Professions and Financial Lines Brief: December 2018 latest decisions

Date published

05/12/2018

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In this edition, we consider some recent court decision addressing issues including: entitlement to adjudicate; the scope of retainer letters; vicarious liability for data breaches; brokers’ negligence; duty of care for construction professionals; and solicitors’ negligence when fraud is present.

Court of Appeal rules on ‘smash and grab’ adjudications

Grove Developments Limited v S&T (UK) Limited [07.11.18]

The claimant (GDL) engaged the defendant (S&T) to design and build a hotel at Heathrow. An interim payment application was submitted by S&T which GDL thought was excessive. GDL attempted to dispute the calculation by sending a payment notice. As this was sent out of time, GDL then served a pay less notice.

The Court of Appeal upheld the first instance decision and found that an employer was entitled to adjudicate to determine the true value of an interim application despite failing to serve a valid payment notice or pay less notice. However, this entitlement only arises once the employer has paid the sum due under the disputed application. This means that this entitlement cannot be used to stall or withhold payment.

Contacts: Alison Noakes and Fleur Rochester

Related item: Court of Appeal rules on 'smash and grab' adjudications

The importance of clear and precise retainer letters

Lyons v Fox Williams [25.10.18]

Following a life-changing accident, the claimant sought to claim under accidental death and dismemberment and long-term disability (LTD) insurance policies taken out by his employer. The claimant instructed the defendant to represent him in this regard. The claimant alleged that the defendant had been negligent in its handling of both policy claims. However, the defendant stated that advising on the LTD policy was never within the scope of the retainer. The High Court agreed with the defendant.

The first instance decision was upheld by the Court of Appeal who stated that the engagement letter identified the scope of the defendant’s retainer and did not refer to the LTD claims. Therefore, there had been no express or implied retainer to advise on the LTD policy. This case is a reminder that a professional should always ensure that the scope of the retainer is clear and precise to reflect the intention of the parties and the scope of work envisaged.

Contacts: Hannah Williams and Daniel Fairey

Related item: The paramount importance of a retainer letter

Court of Appeal upholds vicarious liability claim in data breach class action

WM Morrison Supermarkets PLC v Various Claimants [22.10.2018]

The Court of Appeal has dismissed an appeal against the High Court’s decision to hold Morrisons vicariously liable for its employee’s misuse of data, despite the fact that: (1) Morrisons did all it reasonably could to prevent the misuse; and (2) the actions of the employee appear to be designed to harm the company.

In response to concerns that this decision will impose a disproportionate burden on employers, the Court of Appeal indicated that the practical solution is to insure against losses caused by dishonest or malicious employees. This has brought into acute focus a range of coverage issues in respect of where data protection and personal data exposures are insured.

Morrisons have stated that they will appeal to the Supreme Court and any further developments will be followed with interest.

Contacts: James Shrimpton and Barnaby Winckler

Related item: Court of Appeal upholds vicarious liability claim in data breach class action

Clear guidance given around causation in PI claims following insurers’ avoidance

Dalamd Ltd v Butterworth Spengler Commercial Ltd [05.10.2018]

The claimant (DL) issued negligence proceedings against its insurance broker (BSC) following a fire and destruction of business premises at a waste recycling facility. D originally sought an indemnity from insurers but was forced to pursue BSC after insurers avoided the policies on grounds of non-disclosure and misrepresentation of material facts. The court was therefore asked to consider the appropriate test for causation in brokers’ negligence cases where insurers had successfully avoided the policy.

Primarily, the court found that BSC had been negligent in failing to: (1) adequately advise the claimant what should be disclosed to insurers; and (2) properly disclose matters to which it had knowledge. Moreover, in respect of causation the court clarified that the appropriate test is to consider whether on ‘the balance of probabilities’ (rather than on a ‘loss of chance’) the claim against an insurance policy would have failed for reasons other than the defendant brokers’ negligence. Whilst this is a favourable judgment for PI insurers, the door has still been left slightly ajar, since the court did concede that in certain (undefined) circumstances the position might be different and an assessment of causation on a ‘loss of chance’ basis might be appropriate.

Contact: Fleur Rochester

Related item: Clear guidance around causation in PI claims following insurers' avoidance

Fit for purpose? A cautionary tale about a contract

Williams Tarr Construction v (1) Anthony Roylance Ltd and (2) Anthony Roylance [14.09.18]

The claimant, Williams Tarr Construction Ltd (WTC), was the main contractor on a housing development project where a slope required the erection of a retaining wall. WTC sought civil engineering input from Anthony Roylance to design a land drain behind the wall and whilst the drain was not considered defective, the constructed wall was and required remediation. The parties never signed a formal agreement, so the court was tasked with considering the scope of the engineer’s duty and whether it extended to ensuring a fitness for purpose.

The court held that Mr Roylance was only obliged to design the drain with reasonable skill and care and was neither: (1) engaged to design or amend the wall; or (2) warrant that the wall would be fit for purpose. Nevertheless, in obiter the Judge indicated that if Mr Roylance had been found subject to an obligation to amend the wall design then he would have been found subject to a fitness for purpose warranty. These comments have interesting ramifications for duty of care and may pave the way for a change of approach if the court shows a greater willingness to impose fitness for purpose obligations on construction professionals where the design structure involves multiple complex elements working concurrently. Subsequently, designers could risk incurring additional liabilities that are assumed under contracts but not covered under their professional indemnity policies.

Contact: Denise Charlwood

Related item: Fit for purpose? A cautionary tale about a contract

Can negligent solicitors avoid liability because of underlying fraud committed by their clients?

Stoffel & Co v Maria Grondona [13.09.18]

The defendant law firm was negligent in failing to register the claimant’s title to a property which she purported to purchase from an acquaintance (Mr M). The claimant sued the defendant for her loss suffered as a result of that negligence. The defendant accepted that it had been negligent but defended the claim on the basis that the claimant had participated in an illegal mortgage fraud in order to obtain finance for Mr M. The first instance judge found in favour of the claimant. The defendant appealed this decision.

The Court of Appeal stated that the first instance decision had to be set aside in light of new case law (Patel v Mirza [2016]). However, the appeal was still rejected as it was held that the illegality of the mortgage fraud agreement between the claimant and Mr M was not relevant or central to the defendant’s failure to carry out its obligations to protect the claimant’s equitable interest in the property and her liability under the mortgage. The court stated it was not in the public interest to allow negligent conveyancing solicitors, who are not a party to and know nothing about the illegality, to avoid their professional obligations because their clients have made misrepresentations to a mortgagee.

Contact: George Veale

Related item: Dreamvar revisited: the nightmare for solicitors and insurers continues…

Read other items in Professions and Financial Lines Brief - December 2018