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Contribution claims between professional advisors

  • Market Insight 21 January 2021 21 January 2021
  • UK & Europe

  • Insurance & Reinsurance

The High Court has ordered a barrister to make a 40% contribution to solicitors who had settled a professional negligence claim with their client.

Contribution claims between professional advisors

Richard Terence Percy v (1) Merriman White (2) Raymond John Murphy (3) David Mayall [2021] EWHC 22 (Ch)

The decision provides a useful application of WH Newson Holding Limited v IMI Plc [2016] EWCA Civ 773, confirming that in contribution proceedings the party seeking contribution only needs to ascertain that the underlying claimant had a reasonable cause of action against it on the basis of the assumed facts, not that it was in fact liable to the underlying claimant, and that "collateral defences" may not be pursued in a contribution claim.

Facts

Langley Ward Ltd ("LWL") and its sole director and shareholder, Mr Percy, instructed Merriman White ("MW") as their solicitors in relation to a commercial dispute regarding a joint venture ("JV") they had engaged in with Mr Trevor, claiming Mr Trevor had misappropriated assets of the JV. Mr Mayall, a barrister, was in turn instructed by MW to advise on the claim and represent Mr Percy in court.

Upon their advice, Mr Percy pursued a derivative claim (in the name of LWL) but permission to proceed was refused as the judge held that the claim did not meet the relevant threshold test, and, instead, the court suggested the JV should be wound up. Permission to appeal was refused on the basis that the claim had no prospect of success.

Mr Percy subsequently brought a claim against MW and Mr Mayall for negligence or breach of contract. This claim was settled by MW and, after the pleadings had closed, Mr Percy agreed to not pursue Mr Mayall on the basis that each side pay their own costs. MW then sought a contribution from Mr Mayall under the Civil Liability (Contribution) Act 1978 ("the 1978 Act") on the basis that he was liable for the "same damage". Under section 1(4) of the 1978 Act, "A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage…shall be entitled to recover contribution…without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established."

Entitlement to a contribution

The Court referred to the 2016 case of WH Newson Holding Limited v IMI Plc [2016] EWCA Civ 773 ("Newson"), in which the Court of Appeal held that s.1(4) required the defendant in the main proceedings only to demonstrate that the factual basis of the claim would have disclosed a reasonable cause of action against it. This is subject to a proviso that the settlement was made bona fide – there was no suggestion that the settlement between MW and Mr Percy was not bona fide.

From an examination of the facts, the Court had no trouble in determining, following Newson, that the claim made by Mr Percy disclosed a reasonable cause of action against MW. MW was, therefore, prima facie entitled to a contribution from Mr Mayall.

Collateral defences

Despite Counsel for Mr Mayall seeking to raise arguments that Mr Percy's loss was reflective of LWL's loss (and, thus, irrecoverable) and that there were causation issues, the Court found that it was not open to Mr Mayall to make these arguments when challenging whether he was liable for the "same damage". In Newson, the Court of Appeal stated (at paragraph 46) that if D1 (MW in this case) can establish the claimant had a reasonable cause of action against it “ ... that is the end of the inquiry: and D2 [Mr Mayall in this case] is not entitled to raise any other matters that might have defeated C's liability claim, including any collateral defences that D1 had pleaded against C (and regardless of where the burden of proof in relation to any such defence may lie).” The reason for this is that to allow such avenues "would permit an investigation into whether or not the defendant is or ever was liable in respect of the damage…" and section 1(4) does not permit an inquiry into whether MW was "actually liable".

In any event, even if the Judge was wrong on this point, he considered, obiter, that the reflective loss defence would not have succeeded. Mr Mayall had argued that Mr Percy's loss was in fact reflective of LWL's loss so his claim was contrary to the principle that the only person who can seek relief for an injury done to a company, where the company has a cause of action, is the company itself. The reflective loss principle has recently been considered in the Supreme Court judgment of Marex v Sevilleja [2020] 3 WLR 255 (though the Judge noted that the judgment had not been handed down at the time of the settlement between MW and Mr Percy) and had confirmed that the reflective loss principle does not apply to claims by creditors. Mr Percy was a creditor-shareholder of LWL so not within the scope of situations caught by the reflective loss principle.

In addition, no positive case was advanced to argue that the damage was not the same. The damage to Mr Percy arose from the failure of both MW and Mr Mayall to protect his interests and, from a thorough examination of the facts, the Court considered Mr Mayall to have been negligent. Causation arguments also failed because (i) a "collateral defence" argument was not permitted by s.1(4) and (ii) on the balance of probabilities, Mr Mayall's failures caused loss.

Assessment of contribution

Pursuant to s.2(1) of the 1978 Act "the amount of the contribution recoverable…shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question."

The Court considered that Mr Percy's loss was more attributable to MW than Mr Mayall, dismissing Counsel for MW's attempt to suggest that Mr Mayall should be more responsible due to the level of his experience as compared to the solicitor at MW who conducted the case. Further, MW had failed to evaluate adequately an early settlement offer (made before Mr Mayall had been instructed) or to substantiate the claims they sought to advance on Mr Percy's behalf.

However, Mr Mayall should shoulder some of the blame for the loss as he had, among other things: told Mr Percy that he had good prospects for success in his derivative claim, despite correspondence from Mr Trevor's solicitors stating that the claims lacked particularity and supporting evidence; failed to advise that the offer made to Mr Percy at mediation should be revisited when advising about a range of acceptable offers; failed to warn that the application for permission to bring a derivative claim was by no means a formality and that there was a possibility that Mr Trevor would ask the court to wind up the JV. Further, MW had been entitled to defer to Mr Mayall for an assessment of the legal merits of "pressing on" and, in the Court's view, that decision to "press on" laid predominantly with Mr Mayall.

Taking all this into consideration, the Judge assessed Mr Mayall's contribution at 40% of the settlement sum.

Comment

The 1978 Act often presents challenges and there have been a number of cases that have grappled with its interpretation. In the professional liability context, a contribution claim arises if one or more sets of professional advisers owe duties, commonly the case in litigation where solicitors and barristers are both acting for the client. The decision in this case, and the restating of the principles from Newson, is helpful in understanding the boundaries of s.1(4) and the entitlement to a contribution and is also instructive as to the considerations that the court may take into account when apportioning blame between professional advisors and deciding the level of contribution.

Further, whilst the point is not new that firms, which hold themselves out to have a particular expertise, cannot excuse themselves from liability by asserting that the professional in question lacked experience, it is timely reminder, in these extraordinary times when the majority of professionals are working from home, that adequate supervision of staff should be maintained.

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