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A roundup of the latest court decisions touching on the following issues:
Application of the Civil Liability (Contribution) Act 1978 on third party claims, discretionary commission arrangements, reliance under S.90A, Financial Services and Markets Act 2000, and cost awards.
The interaction between two Acts
Riedweg v HCC International Insurance Plc [11.11.24]
The claimant (C) contracted to purchase a property valued by Goldplaza Berkeley Square Ltd (Goldplaza) in 2016. C contended that the property was negligently overvalued, rendering her unable to complete on the purchase, or assign the sale contract. C was sued by the seller of the property, but agreed terms of settlement giving rise to a liability. Goldplaza entered into voluntary liquidation in 2021. C accordingly pursued a claim to recover the liability sum (£2.2 million) from Goldplaza’s professional indemnity insurers (H), by operation of the Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act).
H sought the court’s permission to join C’s solicitors (F) and the claimant’s advisor (Ms Johns) in the underlying transaction, pursuant to the Civil Liability (Contribution) Act 1978 (the 1978 Act). In the context of this application, the court was asked to decide whether the damage allegedly caused by F and Ms Johns was the “same damage” for which insurers, H, were potentially liable to C.
Dismissing H’s application, the judge found that H was not potentially liable for the “same damage” for which F may be liable pursuant to the 1978 Act. The judge also held that the 2010 Act merely provides a route for claimants to pursue insurers as it relates to the potential liability of an insured to a third party.
The judge concluded the analysis, commenting “The issue was argued before me as a pure point of law, and it was not suggested that the analysis set out above might depend upon the determination of any facts which are in dispute”. The issue as to whether H may, if ordered to make payment to the claimant, then be subrogated to the claimant’s rights was not pleaded and did not arise in the current facts. Criticism was made of H’s failure to engage with existing authorities, including the observations of Lord Hope in Royal Brompton Hospital NHS Trust v Hammond [2002] .
This case is significant in providing guidance as to the interaction between the 1978 Act and the 2010 Act. Of particular significance are the judge’s findings that an insurer cannot in the situation described above, rely upon the 1978 Act for the purpose of bringing third party claims. In reaching that conclusion, the judge expressed the view that:
“an insurer does not inflict damage on anyone and that the only damage it is capable of inflicting is in refusing to meet its obligations under the policy of insurance.”
Authors: Ciara Burrows, Paul Lowe
Related item: The interaction between the Third Parties (Rights Against Insurers) Act 2010 and the Civil Liability (Contribution) Act 1978
Lenders & credit brokers liable in motor finance commission cases
Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited and Hopcroft v Close Brothers [25.10.24]
In all three related cases, the claimants entered into credit agreements arranged by motor dealerships and provided by the defendants, to purchase vehicles. In each case, the dealer made a profit from the sale and received a commission from the lender, which was not disclosed to the consumer claimants. The claimants brought proceedings against the lenders, arguing that the dealers were receiving “secret commissions” from banks without their knowledge and that they were not in a position to give fully informed consent. They argued that this was in breach of the dealers’ duty to provide them with information, advice or recommendation on an impartial and disinterested basis.
The Court of Appeal held that the dealers, acting as sellers as well as credit brokers, owed the claimants disinterested and fiduciary duties. In order for the claimants to have given informed consent, the Judges held that the consumers would have needed to have been informed about the commission paid by the lenders and how it was calculated. The commissions lenders paid to the dealerships were therefore held as unlawful, in what could be a landmark ruling. The lenders sought permission to appeal to the Supreme Court on an expedited basis which has since been granted.
The impact of this decision could be felt beyond the motor finance market. The principles outlined in the judgment may have application more broadly to any goods and services purchased via credit brokers. Such might include, for example, a range of household goods, holidays, mortgages and insurance products. In any arrangement where commission is paid, it must be fully disclosed.
The judgment appears limited to ‘unsophisticated consumers’ but whether it is limited to individual customers, rather than for example SMEs or sole traders, is unclear. Pending clarity from the Supreme Court, lenders and brokers should implement clear disclosure practices and their insurers will be keen to understand that steps are being taken to mitigate risks of claims.
Authors: William Hanwell, Jenny Boldon
Reaffirming the reliance requirement under Section 90A of the Financial Services and Markets Act 2000
Various Investors v Barclays plc [25.10.24]
The High Court clarified the application of the reliance requirement in section 90A of the Financial Services and Markets Act 2000. It was held that reliance cannot be established where the claimants did not read or consider the published information.
Section 90A allows investors to bring claims if they have suffered a loss as a result of a dishonestly misleading statement in certain published information relating to listed securities. The relevant published information includes annual accounts and regulatory news releases.
In November 2020, 460 institutional investors who held shares in Barclays Bank, issued a claim for over £500 million. The complaints related to a ‘dark pool’ share trading system that Barclays operated. In June 2014, the New York Attorney-General had filed a securities fraud lawsuit against Barclays in connection with this trading system, causing its share price to drop.
The claimants alleged that untrue and misleading statements were made by Barclays in its published information concerning the trading system. In reliance on this information, they acquired or held onto Barclays shares, and suffered a loss when the share price fell.
The claimants were divided into three categories:
- Category A claimants read and directly relied on the published information;
- Category B claimants indirectly relied on the published information by reviewing alternative sources, such as broker or press reports; and
- Category C claimants indirectly relied on the published information by dealing in the shares at a certain market price according to the efficient market hypothesis.
The court agreed with Barclays that the common law test of reliance for the tort of deceit should apply to section 90A claims. Therefore, claimants must prove that “they read or heard the representation, that they understood it in the sense which they allege was false and that it caused them to act in a way which caused them loss.”
As the Category C claimants could not establish that they had directly read and relied on the published information, their 241 claims were struck out. This decision represents a significant setback for passive investors, who lose out on the potential to claim under section 90A.
Authors: Maneeka Sangha, Donald McDonald
Related item: Listed securities claims averted as passive investors are struck out
The Court highlights the need for robust defences when considering the awarding of costs:
Afan Valley Ltd v Lupton Fawcett (a firm) & Others [08.10.24]
Lupton Fawcett LLP successfully defended a professional negligence claim brought against them by 43 liquidating companies with a combined deficiency to creditors totalling over £68 million. The claimants alleged the defendant’s negligent advice was the cause of this substantial deficiency. The claimants argued that, but for the allegedly negligent advice, they would not have promoted inappropriate investment schemes, accepted investment monies or taken on unsuitable loans. The High Court dismissed these claims, striking them out entirely, however, Lupton Fawcett’s victory was not all-encompassing.
In October 2024, the presiding judge (Mr Justice Sheldon) in a consequential matters judgment held that it would be inappropriate for Lupton Fawcett LLP to receive an award for all of its costs as ‘this would not reflect the overall justice in this case’. Mr Justice Sheldon identified a number of flaws in the defence’s arguments, which were deemed to reflect the need for a significant reduction in recoverable costs. Resultingly, Lupton Fawcett were only awarded 75 percent of recoverable costs. These weak arguments specifically centred around the fact that the defendants were unable to convincingly justify claims surrounding its conduct. It was submitted that:
“There were points on which (Lupton Fawcett LLP) lost at the hearing before me in February that were not merely legal arguments that required little in the way of evidence or submissions, but were matters that were wholly independent of the successful no loss argument and put the claimants to significant cost and effort in preparing witness evidence and written argument.”
Although 75 percent of costs allowed for a significant reimbursement of the defendants’ expenses, the judge’s decision to not award full costs highlights important issues for the professional liability sector to take heed of. For example, this costs decision emphasises the requirement for robust and comprehensive defences to all aspects of a claim, reminding professional liability solicitors that victory at trial, whereby a claim is struck out, does not necessarily ensure full recovery of costs if a defence contains significant deficiencies.
Authors: Isobelle White, Kate Courtman
Read other items in Professions and Financial Lines Brief - December 2024
Insurance and reinsurance
United Kingdom