2012–13 annual report · legal practitioners’ liability committee 2013 annual report 1...

2012–13 Annual Report

Serving the ProfessionThe Legal Practitioners’ Liability Committee has been insuring the legal practitioners of Victoria since 1986.

Pursuant to the Legal Profession Act 2004 LPLC is the insurer to law practices engaging in legal practice in Victoria. It is the successor body to the Solicitors’ Liability Committee.

The Solicitors’ Liability Fund became the Legal Practitioners’ Liability Fund in 1996.

The Fund is administered by the LPLC.

To engage in legal practice in Victoria, law practices must take out insurance with the LPLC.

The functions of the Committee are:• To provide professional indemnity

insurance to law practices;• To undertake liability under

contracts of professional indemnity insurance entered into with law practices;

• Any other functions conferred upon it by the Legal Profession Act 2004.

The LPLC also provides risk management services to law practices.

The LPLC has the power to enter into contracts or arrangements relating to insurance and reinsurance.

The LPLC is an independent body which reports to the Attorney-General and Minister for Finance of the State of Victoria.

ContentsChairman’s report 1

From the CEO 2

Matt Walsh 3

Claims – Solicitors 4

Claims – Barristers 6

Risk Management 8

Investments 10

Legal Practitioners’ Liability Committee and Management 11

LPLC Management 14

Organisational chart 16

Supplementary information 17

Financial Report for the year ended 30 June 2013 19

Statement of Comprehensive Income 20

Balance Sheet 21

Cash Flow Statement 22

Statement of Changes In Equity 23

Notes to the Financial Statements 24

Declaration by members of the Committee 42

Auditor General’s Report 43

1Legal Practitioners’ Liability Committee 2013 Annual Report

Chairman’s reportWhile LPLC has enjoyed an excellent year in terms of investment returns and extensive risk management activities, the year was one of sadness for the LPLC. The Chairman, Matt Walsh, died suddenly and unexpectedly, on the 22nd March 2013.

While this report includes an obituary about Matt, I can speak for other Committee members and LPLC staff in expressing our sorrow and regret. Matt was both an outstanding lawyer and Chairman, who cared greatly for the welfare of the profession. Although Matt had spent his practising life in large law practices, he saw the LPLC as playing a role in assisting practitioners, particularly those who practise on their own, with risk management services and accessibility for those requiring assistance and guidance.

LPLC has continued to enjoy a decline in the incidence of claims for solicitor practitioners, while claims and notifications against barristers have remained stable since barristers joined the scheme in 2005. We believe that continued risk management activities have played a significant role in this good claims story.

The LPLC surveyed more than 500 firms this year. The findings of that survey certainly indicated that LPLC resources are well used.

The website was used by 70% of respondents. 93.8% read our newsletter, In Check, while 70% have read the LPLC booklets. These figures are encouraging, but LPLC strives to achieve maximum participation in risk management.

Our ability to engage the profession in risk management is greatly assisted by our extensive data base and our experience in having handled many thousands of claims over our 27 year history.

There are challenges ahead for the LPLC and the profession – in particular the Personal Property Securities Act 2009 (Cth), and the introduction of electronic conveyancing. LPLC will continue its endeavours in the management of new risks emerging from these significant changes.

I thank the CEO, Miranda Milne, the Deputy CEO, Justin Toohey, and the LPLC staff for their continued commitment.

I also thank my fellow Committee members some of whom served with Matt Walsh for many years.

Geoff Rees

Acting Chairman from 11th April 2013

2 Legal Practitioners’ Liability Committee 2013 Annual Report

After an increase in the cost (although not the number) of claims in the 2010-11 year (on account of an unusually high number of large claims), the cost of claims has declined in the last two policy years. Over the longer term, and taking into account inflation and the growth in the profession, that claims experience has been remarkably steady, since the early 1990’s.

The year closed with an estimated claims cost of $30.34M, comprising 438 claims and notifications.

The good story of the low number of claims and notifications has continued, with the annual number of claims and notifications being between 434 and 462 since the 2009-10 year.

LPLC has recorded a solid investment return after years of volatility in financial markets. While there is possibly more volatility to come, the reporting year has vindicated LPLC’s investment strategy.

The year was one of our busiest for risk management, measured by the number of publications, seminars, including publications and video material posted on our website.

LPLC has also continued its involvement in consultation with National Electronic Conveyancing Development Limited and the Australian Registrars National Electronic Conveyancing Council, in relation to the legal framework for electronic conveyancing. Electronic conveyancing will involve significant changes in the way in which legal practitioners will be able to undertake conveyancing transactions. LPLC has led the response on behalf of other compulsory insurers of lawyers in achieving the best outcome from a risk perspective.

LPLC has also been consulted by Government on certain proposed legislative changes in relation to the Sale of Land Act 1962. We are able to make submissions from the perspective of risk minimisation for practitioners.

The year was a sad one for the LPLC staff, with the sudden death of Matt Walsh, with whom I had worked with as Chairman for many years. Geoff Rees has filled the position of Acting Chairman, with a smooth transition.

I thank the LPLC staff for their outstanding efforts this year.

Miranda Milne

Chief Executive Officer

From the CEO It is six years since the Global Financial Crisis began. We have lived with volatile financial markets, and changed conditions for the legal profession.


Matt Walsh

LPLC Chairman, Matt Walsh, died suddenly on the 22nd March 2013.

Matt had served on the Committee since July 1994 and was Chairman from August 2002.

When he joined the Committee, Matt had recently retired from the partnership of Mallesons Stephen Jaques (now called King & Wood Mallesons). Matt joined that firm in 1959 as a law clerk and ultimately became Executive National Chairman. While there, he completed his law degree and Master of Laws. He later became a consultant at the firm of Gadens, from which he retired a month before his death.

Matt’s involvement with self-insurance for solicitors predated his time as a Committee member.

In 1985, The Law Institute of Victoria (of which Matt had been President) investigated the possibility of creating a self insurer, after commercial insurers sought a large increase in professional indemnity insurance premiums in respect of the Master Policy scheme. That scheme, Law Claims, was administered by the Law Institute of Victoria.

The outcome of this investigation led to the creation of what was then called the Solicitors’ Liability Committee, as a statutory authority. Matt worked

closely with the Victorian

Government, and in particular, Parliamentary Counsel, in implementing what was then a

revolutionary idea.

Matt was what might now be called an old fashioned lawyer – he knew a lot about most areas of practice, despite having practised predominantly in the areas of taxation, corporate and trust law.

Although his background was one of practising in large law firms, Matt always considered the role and well being of small practitioners particularly those providing legal services in the suburbs and country. He felt that these practitioners faced many challenges and was always sympathetic to those challenges. He saw that the LPLC had a role in providing services to all members of the profession. To quote his former partner, Chris Beeny, “He treated everyone with whom he dealt with respect and good cheer”.

In the late 1990’s LPLC faced the challenge of several competition policy reviews. Matt was adamant that LPLC ultimately served the public interest and that only a sole provider could guarantee providing the best quality cover at the lowest cost, ultimately for the benefit of consumers of legal services. Both he and the then Chairman, Tony Darvall, played a significant role in persuading the Victorian Government of the importance of the insurance scheme to practitioners and their clients.

Matt also served on the LPLC Fund Investment Sub-Committee for many years. His wise counsel and his conviction of LPLC’s role as a mutual which should deliver solid investment returns bore fruit with an impressive investment record.

Matt served on other Committees and bodies, too numerous to count. Among them were the Board of Examiners and the Taxation Institute of Australia.

As both Chairman and Committee member, Matt not only felt sympathy for those practitioners who were the subject of claims, but was acutely aware of the LPLC’s role of ensuring that clients were appropriately compensated, as quickly as possible.

Matt has been greatly missed for the sound judgment and humour he brought to meetings. He ensured that there were constructive contributions made by Committee members, in the interest of the legal profession.

He was brave and willing, but never without consideration and thought. This delivered benefits for both solicitors and barrister practitioners - the latter being enthusiastically brought into the scheme with Matt’s support in 2005.

Matt will be greatly missed by the Committee and staff, but not as much as by his wife, Marlene and their family. Not surprisingly, there was standing room only at his funeral.


Claims – SolicitorsThe low incidence of claims and notifications, when measured against the number of practitioners in the LPLC pool, continued.

The estimated cost of claims is much the same as the current estimated cost for the most recent two policy years.

One reason for this is that there have been fewer large claims, after a concentration of large claims in the 2010-11 year.

As in most other years, almost 70% of our estimated claims cost originated from conveyancing, mortgage work, commercial work and commercial litigation. The first three categories highlight the perils of transactional work.

The cost of conveyancing claims eased when compared with last year, but a quarter of all claims and notifications still came from this area of practice. While two thirds of the number of claims came from residential conveyancing (with failure to give advice about the property being the single most common cause of claims), 62% of the cost of property claims arose out of commercial conveyancing, where the single most common cause was also failure to give advice about the property being purchased or sold, followed by planning and environment issues.

In the mortgage area, Amadio mortgages were conspicuous. These are claims where the mortgagor is not the borrower and provides security for the borrower without receiving a benefit. Other claims arose out of failure to obtain adequate security, while two claims arose out of fraud on the part of the borrower.

More claims came from practitioners acting for mortgagees.

Commercial claims cover a very broad spectrum, and accounted for 20% of the cost of claims.

Claims from commercial litigation arose from delay and subsequent strike outs, accompanied by claimants revisiting settlements, or bringing counterclaims when practitioners sued for costs.

The year also saw a number of personal costs applications made by both litigants and others at the instigation of the court, under the Civil Procedure Act 2010.

NUMBER OF CLAIMS AND NOTIFICATIONS PER THOUSAND SOLICITORS

20

40

60

80

100

120

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


SOLICITORS: NUMBER OF OPEN AND CLOSED FILES 2008-2013

Closed

Open

100

200

300

400

500

600

11-12 12-1310-1109-1008-09

0.5

1.0

1.5

2.0

2.5 Unpaid

Paid

11-12 12-1310-1109-1008-09

barristersSOLICITORS: COST OF PAID AND UNPAID CLAIMS 2008–2013 ($M)

Unpaid

Paid

7

14

21

28

35

11-12 12-1310-1109-1008-09

Mortgage 7%

CommercialLitigation 16%

Family Law 6%

Lease 4%

Miscellaneous 4%

Small Business 2%

Libel/Defamation 2%

Wills & Estates 9%Personal Injury Litigation 6%

Property &Conveyancing 24%

Commercial 20%

SOLICITORS: PERCENTAGE NUMBER OF CLAIMS BY AREA OF PRACTICE 2012–13

Mortgage 11%

Commercial Litigation 14%

Family Law 4%

Lease 6%

Miscellaneous 5%

Small Business 1%

Wills & Estates 6%

Personal Injury Litigation 4%

Property &Conveyancing 29%

Commercial 20%

SOLICITORS: PERCENTAGE COST OF CLAIMS BY AREA OF PRACTICE 2012–13


Claims – BarristersThe number of claims and notifications received in respect of barristers has remained steady in number since barristers joined the LPLC on the 1st July 2005.

With a relatively low incidence of claims and notifications, the estimated cost of claims is more volatile than for solicitors.

It is worth noting that the premium charged to barrister practitioners has been in steady decline since barristers joined the scheme. On an average per capita basis, the premium is nearly 40% lower than it was in 2005.

Not surprisingly, most claims and notifications occurred in litigation. Commercial litigation dominated the claims, followed by personal injury litigation and property litigation.

Poor communication has been, for many years, the major underlying cause of claims for barristers, followed by failure to manage legal issues, although the claims arising out of advisory opinions remain extremely low.


BARRISTERS: COST OF PAID AND UNPAID CLAIMS 2008–2013 ($M)

0.5

1.0

1.5

2.0

2.5 Unpaid

Paid

11-12 12-1310-1109-1008-09

barristers

BARRISTERS: PERCENTAGE NUMBER OF CLAIMS AND NOTIFICATIONS BY AREA OF PRACTICE 2012–13


Family Law6%

Commercial 6%


PropertyLitigation 11%

Criminal 8%

barrister


Family Law 2%

Criminal1%


PropertyLitigation 23%

Commercial 13%

barristerBARRISTERS: PERCENTAGE COST OF CLAIMS AND NOTIFICATIONS BY AREA OF PRACTICE 2012–13

0.5

1.0

1.5

2.0

2.5 Unpaid

Paid

11-12 12-1310-1109-1008-09

barristersBARRISTERS: NUMBER OF OPEN AND CLOSED FILES 2008–2013

Closed

Open

10

20

30

40

50

11-12 12-1310-1109-1008-09

barrister


Risk ManagementIt is twenty years since LPLC appointed a dedicated risk manager. Risk management is now equally resourced with our claims service, reflecting our commitment to claims prevention.

Conferences and Seminars2012 Risk Management Intensive – MelbourneIn July and August 2012, the LPLC conducted its risk management intensive on three occasions in order to meet demand from practitioners who wish to attend these seminars.

These were attended by 532 practitioners.

Topics covered included:• Solicitors’ duties• Engagement management• Tax and related conveyancing traps• Claims involving the issue of fraud• Costing

DVDs were made of the seminar and were free to attendees and available for purchase for those who did not attend.

Costs workshopsLPLC conducted five costs workshops attended by 418 practitioners.

Managing legal costs is a significant risk management issue. In litigation claims, claims often arise against solicitors by way of a counterclaim to claims for costs, particularly where there have been incorrect costs estimations.

Country Risk Management Seminar SeriesLPLC held eleven seminars in regional Victoria the following locations:

• Traralgon • Mildura• Bairnsdale • Swan Hill• Mt Eliza • Bendigo• Ballarat • Warrnambool• Albury • Geelong• Shepparton

These seminars were attended by 395 practitioners and support staff.

The seminar comprised of sessions looking at:• Fraud• Solicitors’ certificates• Wills and estates with a focus on claims arising

out of country Victoria

In-house presentationsLPLC speakers attended law firms to conduct in-house risk management seminars. Subjects covered included solicitors’ certificates and fraud, ethics and professional responsibility, conflict, costing and solicitors’ duties in litigation.

Presentations were also given to graduates at the College of Law on twelve occasions, as well as at Leo Cussen Institute. LPLC spoke at four Law Institute conferences as well as participating in Law Institute of Victoria special interest groups. These included the Family Law and Property Maintenance Committee, the Property Law Study Group, and the LIV Business Law Committee.

PublicationsDuring the reporting period, LPLC covered a large range of topics in its publication of bulletins, Law Institute Journal articles and its quarterly newsletter.

In Check NewsletterThere were four quarterly newsletters covering a range of subjects which included:

• Firm management• Consumer credit regime• File notes and certifications• Bush fire prone land• GST queries• Aboriginal Heritage Act 2006 in suburban areas• Off the plan sales and notices• Duties online system• Informal wills• Stamp duty• Unacceptable client behaviour• Civil Procedure Act 2010 changes• Estate Agents Act 1980• Small business

BulletinsThere were five bulletins published during the period alerting practitioners to:

• Changes in New South Wales workers compensation laws

• Land rich duty provisions on entity acquisitions in Victoria

• Off the plan contract notes• Sections 55 and 55A of the Estate Agents Act 1980• Retail leases update


Booklets and brochuresIn addition to this, a risk management booklet “Weather Proofing Wills and Estates” was published on the website together with a brochure for practitioners to give their clients – “A Guide for Executors” and a further brochure “A Guide for Beneficiaries”.

Law Institute ColumnLPLC published eleven articles in the Law Institute Journal. Topics were:

• Personal Property Securities Act 2009 (Cth)• Caveats and charges• Engagement management• Evidence of advice and file notes• Cost skills• Security for mortgages• Testamentary capacity• Conveyancing• Obligations to clients

Other activitiesRisk management and continuing legal educationHeather Hibberd and Richard Antill were co-chairs of the organising committee for the annual CLEAA Conference – Continuing Legal Education Association Australia.

LPLC consultationsNot only has LPLC produced bulletins, newsletters and articles about changes in the law, but it also has been engaged in making submissions about proposed changes in the law, to achieve the best risk outcomes for practitioners.

Risk surveysDuring the period, LPLC conducted a survey of 500 firms to obtain feedback to assist in LPLC’s risk management communication strategy.

The overwhelming feedback was that LPLC risk management material and services were highly valued and there was a desire for more materials and seminars.


Investments

The 2012-2013 year yielded a strong return for the fund of 12.3%, an improvement on the 2011-12 year.

The chart at right shows investment returns over the last five years.

The reporting period was volatile for Australian equities. This led the LPLC to reduce its exposure to Australian equities in favour of overseas equities, which performed well.

Cash on average comprised of a little over 40% of the fund.

Asset allocation is set out in the chart below.

There were some changes to the Fund Investment Sub-Committee during the year.

On September 5, Peter Daly resigned as a member and Chairman. Geoff Rees became Chairman and Peter Fox was appointed a member.

Following the death of Matt Walsh, Geoff Rees resigned as Chairman and was replaced by Peter Daly on May 8 2013.

During the reporting period, the Committee’s managers were:

Australian equities Vanguard

International equities MFS (Massachusetts Financial Services)

Investment Management

Property Dexus Wholesale Property Fund

Interest bearing growth alternatives Colonial First State

Property Dexus Wholesale Property Fund

Cash Cash was invested by way of term deposits with

Westpac, ANZ, NAB and Commonwealth Bank.

JANA Investment Advisers were investment advisers to the Committee for the reporting period.

INVESTMENT RETURN OVER FIVE YEARS (%)

ASSET ALLOCATION 2013 (%)

2

4

6

8

10

12

14

4 years 5 years3 years2 years1 year

InternationalEquities22%

Debtinstruments5%

AustralianEquities 15% Property 17%

Cash and termdeposits

41%


Legal Practitioners’ Liability Committee and Management

LPLC:• Manages and conducts the affairs of and is

responsible for the organisation and business of the LPLC.

• Provides professional indemnity insurance for law practices.

• Determines the terms of and submits policies of professional indemnity insurance for legal practitioners in Victoria for approval by the Legal Practice Board.

• Oversees investment of the Legal Practitioners’ Liability Fund.

• Develops policy in relation to national practice issues and professional indemnity insurance.

• Oversees implementation of effective risk management for legal practitioners.

The Audit Committee comprised of Patricia Kelly (Chairman), Mary Radisich, Peter Fox (until 5th September, 2012) and Peter Daly (from 5th September, 2012 until 8th May, 2013).The Audit Committee oversees:

• Financial reporting• Internal risk and control procedures• Actuarial and reserving functions• Audit• Reporting compliance• Corporate governance• Conduct of audits, both internal and external• Finances and budgeting procedures

The Fund Investment Sub-Committee, comprised of Peter Daly (Chairman) (until 5th September, 2012 and then again from 8th May, 2013) Matt Walsh (until 22nd March, 2013), Geoff Rees (Chairman from 5th September, 2012 until 8th May, 2013) Miranda Milne and Peter Fox (from 5th September, 2012).The Fund Investment Sub-Committee:

• Makes recommendations to the LPLC as to benchmarks, asset classes and asset allocation

• Monitors the Fund’s investment strategies• Makes recommendations to the Committee

as to the appointment of fund managers and investment advisers

The Remuneration and Appointments Committee comprised of Patricia Kelly (Chairman), Matt Walsh (until 22nd March 2013), Geoff Rees (from 8th May, 2013).

The Remuneration and Appointments Committee considers matters pertaining to appointments and remuneration.

COMMITTEE MEETINGS

AUDIT COMMITTEE

FUND INVESTMENT SUB- COMMITTEE

REMUNERATION AND APPOINTMENTS COMMITTEE

Eligible

Attended

Eligible

Attended

Eligible

Attended

Eligible

Attended

Peter Daly 9 9 1 1

Peter Fox 9 9 1 1 3 3

Patricia Kelly 9 7 1 1 1 1

Miranda Milne 9 9 4 4

Mary Radisich 9 6 3 3

Matt Walsh 7 7 3 3

Geoffrey Rees 9 9 4 4 1 1


Matt Walsh ChairmanMatt Walsh was formerly a partner of Mallesons Stephen Jaques and was chairman of that firm from 1988 to 1990. On retirement in July 2000, he was appointed as Special Tax Counsel to Gadens Lawyers, specialising in commercial and taxation law.

Matt was a past President and Life Member of the Law Institute of Victoria and a past chairman of the Taxation Institute of Australia (Victorian Division). He was a director of several private companies and a member of the board of a public charitable fund.

Matt died on the 22nd March 2013.

Peter E Daly, AM Committee Member Peter E Daly has a wealth of experience in the financial industry. He has been President as well as CEO of the Insurance Council of Australia. He is Chair of the Financial Services Compensation Scheme and formerly Chairman of Financial Ombudsman Service, AAMI Limited and was Managing Director of Norwich Winterthur Group Limited. Peter continues to hold a number of Directorships with private companies. He is also Chairman of Aioi Nissay Dowa Management Australia Pty Ltd and Aioi Nissay Dowa Insurance Co Limited. He is a former Deputy Chairman of the Zoological Parks & Gardens Board and the Federal Government Self Regulation Task Force and currently Chairman of Australian Landscape Trust.

In 2004, he was awarded the Order of Australia for services to the insurance industry and to the community, particularly through the advancement of alternative dispute resolution and consumer protection.

Peter Fox Committee Member Peter Fox is a practising Barrister and a part time Senior Fellow of the Melbourne Law School. He has practised as a commercial lawyer for more than 30 years as a barrister, as a partner of Mallesons Stephen Jaques, as a senior counsel of the World Bank in Washington DC, and as an overseas service fellow of the Law Council of Australia assigned to the Monetary Authority of Singapore.

Patricia Kelly Committee MemberTricia Kelly has extensive experience in the Financial Services Industry. Most recently she worked for Suncorp/AAMI where her role included Executive General Manager Strategy & Business Development Personal Insurance and General Manager AAMI New South Wales. Prior to that she was a Director & Executive General Manager Life & Superannuation of Norwich Union Life Australia.

Tricia is a past President and honourary Life Member of the Insurance Institute of Victoria and a former Director of the Australian Insurance Institute. She is currently a Director of RACV Limited and subsidiary companies.

Legal Practitioners’ Liability Committee and Management


Miranda Milne Executive MemberMiranda Milne was solicitor to the Committee from 1986 and has been CEO since 1996.

Prior to her appointment to the Committee, Miranda engaged in private practice, specialising in litigation and professional indemnity insurance.

Geoffrey Rees Committee Member and Acting Chairman from 11th April 2013Geoff is a graduate from Melbourne University in law and commerce and is a Law Institute of Victoria accredited business law specialist. He is one of the founding partners of the JRT Partnership.

With a broad commercial and litigation experience, Geoff regularly advises and presents to institutions and their controlled entities on operational risk management strategies.

Geoff is an author for Business Law and General Counsel modules of LexisNexis Practical Guidance.

Geoff is currently the Chairman of the Advisory Board of Melbourne University Sport.

He is Representative Director of the University of Melbourne on Uniseed, a $60M preseed technology commercialisation fund of three leading Australian Universities. The fund invests in research outcomes from the institutes, and manages the early stages of the commercialisation of that research. He is also Secretary of the Australian Academy of Technological Sciences and Engineering.

Mary Radisich Committee MemberMary Radisich was formerly Financial Councillor with Southern Peninsula Community Information Centre, and previously at Casey Cardinia Legal Service.

She is an experienced mediator and has extensive experience advocating for consumers in the financial services industry, and in community affairs.

She has been manager of the Dispute Settlement Centre of Victoria. Her community involvement has included being a Councillor of the City of Knox and a Member of the Board of the Angliss Hospital.

She was also a member of the Financial and Consumer Rights Council of Victoria for many years.


Miranda Milne Chief Executive OfficerThe Committee began its operations in January of 1986. Miranda Milne was solicitor to the Committee from May 1986 until October 1996 and has been the Chief Executive Officer since that time.

She previously worked in private practice in the area of insurance litigation, particularly professional indemnity insurance.

Justin Toohey Deputy Chief Executive OfficerJustin joined the Committee in 2005 from IBL Ltd where he was employed for four years as National Claims & Risk Manager with the professional indemnity scheme run by the Royal Australian Institute of Architects.

Prior to 2001, Justin was a partner with Tress Cocks & Maddox specialising in professional indemnity litigation, and was a panel solicitor to the Committee conducting the defence of claims against members of the profession for more than 10 years.

Alex Macmillan Claims SolicitorAfter 17 years in private practice, specialising in insurance litigation, Alex Macmillan joined the Committee on secondment as a partner from Lander & Rogers. She subsequently joined the Committee staff permanently in 1994.

Bronwyn Hine Claims SolicitorBronwyn joined the Committee in 2006 from the Melbourne office of specialist insurance firm Moray & Agnew.

In the 10 years prior to joining the LPLC, Bronwyn worked in private practice in Victoria and South Australia as a professional indemnity solicitor.

LPLC Management


Heather Hibberd Risk ManagerHeather practised as a solicitor for 8 years in Insurance Litigation at Minter Ellison specialising in professional indemnity litigation before joining the Committee on secondment in 1999. She became a permanent member of staff in 2001.

Richard Antill Risk Manager (Until October 2012)Prior to joining the LPLC, Richard was a barrister at the Victorian Bar for seven years. He practised in general commercial litigation with specialities in property matters and solicitor-client disputes.

Matthew Rose Risk ManagerMatthew joined the LPLC after working in risk management roles with the London office of global law firms Clifford Chance and Mayer Brown. Previously, Matthew practised as a Senior Associate in Minter Ellison’s commercial litigation group.

Phillip Nolan Risk Manager (From February 2013)

Phillip joined the LPLC in February 2013 and was formerly a principal at SBA Law. He is chair of the Property Law Committee and PELS Executive and a member of the Dispute Resolution Committee at the LIV as well as chair of the Estate Agents Council and the Growth Areas Infrastructure Contribution Hardship Relief Board. He is a Senior Fellow of the University of Melbourne where he lectures in Property Law to postgraduates and Owned Environments to undergraduates in the Faculty of Architecture, Building and Planning. On 18 November 2011 Phil received the Law Institute of Victoria Certificate of Service Award.

Amanda Lam Financial Controller (From 4th December, 2012)Amanda joined the Committee as the Financial Controller in December 2012. Amanda previously worked in the Legal, Information Technology and Financial Services industries where she held senior finance management positions.

Amanda manages the Accounting, Finance and Payroll functions.

Peter Richards Chief Financial Officer (Until December 2012)Peter joined the Committee as Chief Financial Officer in December, 2003. He previously worked in the Retail Industry where he held senior accounting positions with Myer and more recently Daimaru.

Bernadette Mallia Office ManagerAfter working in solicitors firms both as a personal assistant and a conveyancing clerk, Bernadette joined the Committee in 1988.

The Committee also employs four personal assistants, one receptionist and an insurance manager. The Committee outsources its information technology and actuarial services.


Organisational chart

AUDIT COMMITTEEPatricia Kelly ChairmanPeter Fox (until 5/9/12)

Mary RadisichPeter Daly (from 5/9/12-8/5/13)

COMMITTEEMatt Walsh Chairman (until 22/3/13)Peter Daly Peter FoxPatricia KellyMiranda MilneMary Radisich Geoff Rees Acting Chairman (from 11/4/13)

CHIEF EXECUTIVE OFFICERMiranda Milne

DEPUTY CHIEF EXECUTIVE OFFICERJustin Toohey

REMUNERATION AND APPOINTMENTS COMMITTEEPatricia Kelly ChairmanMatt Walsh (until 22/3/13)Geoff Ress (from 8/5/13)

FUND INVESTMENT SUB-COMMITTEEPeter Daly Chairman (and member until 5/9/12) reappointed as Chairman and member from 8/5/12

Matt Walsh (until 22/3/13)Miranda MilneGeoff Rees Chairman (from 5/9/12 - 8/5/13)Peter Fox (from 5/9/12)

FINANCEPeter Richards (until 12/12)Amanda Lam (from 12/12)

PERSONAL ASSISTANTSJenny AitkenJackie MillerKelly CooperBarbara McKay

RECEPTIONISTInge Gallery

RISK MANAGEMENTHeather HibberdRichard Antill (until 12/12)Matthew Rose Phillip Nolan (from 2/13)

CLAIMSAlex MacmillanJustin TooheyBronwyn Hine

ADMINISTRATIONBernadette MalliaTerri Twining


Supplementary information

Legislation administered by the CommitteeThe Legal Practice Act 1996 – 1st July, 2005 – 11th December, 2005

The Legal Profession Act 2004 – 12th December, 2005 to 30th June, 2012.

Financial management regulationsThe information specified in the Financial Management Regulations has been prepared and is available on request to the Attorney General, Members of Parliament and the public.

Whistleblowers policy statementPolicyThe LPLC is committed to the objectives of the Whistleblowers Protection Act 2001 (the WP Act). The LPLC recognises the value of transparency and accountability and will support the making of any disclosures pursuant to the guidelines set out in the WP Act, but subject to section 246 of the Legal Practice Act 1996 and section 6.6.13 of the Legal Profession Act 2004.

Compliance with the Building Act 1993The LPLC does not own any buildings and consequently is exempt from notifying its compliance with the building and maintenance provisions of the Building Act 1993.

Categories of documents held by the LPLC

• applications by legal practitioners for insurance• assessment notices• notifications by legal practitioners of claims

or circumstances likely to give rise to claims• board papers minutes for LPLC and LPLC

sub committees• management records• administration records• accounting records• library material

Freedom of InformationThe LPLC has received no requests pursuant to the Freedom of Information Act 1982 for the reporting period.

PublicationsThe LPLC continues to publish relevant information on its website www.lplc.com.au

Occupational health & safetyThe Committee has continued its commitment to OH&S compliance during the reporting period.

A staff member has been trained as a first aid officer.

All issues relating to safe work place practices are considered and reported at staff meetings. There were no reported OH&S related incidents in the reporting year.

Workforce DataThe Committee undertakes an annual performance appraisal and salary review of the Chief Executive Officer. The Chief Executive Officer conducts an annual performance review of all other staff members.

Staff members are able to raise issues privately with the CEO and Office Manager at any time. Alternatively, matters can be raised with the Committee.

2011/12Position Male Female TotalChief Executive Officer 1 1Chief Financial Officer 1 1Claims Manager 1 2 3Risk Manager 2 1 3Office Manager 1 1Insurance Manager 1 1Receptionist/PA 5 5TOTAL 4 11 15

2012/13Position Male Female TotalChief Executive Officer 1 1Chief Financial Officer (until 14/12/12) 1 1Financial Controller (from 14/12/12) 1 1Claims Manager 1 2 3Risk Manager 2 1 3Office Manager 1 1Insurance Manager 1 1Receptionist/PA 5 5TOTAL 4 12 16

Environmental issuesIn July 2009 the Legal Practitioners’ Liability Committee registered with Sustainability Victoria to develop an environmental management plan. This plan assists the LPLC to manage the environmental impact from its day to day business activities.

Committee staff attended a series of workshops held through Sustainability Victoria’s Resource Smart Government program.

Each area of the Committee’s business was assessed to see where energy was used and resources consumed and how this could be reduced. The task of monitoring this EMP has been allocated to a team within the office.

The plan covers the 2012-2013 reporting year.

Energy consumptionThe energy usage for 2012-2013 unfortunately increased by approximately 6.9% on 11/12 year despite policies implemented by the LPLC such as using natural light in offices where possible, shutting down computers and printers after hours and only having lights on in the parts of the office where necessary.

The LPLC again made a commitment to purchase no less than 20% green power for office requirements which contributed to a reduction in greenhouse gas emissions of more than 15 tonnes of carbon over the 2012-2013 reporting period.


Total energy usage was 56,163 kWh. (2011/2012 38,835 ) The energy used per unit of office area 90.58. (2011/2012 62.13). kWh of energy used per FTE 3744.

The 2013/2014 target is to reduce the greenhouse gas emissions by at least 10%.

Waste generationThe LPLC continues to monitor the levels of waste generated by its operations and staff. Building management continue to provide a commingled recycling service which has assisted greatly in the reduction of waste generated by the LPLC sent to landfill.

The LPLC continues to reduce waste generation through recycling of all computer components, CDs, DVDs, used printer cartridges, old dictating equipment, old mobile phones, old landline phones and any other computer peripherals by using a not for profit recycling service, Byte Back.

The LPLC continued to recycle close to 90% of its waste for the reporting period.

Paper consumptionThe LPLC had an increase in its paper consumption over the reporting period compared to the 11/12 reporting period. The reason for the increase in the paper consumption was the LPLC’s decision to produce risk management material in house rather than out sourcing which was also the reason for the increase in the energy usage. The policies adopted by the LPLC in purchasing only printers that are capable of double sided copying, defaulting all communal printers to double sided and using electronic documents instead of paper whenever possible are still policies which are very much adhered to.

A very high percentage of the LPLC’s paper and cardboard waste is recycled through a secure paper recycling contractor. The LPLC recycled 0.42 tonnes of paper in the reporting period which contributed to a reduction in greenhouse gas emissions of more than 0.6 tonnes of carbon over the 2012-2013 reporting period.

Units of paper used per FTE (A4 reams/FTE) 27.

The target for the 2013-2014 year is to reduce the paper consumption by 10% compared to the 2012-2013, taking into account the increase in producing risk management material in house.

TransportThe LPLC does not operate a fleet of vehicles for business use.

The LPLC has a travel policy which includes the purchase of carbon credits for all air travel undertaken.

Competition policyUntil 11th December, 2005 Section 227A of the Legal Practice Act provided –

“ For the purposes of the Trade Practices Act 1974 of the Commonwealth and Competition Code, the entering into and performance of a contract of professional indemnity insurance by a person or firm and the Liability Committee under Sections 224, 225, 226 or 227 is authorised by this Act.”

From 12th December, 2005 Section 3.5.5 of the Legal Profession Act 2004 provides –

“ For the purposes of the Trade Practices Act 1974 of the Commonwealth and Competition Code, the entering into and performance of a contract of professional indemnity insurance by a law practice and the Liability Committee under this Part is authorised by this Act.”

From 1st July, 2012 Section 3.5.5. of the Legal Profession Act 2004 provides –

“ For the purposes of the Competition and Consumer Act 2010 of the Commonwealth and Competition Code, the entering into and performance of a contract of professional indemnity insurance by a law practice and the Liability Committee under this Part is authorised by this Act”

ConsultantsThe Committee engages a number of external consultants each year to provide specialist advice to assist the Committee with decision making and risk management programs. During 2012/2013 total consultancy expenditure (as defined by the Financial Management Act 1994) was approximately $267,072.

Taylor Fry – Actuaries Taylor Fry is the Committee’s actuary. The expenditure for the reporting period was $72,105. Taylor Fry has been retained as the Committee’s actuary for the 13/14 reporting period.

Cumpston Sarjeant – Actuaries The Committee also obtains actuarial advice from Cumpston Sarjeant. The consulting fee paid to this firm for the reporting period was $41,967. Cumpston Sarjeant has been retained for the 13/14 reporting period.

Derry Davine – ConsultantDerry Devine is the consultant used for the Committee’s GST hotline. The expenditure for the reporting period was $33,000.

JANA Investment AdvisersJana is the Committee’s Fund Administrator. The project fee approved for the reporting period was $120,000. The expenditure for the reporting period was $120,000.

Contact detailsLegal Practitioners’ Liability CommitteeLevel 31, 570 Bourke Street MELBOURNE VIC 3000ABN: 45 838 419 536

Telephone: (03) 9672 3800Fax: (03) 9670 5538

DX 431

Website: www.lplc.com.au


Financial report for the year ended 30 June 2013 Legal Practitioners’ Liability Fund ABN 45 838 419 536


Statement of Comprehensive Income for the Financial Year ending 30 June 2013

Note 2013 2012

$ $

UNDERWRITING

Premium revenue 25 27,292,767 26,504,103

Outwards reinsurance expense (1,147,889) (1,147,068)

Net earned premiums 26,144,878 25,357,035

Claims expense (43,679,973) (15,302,683)

Net claims incurred 26 (43,679,973) (15,302,683)

Movement in unexpired risk liability 27 (4,244,002) (1,927,878)

UNDERWRITING RESULT (21,779,097) 8,126,474

Investment income 3 22,422,488 3,123,559

Other income 188,874 166,551

Other expenses 7 (4,729,903) (4,527,305)

Profit / (Loss) attributable to the Legal Practitioners Liability Fund (3,897,637) 6,889,279

Other Comprehensive Income Nil Nil

Total Comprehensive Income (3,897,637) 6,889,279

Notes to and forming part of these financial statements are set out on pages 24 to 41.


Balance Sheetas at 30 June 2013

Note 2013 $

2012 $

Current Assets

Cash and cash equivalents 18,438,514 23,450,316

Receivables 4 1,312,500 2,326,033

Other financial assets 5 68,327,503 71,266,666

Prepayments 82,429 156,790

Total Current Assets 88,160,946 97,199,805

Non-Current Assets

Other financial assets 5 127,958,057 105,782,299

Property, plant & equipment 6a 45,246 75,875

Intangibles 6b - -

Total Non-Current Assets 128,003,303 105,858,174

TOTAL ASSETS 216,164,249 203,057,978

Current Liabilities

Outstanding claims liability 28 32,714,001 28,704,000

Payables 8a 1,324,556 987,855

Unearned premium liability 8b 39,473,000 38,086,999

Provisions 9 367,850 367,673

Total Current Liabilities 73,879,407 68,146,527

Non-Current Liabilities

Outstanding claims liability 28 62,403,001 51,134,000

Provisions 9 3,910 1,883

Total Non-Current Liabilities 62,406,911 51,135,883

TOTAL LIABILITIES 136,286,318 119,282,410

NET ASSETS 79,877,931 83,775,568

EQUITY

Accumulated funds 10 79,877,931 83,775,568

TOTAL EQUITY 79,877,931 83,775,568

Notes to and forming part of these financial statements are set out on pages pages 24 to 41.


Cash Flow Statementfor the Financial Year ending 30 June 2013

Note 2013 $

2012 $

CASH FLOWS FROM OPERATING ACTIVITIES

Premium revenue received 26,698,979 30,029,329

Other Income 188,874 164,759

Dividend Received 183,854 1,849,668

Interest Received 5,095,320 4,149,313

Other Income from Investments 3,730,686 3,035,440

Claims paid (29,583,998) (21,449,810)

Outwards reinsurance premium paid (1,147,889) (1,147,068)

Payments to suppliers and employees (5,317,773) (5,889,391)

NET CASH PROVIDED BY OPERATING ACTIVITIES 2(b) (151,947) 10,742,240

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment (24,745) (11,553)

Purchase/Sale of investments (7,774,274) (5,114,982)

NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES (7,799,018) (5,126,535)

NET INCREASE IN CASH HELD (7,950,965) 5,615,705

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 94,716,982 89,101,277

CASH AND CASH EQUIVALENTS AT END OF PERIOD 2(a) 86,766,017 94,716,982



Statement of Changes In Equityfor the Financial Year ended 30 June 2013

Note Accumulated Funds

$

Total

$

At 30 June 2011 76,886,289 76,886,289

Comprehensive result for the year 6,889,279 6,889,279

At 30 June 2012 83,775,568 83,775,568

Comprehensive result for the year (3,897,637) (3,897,637)

At 30 June 2013 79,877,931 79,877,931



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

The financial report is a general- purpose financial report, which has been prepared in accordance with the requirements of the Australian Accounting Standards and the Financial Management Act (1994).

The financial report is prepared in accordance with the fair value basis of accounting with certain exceptions as described in the accounting policies below.

The financial report is presented in Australian dollars.

(b) Statement of Compliance

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board.

A number of Australian Accounting Standards, which have been issued or amended and are not yet effective have not been adopted for the annual reporting period end 30 June 2013. Their details are disclosed below.

Standard Interpretation Summary Applicable for annual reporting periods beginning on

Impact on public sector financial statements

AASB 9 Financial Instruments

This standard simplifies requirements forthe classification and measurement offinancial assets resulting from Phase 1 of theIASB’s project to replace IAS 39 FinancialInstruments: Recognition and Measurement( AASB 139 Financial Instruments:Recognition and Measurement).

1 Jan 2015 Subject to AASB’s further modifications to AASB 9, together with the anticipated changes resulting from the staged projects on impairments and hedge accounting, details of impacts will be assessed.

AASB 13 Fair Value Measurement

This standard outlines the requirements for measuring the fair value of assets and liabilitiesand replaces the existing fair value definition andguidance in other AASs. AASB 13 includes a “fair value hierarchy” which ranks the valuationtechnique inputs into three levels using unadjustedquoted prices in active markets for identical assetsor liabilities; other observable inputs; and unobservable inputs.

1 Jan 2013 Disclosure for fair value measurements using unobservable inputs are relatively detailed compared to disclosure for fair value measurements using observable inputs. Consequently, the Standard may increase the disclosures required assets measured using depreciated replacement costs.

AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9

This Standard gives effect to consequentialchanges arising from the issuance ofAASB 9.

1 July 2013 No significant impact is expected from these consequential amendments on entity reporting.

AASB 2010-7 Amendmentsto Australian AccountingStandards arising from AASB 9 (December 2010)

These consequential amendments are inrelation to the introduction of AASB 9.

1 July 2013 No significant impact is expected from these consequential amendment on entity reporting.

AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13

This Standard gives effect to consequentialchanges arising from the issuance ofAASB 9.

1 July 2013 No significant impact is expected from these consequential amendments on entity reporting.

(c) Premium

Premium revenue comprises amounts charged to solicitors and barristers, excluding amounts collected on behalf of third parties, principally stamp duties and goods and services tax.

Premium revenue is recognised in the Statement of Comprehensive Income when it has been earned. Premium revenue is recognised in the Statement of Comprehensive Income from the attachment date over the period of the contract.

The proportion of premium received or receivable not earned in the Statement of Comprehensive Income at the reporting date is recognised in the Balance Sheet as an unearned premium liability.

Notes to the Financial Statementsfor the year ended 30 June 2013


(d) Outwards Reinsurance

Premium paid to reinsurers is recognised as an expense in accordance with the expected pattern of risk. Where applicable, a portion of outwards reinsurance premium is treated at the reporting date as a prepayment. Reinsurance recoveries are recognised as revenue for claims incurred.

The Legal Practitioners’ Liability Fund carries a stop loss insurance policy to cover the payment of total claims made during the year ended 30 June 2013 in excess of $42.5m (2012:$42.5m).

(e) Outstanding Claims Liability

The liability for outstanding claims is measured as the central estimate of the present value of expected future payments against claims made at the reporting date under general insurance contracts issued by the fund, with an additional risk margin to allow for the uncertainty in the central estimate.

Claims handling costs include costs that can be associated directly with individual claims, such as legal and other professional fees and other costs that can only be indirectly associated with individual claims, such as claims administration expense.

The expected future payments are discounted to present value using a risk free rate.

A risk margin is applied to the outstanding claims liability, net of reinsurance and other recoveries, to reflect the inherent uncertainty in the central estimate of the outstanding claims liability.

(f) Unexpired Risk Liability

At each reporting date the fund assessed whether the unearned premium liability is sufficient to cover all the expected future cash flows relating to the future claims against current insurance contracts. This assessment is referred to as the Liability Adequacy Test.

If the present value of the expected future cash flows relating to future claims plus the additional risk margin to reflect the inherent uncertainty in the central estimate exceeds the unearned premium liability less any related intangible assets and deferred acquisition costs then the unearned premium liability is deemed to be deficient. The fund applies a risk margin to achieve the same probability of sufficiency for future claims as is achieved by the estimate of the outstanding claims liability, see note 1(e).

The entire deficiency , gross and net of insurance, is recognised immediately in the Statement of Comprehensive Income. The deficiency is recognised first by writing down any related intangible assets and then related deferred acquisition costs, with any excess being recorded in the balance sheet as an unexpired risk liability.

(g) Property, Plant and Equipment & Intangibles

Plant and equipment is stated at cost less accumulated depreciation and any impairment in value.

Intangibles -This is the cost of production of training films recorded onto DVDs for use in presentations to management of legal firms. Their anticipated useful life is three years.

Impairment

The carrying value of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

If such an indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment losses are recognised in the Statement of Comprehensive Income.


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED


Depreciation and Amortisation

Furniture and equipment is depreciated on a straight line or diminishing value basis over their useful life to the Fund commencing from the time the assets are held ready for use.

Intangibles are amortised on a straight line or diminishing value basis over their useful life to the Fund commencing from the time the assets are held ready for use.

The depreciation rates used are:

Class of Asset Prime Cost Depreciation Rate Diminishing Value Depreciation Rate Furniture and equipment 20-40% 15-33%

Leasehold Improvements 20%-25% n/a

Intangibles 33% n/a

(h) Employee Benefits

Provision is made for the Fund’s liability for employee benefits arising from services rendered by employees to balance date.

Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries and annual leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled plus related on-costs. Other employee benefits have been measured at the present value of the estimated future cash outflows to be made for those entitlements.

Contributions are made by the Fund to an employee superannuation fund and are charged as expenses when incurred.

(i) Cash and cash equivalents

For the purpose of the cash flow statement, cash includes cash on hand, bank bills, at call deposits with banks or financial institutions and investments in money market instruments maturing within less than three months, net of bank overdrafts.

(j) Goods and Services Tax (GST)

Revenues and expenses are recognised net of the amount of GST, except where the amount of GST is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the item of expense.

Receivables and payables in the Balance Sheet are shown inclusive of GST.

(k) Other Financial Assets

For financial assets that are held for trading or designated at fair value through the profit or loss, the net gain or loss is calculated by taking the movement in the fair value of the financial gain and this gain or loss is recognised in the profit or loss.

Net market values have been determined as follows:

1. Units in managed equity funds by reference to the unit redemption price at the end of the reporting period as determined by the respective constitutions governing each fund.

2. Units in a managed property fund by reference to unit redemption price at the end of the reporting period which is 98% of the current asset value which has been the basis of recent sales.

(l) Asset backing general insurance liabilities

As part of its investment strategy the fund actively manages its investment portfolio to ensure that the investments mature in accordance with the expected pattern of future cash flows arising from general insurance liabilities

With the exception of property plant and equipment, the fund has determined that other financial assets are held to back general insurance liabilities and their accounting treatment is described in note 1(k). As these assets are managed under the fund’s Risk Management Statement on a fair value basis and are reported to the Committee on this basis, they have been valued at fair value through profit or loss.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED



(m) Derecognition of financial assets and financial liabilities

(i) Financial Assets

A financial asset (or, where applicable, a part of a financial asset or part of a group or similar assets) is derecognised when:

- the right to receive cash flows from the asset have expired;

- the fund retains the right to receive cash flows from the asset but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or

- the fund has transferred its rights to receive cash from the asset and either (a) has transferred substantially all the risk and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

(ii) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

(n) Income Tax

The Fund is exempt income tax pursuant to item 5.2 of section 50-25 of the Income Tax assessment Act 1997.

(o) Claims Expense

Claims expense recognises the estimated cost of claims incurred for the current year, less or plus any adjustment for the improvements/deterioration in prior policy/accounting years.

(p) Investment Income

Investment income is accrued and includes capital movements, distributions and interest income. Any investment income relating to the current period that is not received during the accounting year is accrued to that accounting year.

(q) Receivables

Income accrued on term deposits during the accounting year but not paid until after the accounting year are treated as receivables.

Excesses payable, by insureds on terms, and costs recoveries are also included.



2013 $

2012 $

2. RECONCILIATION OF CASH AND CASH EQUIVALENTS

For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks, bank bills and investments in term deposits. Cash and cash equivalents at end of the financial year as shown in the cash flow statement is reconciled to items in the Balance Sheet as follows:

2(a) Cash and Cash Equivalents 18,438,514 23,450,316

Cash Trusts & Deposits 68,327,503 71,266,666

86,766,017 94,716,982

2(b) Reconciliation of Operating profit for the year to the net cash flows from operations.

Operating profit (3,897,637) 6,889,279

Depreciation 55,373 56,981

(Profit)/Loss on sale of property, plant & equipment - -

Changes in net market value of investments (14,401,484) 6,417,090

Insurance Recovery recognised - -

Unexpired Risk Liability 4,244,002 1,927,878

Change in assets and liabilities

Increase/(Decrease) in provision for long service and annual leave 2,204 35,044

(Increase)/Decrease in receivables & prepayments 1,087,894 (565,655)

Increase/(Decrease) in creditors 336,702 260,502

Increase/(Decrease) in premiums received in advance (2,858,001) 782,122

Increase/(Decrease) in claims outstanding 15,279,002 (5,061,000)

Net cash and cash equivalents provided by operating activities (151,947) 10,742,241

2(c) The fund has no credit standby arrangements or loan facilities (2011: Nil)

3. INVESTMENT INCOME

Net fair value gains on financial assets at fair value through profit or loss 14,401,484 (6,417,090)

Other Income 3,702,634 2,940,049

Dividend Income 183,854 2,030,505

Interest Income 4,134,516 4,570,095

22,422,488 3,123,559

4. RECEIVABLES

CURRENT

Deductibles Receivable & Cost Recovery 8,370 33,047

Accrued Income 1,304,130 2,292,986

1,312,500 2,326,033



2013 $

2012 $

5. OTHER FINANCIAL ASSETS

CURRENT

Cash Trusts, Bank bills & Term Deposits 68,327,503 71,266,666

68,327,503 71,266,666

NON CURRENT

Unquoted Unit Trusts

- Overseas Equities 47,058,833 20,753,158

- Property Fund 36,591,084 35,840,411

- Australian Equities 44,308,140 49,188,729

127,958,057 105,782,299

NON - FINANCIAL ASSETS

6a PROPERTY, PLANT AND EQUIPMENT

Furniture & equipment:

At Fair Value 321,602 296,858

Accumulated depreciation (283,612) (245,539)

37,991 51,319

Leasehold Improvements:

At Fair Value 75,849 75,849

Accumulated depreciation (68,593) (51,293)

7,256 24,556

Total 45,246 75,875

6b INTANGIBLES

Training Materials:

At Fair Value 102,412 102,412

Accumulated Depreciation (102,412) (102,412)

Total - -

DEPRECIATION

Furniture & equipment 38,073 34,707

Leasehold improvements 17,300 16,575

Intangibles - 5,699

55,373 56,981



PROPERTY, PLANT AND EQUIPMENT CONTINUED

Movements in Carrying Amounts:

Movement in the carrying amounts for each class of non-current assets between the beginning and end of the current financial year.

2013 Furniture Equipment

$

Leasehold Improvements

$

Intangibles $

Total $

Balance at the Beginning of the year 51,319 24,556 - 75,875 Additions 24,745 - - 24,745

Disposals - - - -

Depreciation Expense (38,073) (17,300) - (55,373)

Carrying amount at the end of the year 37,991 7,256 - 45,246

2012 Furniture Equipment

$

Leasehold Improvements

$

Intangibles $

Total $

Balance at the Beginning of the year 74,473 41,131 5,699 121,303 Additions 11,553 - - 11,553

Disposals - - - -

Depreciation Expense (34,707) (16,575) (5,699) (56,981)

Carrying amount at the end of the year 51,319 24,556 - 75,875

2013 $

2012 $

7. OTHER EXPENSES

Included in other expenses are:

Depreciation and amortisation 55,373 56,981

Employee benefits 2,382,989 2,288,914

Operating lease payments 399,673 374,189

8a PAYABLES

Creditors 1,283,706 950,718

Deferred other income 40,850 37,136

1,324,556 987,855

8b UNEARNED PREMIUM LIABILITY

Unearned premium liability 1 July 38,086,999 35,377,000

Earning of premiums written in previous periods (26,896,265) (26,114,144)

Deferral of premium contracts written in period 24,038,264 26,896,265

Unexpired risk liability recognised for year ending 30 June (note 27 (a)) 4,244,002 1,927,878

Unearned premium liability 30 June 39,473,000 38,086,999



2013$

2012 $

9. PROVISIONS

CURRENT

Employee Benefits 367,850 367,673

NON-CURRENT

Employee Benefits 3,910 1,883

Aggregate Employee Benefit Liability 371,760 369,556

Number of employees at year end 15 15

10. ACCUMULATED FUNDS

Accumulated Funds at the beginning of the year 83,775,568 76,886,289

Operating Profit/(loss) for the year (3,897,637) 6,889,279

Accumulated Funds at the end of the year 79,877,931 83,775,568

11. AUDITORS' REMUNERATION

Remuneration of the auditor for:

- auditing or reviewing the financial report 42,855 42,300

- other services - -

42,855 42,300

Audit fees paid or payable to the Victorian Auditor-General's

Office for audit of the Fund's financial report:

Paid as at 30 June - -

Payable as at 30 June 42,855 42,300

42,855 42,300




2013 $

2012 $

12(a) RESPONSIBLE PERSONS

In accordance with the Ministerial Directions issued by the Minister for Finance under the Financial Management Act 1994, the following disclosures are made regarding responsible persons for the reporting period.

Names The persons who held the positions of Ministers and Accountable officers in the Fund are as follows:

Attorney General The Hon. Robert Clark MLA 1 July 2012 to 30 June 2013

Remuneration

Amounts relating to Ministers are reported in the financial statements of the Department of Premier and Cabinet.

12(b) COMMITTEE AND EXECUTIVE DISCLOSURE

COMMITTEE Income paid or payable to all Committee Members and any related parties 504,783 518,961

Number of Committee Member's whose income from the Fund was within the following bands$ No. No.

10-20,000 - -

20-30,000 6 5

40-50,000 1

320-330,000 - -

350-360000 1 1

The names of Committee Members who held office during the year were:

Geoffrey Rees

Mary Radisich

Matthew Walsh (Deceased 22 March 2013)

Miranda Milne

Patricia Kelly

Peter Daly

Peter Fox

The remuneration of the Chief Executive Officer is also included in the executive remuneration disclosure



12(b) COMMITTEE AND EXECUTIVE DISCLOSURE CONTINUED

Total Remuneration Base Remuneration2013

No.2012

No.2013

No.2012

No.EXECUTIVEIncome Band $120-130,000 - - - 1130-140,000 - 1 1 -140-150,000 1 - - -150-160,000 - 2 - 2160-170,000 - 1 - 1170-180,000 1 - 1 -190-200,000 - 2 - 2200-210,000 2 - 2 -210-220,000 - 1 - 1230-240,000 1 - 1 -290-300,000 - - - 1300-310,000 - - 1 -310-320,000 - 1 - 1320-330,000 1 - 1 -350-360,000 1 1 - -Total Numbers 7 9 7 9Total annualised employee equivalents (AAE)* 8.3 8.3 8.3 8.3Total Amount $1,633,531 $1,877,747 $1,576,031 $1,814,922

* Annual employee equivalent is based on working 35 ordinary hours per week over the reporting period.

2013 2012

13. COMMITMENTS AND CONTINGENCIES $ $

Operating Lease Commitments:

Non-cancellable operating leases contracted for but not capitalised in the financial statements

Payable:

- not later than 1 year 145,068 386,645

- later than 1 year but not later than 5 years - 180,064

- later than 5 years - -

145,068 566,709

The property lease is a non-cancellable lease. The lease is for a 5 year term. There are no options. Rental increases are fixed annually on the anniversary of the commencement date. The lease contains a "make good" clause effective at the end of the term of the lease. The lease is currently being renegotiated.

Other Commitments:

The Fund has entered into an agreement with Jana Investment Advisers Pty. Ltd. for the provision of investment advice. This agreement is for a 12 month period. The agreement expires on the 31st December 2013.

Payable:

- not later than 1 year 60,000 60,000


14. CONTINGENT ASSETS/LIABILITIES

Currently the Fund has an interest in Real Estate as a result of the provision of funds relating to the settlement of a claim.

The Fund is entitled to a proportion of the net proceeds less certain expenses after the death of the proprietor. As the realisable value of the property cannot be known at this point in time the future economic benefit cannot be quantified.

This entitlement is secured by a mortgage over the property.

There are no contingent liabilities.

15. INDEMNIFYING OFFICERS

During or since the end of the financial year the Legal Practitioner’s Liability Fund has given an indemnity or entered into an agreement to indemnify , or paid or agreed to pay insurance premiums as follows:

The fund has paid premiums to insure the Committee Members against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Committee Member of the Fund, other than conduct involving a wilful breach of duty in relation to the Fund. The total amount of the premium was $22,000

Individual Committee members have entered into Deeds of Indemnity with all other members to indemnify them to the extent permitted by law against certain liabilities and legal costs incurred by them as members of the Committee.

16. SEGMENT REPORTING

The Fund operates in a single industry and geographical segment, being a professional indemnity insurer to legal practitioners in Australia.

17. FINANCIAL INSTRUMENTS

(a) Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised, with respect to each class of financial asset, and equity instrument are disclosed in Note 1(k) to the financial statements.

(b) Fair Values

The financial instruments recognised at fair value in the Balance Sheet have been analysed and classified using a fair value hierarchy reflecting the significance of inputs used in making the measurements. The fair value hierarchy consists of the following level:

- quoted prices in active markets for identical assets or liabilities (Level 1)

- inputs other than quoted prices included within Level 1that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) ( Level 2); and

- inputs for the asset or liability that are not based on observable market data (unobservable inputs) ( Level 3)

30-Jun-13 Level 1 Level 2 Level 3 Total

Financial Assets

- Unit in managed funds 91,366,973 36,591,084 - 127,958,057

30-Jun-12

Financial Assets

- Unit in managed funds 69,941,888 35,840,411 - 105,782,299

Included in Level 1 are the managed equity funds and in Level 2 is the managed property fund. Their market value has been determined as per note 1(k).



17. FINANCIAL INSTRUMENTS CONTINUED

(c) Interest Rate Risk

The fund’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows:

30 June 2013 Fixed Interest maturing in: Weighted

Average Interest Rate

Floating Interest

Rate

Within Year

1 to 5 Years

Over 5 Years

Non Interest Bearing

Total

Financial Assets:

Cash 2.15% 18,438,514 - - - - 18,438,514

Receivables n/a - - - - 1,312,500 1,312,500

Units in Managed Funds n/a - - - - 127,958,057 127,958,057

Bank Bills n/a - - - - - -

Term Deposits 4.9% 68,327,503 - - - - 68,327,503

Total Financial Assets 86,766,017 - - - 129,270,558 216,036,575

Financial Liabilities:

Creditors n/a - - - - 1,324,556 1,324,556

Outstanding claims n/a - - - - 95,117,002 95,117,002

Total Financial Liabilities - - - - 96,441,558 96,441,558

30 June 2012 Fixed Interest maturing in: Weighted

Average Interest Rate

Floating Interest

Rate

Within Year

1 to 5 Years

Over 5 Years

Non Interest Bearing

Total

Financial Assets: Cash 3.46% 23,450,316 - - - - 23,450,316

Receivables n/a - - - - 2,326,033 2,326,033

Units in Managed Funds n/a - - - - 105,782,299 105,782,299

Bank Bills n/a - - - - - -

Term Deposits 5.5% 71,266,666 - - - - 71,266,666

Total Financial Assets 94,716,982 - - - 108,108,332 202,825,314

Financial Liabilities:

Creditors n/a - - - - 987,855 987,855

Outstanding claims n/a 79,838,000 79,838,000

Total Financial Liabilities - - - - 80,825,855 80,825,855

The fund’s exposure to the risk of change in market interest rates relate primarily to the fund’s investments in cash and cash equivalents.

The fund’s policy is to invest cash and cash equivalents with a recognised bank. Banks are selected on recommendation of our external advisors and their performance is monitored.



17. FINANCIAL INSTRUMENTS CONTINUED

(d) Credit Risk

The maximum exposure to credit risk at Balance Date to recognised financial assets is the carrying amount of those assets as disclosed in the Balance Sheet and notes to the financial statements. It is the fund’s policy to only deal with entities with high credit ratings.

In addition the fund does not engage in high risk hedging for its financial assets.

(e) Liquidity Risk

To ensure adequate liquidity to meet cash outflows the fund maintains the necessary funds in cash and short term bank bills or term deposits.

While the receipt of the annual premium provides sufficient cash to meet most if not all of the fund’s requirements during the year, additional cash is held in reserve.

(f) Market Risk

The fund is exposed to the risk of market movements in the local and overseas equity markets through its investment in unquoted unit trusts in these asset classes.

Equity Market Risk

The fund’s exposure to the risk of change in equity markets relate primarily to the fund’s investments in local and overseas equities

The fund’s policy is to use independent investment managers to manage our exposure to local and overseas equities

Managers are selected on recommendation of our external advisors and their performance is monitored.

Foreign Currency Risk

The fund’s exposure to the risk of change in exchange rates relate primarily to the fund’s investments in overseas equities. A combination of partially and fully hedged funds are used.

Managers are selected on recommendation of our external advisors and their performance is monitored.

Sensitivity Disclosure Analysis

Taking into account past performance, future expectations and management’s knowledge and experience of the financial markets, the fund believes the following movements are ‘reasonably possible’ over the next 12 months

- A shift of +.5% or -.25% in market interest rates from year end rates of 3.50%

- A shift of + 10% or - 10% in the average weighted market value of local equities, overseas equities and local property unquoted unit trusts.

Market Risk Exposure

Interest Rate Risk Other Price Risk

2013Financial Assets

CarryingAmount

-0.25% +.5% -10% +10%

Profit Equity Profit Equity Profit Equity Profit Equity

Cash and cash equivalents 86,766,017 (216,915) (216,915) 433,830 433,830

Units in Managed Funds 127,958,057 (12,795,806) (12,795,806) 12,795,806 12,795,806

2012Financial Assets

CarryingAmount

-0.25% +.5% -10% +10%

Profit Equity Profit Equity Profit Equity Profit Equity

Cash and cash equivalents 94,716,982 (236,792) (236,792) 473,585 473,585

Units in Managed Funds 105,782,299 (10,578,230) (10,578,230) 10,578,230 10,578,230

18. DESIGNATION OF FINANCIAL ASSETS

The financial assets are measured at fair value through the profit and loss.



19. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The fund’s principal financial instruments comprise of unquoted unit trusts and cash and cash equivalents.

The main purpose of these financial instruments it to ensure that there is sufficient ability to meet the obligations under the policies of insurance that have been issued.

These instruments are managed by the Investment Committee who utilize the services of our external advisor - Jana Investments Pty Ltd.

The main risk arising from the fund’s financial instruments are interest rate risk, equity market risk, foreign currency risk and credit risk which are discussed in note 17 above.

There are no significant concentrations of credit risk within the fund.

20. RELATED PARTY TRANSACTIONS

The fund had no related party transactions other than those referred to in Note 12 - Committee and Executive Disclosure.

21. EVENTS AFTER THE BALANCE SHEET DATE

There were no material events after balance sheet date that require disclosure.

22. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The fund makes estimates and assumptions in respect of certain key assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas in which critical estimates are applied are described below.

It has been determined that no critical accounting judgements have been made in the year.

The ultimate liability arising from claims made under insurance contracts.

Provision is made at the year end for the estimated cost of claims incurred but not settled at the balance date. The estimated cost of claims include direct expenses to be incurred in settling claims. The fund takes all reasonable steps to ensure that it has appropriate information regarding its claims exposure. However, given the uncertainty in establishing claims provisions it is likely that the final outcome will prove to be different from the original liability established. For assumptions and methods used refer Note 23.

23. ACTUARIAL ASSUMPTIONS AND METHODS

Under 17.6.1c of AASB 1023, the following describes the method and main assumptions that have the greatest effect on the calculated insurance liabilities provisions.

The Legal Practitioners’ Liability Fund has provided professional indemnity insurance to solicitors since 1/1/86, and to barristers since 30/06/05. Incurred development and payment patterns derived from the average experience for solicitors over the last 5 complete policy years were assumed to apply to solicitor and barrister claims outstanding at 30/6/12.

Development Year Ultimate claims incurred as % of current estimate

Payments to end of year, as % of ultimate

0 100.0%* 7.2%

1 100.0%* 33.1%

2 100.0%* 56.5%

3 97.5% 71.7%

4 99.5% 81.6%

5 100.0% 88.1%

6 100.0% 92.2%

7 100.0% 95.0%

8 100.0% 96.7%

9 100.0% 97.9%*An actual ratio of 100% (ie. No development) was applied for year 2 as a precautionary measure until reserves begin to show signs of reduction

Other main assumptions used in calculating insurance provisions and their sources are: - A discount rate of 2.75% pa, based on medium term Commonwealth bond yields - Claim administration expenses of 6.4% of net claim payments based on forecasted expenses of LPLC - Wage inflation of 3.50% pa based on state government forecasts.



23. ACTUARIAL ASSUMPTIONS AND METHODS CONTINUED

Claims incurred estimates are made by applying the above claims incurred development ratios to current claims incurred data and applying wage inflation and payment patterns. Outstanding claims at 30 June 2013 are estimated by deducting payments to date.

Gross payments in 13-14 for solicitors are estimated by determining an average, inflation adjusted claim incurred estimate per principal equivalent from the last 5 complete policy years and applying to expected incurred principals in 13-14.

Gross payments in 13-14 for barristers are estimated as a ratio of solicitor incurreds

Premium liabilities are determined by applying wage inflation and payment patterns and allowing for reinsurance and overhead claim administration expenses.

The calculations used to estimate outstanding claim and unexpired premium liabilities for solicitors were repeated as at each prior balance date back to 31 December 1987 and compared with the actual outcomes estimated at 30 June 2013. Log normal distributions were fitted to the resulting percentages, and used to estimate the risk margins needed to provide varying probabilities of adequacy.

The outstanding claims are assumed to have a standard deviation of 14% and the premium liabilities a standard deviation of 33%.

Sensitivity analysis as at 30/6/13

Risk Variable Base AlteredOutstanding claims ($m)

Premium liability ($m)

Discount rate (% pa) 2.75% 3.75% -1.949 -0.967

2.75% 1.75% 2.053 1.023

Claim administration expenses (% of claims) 6.4% 7.4% 0.843

6.4% 5.4% -0.843

Wage inflation (% pa) 3.50% 4.50% 0.216 0.564

3.50% 2.50% -0.209 -0.552

"Regular" solicitor claims per principal equivalent 3,249 3,573 2.019

3,249 2,953 -1.836

"Large" claims ($m) $11.5m $9.0m -2.499

Under AASB 1023 17.7.1(b)(i), the insurer has to disclose sensitivity to insurance risk. The above table gives the changes in central estimates for changes in various risk variables.

24. INSURANCE CONTRACTS - RISK MANAGEMENT AND PROCEDURES

The financial condition and operation of the fund are affected by a number of key risks including insurance risk, interest rate risk and credit risk.

Notes on the fund’s policies and procedures in respect of managing these risks are set out in this note.

(a) Objectives in managing risks arising from insurance contracts and policies for mitigating those risks

The fund has an objective to control insurance risk thus reducing the volatility of operating profit. In addition to the inherent uncertainty of insurance risk, which can lead to significant variability in the loss experience, profit from insurance business is affected by market factors, particularlythe movement in asset values.

The Committee and senior management of the Fund have developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS)

Key aspects of the processes established in the RMS to mitigate risk include:

- The maintenance and use of sophisticated management information systems, which provide up to date, reliable data on the risks to which the business is exposed at any point in time

- Actuarial models, using information from the management information systems, are used to calculate premiums and monitor claim patterns.

Past experience and statistical methods are used as part of the proce

2012–13 annual report · legal practitioners’ liability committee 2013 annual report 1...

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