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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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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