice in
writing to the indemnified requiring payment of such amount and each
principal in the firm shall thereupon become severally liable to pay the same to
the Company.
(2) If such amount is not paid to the Company within 14 days after
service of such notice, the Company may pay the same on behalf of the
indemnified and each principal in the firm shall thereupon become further liable
to the Company for interest on such amount from the date of payment of the
same by the Company at the same rate as allowed for a judgment debt from
time to time under section 49 of the Supreme Court Ordinance (Cap. 4).

17. Panel of firms of solicitors

A panel of firms of solicitors to conduct the defence of claims will be
appointed by the Council, from which panel any panel solicitor is to be
appointed.

18. Details reported to the Council

Notwithstanding his duty of confidentiality owed to any solicitor referred
to in rule 6, the panel solicitor may report to the Council full details of any
claim made against the Practice of which the solicitor is or was a principal or
employee in respect of any act or omission covered by the Professional
Indemnity Scheme and may report to the Council the failure or refusal of the
solicitor to co-operate with the panel solicitor concerning the claim.

19. The Council

The powers conferred by these rules on the Society shall be exercisable by
the Council as it may from time to time resolve.





SCHEDULE 1 [rules 2, 4 9]

CONTRIBUTIONS To FUND

1. Obligation to make
contributions

Every principal in Practice shall, in respect of himself and of all assistant solicitors and
consultants in his firm, make or cause to be made the contributions as are set out in paragraph 2
in respect of that Practice.

2. Calculation of
contribution

(1) (a)Save in the case referred to in subparagraph (2) (when the amount of contribution
shall be assessed by the Company as therein provided) the amount of all
contributions for the first indemnity period and for each subsequent indemnity
period shall be calculated

(i) according to the formula-

C (N*$8,500) (M*$5,500) S

Where-
* =multiplied by;
C =the amount (subject to any appropriate adjustment made under
subparagraph (3)) of the basic contribution which may also be the
contribution;
N =number of principals (as at 31 July immediately preceding such indemnity
period);
M= number of assistant solicitors and consultants (as at 31 July immediately
preceding such indemnity period); and
S the amount established from the following table-

Gross fee income of the firm Amount
Million
over 0 but not exceeding 5 1. 12 x gross fee income
over 5 but not exceeding 6 60,000
over 6 but not exceeding 7 68,000
over 7 but not exceeding 8 76,500
over 8 but not exceeding 9 83,500
over 9 but not exceeding 10 90,000
over 10 but not exceeding 11 96,500
over 11 but not exceeding 12 102,000
over 12 but not exceeding 13 107,000
over 13 but not exceeding 14 112,000
over 14 but not exceeding 15 116,000
over 15 but not exceeding 16 119,000
over 16 but not exceeding 17 121,000
over 17 but not exceeding 18 123,000
over 18 but not exceeding 19 125,000
over 19 but not exceeding 20 126,500
over 20 but not exceeding 21 128,000
over 21 but not exceeding 22 129,500
over 22 but not exceeding 23 131,000
over 23 but not exceeding 24 132,500
over 24 but not exceeding 25 134,000

over 25 but not exceeding 50 0.54%x gross fee income (subject to a

maximum amount of $230,000)
over 50 but not exceeding 75 0.46% x gross fee income (subject to a
maximum amount of 285,000)
over 75 but not exceeding 100 0.38% x gross fee income (subject to a
maximum amount of 5310,000)






over 100 0.31 x gross fee income





and the gross fee income of the firm shall be determined by the particulars
contained in the gross fee income certificate produced under rule 8(1)(a) plus a
factor to be applied by the Company to this figure to compensate for the
historical basis of the gross fee income calculation (such factor not to exceed
10%) and shall be subject to adjustment as provided in sub-subparagraph (b)(iv):
(ii) in the circumstances set out in subparagraph (6), according to the
formula F x C

Where-

C the amount (subject to any appropriate adjustment made under
subparagraph (3) of the basic contribution which may also be the
contribution; and

F =the appropriate factor referred to in subparagraph (6)(d)
(b) (i) The contribution for the first indemnity period and for all subsequent indemnity
periods shall be regulated by the number of principals, assistant solicitors and
consultants engaged or employed in the Practice from time to time and the
gross fee income of the firm.

(ii) Information regarding gross fee income of the firm and unqualified staff and
the information described as N and M in sub-subparagraph (a) shall be properly
recorded and the indemnified shall at all times allow the Company to inspect
such records.

(iii) Particulars of the names and the position held in the Practice of every
principal, assistant solicitor and consultant and the numbers of and positions
held by unqualified staff at 1 October 1989 shall be submitted by the firm to
the Company on or before 8 October 1989. Thereafter a return shall be sent to
the Company on or before the last day of December, March, June and
September in each year commencing on 31 December 1989 showing every
subsequent change in such particulars (and the date of such change) occurring
since the date of the previous return.

(iv) Upon receipt by the Company of the certificate of gross fee income and
information pursuant to rule 8(1) to enable the Company to assess the
conribution for the next period of indemnity, the Company will also, based on
such information and the other information referred to in sub-subparagraph
(b)(iii), calculate and adjust the contribution for the preceding indemnity
period in accordance with the formula for calculating the contribution for such
preceding indemnity period- Any difference in the amount of the assessed
contribution paid for the preceding indemnity period and the contribution
established by such calculation shall be met by a further payment by the firm,
or in the event of the firm being dissolved prior to payment, by the principals
of the firm immediately prior to such dissolution to the Company, or,
notwithstanding paragraph 4, by a refund to the firm or such principals by the
Company, as the case may be.

(c) If any principal who is required to make contributions in accordance with paragraph

1 fails to provide the Company with a certified public accountants certificate of the
gross fee income or other information referred to in sub-subparagraph (b)(iii)
pursuant to rule 8(1), then such principal and the other principal or principals, if
any,
in the Practice shall be jointly and severally liable to pay-

(i) for the first indemnity period, an amount equal to 400% of the total amount
payable by the firm as premium under and in respect of the second Master
Policies for the period from 1 October 1987 to 30 September 1988; and

(ii) thereafter, for each subsequent indemnity period an amount equal to 200% of
the rate of contribution for the preceding indemnity period until such principal






or principals have made disclosure of such particulars of the gross fee income
or other information as was required.

(d) Upon a principal making good all failures under sub-subparagraph (c), the Company

shall assess the contribution payable in respect of the Practice. If the amount of the
contribution as assessed-

(i) is less than the amount of the contribution paid, the difference shall be repaid
to his firm without interest; or

(ii) exceeds the amount of the contribution paid, his firm shall upon demand pay to
the Company the balance of the amount of the contribution together with
interest on the amount of such balance at the rate of 4% per annum above the





best lending rate from time to time of The Hongkong and Shanghai Banking
Corporation Limited calculated from the date stipulated in or prescribed by the
Society under rule 8(1)(c) until receipt of payment by the Company.

(2) In the case of a solicitor or solicitors commencing a Practice during any indemnity
period the contribution payable in respect of such Practice for the year of commencement of
Practice shall he assessed by the Company based on the average contribution paid for the current
indemnity period by firms of similar composition to the Practice and be paid pro rata and such
basis shall continue to be applied until such Practice shall have submitted a certified public
accountant's certificate of gross fee income and other information in accordance with the
foregoing provisions of this paragraph.

(3) The basic contribution payable in respect of a Practice for an indemnity period shall not

(a)exceed $20,000 if the gross fee income of the Practice for that indemnity period
does not exceed $500,000; or

(b)exceed $40,000 if the gross fee income of the Practice for that indemnity period
exceeds $500,000 but does not exceed $1,000,000.

(4) The contribution payable for an indemnity period shall be due and payable to the
Company on or before 30 September immediately preceding the indemnity period but in the case
of the first indemnity period it shall be payable on the date decided by the Society and in the case
of a Practice referred to in subparagraph (2) the contribution payable for its first period of
indemnity shall be paid forthwith on demand.

(5) (a)Notwithstanding anything to the contrary in this paragraph, the Company may,
with the authority of a resolution of the Council, at any time during an indemnity
period demand in writing from every principal who is required to make
contributions in accordance with paragraph 1 at any time during the indemnity
period when the demand is made such further sum as may be authorized by the
Council to make up a deficit or anticipated deficit in the fund, and such principal
shall be bound to pay such further sum to the Company within 30 days after the
date of issue of such written demand.

(b)Subject to the amount of payments received from such principal being sufficient to
cover the amount of the deficit or anticipated deficit, the sum which such principal
shall be required to pay shall be that proportion of the deficit or anticipated deficit
as the total amount of the contributions payable after appropriate adjustment as
provided in subparagraph (1)(b)(iv) by such principal for the indemnity period when
the demand is made bears to the total amount of the contributions payable after
adjustment by all principals under the Professional Indemnity Scheme for such
indemnity period, provided that such principal may be required to make an interim
payment on account of the sum which such principal is to pay hereunder. Such
interim payment (which shall be subject to subsequent adjustment) shall be that
proportion of the deficit or anticipated deficit as the contribution paid by such
principal for the indemnity period when the demand is made bears to the total
amount of the contributions then paid for such indemnity period.

(6) (a)If during any period of 4 indemnity periods immediately prior to any indemnity
period, an insurer or the Company on behalf of the indemnified has paid, or is
deemed, pursuant to sub-subparagraph (b), to have paid, any claim, then the
contribution payable for such indemnity period shall not be the basic contribution
but shall be calculated in accordance with the formula set out in paragraph
2(1)(a)(ii) by multiplying the basic contribution by the appropriate factor
established pursuant to sub-subparagraph (d).

(b) (i) For the purposes of sub-subparagraph (a), if during any period of 4 indemnity
periods immediately prior to any indemnity period, an insurer or the Company
on behalf of a former Practice has paid any claim and a former principal of
such former Practice is a principal at the relevant date, then the claim so paid
shall be deemed to have been paid on behalf of the firm of which such former
principal is a principal at the relevant date, except that where there is more
than one former principal of such former Practice who is a principal at the
relevant date the claim so paid shall be divided equally among each such former






principal whose share of such claim shall be deemed to have been paid on
behalf of the firm of which such former principal is a principal at the relevant
date.





(ii) For the purposes of this sub-subparagraph, 'the relevant date' means 31 July
immediately prior to any indemnity period.

(c) For the purposes of sub-subparagraph (d), claims paid during such period

(i) shall not include-
(A) any amount in excess of $5,000,000 in respect of any one claim;

(B)the amount of any claim paid by insurers under the former Master Policy
on behalf of the indemnified prior to 1 October 1986 the full amount of
which is paid by the indemnified to authorized insurers under the first
Master Policies prior to 1 October 1986 provided that this exclusion shall
only apply in respect of claims paid by insurers under the former Master
Policy (and repaid by the indemnified) which do not exceed the aggregate
of 50% of the premiums paid by the indemnified in respect of compulsory
professional indemnity insurance in respect of the 4 indemnity periods
prior to 1 October 1986;

(C) the amount of any deductible paid by the indemnified;

(D) the legal costs and disbursements incurred in successfully defending a claim
made against the indemnified;

(E)the legal costs and disbursements (including defence and claimants' costs)
paid in respect of a successful claim made against the indemnified under
the former Master Policy; and

(F)the amount of any claim paid under or in respect of a policy of insurance
other than the former Master Policy or the Master Policies or Master
Policy;

(ii) shall include all legal costs and disbursements (including defence and claimants'
costs) which are paid in respect of a successful claim made against the
indemnified under the Master Policies or a Master Policy.
(d) (i) If claims so paid exceed 0% of the total amount of premiums or contributions
paid in respect of the Practice in the 4 indemnity periods preceding the
indemnity period but do not exceed 50% of premiums or contributions so paid,
a factor of 1.06 shall be applied to the contribution.

(ii) If claims so paid exceed 50% of the total amount of premiums or contributions
paid in respect of the Practice in the 4 indemnity periods preceding the
indemnity period but do not exceed 100% of premiums or contributions so
paid, a factor of 1. 13 shall be applied to the contribution.

(iii) If claims so paid exceed 100% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period but do not exceed 200% of premiums or
contributions so paid, a factor of 1.33 shall be applied to the contribution.

(iv) If claims so paid exceed 200% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period but do not exceed 300% of premiums or
contributions so paid, a factor of 1.53 shall be applied to the contribution.

(y) If claims so paid exceed 300% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period but do not exceed 400% of premiums or
contributions so paid, a factor of 1.78 shall be applied to the contribution.

(vi) If claims so paid exceed 400% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period but do not exceed 500% of premiums or
contributions so paid, a factor of 1.98 shall be applied to the contribution.







(vii) If claims so paid exceed 500% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period but do not exceed 600% of premiums or
contributions so paid, a factor of 2.18 shall he applied to the contribution.

(viii) If claims so paid exceed 600% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period but do not exceed 700% of premiums or
contributions so paid, a factor of 2.43 shall be applied to the contribution.





(ix) If claims so paid exceed 700% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period but do not exceed 800% of premiums or
contributions so paid, a factor of 2.63 shall be applied to the contribution.

(x) If claims so paid exceed 800% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period but do not exceed 900% of premiums or
contributions so paid, a factor of 2.88 shall be applied to the contribution.

(xi) If claims so paid exceed 900% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period but do not exceed 1000% of premiums or
contributions so paid, a factor of 3.00 shall be applied to the contribution.

(xii) If claims so paid exceed 1000% of the total amount of premiums or
contributions paid in respect of the Practice in the 4 indemnity periods
preceding the indemnity period, a factor of 3.50 shall be applied to the
contribution.

3. Decisions by the
Council

For the purpose of determining the amount of any contribution required by these rules, the
Council's decision shall be final and binding on all persons affected on any question arising as to

(a) the maximum amount of contribution or basic contribution payable for any

indemnity period;

(b) the number of principals in a firm at any date;

(c) the number of unqualified staff employed for the purpose of the Practice at any
date;

(d) the number of assistant solicitors and consultants in a firm at any date;

(e) any information or other matter on the basis of which any adjustment in
contribution

is assessed in accordance with paragraph 2(1)(b)(iv);

(f) the amount of any additional contribution to meet the amount of any deficit or

anticipated deficit under paragraph 2(5);

(g) the calculation of the amount of any claim paid and claims loading under paragraph

2(6) and all matters which are to be included or excluded when establishing the
amount of claims paid;

(h) the date on which a Practice becomes a former Practice.

4. No refund of
contributions

A contribution is not refundable.

SCHEDULE 2 [rule 5]

MANAGEMANT AND ADMINISTRATION OF FUND

1 Power of Company to manage
fund







The Company shall hold, and have power to manage and administer, the fund, subject only
to

(a) such directions, conditions and requirements as the Society may from time to time

issue to or impose upon it; and

(b) such arrangements as the Society may from time to time agree with it.

2. General powers

Without prejudice to the generality of paragraph 1 the management and administration of
the fund shall include power





(a) to collect and recover contributions due to the fund in accordance with Schedule 1;

(b)to deposit or invest in such manner as the Company may determine all or any part
of the fund, including any interest, dividends, profits, gains or other assets accruing
to or acquired by the fund;

(c)to arrange such insurances as the Company may determine in respect of the fund
and its assets and the fund's liability under these rules to provide Indemnity in
respect of claims and costs and expenses; and to handle all aspects of any such
insurances, including the payment of premiums thereon out of the fund and the
making and recovery of claims thereunder;

(d)to receive, investigate and handle claims to Indemnity and other notices prescribed
to be given to the Company by these rules, including settlement and compromise
and making of ex gratia payments out of the fund in respect thereof and conduct of
any dispute or difference referred to arbitration under rule 13;

(e)to investigate and handle any claim made or intimated against any indemnified or
former solicitor in respect of which they are or may be entitled to be provided with
Indemnity out of the fund or in respect of which the conduct is by these rules
assigned to the Company, including settlement and compromise and making of ex
gratia payments and conduct of any proceedings arising in respect of such claim;

(f) to claim and recover reimbursement in respect of any sums paid by way of
Indemnity in any circumstances in which such reimbursement may under these rules
be claimed;

(g) to exercise any right of subrogation, subject to paragraph 8(6) of Schedule 3;

(h)to maintain full and proper records and statistics (which, subject to paragraph 4,
shall at all reasonable times be available on request to the Society for inspection and
copying) as to the fund and all aspects of its management and administration;

(i)to make to and review with, the Council annually and at any other time that the
Council may require, written and (if the Council so requires) oral reports as to the
fund and, subject to paragraph 4, its management and administration, including
recommendations as to the contributions which are or may be required in respect of
past, present and future indemnity periods and the circumstances in which, extent
to which and conditions and exclusions subject to which Indemnity should in any
future indemnity period be provided out of the fund.

3. Additional powers

The Company shall further have full power

(a)to engage the assistance of any third party in respect of any aspect of the
management and administration of the fund;

(b)to delegate to any third party any aspect of the management and administration of
the fund;

(c)to institute such proceedings and conduct such proceedings as it may consider
necessary or appropriate for the due management and administration of the fund
(including but not limited to the taking of proceedings to recover contributions due
to the fund or any other payment payable in accordance with the terms of the
Professional Indemnity Scheme from every principal liable to pay the same or from
the firm in which he was a principal when the amount becomes due and payable) in
its own name or (subject to prior consent of the Society) in the name of the
Society;

(d)to disburse or reimburse out of the fund all administrative and legal and other costs,
overheads, fees and other expenses and liabilities incurred in respect of the fund,
including without prejudice to the generality of the foregoing any such costs,
overheads, fees and other expenses and liabilities incurred by the Society in respect
of the establishment or maintenance, or the management, administration or






protection, of the fund.

4. Use of information and
documents

Without prejudice to rule 18, information and documents obtained by the Company about
any particular Practice or member thereof in the course of investigating and handling any claim
made or intimated or any circumstances notified as is mentioned in rule 10(1) may be used by the
Company for the purpose of preparation of general records, statistics, reports and
recommendations (not





identifying the particular Practice or member) for or to the Society, but shall not otherwise be
disclosed or available to the Society without prior consent of the Practice (or any successor
Practice thereto) or the member concerned.

SCHEDULE 3 [rules 2 101

EXCLUSIONS AND CONDITIONS

1. Exclusions

The Company will not provide Indemnity in respect of-

(a) the deductibles of any one claim as set out in paragraph 2(2);

(b) any claim arising from any notice received by the indemnified prior to 1 October
1989

from any person advising or intimating that it is the intention of such person to
hold the indemnified responsible for any act or omission, and any legal proceedings
brought in respect of any such act or omission, in connection with the Practice;

(c) losses arising out of any claim

(i) for death, bodily injury, physical loss or physical damage to property of any
kind whatsoever (other than property in the care, custody and control of any
of the indemnified in connection with the Practice for which the indemnified
is responsible, not being property occupied or used by the indemnified for the
purposes of the Practice);

(ii) for the payment of a trading debt incurred by the indemnified;

(iii) brought about by the dishonesty or fraudulent act or fraudulent omission of the
principal except that this exclusion shall not apply to liability arising out of
any claim brought about by the dishonesty or fraudulent act or fraudulent
omission of any employee in the Practice where the principal has no
knowledge of, or could not by exercising due deligence have obtained
knowledge of, such dishonesty or fraudulent act or fraudulent omission of
such employee;

(iv) directly or indirectly caused by or contributed to, by or arising from ionising
radiation or contamination by radioactivity from any nuclear fuel or from
any nuclear waste from the combustion of nuclear fuel, the radio-active toxic
explosive or other hazardous properties of any explosive nuclear assembly or
nuclear component thereof., directly occasioned by pressure waves caused by
aircraft or other aerial devices travelling at sonic or supersonic speeds; or
from war, invasion, acts of foreign enemies, hostilities (whether war be
declared or not), civil war, rebellion, revolution, insurrection, military or
usurped power;

(y) in respect of any liability incurred in connection with a Practice conducted
wholly outside Hong Kong;

(vi) made by Carrian Investments Limited ('CIL'), Carrian Holdings Limited
(''CHL'') or any of their respective subsidiary (which has the same meaning as
in section 2(4) of the Companies Ordinance (Cap. 32)) or associate
companies or by the shareholders, creditors or liquidators of any of them in
respect of professional or other work done by the indemnified for or on
behalf of or for the benefit of CIL, CHL or any of their respective subsidiary
or associate companies at any time prior to the liquidation of such companies
but the Company shall remain liable in respect of professional or other work
done for or on behalf of or for the benefit of the liquidators of such
companies; or

(vii) subject to paragraph 8(8) where the indemnified's breach of or non-compliance
with any condition of these rules has resulted in substantial prejudice to the






handling or settlement of any claim against the indemnified;

(viii) for wrongful dismissal or any other alleged breach or any other relief in respect
of any contract of employment by the Practice or any member thereof, or





for wrongful termination or any other alleged breach or any other relief in
respect of any contract for supply to, or use by, the Practice or any member
thereof of services, materials, equipment or other goods;
(ix) in respect of any undertaking given by any indemnified or on his behalf (whether
in his own name or in the name of the Practice) to any person in connection with
the provision of finance, property, assistance or other advantage whatsoever to
or for the benefit of him or any other indemnified or of his or any other
indemnified's spouse or children or of any business firm, company, enterprise,
association or venture owned or controlled by him or any other indemnified in a
beneficial capacity whether alone or in concert with others, except to the extent
that he shall establish that any such undertaking was given by him or on his
behalf without him knowing that the undertaking was or was likely to be
connected with the provision of any such finance, property, assistance or other
advantage.

2. Determination of limit of Indemnity
(1) The Indemnity covers that part of the indemnified's loss that exceeds the deductibles
referred to in subparagraph (2) up to a sum not exceeding the difference between such deductibles
and $5,000,000 in respect of any one claim.
(2) The deductibles for the purpose of subparagraph (1) are-
(a)where the indemnified is a sole practitioner at the relevant date, the first $30,000 in
respect of any one claim;
(b)where the indemnified is a partnership, in respect of any claim against that part-
nership or its predecessors in business, the first $20,000 of any one claim multiplied
by the number of principals in the firm at the relevant date;
(c)in addition to sub-subparagraph (a) or (b), $15,000 of any one claim multiplied by the
number of assistant solicitors and consultants in the firm at the relevant date.
(3) Notwithstanding subparagraph (2), the aggregate of the amounts set out in subpara-
graph (2)(a) or (b) and (c) in respect of any firm shall not exceed the first $200,000 of any one claim.

3. Extent of former solicitors Indemnity
(1) (a)Where a former solicitor ceased to be a solicitor in Practice in Hong Kong on or
before 30 September 1986, he shall be provided with Indemnity for that part of his
loss which exceeds the relevant amount set out in sub-subparagraph (b) up to but not
exceeding the relevant amount set out in sub-subparagraph (c) in respect of any one
claim.
(b)Such former solicitor shall not be provided with Indemnity by the Company in
respect of-
(i) the first $20,000 of any one claim where he was in Practice as a sole practitioner
at the date when he ceased to be a solicitor in Practice in Hong Kong;
(ii) the first $10,000 of any one claim where he was in Practice as a partner at the
date when he ceased to be a solicitor in Practice in Hong Kong;
(iii) the first $5,000 of any one claim where he was in Practice as an assistant solicitor
or consultant at the date when he ceased to be a solicitor in Practice in Hong
Kong.
(c)The Indemnity under sub-subparagraph (a) shall not in respect of any one claim
exceed the difference between the relevant amount set out in sub-subparagraph (b)
and $5,000,000 or any of the following amounts, whichever is the smaller---
(i) if such former solicitor was in Practice as a sole practitioner immediately before
he ceased to be a solicitor in Practice in Hong Kong, $550,000;
(ii) if such former solicitor was in Practice as a sole practitioner immediately before
he ceased to be a solicitor in Practice in Hong Kong and one or more assistant
solicitors or consultants were employed in the Practice, $550,000 plus an amount
of $200,000 multiplied by the largest number of assistant solicitors and
consultants employed at any one time in that Practice within the 12 months
preceding the date on which the sole practitioner ceased to be a solicitor in
Practice in Hong Kong;





(iii) if such former solicitor was in Practice in partnership immediately before he
ceased to be a solicitor in Practice in Hong Kong, an amount of 5350,000
multiplied by the number of partners in that partnership immediately before he
ceased to be a solicitor in Practice in Hong Kong;

(iv) if such former solicitor was in Practice in partnership immediately before he
ceased to be a solicitor in Practice in Hong Kong and one or more assistant
solicitors or consultants were employed in that Practice, an amount of
$350,000 multiplied by the number of partners in that partnership plus an
amount of $200,000 multiplied by the largest number of assistant solicitors and
consultants employed at any one time in that Practice within the 12 months
preceding the date of which he ceased to be a solicitor in Practice in Hong
Kong;

(y) if such former solicitor was in Practice as an assistant solicitor or consultant
immediately before he ceased to be a solicitor in Practice in Hong Kong,
$200,000.

(2) (a) Where a former solicitor ceased to be a solicitor in Practice in Hong Kong on or
after

1 October 1986, he shall be provided with Indemnity for that part of his loss which
exceeds the amount set out in sub-subparagraph (b) up to but not exceeding the
difference between the relevant amount set out in sub-subparagraph (b) and
$5,000,000 in respect of any one claim.

(b) For the purpose of sub-subparagraph (a), such former solicitor shall not be provided

with Indemnity in respect of-

(i) the first $30,000 of any one claim where he was in Practice as a sole
practitioner at the date when he ceased to be a solicitor in Practice;

(ii) the first $20,000 of any one claim where he was in Practice as a partner at the
date when he ceased to be a solicitor in Practice in Hong Kong;

(iii) the first $15,000 of any one claim where he was in Practice as an assistant
solicitor or consultant at the date when he ceased to be a solicitor in Practice
in Hong Kong.

4. Related costs

For the purpose of calculating the indemnified's loss in any one claim, related costs shall be
aggregated with the sum paid in respect of such claim and claimant's costs.

5. Recoveries subsequent to claim
settlement

All recoveries or payments recovered or received subsequent to a claim settlement shall be
applied as if recovered prior to such settlement and all necessary adjustments shall then be made
between the indemnified and the Company.

6. Maximum liability of the fund

(1) The aggregate liability of the fund for all claims arising from the same act or omission
(whether or not made or intimated or arising out of circumstances notified during the same
indemnity period) against any Practice or any member of that Practice or both entitled to
Indemnity under these rules shall in no event exceed in total the Indemnity limit determined in
accordance with paragraph 2.

(2) If a payment exceeding the Indemnity limit is made to dispose of any claim or claims for
loss (including relevant costs) the amount of any such relevant costs shall be limited to such
proportion of such relevant costs as the Indemnity limit bears to the amount of the payment so
made.







7. Non-compliance

(1) Where non-compliance with any of these rules by any Practice or any member thereof
or any former solicitor claiming to be entitled to Indemnity has resulted in prejudice to the
handling or





settlement of any claim in respect of which the Practice or member or former solicitor is entitled
to Indemnity, such Practice or member or former solicitor shall reimburse to the Company on
behalf of the fund the difference between the sum payable out of the fund in respect of that claim
and the sum which would have been payable in the absence of such prejudice.

(2) It shall be a condition precedent of the right of the Company on behalf of the fund to
such reimbursement that it shall first have provided full Indemnity for such Practice or member
or former solicitor by payment (up to the limits contained in paragraphs 2 and 3) in or towards
satisfying, or in or towards enabling such Practice or member or former solicitor to satisfy the
claim and claimants' costs in accordance with the terms hereof.

8. General Conditions

(1) (a)The indemnified shall not admit liability for, or settle, any claim falling under rule
10 or incur any costs or expenses in connection therewith without the prior
consent of the Company (such consent not to be unreasonably withheld), and
subject to subsubparagraph (c) shall procure that the Company shall be entitled at
the fund's own expense at any time to take over the conduct in the name of the
indemnified of the defence or settlement of any such claim, including any claim in
respect of which the indemnified may become entitled to partial indemnity under
any insurance with any insurers and any claim which but for paragraphs 2(2),
3(1)(b) or 3(2)(b) would have fallen within the scope of the Indemnity provided by
these rules.

(b)Subject to sub-subparagraph (c) and to the limitation on the amount of the fund's
liability contained in paragraphs 2 and 3, if the indemnified unreasonably refuses to
consent to or to accept any proposed settlement made by the Company or
continues any legal proceedings in connection therewith the fund's liability to
provide Indemnity to the indemnified shall be limited to the amount for which the
claim against the indemnified could have been so settled plus any related costs
incurred up to the date of such refusal.

(c)Neither the indemnified nor the fund shall he required to contest any legal
proceedings unless a Queen's Counsel (to be mutually agreed upon or failing
agreement to be appointed by the President of the Society for the time being) shall
advise that such proceedings should be contested.

(2) The indemnified shall procure that notice to the Company shall be given in writing as
soon as practicable of

(a) any claim under rule 10 made during the period of indemnity against the
indemnified;

(b)the receipt by the indemnified of notice from any person of any intention to make
any such claim.

(3) The indemnified shall also give notice in writing to the Company of any circumstances
of which the indemnified becomes aware during the period of indemnity and which may (whether
during or after the period of indemnity) give rise to any such claim.

(4) Any notice to be given to the Company under subparagraph (2) or (3) must be received
by the Company not later than the last day of the period of indemnity during which such claim is
made, notice is received or circumstances become known, except that the Company may, in its
sole discretion, accept such notification not later than 60 days following the last day of such
period of indemnity.

(5) If notice is given to the Company under subparagraph (2)(b) or (3), any claim
subsequently made (whether during or after the period of indemnity) pursuant to such an
intention to claim or arising from circumstances so notified shall be deemed to have been made at
the date when such notice was given.

(6) The Company on behalf of the fund waives any rights of subrogation against any
employee of the Practice save where those rights arise in connection with a dishonest or criminal
act by that employee.







(7) Notices to the Company to be given hereunder shall be deemed to be properly made if
given to the Company at its registered office or to such other person or body as the Society may
from time to time determine.

(8) If the indemnified shall prefer any claim to Indemnity out of the fund knowing the same
to be false or fraudulent as regards amount or otherwise the Indemnity shall become void only in
respect of such fraudulent claim or that fraudulent part of an otherwise valid claim.





(9) For the avoidance of doubt, any adjustment by way of claims loading which may at any
future date or in respect of any future period be made by reference to any claim or claims first made
or intimated during any period of indemnity is not loss arising from any such claim or claims under
rule 10 and shall in no event be recoverable hereunder.
(10) Upon request the indemnified shall give all such information and assistance as the
Company may reasonably require in dealing with claims made against the indemnified.

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