Professions and Financial Lines Brief: latest decisions September 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: heads of terms in mediation; Approved Inspectors’ duties; limitation periods; jurisdiction disputes; business transfer schemes; insolvency exclusions; Ponzi schemes; and solicitors’ duty to point out procedural irregularities.
Strike out rejected where arguable case on limitation
Evans v PricewaterhouseCoopers LLP [05.09.19]
In 2001, on advice from the defendant tax advisers, the claimant entered into a tax-efficiency scheme on behalf of a trust. This was designed to release assets from the trust without attracting CGT liability. HMRC investigated the scheme in 2013 and notified the claimant in 2014 that the asset release attracted CGT liability. The claimant issued proceedings against the defendant in respect of its advice. The defendant applied to strike out the claim on the basis that it was time-barred because the limitation period allegedly commenced in 2001.
The court decided that there was an arguable case that the claim was not statute-barred as the limitation period may have commenced in either 2013, when HMRC investigated the scheme, or in 2014 where HMRC required the claimant to pay CGT. The defendant has appealed this outcome and a decision is awaited.
Accountants and tax advisers should be mindful of the current decision, and pay attention to the forthcoming appeal decision. If the appeal court also accepts that the limitation period arguably did not commence until tax investigations by HMRC commenced, this will be of concern to practitioners. The decision could mean that, where a professional recommends tax efficiency schemes, these may be the subject of valid litigation many years later.
Court rejects insurer’s business transfer scheme of annuity portfolio
Prudential Assurance Co Ltd, Re, Rothesay Life Plc, Re [16.08.19]
The applicant companies sought the court’s sanction for an insurance business transfer scheme divesting around 366,000 annuity policies, worth £12 billion, from Prudential to Rothesay. The scheme had been supported by an independent expert and relevant regulators had raised no objections. The scheme was opposed however by a number of annuitants, because it was considered inappropriate that persons who had specifically selected Prudential as their annuity provider for life should be transferred against their will to a smaller insurer with a very different reputational history and without a larger supporting group structure.
The court refused the application, as the factors against sanctioning the scheme outweighed those in favour. As concurrent reinsurance arrangements were already in place, the applicants would suffer no prejudice if the scheme were not sanctioned.
The court made clear that its role was not limited to the same actuarial analysis or regulatory criteria as the independent expert and the regulators who had previously approved the scheme. Insurers considering similar schemes should acknowledge that the court’s approach to sanction is more than a rubber stamp and success is not guaranteed. Contingency plans, such as reinsurance, are therefore sensible to consider.
Approved Inspectors and the Defective Premises Act 1982
The Lessees and Management Company of Herons Court v NHBC Building Control Services Limited [14.08.19]
An Approved Inspector sought to strike out a claim brought against it by the tenants of a block of flats which it had certified to comply with the Building Regulations. This was on the basis that it did not owe obligations to the property’s residents under the Defective Premises Act 1982 (the DPA) to ensure that the property was fit for habitation when issuing its certifications.
The Court of Appeal considered that an Approved Inspector performing its usual duties in certifying compliance with Building Regulations was not a person who had "taken on work for or in connection with the provision of a building", and therefore did not owe duties under the DPA. The DPA was designed to apply only to those constructing or designing buildings, and not in respect of those certifying regulatory compliance.
This is a pleasing development for Approved Inspectors and their insurers, who can take comfort that obligations should not be imposed on them in favour of possibly unknown third-parties pursuant to the DPA.
Related item: Approved Inspectors: risks, liabilities and the future
Retrial ordered following inadequate findings of fact
Simetra Global Assets Ltd & Anor v Ikon Finance Ltd & Ors [09.08.19]
The claimants appealed the Commercial Court’s decision to dismiss their claim (alleging they had been the victims of a Ponzi scheme) on the basis that the judge’s findings were unexplained and unjust, in circumstances where the trial had lasted 13 days, yet the judgment ran to only 13 pages.
On appeal, it was held that the trial judge had failed to identify the elements of the claim, analyse the evidentiary documents, and had adopted an unbalanced approach to assessing the credibility of factual witnesses.
The Court of Appeal allowed the appeal based on inadequate findings of fact and ‘reluctantly’ remitted the case to be tried before a different judge in the Commercial Court. While the respondents would have to suffer the expense and stress of a retrial, it was considered a greater injustice to allow the judgment to stand.
English court jurisdictional issues in claim against Scottish law firm
Holgate v Addleshaw Goddard (Scotland) LLP [16.07.19]
The claimant was a director and shareholder of a company (the Company) located within Scotland and England that entered administration. The Company’s bank appointed English based administrators to handle the Company’s insolvency, who in turn instructed a Scottish law firm, to advise the administrators about allegations of mis-selling made by the claimant against the bank.
The claimant brought proceedings in England against the law firm alleging breach of fiduciary duty, breach of contract and negligence, arguing there was a conflict of interest with the bank. The defendant law firm applied for a declaration that the Scottish courts had jurisdiction to hear the claim, and not the courts of England and Wales. Meanwhile, the claimant had issued separate “anchor” misfeasance proceedings against the administrators. It was common ground that the English court had jurisdiction over the “anchor” claim.
The court refused the defendant law firm’s application, determining that jurisdiction could be retrospectively conferred due to the subsequent issue of an “anchor” claim. It gave weight to the "place of performance" of the primary obligation and that the legal and factual issues in both proceedings substantially overlapped. As separation could potentially give rise to irreconcilable judgments, both claims were to be tried in England.
Insolvency practitioners and their legal advisers should identify where primary performance of their cross-border obligations take place, to mitigate the possibility of defending a claim in a tactically unfavourable jurisdiction.
Heads of terms are capable of amounting to a binding settlement agreement
Abberley v Abberley [19.06.19]
At a mediation, a mediator and the parties drafted a settlement agreement. The electronic draft was lost before it was executed. Possibly in the view of the time of day, the parties resorted to signing agreed heads of terms. It was intended that a detailed settlement agreement would subsequently be agreed, but disputes arose about the way in which the agreement should be effected, which prevented such an agreement. The claimants therefore sought a court declaration that the agreed heads of terms constituted an enforceable agreement.
The court held that the parties’ agreement was set out in the heads of terms with sufficient certainty and clarity to amount to a binding agreement. Merely because a formal settlement agreement was envisaged will not, in itself, prevent heads of terms from amounting to a binding contract.
This decision acts as a reminder to take care when drafting documents during mediations. Parties should consider: (1) noting that agreed heads of terms are “subject to contract”, if that is the intention; and (2) providing their opponent(s) with a draft settlement agreement in advance of any mediation to allow non-contentious terms to be agreed in advance.
Australian court limits the application of insolvency exclusions
AIG Australia Limited v Kaboko Mining Limited [14.06.19]
The Full Federal Court of Australia has held that an insolvency exclusion in a directors’ and officers’ policy will not automatically apply to claims against former directors of an insolvent company.
The decision serves as a reminder that there are no special rules of construction to be applied to exclusion clauses. Exclusion clauses should be given their natural and ordinary meaning and regard must be had to the language of the exclusion clause and context in which the insurance clause appears.
Phoenix Healthcare – time is of the essence
Woodward & Another v Phoenix Healthcare [12.06.19]
The Court of Appeal, when considering whether solicitors were under a duty to warn the other side that their purported service of proceedings was defective, upheld the previous appeal that there had been no ‘technical game playing’ by Phoenix’s solicitors.
This decision confirms that there is no duty on the part of a defendant to point out any procedural irregularity in relation to the service of proceedings, notwithstanding the fact that this may lead to a claim becoming statute barred.
Related item: Phoenix Healthcare - time is of the essence