the professional negligence blog

A collaboration between Rebmark Legal Solutions and 1 Chancery Lane

Will the introduction of adjudication in Professional Negligence cases have the same impact as the introduction of a similar scheme in the Construction Court?

On 1 February 2015 a voluntary pilot scheme for the adjudication of solicitors’ professional negligence claims was launched. Mr Justice Ramsey was to consider three test cases (with a quantum value of £100,000 or less) with feedback on those cases due to be provided by June 2015. It is now nearly November 2015, and not much has been heard: the latest update is that only one pilot case has been adjudicated upon, with the Adjudicator being 1 Chancery Lane’s Ivor Collett. There are presently no other pilot cases in train, but all signs point to determination that other pilot cases should be heard in the next few months. However, it was clear from the excitement provoked by the announcement of the scheme that there was an appetite within the industry for alternative means of dispute resolution for solicitor’s negligence claims. The confidentiality of adjudication proceedings are of great interest, particularly to defendant solicitor’s firms, for whom adverse publicity can be very problematic. No other legal sector has been as affected by the introduction of adjudication as the construction sector. Adjudication has been used as a form of dispute resolution for construction claims arising during or after completion of projects for many years pursuant to the statutory right to adjudicate under the Housing Grants, Construction and Regeneration Act 1996 (which was later amended by the Local Democracy, Economic Development and Construction Act 2009). Key advantages of adjudication (as applicable to professional negligence claims) are:  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 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. Whilst the decision of an adjudicator is only temporarily binding, as Mr Justice Ramsey (a veteran of the introduction and expansion of the adjudication in construction dispute scheme) comments in his introduction, experience has shown that parties do not usually seek a final determination through the courts and accept the decision as a means of settling the dispute. The scheme is run along similar lines to that for construction disputes though there are some differences and, in particular, parties can adapt two aspects. The first relates to the binding nature of the decision and the second concerns costs:1. The parties can agree that the decision will be temporarily binding until it is finally determined (by litigation, arbitration or agreement) or they can agree that it will be finally binding. 2. If the parties so choose, the adjudicator will have power direct one party to pay the other’s reasonable costs and if appropriate can be given directions to enable him/her to determine those costs subject to a cap of £5,000. The parties can also agree for the adjudicator to have no such power and each party would therefore bear their own costs.Related disputes can be referred to adjudication together and a decision from the adjudicator is to be provided within 56 days of his or her appointment (which can be extended by agreement). The 56 day deadline is also applicable to the time between an adjudication being agreed upon as the way forward, as opposed to the rather more rigid 28 days in construction adjudications. It is hoped that the extra flexibility will make the scheme easier to prepare for. The pilot is not a statutory scheme. The Ministry of Justice will be involved in further discussions once the feedback has been analysed which will consider whether adjudication should be included as part of civil procedure in professional negligence claims. It may therefore be some time before the report into the pilot scheme is finalised. If the results are positive, and the scheme is expanded, it will be interesting to see if the impact on the professional negligence sector is as striking as in construction (where the number of construction disputes litigated in the Construction Court has dropped to 22% of what it was in 1995, when the scheme was introduced). My view is that while adjudication will undoubtedly assist the swift and ready resolution of some lower-value solicitor’s negligence cases, the very fact of those limitations will ensure that the impact is not as fulsome as has been noted in the construction sector. Until the result of the pilot scheme are released, the sector remains in the dark. 

TOWIE's Sugar Hut Costs Judgment

Sugar Hut Group & Ors v AG Insurance [2014] EWHC 3775 (Comm)   Mr Justice Eder today handed down his judgment on costs issues following his substantive judgment on the 20th October 2014 in the matter of the Sugar Hut Group v AG Insurance. The Claimants were ordered to pay the costs of the claim from the 14th June 2014, save for the costs of the discrete issue as to the amount of interest that was appropriate. They were also entitled to recover only 70% of their costs prior to that date, subject to a detailed assessment if not agreed. Permission to appeal the costs order was sought by Andrew Post QC on behalf of the Claimants, and was refused by the judge, who stressed that he had taken the view that the Claimants’ conduct was such that there was a very good reason for him to depart from the general rule about costs. He explained that the Claimants had plainly failed on certain issues which had led to a percentage reduction in their costs. In addition he wished to emphasize that he had awarded all costs of the action to the Defendant post the 14th June 2014 not merely because of the negotiations and offer letters between the parties, but also because the claim had very much been exaggerated and the Claimants had failed to comply with their disclosure obligations and other matters as set out in his substantive costs judgment. Mr Justice Eder stressed also in refusing permission to appeal that the case was one that was exceptional on its facts and turned on the specific conduct of the Claimants, such that there were no issues of general principle involved in his decision. I represented the Defendant (instructed by Caytons solicitors) on the permission hearing as well as on the substantive costs hearing and at the trial (where Richard Slade QC represented the Claimants). In his substantive judgment on costs, Eder J accepted my submission that the Defendant’s Part 36 Offer of the 23rd May 2014 did not attract the automatic consequences of Part 36, but that it could properly be considered under the court’s wider Part 44.2 discretion on costs. He recognised that there were a number of discrete issues where claims were maintained during the trial, but £Nil was recovered by the Claimants. The judge held that those issues involved substantial amounts of money, and also substantial time in disclosure and in lay and expert evidence. He also held that the Claimants’ attempts to argue that post-fire turnover (which occurred after the Sugar Hut nightclub came to feature on the popular TOWIE television programme) should be taken into account had been rejected in their entirety. Given the Claimants’ failures on these discrete and important issues a costs reduction of 30% was appropriate. In addition, the Defendant had made a Part 36 Offer in a letter dated the 23rd May 2014, which expressly based the offer on gross business interruption losses of £600,000, plus interest at 2.5%, producing a net Part 36 offer figure inclusive of interest of £250,000. In the event, the Claimants at trial recovered gross business interruption losses of just £568,000, albeit they persuaded the court to allow interest at 5%, such that there net recovery inclusive of interest was £277,000. The judge held that although the letter did not contain an admissible offer to settle or attract the automatic provisions of Part 36 (as I conceded), it could and should nonetheless properly be taken into account as a matter of conduct and in accordance with the wide discretion of the court. The judge held that the claim was very much exaggerated, and also accepted my submission that the Claimants had dragged their heels on disclosure and conducted the disclosure process on a piecemeal basis with fresh documentation still being disclosed just two months prior to trial. Even at trial, there were gaps in evidence, and the Claimants’ approach caused real difficulties to the Defendant in taking appropriate precautions to protect its position. He held that the Claimants’ response to the suggestion that business interruption was worth £600,000 was unreasonable, and for all of those reasons awarded the costs of the action from the 14th June 2014 to the Defendant, as well as making the separate 30% deduction for issue based costs from the period prior to that date.   As set out above, permission to appeal the costs order was refused. There has been no attempt to appeal the substantive judgement.

Judgment on TOWIE nightclub due

Judgment is due at 2pm this Monday (20 October) in a claim for assessment of business interruption and associated losses following a 2009 fire at the premises of the Sugar Hut nightclub in Brentwood, famous as the main venue of The Only Way is Essex (TOWIE).  I acted for the defendant insurance broker in the assessment of damages hearing, which took 3 days in the commercial court before Bernard Eder J earlier this month. Judgment is awaited. The claim was pleaded in excess of £1.3m.

Law Society: Mortgage Fraud Practice Note Update

On 31 July 2014 the Law Society issued an updated practice note on mortgage fraud. There are no changes to the guidance.   The changes reflect updates to the law and publications. As of October 2013 the Serious Organised Crime Agency was replaced by the National Crime Agency. The Economic Crime Command is tasked with fighting economic crime including fraud and identity crime.

Disclosure of insurance cover

A common concern for many claimants and their lawyers in litigation is whether the defendants have effective insurance cover and can thus satisfy any judgment obtained them. When a claimant discovers that he only has a “paper” judgment, he often looks to blame his solicitor. This is what happened in the recent case of Dowling v Bennett Griffin (a firm) [2013] EWHC 1995 (Ch) in which Mr Dowling (“D”) failed to establish negligence by Bennett Griffin (“the Solicitors”) in the original litigation. As part of the earlier litigation, D had brought a counterclaim against P, who was later substituted for P’s limited company, APAL. The service of D’s counterclaim unfortunately led to the other parties’ insurance cover being avoided and the subsequent judgment in favour of D being of little value.   One argument that the judge, Kevin Prosser QC, considered in some detail was whether the solicitors ought to have obtained disclosure of the other parties’ insurance cover during the course of the proceedings. D criticised Bennett Griffin (“the Solicitors”) for failing to insist on disclosure of the insurance as a condition of APAL’s substitution for P as defendants to the counterclaim. The Judge rejected this argument because he considered that the court had no jurisdiction under the CPR or Third Parties (Rights against Insurers) Act 1930 to make this order. He noted that his conclusion was consistent with West London Pipeline & Storage Ltd v Total UL Ltd [2008] UKHC 1296) and previous authorities such as Bekhor v Bilton [1981] QB 923 and Cox v Bankside Members’ Agency [1995] CLY 4122. This case provides a timely reminder of the principle that insurance details are unlikely to be discoverable so long as the insured remains solvent.  

Quinn, Lemma and now Balva

  1,300 solicitors firms are facing the prospect of having to find alternative insurance following the decision by the Latvian Financial and Capital Markets Commission to withdraw the operating licences for insurer Balva. According the press release on the FCMC's website, Balva must now launch a winding-up process by appointing a liquidator but all its insurance policies are still effective. Where a qualifying insurer is subject to an "insolvency event", unless there is a waiver, affected firms are required by  rule 6  of the SRA Indemnity Insurance Rules to place insurance with another qualifying insurer or enter the assigned risks pool. The SRA's position is that there has not yet been an  "insolvency event". However, even if the withdrawal of Balva's operating licence is not an "insolvency event", it seems likely that the appointment of a liquidator will be.      

Failure to obtain ATE Insurance: Non-party costs

The Court of Appeal in Heron v. TNT (UK) Ltd [2013] EWCA Civ.469 considered whether or not solicitors who failed to obtain ATE Insurance for their client in a personal injury case and who failed to admit that to him - but without any conscious impropriety - should be subject to a non-party costs order.  The defendant's insurers argued that thereby the solicitors had become a "real party" to the litigation, the person "with the principal interest" in its outcome or that they were acting primarily for their own sake - all phrases derived from the main authorities.  The court, upholding the judgment below, decided they had not.  As Leveson L.J. put it, if the defendant was right,  "every act of negligence by a solicitor in the conduct of litigation (thereby giving rise to a conflict) which means that an opposing party incurs costs which might not otherwise have been incurred would be sufficient."  The law does not go that far.