29/11/2019
In this briefing, we consider the latest significant court decisions impacting claims arising from professional liability and financial lines policies and products. Issues covered include: loss of chance, the application of CPR rule 3.9, the scope of a solicitor’s duty, breach of the Quincecare duty, Section 51 Senior Courts Act 1981, extending the application of whistle-blowing protection to the judiciary and the amendment of claims when limitation is an issue.
The original claimant, Mr Watkins, worked as a coal miner and developed a condition known as vibration white finger which entitled him to claim compensation under a government compensation scheme. He instructed the defendant solicitors firm in 2001 to make a claim for compensation and the matter settled for general damages in February 2003. In 2008, Mr Watkins brought a claim against the defendant solicitors firm, alleging that it had failed to properly advise him of the merits of a services claim, thereby depriving him of the chance to recover an additional compensation sum. It was held, at first instance, that the defendant solicitors’ advice on the services claim was negligent, but, on the basis of expert evidence, no loss had been suffered. The claimant then appealed and the Court of Appeal found that the recorder, at first instance, was wrong to take into account the expert evidence as it would not have been considered when assessing the award under the compensation scheme.
The defendant solicitors’ subsequently appealed to the Supreme Court but this was dismissed. The court held that the services claim must be proven to have a real and substantial prospect of success (which the court held it did) and that the claimant had suffered a loss of opportunity to pursue the services claim. The court further confirmed the Court of Appeal’s decision that damages should be based on the evidence available at the material time, even though the claimant had not settled the underlying claim for anything less than he would have been entitled to at common law.
The above principle is likely to be applicable to other professional negligence claims arising from broad brush compensation schemes or loss of chance claims where subsequent evidence comes to light and one of the only defences seemingly available will be the 15 year limitation longstop.
Contact: Tim Hague
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Following the death of Mr Giacomino Maggistro-Contenta in 2013, his wife, the claimant, inherited his entire estate. The defendant solicitors acted on behalf of the claimant in relation to estate administration and on other separate matters relating to property and trusts. The claimant alleged (inter alia) that the defendants sold the family home below market value and sent the proceeds of the sale to the wrong person. In all, the claim was pleaded in excess of £10 million.
The claim form was issued on 1 March 2019 but the claimant did not serve the particulars of claim upon the defendants’ solicitors (Kennedys Law LLP) until 22 July 2019 (21 days out of time). The claimant therefore made an application seeking an extension of time for service of the particulars of claim up to 22 July 2019 (in effect an application for relief from sanctions under CPR 3.9). The defendants’ solicitors applied for a declaration that the court had no jurisdiction to try the claim due to late service of the particulars of claim.
The claimant’s application was dismissed and relief from sanctions was refused. Chief Master Marsh held that whilst he may have been inclined to allow the late service of the particulars of claim, the claimant’s case against the defendants was unclear and confused. It was therefore correct to take into consideration the merits of the claim which were found to be lacking. The court held that the claim could not proceed in its current form and made a declaration that the court had no jurisdiction to try the claim.
This decision highlights the importance of (i) ensuring that particulars of claim are served within the time limit required by CPR 7.4(2) and (ii) that the merits of the claim may be taken into consideration when considering whether to grant an application for relief from sanctions.
Contacts: Michelle Johnston and Rebecca Archer (Bristol and Taunton)
In April 2012, Mr Naqvi was summarily dismissed by Lloyds Bank after an internal investigation. Mr Naqvi thereafter brought a claim before the employment tribunal and claimed unfair dismissal, discrimination on grounds of race and/or religion (the latter being withdrawn during the proceedings) and victimisation. The employment tribunal upheld Mr Naqvi’s unfair dismissal claim, finding that Lloyds’ investigation and dismissal process had been seriously flawed. However, it dismissed his claims of race discrimination and victimisation. Mr Naqvi therefore issued proceedings against his legal advisers alleging that they had failed to adequately formulate and advance his claim for race discrimination and failed to properly quantify the discrimination claim by reference to an alleged loss of career. The High Court held that Mr Naqvi’s complaints were not clear enough at the time of instruction for his legal advisors to support a claim for direct race discrimination based on the conduct of the impugned HR manager.
This decision, which will be a welcome one for legal professionals and their insurers, reinforces that the courts will (or at least should) not apply hindsight when deciding whether a solicitor or barrister discharged their duties to their client.
Contacts: David Robinson, Serena Jobanputra and Veton Vrapqani
Related item: High Court further clarifies solicitors’ duties to their clients – a welcome decision
Daiwa, an investment bank, provided Singularis with a loan for the purchase of shares and these shares were held as a security of the loan. After the shares were sold and the loan repaid, Mr Sanea, the sole shareholder and a director of Singularis, instructed Daiwa to use excess funds in Singularis’ account to make payments to third parties. These instructions were a misappropriation of the Singularis’ funds, resulting in Singularis’ insolvency and liquidation. The Supreme Court found that Daiwa had breached its duty of care to Singularis (its so-called Quincecare duty) by effecting the instruction without taking sufficient due care to satisfy itself that it was a bona fide instruction on behalf of the company. The Quincecare duty is a duty owed by a bank to use reasonable skill and care in and about executing a client’s instruction and not to execute instructions known to be dishonest or where there are reasonable grounds to believe that the instructions were given honestly.
Daiwa had also argued that Singularis was a ‘one man company’ and so Mr Sanea’s dishonesty should be attributed to Singularis with the result that Singularis’ liquidators (acting in the name of the company) would not be able to sue Daiwa for the consequences of the company’s own dishonesty. This illegality defence was rejected by the court. The court found that Singularis’ loss had been caused by Daiwa’s failure to discharge its Quincecare duty rather than the fraud of Mr Sanea or Singularis.
The finding of breach of Quincecare duty and scale of damages awarded (US$204 million) against Daiwa, highlight the need for clear risk management guidelines to ensure that fraud is detected before it is effected by financial institutions.
Contacts: Mark Chudleigh and Maya Rubinstein
Related item: Bankers beware the Quincecare duty to query suspicious client requests
The Supreme Court has sensibly overturned the decisions of the lower courts in concluding that Travelers’ conduct did not cross the line into ‘unjustified intermeddling’ in litigation to which it was not a party.
The case concerned a s.51 Senior Courts Act 1981 claim against Travelers by parties to a Group Litigation Order (GLO) with uninsured claims. The Court of Appeal found that the costs of defending the GLO would have been the same whether there had been 197 or 623 claimants. If there were only the 197 insured claims, Travelers would have been exposed to all the claimants’ costs. Therefore, simply because 426 claimants with uninsured claims joined the GLO, Travelers would fortuitously escape liability for approximately 68% of those costs if the application for a non-party costs order was not granted.
The Supreme Court held that the underlying question as to whether the non-party has become a ‘real’ party to the litigation or has intermeddled, is fundamental to the exercise of Section 51 jurisdiction and that causation remains an important element in what a Section 51 applicant has to prove - there must be a causative link between the incurring of the costs sought to be recovered from the non-party and the conduct of the non-party.
Contacts: Catherine Shuttleworth, Tim Hague and Laura Hurst
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A district judge appealed an employment tribunal decision on the issue of whether she qualifies as a ‘worker’ or a ‘person in Crown employment’ for the purpose of the protection given to whistle-blowers under Part IVA of the Employment Rights Act 1996 (the 1996 Act).
The Supreme Court found that if the whistle-blowing protection was not extended to non-contractual office holders, this would be regarded as discrimination against the claimant in the enjoyment of her right to freedom of expression, as protected by articles 10 and 14 of the European Convention on Human Rights (ECHR). It was established that it is possible to interpret the definition of a worker to include judicial office-holders when required to do so by EU law, and it would not ‘go against the grain’ of the 1996 Act to do so in respect of the protections of Part IVA.
It is arguable that this interpretation of the 1996 Act has extended the application of whistle-blowing protection to include non-contractual workers such as company directors, secretaries, board members and appointments made pursuant to the constitution of an organisation, such as club treasurers or trade union secretaries and trustees. This may have a knock-on impact on the number of notifications made to insurers with respect to regulatory investigations and civil actions.
Contacts: Helen Ager (Bristol and Taunton) and Newanthi Obeyesekere
The claimant issued proceedings on 4 October 2017 against six named defendants. On 31 January 2018 the claim form was amended to remove defendants three to six and add a new third defendant (Cramer Pelmont, the defendant).
The Deputy Master allowed the claimant’s application to amend the claim form. The defendant appealed, arguing that the claim against it at the time of the amendment was time barred, under the usual six year limitation period, and also under s.14A of the Limitation Act. The question for the court was whether, at the date of the amendment, it was reasonably arguable that the claim against the defendant was time barred? If so, allowing the amendment would deprive the defendant of a potential limitation defence.
The appeal was successful. Mr Justice Walker found that as the new defendant, it had reasonable prospects of establishing that the claim against it was time barred.
Rather than applying to add the new defendant, it was noted that the claimant should have considered whether to start fresh proceedings against the new defendant and apply to consolidate the claims. There is of course, the risk that limitation would have expired whilst the claimant was awaiting the outcome of the application to consolidate. However, this case clarifies the court’s approach to amendments when limitation is an issue.
Contacts: Helen Ager (Bristol and Taunton) and Kiah Ashbury
Read other items in Professions and Financial Lines Brief - November 2019
