Professions and Financial Lines Brief: September 2018 latest decisions

In this briefing we consider some recent UK court decisions addressing issues including: the SAAMCO principles; notifications against multiple policy years; the benefit (or lack thereof) of hindsight in professional negligence claims; and duties (or lack thereof) to point out an opponent’s mistake.

Phoenix Healthcare – here we go again

Woodward v Phoenix Healthcare Distribution Ltd [26.07.18]

Proceedings had been issued at the very end of the limitation period and service of the claim form was delayed to allow time for the particulars of claim to be finalised. The claimant’s solicitors, Collyer Bristow (CB), served proceedings on Phoenix’s solicitors, Mills & Reeve (MR), just one day before time for service expired - but without seeking confirmation that MR were authorised to accept service. MR wrote to CB the following day pointing out that service of the proceedings was defective.

On appeal, it was found that MR were in no way responsible for the defective service, in circumstances where the situation did not require MR’s immediate response. The Judge found that last-minute service risked disaster and it was not reasonable to delay service of the claim form when limitation had already expired. This decision provides clarification as to when a duty of care may or may not arise to point out an error on the part of an opponent in litigation, although it may yet be referred to the Supreme Court on appeal.

Contact: Alison Noakes

Related item: Phoenix Healthcare – here we go again

No benefit of hindsight in professional negligence claims

Edwards v Hugh James Ford Simey (A Firm) [06.06.18]

The claimant was a former coal miner and instructed the defendant solicitor to make a claim for compensation under the government vibration white finger scheme. Despite expert GP medical evidence concluding that the claimant was entitled to both general and special damages, the claimant did not wish to pursue a services claim and the matter settled for general damages only.

The claimant subsequently instructed a new firm of solicitors to bring a professional negligence claim against the defendant for failing to properly advise on the services claim, which deprived him of the chance to recover special damages. The defendant introduced fresh expert medical evidence from a vascular surgeon, who concluded that the claimant was never entitled to make a services claim under the scheme. On appeal, the Court of Appeal held that the subsequent medical evidence was not relevant, as the judge would not have known about it at the original trial, thus the appeal was allowed and the case remitted for a rehearing. The courts therefore could only use the benefit of hindsight in exceptional circumstances.

Contacts: Hannah Williams

Related item: No benefit of hindsight in professional negligence claims

Insurer liable for costs of defending uninsured claims

Travelers Insurance Company Limited v XYZ [17.05.2018]

In claims pursued under a Group Litigation Order, Travelers Insurance Company settled the claims and an agreed proportion of the costs of 197 insured claimants. Judgment in default was then entered against Travelers’ (insolvent) insured in favour of 426 uninsured claimants. The Court of Appeal had to consider whether Travelers would also be responsible for the uninsured claimants’ costs.

The court found that Travelers were liable for the costs of those uninsured claimants. It held that the costs of defending the GLO for both defendants and claimants would have been the same whether there had been 197 or 623 claimants. Therefore, if the application for a non-party costs order was not granted, Travelers would fortuitously escape liability for approximately 68% of these costs.

Contact: Tim Hague

Related item: Insurer liable for costs of defending uninsured claims

Commercial Court considers notifications to multiple policy years

The Cultural Foundation v Beazley and others [08.05.18]

The claimant (TCF) successfully secured separate arbitration awards for contractual delay claims against the defendant architects, Robert Matthew, Johnson-Marshall & Partners (RMJM) and their primary and excess professional indemnity insurers. RMJM had made notifications to the insurers concerning its performance of the TCF contracts in both the 2008-09 and 2009-10 policy years. The individual awards each fell within the primary policy limit of US$10 million, but together they exceeded it. TCF argued that proportions of its claim fell within both policy years and would thus benefit from two limits of indemnity. The primary layer insurers disputed this, asserting that the earlier notification took priority and late notification by RMJM breached the condition precedent to insurers’ liability.

The court held that the mere existence of a notification to an earlier policy did not preclude a claim on a later policy. In the circumstances, the later policy did not exclude prior notified circumstances or claims deemed first made before inception, so TCF could choose which year of account under which to claim indemnity. Underwriters should therefore ensure that policy wordings expressly exclude prior notified circumstances and claims deemed first made before inception.

Contact: Denise Charlwood

Related item: Commercial Court considers notifications to multiple policy years

SAAMCO principles applied to accountants’ negligence claim

Manchester Building Society v Grant Thornton [02.05.18]

The claimant (MB-S) was a small building society, subject to International Accounting Standards. The Defendant (GT) were MB-S’ auditors, who mistakenly advised MB-S that they could adopt “hedge accounting” allowing MB-S to offset their interest rate swaps against their lifetime mortgages book. Seven years later, a second opinion on their accounting confirmed that “hedge accounting” could not be properly applied. This devastated MB-S’ accounting position resulting in the closure of its swaps, the cessation of lending and the sale of its UK book of lifetime mortgages.

MB-S sought damages from GT for negligent advice and auditing, which GT admitted for the years 2006-2011. Legal argument was therefore restricted to causation and the scope of GT’s duty of care. The High Court confirmed that external factors (such as market forces) for which professionals had no responsibility, would be taken into consideration when assessing damages. While GT were liable for the termination costs of breaking the swaps, advisory and restructuring costs and hedge accounting fees incurred by MB-S, the large loss incurred by MB-S in breaking the swaps did not fall under GT’s duty of care. The decision is of interest to insurers, brokers and insured alike serving as a timely reminder of the SAAMCO principle: that professionals are not necessarily liable for all of the losses arising from incorrect advice.

Contacts: Alison Noakes and Fleur Rochester

Related item: SAAMCO principles applied to accountants’ negligence claim


Read other items in the Professions and Financial Lines Brief - September 2018