pnBlawg

the professional negligence blog

A collaboration between Rebmark Legal Solutions and 1 Chancery Lane

Newcastle International Airport Ltd v Eversheds LLP - making sense of legalese

When faced with a complex legal document (the new procedural rules, being one example), it is often tempting to skim read and shrug off any incomprehensible sections, in the hope that they are not important. Newcastle International Airport Limited v Eversheds LLP ([2013] EWCA Civ 1514) demonstrates why it pays to press ahead – in a darkened room, with a wet towel over your head if needs be. In this case, Eversheds was instructed to draft new service contracts for executive directors by the executives themselves. It was only when one of the executives died that the Airport realised the new contract entitled his estate to bonuses totalling £8m. Described in the Newcastle press as a ‘bonanza’, the Court of Appeal stated that when this issue came to light, it understandably caused “considerable consternation”. In order to recoup part of the payment, the Airport pursued a professional negligence claim against Eversheds. The Airport’s claim was dismissed at first instance. On appeal, the Court of Appeal found that the new contracts should have been accompanied by a written explanation to the Airport, in user-friendly language, of their terms and effect. Thereby ensuring that Eversheds’ client – the Airport – was provided with advice directly, and not merely through the intermediary of its executives, whose interests conflicted with that of the Airport. However, the Court held that it was unlikely that the chair of the company's remuneration committee would have read the memorandum, even if it had been provided. Consequently, the claim failed on causation grounds. Lessons Learnt Newcastle International Airport Limited v Eversheds LLP provides a number of salutary lessons. First, to non-lawyers it shows the importance of reading key legal documents and of seeking assistance in understanding their contents. To lawyers, it reminds us to draft documents in plain English, where possible. It also demonstrates how crucial it is to assess causation in light of what the witnesses’ actual conduct indicates about their likely hypothetical behaviour. In this claim, the courts’ view on causation relied heavily on a litany of documents, which the remuneration committee’s chair had not read or not read adequately.

Failure to serve Witness Statements on time – better late than never?

Mitchell is still providing a rich source of material for articles, and concern for those worried about being the subject of the next big professional negligence action…   Following on from Andrew’s post last week, I recently encountered the scenario where one party sought to vary a Court timetable of directions but it was not agreed.  Clearly, if the directions themselves contained an express sanction then it would have been a simple matter of a ‘new’ CPR 3.9 Application for relief from the sanction.  However, the direction was a standard one that merely stated that compliance should have been by a certain time.    This raises the question of if a party is in default should it make a 3.9 Application or a 3.1 Application?  3.1 expressly refers to the possibility of an application being made after the date for compliance.  Nevertheless, it is probable that in reality the 3.1 Application would entail consideration of the ‘new’ 3.9 in any event, given the specific amendments to the overriding objective (as to complying with rules and orders) and hence be little different to Mitchell.  Further, there is the question of what exactly would be the effect of failing to comply?  There have been many applications for striking out but the starting point is merely a refusal to allow the party in breach permission to rely upon the subject matter of the direction: such as witness evidence in my case.  It is to be noted that there is a specific built-in sanction already for failing to serve witness evidence on time: CPR 3.10.   It seems the Courts are tending nowadays to view any breach of any direction without good cause as one which requires an early Application.  The Applications are usually brought still under 3.1 if within time but if the Application is made after the date for compliance it is tempting to apply in the alternative under 3.9.  The new overriding objective does not alter the need for the Courts to make its assessment of how to do justice to the parties.  Often, it seems an exceedingly short extension of time is considered the correct approach if there is good reason for the delay, backed up by an Unless Order: viz. Fons v Corporal (2013) EWHC 1278.  That was the result in my case.  Many courts have effectively disregarded the old prejudice to the other party test.  It is unclear if anything other than a strict approach will ever will be taken otherwise, as the Court of Appeal has pointed out, the Jackson Reforms will have no teeth.   What has become abundantly clear though, is that failing to comply with any Court order is more serious than a year ago and if you can pre-empt any breach with an Application (with good evidence in support!), then you will be in a much better position.  Opponents are less likely to agree variations/extensions nowadays since they don’t want to miss a trick and moreover don’t want to be criticised by the Court themselves.  In a sense, Jackson and Mitchell have curtailed some of the spirit of cooperation engendered by the Woolf Reforms, albeit by focusing upon proportionality and delay.  Time will tell if that is a good thing. 

Professional negligence claims in the post-Mitchell era – a potential minefield

The tough approach to compliance with the CPR and court orders is really starting to bite and one result is bound to be more professional negligence claims where litigation has become derailed as a result of a party failing to comply and being refused relief. Following Mitchell v News Group [2013] EWAC Civ 1537, save where breaches are “trivial”, a party seeking relief faces a high hurdle. Relief will only be granted with a good reason. Accidently missing a deadline as a result of pressure of work  - surely the reason for breaches in the majority of cases – is no such reason. A further area where great care is needed is in varying a timetable set by the court. In the past, parties have frequently agreed to postpone the date for witness statements or agreed for a late statement to be allowed in. This week saw the judgment in M A Lloyd & Sons Ltd v PCC International Ltd [2014] EWHC 41 (QB). Turner J pointed out that CPR 3.8(3) prevents parties extending a deadline by agreement where a rule, practice direction or court order specifies the consequences of failing to comply. CPR 32.10 states that late witness evidence will not be permitted without the Court’s permission. The result is that parties are not able to agree to extend time for statements or (it seems) to accept a late statement. The risk of not obtaining an order is that the Court later refuses to allow the evidence in at trial, even where the parties have agreed to it. It would be difficult to defend breach of duty in those circumstances. But what of the solicitor who agrees too readily to the other side letting in a statement or evidence? Given the tough approach to rules, perhaps the reasonable solicitor is now required to take a more robust, bullish, and maybe even what might previously have been thought an unreasonable approach towards the other side…!

A BUGging question of disclosure...

 In one of his first decisions after appointment to the Chancery Division Nugee J heard an appeal on a disclosure issue in the case of Ward Hadaway v DB UK Bank Limited (11.11.2013 unreported). The case raised a point of principle on the test to be applied where a document has already been technically disclosed by reference but the disclosing party claims that the primary disclosure duty is not engaged because the document is not adverse to their case or helpful to the other side’s case.   The claim was brought by the lender against the solicitor’s firm in relation to buy-to let mortgages. The bank said that the firm had failed to disclose that the sales involved back to back sub-sales in which the intermediate vendor was not the registered proprietor. W admitted the failure to report but defended on the issue of causation saying that the bank would still have made the loans if the reports had been made. The bank disclosed its business underwriting guidelines (BUG) which they said contained their lending policy. The BUG referred to a credit process guide (CPG) which was described as a key credit policy document or blueprint which took priority over the guidelines in case of conflict. The bank refused to disclose the CPG because it was commercially sensitive and was not relevant to individual lending decisions in any event – it did not adversely affect its case or support the firm’s case and so was not within CPR 31.6. The firm applied for disclosure of the CPG arguing that a lending decision which fell outside the criteria might still be referred to the CPG. The Master refused the application for disclosure. The firm appealed. On appeal Nugee J held that a failure to disclose under the standard disclosure duty was not a matter of pure judicial discretion in the way that normal case management decisions were. The test in this case was whether the CPG should have been disclosed because the CPR 31.6 criteria were met. This was not just a question of relevance but whether the document fell within the wording of the rule (Shah v HSBC Private Bank (UK) Ltd [2011] EWCA Civ 1154 followed). If there was evidence that the document was not within the rule the party seeking disclosure had to show not that the evidence might be wrong but that it had to be wrong (GE Capital Corporate Finance Group v Bankers Trust Co [1995] 1 WLR 172 applied). The new evidence produced by the bank showed that the CPG would not have been engaged and therefore the Master had been right to dismiss the application. It appeared, surprisingly, that the application for the court to determine whether the guide was within the obligation of standard disclosure was not specifically covered by the provisions of CPR 31. The application was not one for specific disclosure since the guide, having been referred to in the evidence, had already been disclosed, SmithKline Beecham Plc v Generics (UK) Ltd [2003] EWCA Civ 1109, [2004] 1 W.L.R. 1479 considered. Nor was it an application for specific inspection within r.31.12. Nor was it a claim by D that it had a right or duty to withhold inspection within r.31.19.

Kelly v Black Horse - reasonableness of ATE premiums in PPI litigation

  Another recent example of the courts’ more robust approach to costs (as to which, see also my earlier posting on Willis v MRJ Rundell & Associates Ltd) is found in Kelly v Black Horse [2013] EWHC B17 (Costs). Kelly was a fully-contested PPI claim which the claimants won. The district judge ordered that the balance of their outstanding loan (£5,200) be written off, that the defendant should re-pay the claimants the sum of £6,000 and that the claimants should receive 70% of their costs, to be subject to detailed assessment if not agreed. Senior Costs Judge Hurst conducted the assessment. One issue for him to decide was whether the claimants were entitled to recover in full their ATE premium, which had cost them £15,900. On any analysis the premium paid was high when compared to both parties’ costs - the claimants’ base costs were in the region of £14,000 whereas the defendant’s costs were £5,837.10. The judge decided that it was not reasonable for the defendant to have to pay the full ATE premium and he set out his reasons for reaching that decision in a written judgment ‘in the hope that this may assist in resolving future disputes in this area’. As part of his decision, he rejected the claimants’ risk assessment as being ‘entirely meaningless’ and substituted a success fee of 53.85% (based on a 65% chance of success) in place of the 100% originally claimed. He then analysed the reasonableness of the ATE premium by first calculating the so-called ‘burn premium’ (i.e. the risk of paying out multiplied by the claimants’ estimated maximum liability) and then increasing that figure by an appropriate percentage to reflect brokerage and profit. The judge found that the claimants’ maximum liability was £7,243.30 (i.e. claimants’ disbursements of £1,406.20 plus defendant’s costs of £5,837.10) and that they had a 35% chance of being liable for this sum. Thus the burn premium was £2,535.16 (0.35 x £7,243.30), which when uplifted by 25% to reflect brokerage and profit, produced an appropriate figure of only £3,168.95. Even if the potential costs exposure had been anticipated in the region of £8,500, the appropriate figure to pay by way of ATE premium would have been no more than £3,677.63. The judge therefore concluded as follows: ‘There is no doubt that the ATE premium sought in this case is wholly disproportionate… I have been given no evidence as to the information which was given to the ATE insurers to enable them to rate the policy, but, given the risk assessment completed for the purpose of the CFA, which was entirely meaningless, it is safe to assume that the insurers were not given accurate information.’ In those circumstances the judge decided that it was only reasonable to expect the defendant to pay 25% of the premium claimed of £15,000, which produced a figure of £3,750. This figure compared favourably with the earlier figures calculated by reference to the burn premium. It is suggested that this decision reflects a greater willingness on the part of the courts to analyse the reasonableness of ATE premiums, without recourse to expert evidence. Potentially also, it heralds a significant reductions in the level of legal costs that the defendants are required to pay to successful PPI claimants.    

Michael v Middleton - relief from sanctions under CPR 3.9 and solicitors negligence claims

Litigation solicitors up and down the country are no doubt assessing the implications of the latest procedural changes with an eye to their own risk management profile. Of particular importance has been the change to the provisions concerning relief from sanctions under CPR 3.9. The recent decision of Michael v Middleton [2013] EWHC 2881 (Ch) illustrates how tough the courts are becoming in implementing the Jackson reforms. It also raises the possibility of more solicitors’ negligence litigation in the future if caseloads are not managed efficiently. The case was a dispute between claimant business owners and their solicitor, the defendant. A key issue was how the defendant was to be paid, the defendant’s account being that he was to be given an interest in the claimants’ business as part of his remuneration. The claimants issued proceedings but failed to provide satisfactory disclosure and, in 2012, the claim was struck out for non-compliance with an `unless’ order. Approximately one year later (2013) the claimants instructed new solicitors but then waited for several months before finally issuing an application for relief from sanctions under CPR 3.9. It was accepted by the parties that the struck-out claim was not time-barred and that the claimants had been badly let down by their first solicitors. It was also in issue whether the second solicitors had unreasonably delayed in issuing the application for relief. HHJ David Cooke refused the claimants’ application for relief and stated that granting relief would ‘send a wrong message`. As part of his decision, he focussed on two specific aims of CPR 3.9 – conducting litigation efficiently and saving costs, and enforcing compliance with orders. Of particular relevance here, the Judge considered and rejected the submission that any claimant, who was denied relief, was bound to be disadvantaged by having to sue his solicitor instead. On the Judge’s findings, it was still open to the claimants to bring a fresh claim against the defendant, without being met either by limitation or abuse of process arguments. Nevertheless the implications of this decision are that the courts are going to adopt a less pragmatic approach to applications for relief. Instead of granting relief on the (unspoken) basis that there is little point in forcing a claimant to re-start the litigation, they are going to adopt a tough approach with potentially far-reaching consequences for any solicitor having conduct of the litigation at any stage.      

Costs budgets and professional negligence claims

 Many lawyers are no doubt wondering how the new costs rules, particularly those as to costs budgets, will affect litigation in the future. The recent decision of Mr Justice Coulson in the Willis v MRJ Rundell & Associates Ltd & Anor [2013] EWHC 2923 (TCC) provides some helpful pointers.  The case, which was run under the costs management pilot in the TCC, involved a £1.1m professional negligence claim against a firm of construction professionals. At a costs management hearing in September 2013, both parties submitted costs budgets - £897,369 for the claimant and £703,130 for the defendant. The judge refused to approve either party’s ‘disproportionate’ costs budgets.  The judge had some interesting comments to make on costs budgets and the issue of proportionality. He stated that costs-budgeting was an important tool by which the courts endeavoured to control the costs of civil litigation. In the instant case he considered that the costs budgets were disproportionate and unreasonable because it would ‘cost significantly more to fight this case than the claimant [would] ever recover.’  On professional negligence claims, the judge had the following comments to make. He recognised that they would be more costly than other commercial disputes because they required expert evidence. He also recognised the fact that the courts, when considering proportionality, needed to make due allowance for the ‘for the non-quantifiable, but potentially serious, damage to the defendant’s professional reputation’ that might be caused by claims of this type.  Finally the judge articulated the test of proportionality in the following way:  ‘It seems to me that one test of proportionality is whether the trial is likely to be an end in itself, or merely a lesser part of the process which the parties will use in order to put themselves in the strongest position to argue that, subsequently, the other side should pay all or most of their costs. When the costs on each side are much higher than the amount claimed/recovered, the latter is almost inevitable.’  Fortunately for the parties, the judge explained that the absence of an approved costs budget did not mean the successful party would recover no costs at all. He stated as follows:    ‘However, I should add that, although I am aware that some have taken the view that the absence of an approved costs budget means that that party will recover no costs at all, I do not believe that such a draconian approach is in accordance with the letter or the spirit of the new costs rules or 51G PD.’   This case illustrates the need, as the judge explained, for ‘all litigants and their solicitors [to] get to grips with and comply with the new regime as soon as possible.  

The Return of the Omni Ombudsman

Our regular readers will recall that we recently blogged about the Legal Ombudsman’s interest in providing redress for clients of non-legal professionals. This is not the only area where LeO's domain may expand. The Legal Services Consumer Panel reported last year that non-client third parties should have a right of redress from LeO. The Panel has since looked into the  2,184 complaints from non-clients that LeO turned away last year for want of jurisdiction. Earlier this week the Panel published 39 case studies to illustrate the sorts of complaints that might merit redress by LeO. The case studies include conveyancing horrors, aggressive debt recovery, unpleasant experiences at court and failures to administer estates properly. A number of the case studies concern situations in which the legal professional would or might owe a duty of care to the complainant. LeO's rules allow for a complaint to be dismissed or discontinued if it would be more suitable for the issue to be dealt with by a court, but the Panel thought that the costs of going to court meant that redress by LeO might be the only realistic prospect of getting justice for some complainants. As a change to the classes of complainant to LeO requires an order of the Lord Chancellor under the Legal Services Act 2007 it might be sometime before non-clients can obtain redess from LeO. In the meantime the case studies should provide a rich source of inspiration to those setting interview questions, tort examinations and moot problems.  

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.