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: 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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HASTINGS BASS: PROTECTION FOR TRUSTEES REDUCED

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The Court of Appeal handed down two decisions in July 2011 in favour of HMRC. The decisions substantially restrict protection for Trustees under the longstanding Rule in Re: Hastings Bass [1974] EWCA Civ 13.
The Court of Appeal heard both cases together, commenting that some of the case law evolving from Hastings Bass had been incorrect. HMRC’s Appeals against the application of the Rule was allowed in both Pitt v Holt and Futter v Futter [2011] EWCA Civ 197.

In both cases, the action taken by the Trustees/Fiduciaries had been as a result of professional advice, but there had been unexpected adverse tax consequences. Previously it was thought that where a Trustee or Fiduciary had exercised a discretion mistakenly which resulted in unintended consequences, especially where acting with professional advice the court would exercise discretion and interfere with the Trustees’ decision. This would arise by applying to the court to have their decision or act rendered void or voidable.

The Judiciary have over recent years expressed disapproval of the way that the Rule in re Hastings Bass was being so widely applied.

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The outcome is that it is less likely in future that Trustees will be able to avoid adverse consequences of the exercise of discretion by applying to the court for such problematic decisions to be set aside. Instead Trustees are more likely to be at risk of facing claims from Beneficiaries. In turn, the Trustees may have to face the more difficult prospect of considering a claim for professional negligence against their professional advisors.

The rationale is that in relying upon professional advice, Trustees are not in breach of their fiduciary duty if it turns out that the advice given to them was materially wrong. The Court of Appeal held that in such circumstances the Trustees’ decision taken in reliance on that advice is not void or voidable and cannot be interfered with or “corrected” by the court. As such, Trustees who follow advice in particular on tax from apparently competent advisors would not be regarded as being in breach of their duties.

Consideration was also given to the alternative ground of mistake, but it was held that the tests to qualify for the equitable remedy of mistake had not been fulfilled.

The result is that the Rule in Hastings Bass is restricted to pure Trust principles. Rather than Trustees applying to the court on an uncontested basis, in future it is likely to be for the Beneficiaries to challenge the Trustees’ actions if they wish to have them set aside.

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Trustees and professional advisors will note that in the leading Judgment of Lloyd LJ ( paragraph 220) he suggested that the Beneficiaries remedies

“….. lie not in the realms of equity, but by way of a claim for damages for professional negligence ….”.

It is understood that whilst the Court of Appeal refused the Trustees in Futter v Futter permission to appeal, permission may be sought from the Supreme Court.

J Paul Sykes LLB LLM
First Published July 2011