Professional Negligence

Civil Courts Structure Review: Final Report

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My critique of Lord Justice Briggs  long-awaited 299 page final report http://bit.ly/2ayk0qL. on the Civil Courts Structure Review:

The final report follows an extensive series of meetings with judges, practitioners, stakeholders and users of the civil courts, and a series of detailed written and oral submissions after the publication of the review’s interim report in January 2016. The review makes a series of recommendations intended to inform the current programme of wider court modernisation being undertaken by HM Courts and Tribunals Service.

It also makes a number of recommendations on different aspects of the civil justice system, such as enforcement of court rulings, the structure of the courts and deployment of judges. A summary of the main point follows.

Briggs LJ identified five main weaknesses of the civil courts structure:

Weaknesses

a. Lack of adequate access to justice due to excessive costs expenditure / risk and the “lawyerish culture and procedure of the civil courts”

b. Inefficiencies from the “continuing tyranny of paper” and inadequate IT facilities

c. Court of Appeal delays

d. Under investment in civil justice in the regions

e. Weaknesses in the processes of enforcement

Final Recommendations

1. The “Online Solutions Court”

To resolve a perceived access to justice defecit, Briggs LJ recommends introducing an Online Court and the extension of fixed costs. The new court is to have its own set of “user-friendly rules” created by a new cross-jurisdictional rules committee in place of the current Civil Procedure Rules, which will still apply to other cases.

Briggs LJ also sets out the appropriate appeals procedure, where permission would apply. Stage 3, the final adjudication, will be made by judges on paper, via a video/telephone hearing or by way of a traditional trial.

When implemented it should be dealing with “straightforward” money claims valued at up to £25,000. Despite this initial ceiling of £25,000, he suggests it may “pave the way” for change over “much wider ground” and will eventually become compulsory. It is not envisaged that the Online Court will apply to fast and multi-track personal injury cases, but, as Briggs LJ has previously indicated, it may apply to small claims track cases.

Recommendations are made on helping people who need assistance with online systems. Complex and important cases are to be transferred upwards to higher courts. Open justice and transparency issues are to be addressed.

Legal advice and expertise would be by way of unbundled solicitors’ services and direct access to barristers.

A target date of 2020 has been suggested.

2. Digitisation

The Online Court proposed is to be accessible via smart phones and tablets.To avoid duplication and “a parallel paper path”, Briggs LJ has endorsed the development of Assisted Digital resources and proposes the “digitisation of all the processes” of the civil courts, which will eventually be paperless.

Reforms have already been implemented to overcome the chronic workload and backlog of the Court of Appeal.

3. Case Officers

A senior body of court lawyers and other officials who can assist with certain functions currently carried out by judges, such as paperwork and uncontentious matters. To be trained and supervised by judges, and decisions subject to reconsideration by judges on request by a party. To operate independently of government when exercising their functions, transferring some of judges’ more routine and non-contentious work to case officers, under judicial training and supervision.

4. Increase in High Court threshold

A substantial increase in the minimum claim value threshold for commencing claims in the High Court – initially to £250,000 and subsequently to £500,000.

5. Enforcement of Judgments and Orders

There should be a single court as the default court for the enforcement of the judgments and orders of all the civil courts (including the new Online Court). This should be the County Court, but there would need to be a “permeable membrane” allowing appropriate enforcement issues to be transferred to the High Court, and special provision for the enforcement of arbitration awards, in accordance with current practice and procedure. All enforcement procedures to be digitised, centralised and rationalised.

6. Mediation/ADR

Re-establish a court-based out of hours private mediation service in County Court hearing centres prepared to participate, along the lines of the service which existed prior to the establishment and then termination of the National Mediation Helpline.

7. Deployment of Judges

The principle should be that no case is too big to be resolved in the regions. The current acute shortage of Circuit judges specialising in civil work in the County Court needs an urgent remedy.

8. Number of Courts and Future of the Divisions

There should be no general unification of the civil courts (ie combining the High Court and County Court). The time has come for a decision about the future of the High Court’s Divisions, but that is beyond the scope of the current review.

9. District Registries and Regional High Court Trial Centres

The concept of the District Registry as a place for the issue of High Court proceedings will eventually be replaced by a single Portal for the issue of all civil proceedings, and should then be abolished.

10. Routes of Appeal

There should in due course be a review of the question whether the recent reforms to the procedure of the Court of Appeal should be extended to cover appeals to the High Court and to Circuit Judges in the County Court, based upon better time and motion evidence than is currently available, and in the light of experience of the reforms in the Court of Appeal.

11. Boundaries between jurisdictions – the Family Court should be given a shared jurisdiction (with the Chancery Division and the County Court) for dealing with Inheritance Act and disputes about co-ownership of homes. There continues to be a case for convergence between the Employment Tribunal (and Employment Appeal Tribunal) and the civil courts, but the detail is a matter beyond the scope of this review.

Lord Justice Briggs said:

“It is for others to decide which of the above recommendations should be implemented, and by what means. In my view, if they are all substantially implemented, then the essentially high quality of the civil justice service provided by the courts of England and Wales will be greatly extended to a silent community to whom it is currently largely inaccessible, and both restored and protected against the weaknesses and threats which currently affect it.”

Comment

The stated aim of the reforms is laudable; to ensure our civil justice system is fit for purpose and open to all. However, this needs to be viewed in the context of enormous court fee increases e.g. last year’s issue fee increases of up to 600% in some cases, and last month’s application fee increases as follows:

  • contested applications made on notice — £255 (from £155)
  • applications without notice or by consent — £100 (from £50)

In Briggs LJ’s view, the new court, if successful, “may pave the way for fundamental changes in the conduct of civil litigation over much wider ground than is currently contemplated by its first stage ambition”.

The proposed timing for the launch of the system is April 2020, although Briggs LJ acknowledges that this will represent “a real challenge”.

The civil courts have come under increasing strain due to budget cuts and the phenomena of a large rise of litigants in person, the latter unpredicted and itself due to previous reforms and cost cutting exercises. This, combined with the lack of any significant positive track record in computerisation of government services represent significant further challenges, as do the requirement for such changes to be adequately funded and given sufficient Parliamentary and Ministry of Justice attention.

The ongoing hikes in court fees and previous termination of funding for Mediation initiatives contrast with the aspiration of increased access to justice and suggested allocation of funds from the Treasury for such a wide-ranging programme of reform.The challenge now lies in effective implementation of Lord Justice Briggs’ recommendations, and avoiding further reductions in access to justice.

jpsykes23@outlook.com

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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Negligent Financial Advice Claim: “Bolam Test” Abandoned

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Professional Negligence

In O’Hare and another v Coutts & Co [2016] EWHC 2224 (QB) (9 September 2016) the High Court held that the defendant bank had not breached its duty (in contract and in tort) to exercise reasonable skill and care when advising the claimants on making certain investments. Kerr J dismissed the claim in its entirety, although not without considerable sympathy for the claimants, considering that he preferred their evidence where it conflicted with Coutts’.

The judge decided that Coutts had not breached its duty (in contract and in tort) to ascertain the claimants’ requirements and objectives and to advise, explain and inform the claimants about investments that were suitable.

The decision is of particular interest regarding the judge’s approach to

  • Professional negligence / breach of duty
  • Damages in contract and tort
  • Evidence of the professionals involved – including attendance notes

Duty of Care

The judge held that the Bolam test did not apply to the issue of whether the defendant had breached its duty of care when advising the claimants about the investments. Instead, he preferred the approach of the Supreme Court in the Scottish medical negligence case of Montgomery v Lanarkshire Health Board [2015] UKSC 11. The judge focused on what the claimant, as an informed investor would expect to be told.

The judge did not adopt the common Bolam Test (see below) i.e. whether the defendant had advised in accordance with a practice accepted as proper by a responsible body of persons skilled in the giving of financial advice. The judge was influenced in his decision by the fact that the expert evidence indicated that there was little consensus in the industry about how to manage the risk appetite of clients. The decision suggests that the giving of investment advice is not simply an exercise of professional skill; an informed investor, like a medical patient, is entitled to decide the risks that he is willing to take and has to take responsibility for his own mistakes.

The Bolam test

The Bolam test derives from the decision in Bolam v Friern Hospital Management Committee [1957] 2 All ER 118 ( www.practicallaw.com/D-016-0979) . In that case it was held that a doctor was not necessarily negligent if he conformed to a practice accepted as proper by some responsible members of his profession, even if other members would have taken a different view. Evidence of an accepted practice must be responsible and reasonable. In other words, provided the doctor explained the risks of a given treatment, to the extent that it accorded with a responsible body of medical opinion, liability would not attach. The Bolam test applies to all professional liability cases.

The Bolam test was approved by the House of Lords in Sidaway v Board of Governors of the Bethlem Royal Hospital and the Maudsley Hospital [1985] AC 871.

The Montgomery Test

In Montogmery v Lanarkshire Health Board [2015] UKSC 11, the Supreme Court held that Sidaway (and, therefore, the Bolam test) did not reflect the reality and complexity of the way in which healthcare services were provided. It held that an adult person of sound mind was entitled to decide which, if any, of the available forms of treatment to undergo, and her consent had to be obtained before treatment interfering with her bodily integrity was undertaken. Doctors were under a duty to take reasonable care to ensure that patients were aware of any material risks involved in any recommended treatment, and of any reasonable alternative or variant treatments. The court defined materiality as:

“…whether, in the circumstances of the particular case, a reasonable person in the patient’s position would be likely to attach significance to the risk, or the doctor is or should be aware that the particular patient would be likely to attach significance to it…”

This is only when the medical professional has taken reasonable care to ensure that the patient was aware of the material risks involved in any recommended treatment, and of any reasonable alternative or variant treatments.

Decision in O’Hare

In the O’Hare’s negligent financial advice claim against Coutts, Kerr J preferred and applied the approach taken in the case of Montgomery, namely the onus is on the patient or client, as an adult with sound mind, to make their own decision about the risks involved. The O’Hares, as informed investors, were entitled to decide the risks that they were prepared to take and accept responsibility if those risks did not pay off. This standard is now likely apply more generally in financial advice claims.

The judge referred to the FCA’s Conduct of Business Sourcebook (COBS rules) which do not rule out the use of persuasion. The need for full information to be given is emphasised, and conflicts of interest to be properly managed:

“…As I read the authorities and the COBS regulatory scheme, there is nothing intrinsically wrong with a private banker using persuasive techniques to induce a client to take risks the client would not take but for the banker’s powers of persuasion, provided the client can afford to take the risks and shows himself willing to take them, and provided the risks are not – avoiding the temptation to use hindsight – so high as to be foolhardy. The authorities include mention of the adviser sometimes having to save the client from himself, but also of the principle that investors take responsibility for their investment decisions including mistaken ones. The duty of care must reflect a balance between those two propositions, which pull in opposite directions…”

Damages in contract and tort

A duty can be owed both in contract and in tort and concurrent duties of care are routinely owed by professionals (Henderson v Merrett Syndicates Ltd [1994] UKHL 5 ( www.practicallaw.com/D-000-1263) ). Accordingly, a financial advisor, who fails to exercise reasonable care in providing services to the client who retains him, can render himself liable in contract and in tort, unless tort liability is specifically excluded.

The general aim of an award of damages in tort is to put the injured party in the same position as he would have been in if the tort had not occurred. Damages in tort aim to restore the claimant to his pre-incident position. Generally, the purpose of an award of damages for breach of contract is to compensate the injured party. The general rule is that damages are meant to place the claimant in the same position as if the contract had been performed. Damages are usually awarded for expectation loss (loss of a bargain) or reliance loss (wasted expenditure).

Not all losses caused (in the factual/ “but for” sense) by a breach of contract or breach of duty are recoverable by the innocent party from the party in breach. Remoteness of damage refers to the principle by which the law determines which consequences caused by the defendant’s breach are within the scope of the defendant’s responsibility and should be brought into account.

There is a difference between the principle of remoteness in contract and in tort. In contract, generally, all foreseeable but not unlikely losses are recoverable. In tort, all losses that are reasonably foreseeable as liable to happen, even in the most unusual case, are recoverable. In Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146 ( www.practicallaw.com/D-035-2377) , the Court of Appeal held that in cases of concurrent liability in contract and in tort, the narrower principle of remoteness of damage in contract applies.

Witness evidence

The Civil Evidence Act 1995 (CEA 1995) effectively abolished the rule against hearsay evidence in civil proceedings. In assessing the weight to be given to any hearsay evidence, the court is to have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence. The general rule is that any fact which needs to be proved by the evidence of a witness is proved by either:

  1. Written evidence at an interim application.
  2. Oral evidence at trial.

In Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm), Leggatt J analysed the approach that a judge should take when faced with evidential discrepancies between recent and sworn witness statements prepared with the help of lawyers and evidence in the form of contemporaneous electronic stored information. After emphasising the unreliability of human memory, he said that the best approach for a judge to adopt was:

“…to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events…”

Absence of key defence witness

Mr Shone, the O’Hares’ main contact and relationship manager did not provide evidence in court. Instead, Coutts relied upon the contemporaneous (attendance) notes written by Mr Shone. Given that Mr Shone was alleged to have persuaded the O’Hares to take a higher risk than they would otherwise have done, the judge had expected to hear direct evidence from the advisor.

Although Coutts provided hearsay evidence from other witnesses, which was accepted, the judge concluded that Mr Shone’s testimony was necessary for Coutts to prove its defence. Coutts explained that the reason for Mr Shone’s absence was that he was no longer employed by them and had told the defendant that he was too preoccupied with other business responsibilities to devote time to the current proceedings. Why the witness summons procedure to secure his attendance at trial was not adopted is not examined.

The judge devoted a significant part of his judgment to address the difference between the parties about whether the claimants had been led and persuaded by Mr Shone to take a higher risk than they would otherwise have done. It was significant that Coutts did not adduce any direct evidence from Shone. If he was not called at trial, “…he would plainly be the Banquo’s ghost at the feast…”

Mr Shone’s hearsay evidence was derived from his contemporary notes of various meetings and conversations with the claimants. This evidence was recited in the statements of witnesses called to give oral testimony at trial. The judge held that the hearsay evidence was admissible and that by setting it out in the statements of its witnesses, the defendant had complied with the requirement in CPR 33.2, that hearsay evidence is to be served in a written statement. It was for the claimants to apply under CPR 33.4 to call Mr Shone for the purpose of cross-examining him on his notes of the various meetings and telephone calls, but they did not do so. Instead, the claimants relied on the fact that Mr O’Hare gave oral evidence at trial and his evidence was in many cases uncontradicted by any other witness at trial.

The judge assessed the weight to be given to the evidence by reference to the factors in section 4(1) of the CEA 1995. He concluded that the defendant needed Mr Shone’s testimony to assist its defence and without him, significant parts of the claimants’ account remained uncontradicted, except by notes that were disputed and not defended by their maker. In the circumstances, the judge was not prepared to accept that the notes were to be preferred, or that Mr O’Hare’s evidence contradicting them was to be rejected.

In this case Mr O’Hare’s oral evidence at trial, that Mr Shone had used persuasion on the claimants to induce them to take higher risks /that than they otherwise would have done, was accepted by the judge over and above the documentary evidence. He asserted that the judge in Gestmin had not suggested that oral testimony served no purpose. He remained of the view that the general rule (that any fact which needs to be proved by the evidence of witnesses is to be proved at trial, by their oral evidence) still applies.

Comment

  • The decision emphasises that undocumented witness evidence can be important. The reliability of contemporaneous documents is generally preferred to uncorroborated recollections, but there are occasions where oral testimony is required to support such documents.
  • The decision is of particular interest because of the approach of the judge to breach of duty. He held that the Bolam test did not apply to the issue of whether the defendant had breached its duty of care when advising the claimants about the investments. Instead, the judge preferred the approach of the Supreme Court in the Scottish medical negligence case of Montgomery v Lanarkshire Health Board [2015] UKSC 11. The judge focused on what the claimant, as an “informed investor”, would expect to be told and not on whether the defendant had advised in accordance with a practice accepted as proper by a responsible body of persons skilled in the giving of financial advice.
  • The judge was clearly influenced in his decision by the fact that the expert evidence in the case indicated that there was little consensus in the industry about how to manage the risk appetite of clients.
  • The decision suggests that the giving of investment advice is not simply an exercise of professional skill; an informed investor, like a medical patient, is entitled to decide the risks that he is willing to take and has to take responsibility for his own mistakes.
  • Finally, the judge’s obiter (non binding) comments are also of interest: that, if the negligence claim had succeeded, he would not have allowed the claimants to benefit from the more generous measure of damages in tort, in circumstances where their concurrent claim in contract was statute-barred.

jpsykes23@outlook.com

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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Conflict of Interest: Accountants Penalised for Breach

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Professional Services Sector  – Lessons from critical High Court ruling:

Read my featured article highlighting the latest case law regarding Accountants’ duties,  client confidentiality & conflicts of interest, of wider interest to Professional Service Firms:

This was a salutary and expensive lesson (US$11.6M) on when instructions should be declined or consent sought from clients where conflicts of interest might arise.   The piece summarises the key issues for accountants’ firms from December 2016’s 987 paragraph High Court judgement, where the court was highly critical of failures by the Defendant top tier accountant firm in relation to client confidentiality.

Case:

Harlequin Property (SVG) Ltd and another v Wilkins Kennedy (a firm) [2016] 3188 EWHC (TCC)

Link to judgement: http://www.bailii.org/ew/cases/EWHC/TCC/2016/3188.html

The article covers:

  • What is acceptable practice
  • The Defendant firm’s practical failings
  • What constitutes an adequate information barrier
  • Recommendations

jpsykes23@outlook.com

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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What price Justice? Magna Carta invoked after 8 centuries

Court fees rocket by up to 622% (e.g. from £1,315 to £9,500)

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UK Government celebrates this year’s 800th anniversary of Magna Carta by

  • increasing Court fees at a stroke by up to 622%
  • reducing access to Justice for all but a privileged few and big business
  • damaging our legal system
  • for commercial cases, making England a profoundly uncompetitive place to resolve foreign disputes, to the delight of our competitors.

The Ministry of Justice is imposing plans to raise revenue from the courts system by introducing a new structure for fees for bringing money claims over the value of £10,000. The announcement can be found here, with the fee hike starting on 9 March 2015 (subject to approval by the House of Lords this week):  

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/396887/cm8971-enhance-fees-response.pdf 

Under the new scheme a levy of 5% is charged to issue a money claim of more than £10,000.

The fee increases for money claims mean:

  1. The fee for claims from £1 to £9,999 will remain unchanged.
  2. The fee for claims from £10,000 to £199,999 will be 5% of the claim.
  3. The fee for claims £200,000 and above will be fixed at £10,000.
  4. There will be a 10% discount on fees for claims from £10,000 – £99,999 filed electronically.
  5. A fee to issue a £190,000 legal claim is currently £1,315. From 9 March 2015 this fee is now £9,500, which represents a rise of over 622%.*

The changes are opposed by a wide array of consumers groups, business, lawyers and judges who condemn the changes as unconstitutional, a threat to access to justice, and ill conceived. An application for Judicial Review to challenge the new fees is being prepared.

Statue of Justice Old Bailey

The Civil Justice Council

Representing Judges, says the effects of implementing such major increases could be dramatic in terms of:

  • acting as a barrier to entry to the justice system through pricing many court users out of the courts;
  • reducing access to justice for those litigants for whom court fees form a significant cost element of the overall process;
  • making alternatives to the civil process a far more attractive proposition, undermining the very intention behind the court fee increase and so risking significantly reduced fee income, critical to funding the courts and the justice system;   
  • having a disproportionately adverse effect on some groups e.g. small and medium enterprises, low income individuals; and
  • undermining equality before the law. 

The Law Society has collected case studies from solicitors showing what impact the increased fees would have on ordinary people seeking justice. 

  • Claimants suffering from serious personal injury or clinical negligence will be deterred from claiming compensation, with catastrophic results for them individually, society at large, and the public finances.
  • One case study found that a young girl with brain damage due to a failure by doctors to diagnose meningitis as a toddler will now require £10,000 to mount any fight for a secure financial settlement. That is even before the work involved and cost of obtaining the medical records and obtaining reports from medical expert witnesses
  • The development of case law will b e impeded.
  • Civil Justice isn’t just for those people who bring cases to court, it effects everybody in terms of the Rule of Law – where wrong doers are held to account. This is a Public Good, which is being undermined.
  • Some SMEs are forced to begin legal proceedings when buyers delay payment, as these actions can have a devastating impact on the cash flow of the business.
  • Similarly, a pensioner with limited financial means could be forced to begin legal proceedings against a financial adviser who gave them bad advice, leaving them with little to no funds in their retirement.
  • One concerned a pensioner with a claim against a financial adviser for the loss of his entire pension fund, for which the fee for applying to begin court proceedings will increase from £910 to £5,000
  • Few people can afford the extra £8,000 court fee  they would need to make a £190,000 claim, particularly if they are elderly or have been out of thoure workforce for some time due to personal injury. Such fee increases can actually be prohibitive, and this will deter people from starting claims altogether, thereby denying them access to justice.

http://www.lawsociety.org.uk/policy-campaigns/parliamentary-briefings/documents/Court-fees-joint-parliamentary-briefing/

I am also concerned about the evidence base that the MoJ used to come to its decision to increase court fees. The department claims that 90% of money claims will not be affected, but it is clear to me that the potential impact is much more serious than anticipated.

 A further debate will be held in the Lords this week, and subject to clearing that hurdle the fees will come into force on 9 March.

Law Society president Andrew Caplen said:

‘The government appears to be on a mission to turn the courts into a profit centre, amounting to a flat tax on those seeking justice. People whose lives have been turned upside down by life-changing injuries suffered through no fault of their own may no longer be able to afford to access the courts to seek compensation to fund their care. 

‘As well as affecting those who have been injured, the increases may leave small and medium-sized businesses saddled with debts they are due but unable to afford to recover.’

The fees are designed to raise £120m a year to help the government cover the cost of funding the court service in England and Wales.

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Magna Carta

Objectors to the fee increase are applying for Judicial Review of the decision,  contending that it is unconstitutional. Magna Carta, or Great Charter, was an attempt by England’s Barons to limit the Crown’s power. It was signed by King John on 15 June 1215 at Runnymede. Many of the clauses dealt with specific issues and grievances raised by the Barons. However, Magna Carta described vital legal principles, including that no ‘freeman’ could be punished except by lawful judgment of his peers, or by the law of the land.

Clause 29 of Magna Carta states:

‘We will sell to no man, we will not deny or defer to any man either Justice or Right.’ 

Lord Denning described Magna Carta as

the greatest constitutional document of all times – the foundation of the freedom of the individual against the arbitrary authority of the despot.

In this anniversary year, Magna Carta is relevant in the 21st century.  In a 2009 committee debate, Tom Brake, Liberal Democrat MP for Carshalton and Wallington, raised this argument in relation to a number of statutory instruments which introduced a change from partial to full recovery of court costs in civil proceedings:

We are now proposing to sell justice to people and make a profit out of it, because the objective behind full cost recovery is to charge so much in cases where there is no fee remission that we make enough profit to pay for fee remission

The rule of law is a public good, to the extent that it affects those people who do not go to court because, hopefully, they follow the rule of law, as well as those who do go to court. If people feel that justice in this country is only available to people on benefits and those with lots of money, we are cutting out a lot of people from the rule of law.

A Tax On Justice

Making the swingeing changes proposed amounts to selling justice, contrary to Clause 29 of Magna Carta.

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Furthermore, the proposals for enhanced fee charging in commercial proceedings will substantially undermine England and particularly London’s attractiveness as a centre for international litigation. Research conducted for the Ministry of Justice by the Centre for Commercial Law Studies at Queen Mary shows that the proposed fees would make court fees in London the most expensive in the world. The only jurisdiction that charges issue fees comparable to those proposed is the Dubai International Financial Centre.

For example in the courts of New York, (London’s strongest competitor), it costs as little as $400 to issue a claim. Foreign attorneys will not be slow to seize on any significant disparity in court fees to the cost of the United Kingdom economy, as the UK Government negates Magna Carta.

Whilst there are other alternatives to a state funded court system for resolving legal disputes, (such as Alternative Dispute Resolution, the pilot scheme for  adjudication of professional negligence claims, and the newly proposed online “low value” [up to £25,000] ebay type civil dispute court) these are either substantially dependent for their effectiveness  on the traditional civil court being readily accessible as a fall back, or a pale shadow of what we have assumed to be due process and natural justice providing remedies to right wrongs.

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Single typo costs Companies House £8m

Companies House liable for mistakenly saying Company had been wound up

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Background

Companies House has been held responsible for the financial collapse of Taylor & Sons Ltd, of Cardiff, a 124 year old engineering company. On 20 February 2009, Companies House mistakenly recorded on the register that a winding up order had been made against it. But there was a typo; it was an entirely unconnected company with a very similar name, “Taylor & Son Ltd” that had been wound up. After 3 days the error had been corrected. By then it was too late.

Companies House had sold the records to credit reference agencies. Customers and suppliers wouldn’t trade with the blameless and solvent Taylor & Sons Ltd; they lost business, income and credit. Within two months the business, which employed 250 people collapsed and it was forced in to Administration.

 

Negligent Misstatement

 The Co-Owner and managing director of Taylor & Sons Ltd, Philip Sebrey took proceedings against Companies House, an executive agency of the Department of Business, Innovation and Skills. His claim was based on the law of negligence, which has been developing continuously since the leading 1963 Case of Hedley Byrne v Heller[i], extending the law of negligence. Where a careless statement is made which causes economic loss, the victim can claim damages. That now includes cases involving the careless exercise of statutory powers.

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Decision

After a 4 year battle, the claim for compensation succeeded. Sebry v Companies House [2015] EWHC 115[ii]. Although damages have not yet been decided, the claim is for approximately £8m.

The Judge, Mr Justice Edis said that the long standing 3 stage test in Caparo[iii] applied:

  • Forseeability: this was “obvious”
  • Proximity: the duty was owed to one individual company whose identity was readily discoverable. To say that it was also owed to every other company on the Register is only to say for example that a hospital owes a duty to each patient which it treats, and may come to owe duties to many thousands of people in the course of a year. Whilst true, this is not a reason for denying that the hospital ever owes any duty. Very large organisations such as hospitals who impact on the wellbeing of a very large number of people owe a very large number of duties to a very large number of people. The class is limited and its members ascertainable at the stage when treatment is given
  •  Whether it is fair, just and reasonable to impose a duty: The Judge could find no proper ground on which to conclude that it would not be fair, just and reasonable to impose a duty to avoid foreseeable harm to a sufficiently proximate victim.

Conclusion

“…..the Registrar owes a duty of care when entering a winding up order on the Register to take reasonable care to ensure that the Order is not registered against the wrong company. That duty is owed to any Company which is not in liquidation but which is wrongly recorded on the Register as having been wound up by order of the court. The duty extends to taking reasonable care to enter the Order on the record of the Company named in the Order, and not any other company. It does not extend to checking information supplied by third parties. It extends only to entering that information accurately on the Register….”

Ultimately, Edis J could see no legal principle or policy excusing Companies House for its negligence. Where there is a legal wrong, there ought to be a remedy. If Companies House had escaped liability, Mr Sebrey would have had no redress. The previous understanding of the law has been applied, and moderately extended under the doctrine of “incrementalism”.

For liability to be established, a claimant has to prove that it suffered losses directly as a result of reliance on a negligent misstatement. An executive agency carrying out a statutory function was not immune. However, the liability in these particular circumstances did not extend to other, less proximate or easily identifiable parties, including lenders and employees.

 

[i] [1963] 2AC 465

[ii] http://www.bailii.org/ew/cases/EWHC/QB/2015/115.html

[iii] Caparo Industries v Dickman [1990] 2 AC 605

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New Professional Negligence Pilot: Adjudication

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Scheme launched 1 February 2015

Adjudication is a form of ADR (Alternative Dispute Resolution). A new voluntary scheme is being piloted aimed at professional negligence claims of less than £100,000 (excluding costs). This is of particular interest in solicitors’ negligence claims.

The objective is to see if claims can be resolved without the issue of Civil Court proceedings. There would be a substantial likely saving in terms of costs to all parties, time, and court resources. This is particularly apt in view of the forthcoming hike in Civil Court Issue fees.

The Adjudication process is aimed at any professional negligence claim, whether wholly or in part.

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Key advantages of Adjudication

  1. It is possible to obtain a reasoned judgment enforceable in Court for much lower cost than using Court proceedings.
  2. The scheme can work with the pre action protocol claim and response letters as submissions from the parties.
  3. The PNBA  (Professional Negligence Bar Association) have appointed a panel of 5 adjudicators for the pilot, all with many years of experience in this type of claim on standard terms of business and cost.
  4. The scheme itself is designed as a precedent which can be adapted by agreement for individual cases – adaptations agreed will be useful in assessing the feedback.
  5. Interlocutory points/preliminary issues could be adjudicated if a barrier to other forms of ADR like mediation and/or as a cheaper and quicker alternative to Court hearings.
  6. The meeting and process could be agreed as similar to mediations at similar cost.

The adjudication pilot is appropriate where the claimant seeks damages or compensation in a professional negligence claim with a financial value. The scheme and terms of business can be used or adapted for any case even if the parties do not wish to provide feedback or take part in the pilot. The pilot scheme details are being circulated to PNLA (Professional Negligence Lawyers Association), ABI (Association of British Insurers) and PNBA members.

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The introduction from Mr Justice Ramsey as approved by the Ministry of Justice provides the background. The Judge is looking for 3 pilot cases with feedback by June:

‘I am pleased to say that the Ministry of Justice have agreed to be involved in these discussions and to consider whether, as a result further steps might be taken to include adjudication of professional negligence claims as part of civil procedure or take other steps to introduce ways to minimise the costs and costs exposure of those who wish to bring professional negligence claims.’

Feedback is being administered on a neutral basis by Masood Ahmed of Leicester University in consultation with the Ministry of Justice

http://www2.le.ac.uk/departments/law/people/masood-ahmed

Limits to Adjudication

Adjudication is one of the many forms of alternative dispute resolution, such as mediation, arbitration, conciliation, negotiation, mini trial, expert determination etc.

Adjudication could have an important role to play.  It is derived from the statutory provisions which apply to construction contracts.  Adjudication allows a person with specialist knowledge in a particular field to provide a temporarily binding decision on the merits of a dispute within a short time and at minimum expense.

Experience has shown that, whilst parties can then seek to have a final determination of the dispute in the Courts, they often do not do so.  In the vast majority of  cases they accept the adjudication or use it as a means of settling the dispute.

In his introduction to the pilot scheme (which is also monitored by the Ministry of Justice) Mr Justice Ramsay explains that some practitioners consider that adjudication is particularly appropriate in resolving disputes in professional negligence cases where, without some independent decision on the merits, the parties may not be able to resolve their dispute.  The fact that the decision is temporarily binding means that the parties are not finally bound by the decision, but clearly a decision by a specialist adjudicator has to be given great importance in deciding whether to seek a finally binding decision in litigation through the Civil Courts.

The aim of the pilot scheme is that it shall run until 3 cases have been adjudicated, and the relevant feedback has been analysed.  The Ministry of Justice is to be involved in the subsequent review and to consider whether, as a result further steps might be taken to include adjudication of professional negligence claims as part of civil procedure accross the board, or to consider other ways to minimise the costs and costs exposure of potential claimants in professional negligence disputes.

If the scheme proves to be popular, and as a potential route to reduce costs and delay, other claimants and parties are likely to be interested in participating in adjudication of professional negligence claims, outside of the pilot scheme.

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Directors Hoodwinked out of €100 million broke duties to their Company

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The High Court has decided that two directors tricked by fraudsters failed in their duties to exercise reasonable skill and care. They paid €100 million of Company money in to a sham investment scheme induced by fraudulent misrepresentations.

Mr Justice Peter Smith said that, like many such fraud cases superficially the document looks technical and highly detailed. On closer reading it is full of incoherent phrases and expressions and is completely meaningless.

It is impossible to overstate the level of incompetence demonstrated by [the Group Legal Counsel’s] evidence at this trial. He did no checks on the background of these people trying to sell this transaction to him…He discovered nothing about the details of the transactions…He accepted without challenge anything they said. Finally in October 2011 he signed away control of €100 million, despite being required never to agree anything like that…He took comfort from documents that were meaningless…If he were uncertain as to the law, he should have obtained advice from somebody else. That is what one would expect of a senior in-house legal counsel who might have knowledge of generalities, but would not necessarily have knowledge of specifics. It is plain that he had no idea what the investments were, but was content to accept the vague descriptions provided by the defendants and fell into the trap of believing in the secrecy of everything.

The Directors committed the Company’s funds in a “ridiculous and reckless” way. It was difficult to understand how the directors had failed to spot the scam: an extremely modest level of probing the deal would have shown that it would fall apart. Their conduct was seriously inadequate regarding the discharge of the duties that they owed to Company as officers and senior employees / directors to perform their duties with reasonable skill and care.

Although this case was decided under Maltese law, the High Court’s conclusion that two directors were in breach of duty is noteworthy. The general application of English law was made clear. Directors in this situation could face personal liability to the Company for losses caused by third party fraudsters.

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However, there was no basis for findings of breach of their fiduciary duty or contributory negligence against them in favour of the Defendant (those involved in the scam). The Judge refused to reduce the damages payable to the Company by the fraudsters. The directors were duped and incompetent; fools not knaves in failing to spot that the scheme was fraudulent and bound to fail.

Director’s Duties

The Companies Act 2006 contains a general statement of directors’ fiduciary and common law duties.

  • S 171 to act within their powers
  • S 172 to promote the success of the company
  • S 173 to exercise independent judgement
  • S 174 to exercise reasonable care, skill and diligence
  • S 175 to avoid conflict of interests
  • S 176 not to accept benefits from third parties
  • S 177 to declare an interest in a proposed transaction with the company

The codified duties apply to all directors of a Company (including shadow directors and, in certain circumstances, former directors).

Director’s Potential Liability

This case decided the liabilities between the defrauded Company and the fraudsters. The award against the fraudsters was not reduced due to negligence by the gullible directors. However, it did not decide whether, or how much the directors should reimburse the Company for its losses.  

As here, where a director has broken his duty to exercise reasonable care and skill, but not his fiduciary duties, the court will consider what might have happened had it not been for the director’s breach. The court has to decide whether the Company would have suffered the losses any way. If not, the director may have to compensate the Company for all of its losses caused by his breach of duty to exercise reasonable care and skill

As a matter of public policy, the courts accept Company directors have to make judgments and take risks. Too harsh an approach to directors’ conduct would have a “chilling” effect; it would discourage people either from becoming directors, or make them too risk averse for the good of the business.

Conclusion

Directors who are in breach of duty can ask the court for relief from sanctions on the grounds that they acted honestly, reasonably and that it is fair in all circumstances of the case to relieve him of liability. A director may also be protected from liability by the company ratifiying his conduct. Alternatively, a Directors & Officers’ Insurance Policy may cover the relevant liability. Obviously, all of these are a very poor second best to remaining vigilant and following the old maxim: if it looks too good to be true, it probably is!

Although the case is being appealed, it is a timely reminder of the risks of fraud to which Companies are exposed, the duties on Directors, the consequences of breach and the need for vigilance.

Case:

Group Seven Limited v Allied Investment Corporation Limited and others [2014] EWHC 2046 (Ch).

Link:

http://www.bailii.org/ew/cases/EWHC/Ch/2013/1509.html

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Professional Negligence: Court of Appeal underscores “reliance” essential for Negligent Misstatement

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Hunt & Ors v Optima (Cambridge) Ltd & Ors [2014] EWCA Civ 714

Overturning a judgment of the Technology & Construction Court, the Court of Appeal has decided that architects’ certificates  provided after the purchase of property could not be the foundation for negligent misstatement claims. The case restores the legal position limiting the duties of professional advisors. It also provides a helpful summary of the key components of claims against professionals, especially where consultants such as architects or surveyors are providing reports that are likely to be relied on by third parties, like purchasers, lenders and developers.

Background

The Claimants had bought flats on long leases. Later, serious defects were identified, and the Claimants sued the developer and a firm of architects for negligent misstatement. The developer had instructed the architects to inspect and certify the flats had been built to meet building regulations and that there were no defects. The reports were for consideration by the purchasers and their lenders within the conveyancing process. However, most of the certificates were not actually signed off until after exchange of contracts and for most of the purchasers, after completion.

 

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Original Decision

The judge at first instance held that the architects owed two freestanding duties of care in

  • carrying out the inspection of the flats with an architect’s skill and care
  • preparing accurate certificates.

This put a duty of care on the architects during the assessment stage, but before any report or representations. The judge found it no obstacle that the signed certificates were received by the purchasers only after exchange of contracts. The case appeared to widen professional duties more generally than previously understood.

Court Of Appeal’s Decision

Clarke LJ in giving the leading judgment said the earlier decision

‘…takes inadequate account of certain key principles….. reliance must follow representation…’.

Negligent misstatement

The CoA found that both reliance on the statement must be proved and further, that loss was suffered in consequence of the reliance. Here however, the purchasers could not have relied on the certificates when they exchanged contracts, because the certificates had not been completed by then.

Clarke LJ said that this

“would involve imposing …. a duty to inspect arising out of statements which, at the time when the duty arose, they had not made“.

There was no separate duty owed to the purchasers for “negligent inspection”.

Warranty

Although the architects plainly owed contractual duties to its client, the developer, there was no implied contractual or tortious duty between the architects and third parties. The certificate itself stated that it was not a promise or guarantee. However, it is salutary to note that the architects did not apply for permission to appeal the awards made against them in favour of those purchasers who did receive certificates prior to proceeding with their purchase.

Conclusion

  • The previous understanding of the law has been reinstated. For liability to be established, a claimant has to prove that it suffered losses directly as a result of relying on a professional’s negligent misstatement.
  • The court was reluctant to imply collateral warranties between professionals and third parties.
  • Professional firms’ Terms & Conditions should specify that any duty is limited to providing the final report and does not extend to preparatory work.
  • Solicitors acting for purchasers (and lenders) must ensure such certificates or reports are finalised and signed before any contracts are exchanged or loan completedn completed.

 

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PROFESSIONAL NEGLIGENCE £66,000+ award against Mishcon de Reya Solicitors

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LOSS OF CHANCE

In the recent case of Chweidan v Mishcon de Reya [i]  the High Court summarised the test for quantifying damages and calculating loss of chance in professional negligence claims.

BACKGROUND

Mishcon de Reya were ordered to pay over £66,000 in damages and interest to their former client Russell Chweidan. Mischcon partially lost a professional negligence claim Mr Chweidan brought against them in the High Court.

Mrs Justice Simler granted Mr Chweidan a portion of his damages claim in contract and tort for professional negligence. This was because Mishcon missed a deadline to lodge a cross-appeal at the Employment Tribunal relating to former trader Mr Chweidan’s dismissal by JP Morgan.

The dispute dated back to 2008 when Mishcon agreed to pursue Mr Chweidan’s unfair dismissal case. He had been made redundant after a serious skiing accident causing permanent injury. He won in the Employment Tribunal, which found he had been unfairly dismissed by JP Morgan. They had awarded him a smaller than expected bonus which the Tribunal found was unlawful and JP Morgan had discriminated against him on the basis of his disability.

JP Morgan successfully appealed to the Court of Appeal. The judgment against them was overturned in 2011. However Mishcon had failed to lodge Chweidan’s cross-appeal in time. Mishcon admitted responsibility for their failure but Mr Chweidan sued Mischcon for damages for loss of chance to win the Appeal against JP Morgan. He argued that the firm had failed to advise or assist him in bringing his allegations against JP Morgan within the statutory grievance procedure and that he suffered damages as a result of not lodging a counter claim in time.

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JUDGMENT

Mrs Justice Simler did not accept that Mishcon had failed to adhere to the statutory grievance procedure but awarded damages in relation to the counter claim breach.

On a detailed analysis of his case against JP Morgan, the Judge put Mr Chweidan’s overall prospects at 18%. Simler J calculated that he had a 50% chance of winning the age discrimination cross-appeal, and a 33% chance on the underlying claim following the appeal. That gave a 16% chance. The Judge added a small increase to cater for the possibility that, if Mr Chweidan won his cross-appeal, JP Morgan may have been persuaded to reach a settlement.

Mr Chweidan was awarded 18% of his £357,574.86 claim against his solicitors, amounting to

£64,363.47 damages plus 18% of £10,000 likely interest accrued after the Tribunal judgment (Total £66,163). Simler J rejected Mr Chweidan’s other claims and this represented substantially less damages than he had claimed.

Simler J said:

Although I have found that the chances of success were limited, there was more than a negligible prospect of the claimant succeeding on appeal and having done so, proving his unlawful age discrimination claims. In those circumstances, the breach of duty was the effective cause of these lost opportunities.

“The claimant is accordingly entitled to recover damages for the loss of opportunity suffered as a consequence of the defendant’s breach.”

6-STEP MATHEMATICAL APPROACH

The Judge summarised her approach to quantifying damages for loss of chance:

  1. The Claimant must prove that the claim had a real and substantial, rather than merely a negligible prospect of success.
  2. If the Court decides that the Claimant’s chances were more than merely negligible then it will have to evaluate them. That requires the Court to make a realistic assessment of what would have been the Claimant’s prospects of success, had the original litigation gone to trial.
  3. The Court should therefore assess the likely level of damages which the Claimant would probably have recovered if the underlying action had proceeded to judgment and then apply an appropriate fraction to that sum to reflect the uncertainties of recovering the damages awarded.
  4. In some loss of a chance cases it may be appropriate to view the prospects on a fairly broad brush basis. In other cases however it may be appropriate to look at the prospects in greater detail.
  5. The oral and documentary evidence available (and the extent to which it is more limited than what would have been available in the action) and the possibility that the claim might have settled are aspects that must be factored into any assessment. It would be wrong in any event, to conduct a “trial within a trial” or to make any firm findings as to what would have been decided.
  6. If there are “separate hurdles”, the percentage prospects on each should be multiplied together to give an overall lower percentage prospect.

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COMMENT

The Judge in Chweidan followed the approach in earlier loss of chance litigation cases, Mount v Barker Austin [ii] and Dixon v Clement Jones [iii]. Although the burden of proof is on the claimant to show that his lawyers were negligent in the advice given, a solicitor or barrister using the defence of no loss of value to the claimant must be able to show that, despite acting for him and charging for their services, the claimant’s prospects were “no better than negligible” (so that the client lost nothing by their negligence).

Simon Brown LJ in the Court of Appeal in Mount commented that clearly the burden is heavier on the Defendant solicitors if they did not advise their client of the hopelessness of the position. If the solicitors had advised in detail on the prospects, that advice would be highly relevant. As is often the case, the question of what advice was recorded in attendance notes or letters to the client was important.

In professional negligence cases, if a claimant has numerous hurdles to overcome, this judgment could substantially reduce the amount of damages awarded for loss of chance claims; each hurdle exponentially decrease the claimant’s overall prospects. However, Simler J emphasised that the assessment of damages in these types of cases

is not necessarily a purely mathematical or mechanical exercise. Although the issues may be discrete, success on one may improve the chances of success on another.’

Nevertheless, the test outlined above provides a clearer and more predictable background to how the courts calculate damages in loss of litigation chance claims. 

[i] Chweidan v Mishcon de Reya [2014] EWHC 2685 (QB),

[ii] Mount v Barker Austin [1998] EWCA Civ 277

[iii] Dixon v Clement Jones [2004] EWCA Civ 1005

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