Recent key decisions in claims against lawyers

With the last warm days of September now gone and Autumn blowing in, this briefing aims to bring you up to speed with a number of key decisions in claims against lawyers which were handed down over the Summer.

We’ll turn first to an important decision on aggregation under the SRA minimum terms and conditions (MTC) - Dixon Coles and Gill (A firm) and others v Baines, Bishop of Leeds and another [2021] EWCA Civ 1211 (6 August 2021).  This is one of two separate Court of Appeal judgments this Summer on different aspects of claims against a solicitors’ firm resulting from its former senior partner’s theft of clients’ money “over a long period and on a vast scale”.  

The Court held, dismissing insurers’ appeal, that claims against the firm arising from the thefts could not be aggregated under the firm’s professional indemnity policy (which followed the MTC) as arising from “one series of related acts or omissions” . It was not sufficient for these purposes that the thefts were all underpinned by the partner’s dishonest treatment of her clients’ money.

Insurers did not appeal the finding at first instance that each theft was a separate act, applying the decision of the House of Lords in Lloyds TSB[1] that the act or omission had to be something that constituted the cause of action, and not something more remote. The Court of Appeal then confirmed that the fact that those thefts/acts were connected by the partner’s underlying pattern of dishonest conduct was not sufficient to make them “one series of related acts or omissions”. Again applying Lloyds TSB, the Court held they could only be so if the acts together resulted in each of the claims. Per Lord Justice Nugee (with whom the others agreed) “if there is a series of acts A, B and C, it is not enough that act A causes claim A, act B causes claim B and act C causes claim C. What is required is that claim A is caused by the series of acts A, B and C; claim B is also caused by the same series of acts; and claim C too”. That was not the case here.

Nugee LJ also raised the question of whether claims concerning thefts from a firm’s client account (which many, but not all, of these claims were) might be said to arise from a series of related acts after all because they arose out of the cumulative shortfall on the client account caused by all the thefts from it. He described this as an “interesting argument” but as it was not one raised by insurers, ultimately left it open.

It will be interesting to see what impact the case has on the professional indemnity insurance market. While aggregation is usually seen as favouring insurers (by applying one limit of indemnity to multiple claims), there are circumstances in which aggregation can favour the insured (eg by requiring payment of only one excess for multiple claims which combined fall below the limit of indemnity). Certainly, if insurers pressed for wider wording to allow greater scope for aggregation we would expect resistance from the SRA on this (at least in the case of MTC compliant policies) for reasons of public protection (ie not eroding access to the £2m minimum level of cover).

In that context it is worth noting that the Court held that the policy considerations underlying the SRA Indemnity Insurance Rules 2013 and the MTC were part of the admissible factual background here. Nugee LJ commented that such a public protection argument against aggregation in this case was “persuasive”, albeit not necessary to consider here as he had already decided the appeal could be dismissed based on policy construction.  However, it does raise the possibility that, in other cases, it will be regarded as another factor militating against aggregation.

The other judgment concerning the thefts Dixon Coles & Gill v Baines, Bishop of Leeds and another [2021] EWCA Civ 1097 (20 July 2021) - considered limitation in relation to claims against the innocent partners. The Court held that the Partnership Act 1890, which made the innocent partners in the firm’s partnership jointly and severally liable for their dishonest partner’s acts, did not make them “party or privy” to those acts in such a way as to deprive them of the benefit of a 6 year limitation period in relation to the claims.

The Claimants (former clients) brought proceedings against the firm and also against each of the partners individually as trustees of the money in the client account. The Limitation Act 1980 provides that an action for breach of trust is generally subject to a 6 year limitation period, but that an action for any fraud or fraudulent breach of trust to which the trustee was “a party or privy” has no limitation period (s.21).

The Judge at first instance held that the innocent partners were deemed by the Partnership Act 1890 to be “party or privy” to their dishonest partner’s fraudulent breach of trust, and thus had no limitation defence available to them. The Court of Appeal disagreed. There was no provision to that effect in the Partnership Act 1890, a textbook relied on by the first instance Judge was mistaken and in fact there was Court of Appeal authority making a clear distinction (albeit in a different context) between being liable for another's wrongs and being party or privy to those wrongs. Further, there was no rationale for depriving innocent partners of the protection of a 6 year limitation period given to innocent trustees.  

Another recent decision on limitation - Witcomb v J Keith Park Solicitors [2021] EWHC 2038 (QB) (20 July 2021) – saw the Court considering the knowledge required to start time running under s.14A Limitation Act 1980 .

The case concerned a professional negligence claim against the Claimant’s former solicitors and counsel in relation to the settlement of a personal injury claim. As the primary 6 year limitation period had expired, the Claimant relied on the alternative time limit under s.14A Limitation Act 1980 for negligence actions where the facts relevant to the cause of action are not known at the time of accrual - namely, 3 years from the date on which the relevant knowledge was acquired.

This judgment underlines the importance of separating out both (i) knowledge of the facts about the damage as would lead a reasonable person to consider it sufficiently serious to justify instituting proceedings; and (ii) knowledge that the damage was attributable to the allegedly negligent act or omission. Both types of knowledge are required for time to start running under Section 14A and while in some cases they will be acquired simultaneously, in other cases they will not.

Furthermore, where it is alleged that the advice given was wrong, time would not start to run until a claimant had some reason to consider that the advice might have been wrong. Similarly, where it is alleged that necessary advice was not given, time would not start to run until the claimant had some reason to consider that the omitted advice should have been given[2].

In this case the Claimant had knowledge of the damage at the time of the settlement, in as much as he knew it made no provision for future deterioration of his condition. But he only knew that damage was attributable to his legal advisers some 8 years later when he took further legal advice and discovered that he should have been advised to consider claiming provisional damages – and so time did not start to run until then.

Finally, we turn to a case concerning a law firm’s failure to identify a conflict of interest between its client company and the director of that company who was giving them their instructions - Barrowfen Properties Ltd v Patel and others [2021] EWHC 2055 (Ch) (21 July 2021)

The company made a number of claims against the director (who was also a shareholder) and its former law firm relating to their conduct in the course of a dispute between the director and other shareholders over the company’s control. The claims alleged that the firm acted in various ways which put the director’s interests ahead of those of the company and furthered the director’s own objectives.

The Court held that the firm was not liable for breach of fiduciary duty in the (intricate) circumstances because the solicitors honestly believed that they were acting in the company’s best interests at the relevant times - but that it was negligent in failing to recognise and address the conflict between the director and the company and in allowing themselves to be inhibited by their loyalty to the director.

This case highlights the difficulties advisers may face when acting for a company (or other entity) in circumstances where a conflict may exist, or emerge over the course of a matter, between various stakeholders – something we encounter as a perennial cause of claims against professionals.