Legal Briefing

Top ten really useful cases of 2009

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Dispute resolution | 01 February 2010

If you want your panel solicitor to‘get off the fence’, need to know when a cause of action accrues or wondered whether the judiciary live in the 21st century, the following cases from 2009 provide some really useful guidance. With professional negligence claims on the increase, whether you are giving or receiving legal advice, the cases discussed below highlight practical points for all legal advisers to be aware of.

LAWYERS AND AUDITORS IN THE FIRING LINE

Solicitor liable for overly cautious advice

If you are tired of your lawyers sitting on the fence, Berry v Laytons & anor [2009] shows that you should be pressing for firm recommendations and advice.

C was a highly successful commercial agent. C sought advice from the defendant solicitors (D) when their principal client, P, sought to terminate their agency agreement. Commercial agents have statutory protection for the termination of their contracts. Yet D advised that if the compensation provided for in the agreement was not reasonable it ‘may be open to challenge’ and ‘it must be worth your while to negotiate a higher level of compensation’. However they went on to say: ‘I cannot advise on your chances of success if you were to litigate this point. Yours would be a test case.’ C settled their compensation claim against P for a modest amount but later sued D arguing that D’s advice was overly pessimistic.

The trial judge found that C should have received very substantial compensation under the statutory regulations. No reasonably careful solicitor specialisingin this field could have concluded otherwise. Yet D’s letter of advice was ‘pessimistic’and gave the impression that proceedings would be ‘a pure gamble’. C therefore was entitled to damages on a loss of chance basis.

This case demonstrates that lawyers cannot simply sit on the fence. Although the actual amount of compensation C could have recovered had not been determined by case law when D advised, the authorities that did exist pointed to a much more generous compensation payment than C received. So this is an unusual case where a solicitor has been found negligent for being too pessimistic about its client’s prospects of success in litigation.

‘One-man’ company cannot sue auditors for failing to spot fraud by its owner

In Moore Stephens (a firm) v Stone Rolls Ltd [2009] the court had to decide whether a company could bring a claim against its auditors for failing to detect that the company had been used to commit fraud.

S owned and controlled a company (S&R).S used S&R to commit fraud on banks. After the fraud was discovered, S&R went into liquidation. The liquidators then brought proceedings in S&R’s name against the auditors (MS) who had failed to spot the fraud. MS applied to strike out the claim on the grounds of ex turpi causa. Ex turpi causa prevents a claimant obtaining benefits from their own wrongdoing.

The House of Lords decided that liquidators, who must sue in the name of the company, could not claim for losses incurred through the company’s own fraud.

The company in this case was a ‘one-man band’. However, the judgment will still prevent larger companies bringing similar claims against auditors provided that all the directors and shareholders are complicit in the fraud.

Significantly, this was one of the largest claims ever funded by commercial third-party funders. The funders were operating on a ‘no-win, no-fee’ basis, so had a lot of money at stake in the outcome of the case. Whether the failure of this claim will have an impact on the third-party funding industry remains to be seen.

LIMITATION

‘Son of TAG’ decision

If your professional advisers let you down, how long do you have to sue them? The Court of Appeal has recently handed down an important limitation decision in Axa Insurance Ltd v Akther & Darby Solicitors & ors [2009]. The crucial issue was that when solicitors allegedly failed to vet personal injury claims adequately, did the after the event (ATE) insurers suffer ‘actual damage’ in tort:

  • on the date the policies incepted; or
  • only if and when the underlying claims failed?

The ATE insurers relied on the case of Law Society v Sephton & Co (a firm) & ors [2006] to argue that this was a case of purely contingent liabilities that would not arise unless and until the underlying personal injury claims failed. The clock would only start ticking for limitation purposes when a claim could have been made under the policies. At first instance, the ATE insurers lost on this issue. They appealed.

Arden LJ delivered the leading appeal judgment. She analysed Sephton in detail and concluded that the true ratio of the Sephton decision was that there had to be measurable loss for time to begin to run for limitation purposes. Measurable loss means loss that is additional to a purely contingent liability.

In Sephton, the ATE insurers suffered loss as soon as the policies incepted because the alleged vetting breaches by the panel solicitors meant that their liabilities under the policies were greater than they should have been.

As a consequence, claims arising from ATE policies, which incepted more than six years before the professional negligence proceedings were issued, were statute-barred.

Deciding when actual damage has been suffered for limitation purposes has always been a tricky exercise. Arguably Sephton increased, rather than decreased, the uncertainty. However Arden LJ’s judgment, and her analysis of previous case law, goes some way towards clarifying the situation. It demonstrates that if a client enters into a flawed transaction as a result of negligent professional advice, that will usually be the damage that the client has suffered and that amounts to more than a mere contingent liability.

Sephton should assist practitioners by clarifying that in the majority of professional negligence cases, damage of some sort will be suffered at the time of the transaction, meaning that limitation starts to run from when the negligent act or omission takes place.

Claimants had relevant knowledgewhen they knew their funds wereseriously deteriorating.

Another interesting 2009 limitationcase was Williams & anor v Lishman, Sidwell, Campbell & Price Ltd & ors [2009].The claimants (C) had moved funds from one pension plan to another riskier plan on the advice of their financial advisers in 1997. C had insisted that they did notwant to make any changes that mightmake them worse off. But the value of the funds plummeted by £200,000 and C sent a letter of claim in November 2003 that said:

‘Over the past few years it has become apparent… our pension funds have reduced dramatically…’

C sued their financial advisors in October 2006. It was accepted that the primary limitation period had expired six years after the funds were transferred into the riskier plan in November 1997. The critical issue was when C had relevant knowledge to start the extended three-year limitation period running.

The judge found that it would have been clear to C by May 2003 at the latest that their funds were seriously deteriorating and that they were in a much worse position than if they had remained with their original pension plan. This should have put C on notice that the advice they had received in 1997 was flawed. So by May 2003 C had relevant knowledge or should have taken expert evidence by that stage. The claim was statute-barred.

This is the latest in a line of cases where the courts have been looking at the date investors suffer loss. Williams demonstrates that claimants may have relevant knowledge to trigger s14A of the Limitation Act 1980 extended limitation period as soon as it is clear that funds are seriously deteriorating. Disgruntled investors should issue proceedings sooner rather than later to avoid falling foul of the limitation rules.

PRIVILEGE AND CONFIDENTIALITY

How far does privilege extend?

In Prudential Plc & anor, R (on the application of) v Special Commissioner of Income Tax & anor [2009] the High Court ruled that legal advice privilege, an aspect of legal professional privilege, applied only to legal advice given by a lawyer and not to legal advice given by a non-lawyer, for example, an accountant.

This decision means that taxpayers who obtain tax advice from accountants and other non-lawyers continue to have less protection than those receiving tax advice from lawyers. HM Revenue & Customs is increasingly using its powers to compel taxpayers and their (non-legal) advisors to produce documents and information. This trend now looks set to continue.

Is confidentiality in themediation process watertight?

In Farm Assist Ltd v Secretary of State for the Environment, Food & Rural Affairs (No 2) [2009], the judge reiterated that, although the court will generally uphold a provision in a mediation agreement providing for the mediation proceedings to be confidential, exceptionally it can order a mediator to give evidence about what took place during a mediation if that is in the interests of justice. With confidentiality being one of the key attractions of mediation, this case is significant. Mediation agreements should continue to specify that mediation proceedings are conducted on a ‘without prejudice’ basis and that what is said during the mediation proceedings will be confidential.

PRACTICAL POINTS

Lawyers rapped for ignoring e-disclosure

In Earles v Barclays Bank Plc [2009] the court had to decide whether to believe the evidence of the claimant, a customer of the defendant bank, or that of the defendant, as to whether the claimant had authorised and instructed the defendant to process certain bank transfers. The interesting point arising from this case was a lack of e-disclosure of key documents, particularly e-mails, despite the defendant being represented by ‘first-class legal teams, both in-and out-house’.

The judge was extremely critical of the defendant’s failure to give proper e-disclosure, stating that it is ‘gross incompetence’ for those practising inthe civil courts not to know the rules one-disclosure, or to practise them.

The case should serve as a warning to litigation lawyers and their clients to think about e-disclosure at an early stage in the litigation process and to have in place proper procedures so that electronic documents can be quickly located.

Careful drafting neededfor standstill agreements

Two cases in 2009 have highlighted the need for careful drafting. In the first, Gold Shipping Navigation Co SA v Lulu Maritime Ltd [2009], clumsy wording in a standstill agreement nearly prevented one partyin a major shipping dispute from pursuing its claim.

There was a collision between two ships in the Suez Canal on 17 October 2005. Following various exchanges, Holman Fenwick Willan LLP (HFW) (acting for Gold) sent Ince & Co (acting for Lulu) an e-mail confirming their client’s agreement to:

‘… a mutual unlimited extension of time from 16 October 2007 within which to commence proceedings in England subject to one month’s notice of termination of intention to proceedby either side.’

HFW gave notice, issued and later served proceedings. Ince & Co then reacted by giving their own notice, issuing and serving proceedings. HFW argued that the claim form issued by Ince & Co was time barred.

The judge criticised the clumsy wording of the standstill agreement and eventually decided that the effect of a notice terminating the mutual extension of time was that both parties had to commence proceedings within one month. This meant that the action commenced by Ince & Co was time barred.

The crucial lesson that emerges from this judgment is the need to use very careful wording in standstill agreements or any extensions of time. Ince & Co were lucky in this case, because the judge decided to exercise discretion to grant an extension of time for service of its counterclaim. Others might not be so fortunate.

Waiving claims in asettlement agreement

In a similar vein, Robertson Construction Central Ltd v Glasgow Metro LLP [2009] demonstrated the importance of the careful wording of waivers in settlement agreements. In this case, a settlement agreement in a building dispute waived the employer’s claim under the contract. When the settlement agreement was later terminated, the employer tried to revive the claim it had waived. The court found that the employer’s waiver of its claim had survived termination of the settlement agreement.

Robertson provides a salutary lesson to those involved in drafting a settlement agreement. If the settlement agreement includes a waiver of existing claims, the parties should set out expressly whether that waiver is intended to survive termination of the settlement agreement.

WHO SAYS THE LAW IS ARCHAIC?

Service of injunction via Twitter

The courts have moved into the 21st century and are adapting procedures to respond to new technologies. Judges in Australia and New Zealand have given permission for proceedings to be served via Facebook. Not to be outdone, the High Court here has made an order permitting service of an injunction on an anonymous blogger via Twitter. And who says judges are out of touch with reality?