Legal Matters Professional Indemnity September 2013 Issue
T: 0844 245 4000
www.plexuslaw.co.uk Offices in London, Leeds, Manchester and Colchester
Echoes of a Victorian melodrama in a case about a contested will Lorraine Studholm Feltham v Freer Bouskell is set against the backdrop of a White v Jones claim by a disappointed beneficiary. Ms Feltham sued FB solicitors for their failure to draft a will for her affluent step-grandmother, Ms Charlton. The decision contains two important messages for solicitors
Our quarterly newsletter aims to highlight developments and recent case law in the area of professional indemnity in a concise and readable style. We hope that you find it informative and useful.
preparing wills for elderly testators. First, the need to act expeditiously.
Secondly, it clarifies how the court will
ascertain a testator’s instructions, an aspect not squared by authority. Ms Feltham came to the solicitors’ attention in 2006 when
In This Issue: Echoes of a Victorian melodrama in a case about a contested will
she wrote to Mr Ward of FB on behalf of Ms Charlton, an established client, with instructions to prepare a fresh will making her principal beneficiary. Ms Charlton was a twice married widow of 90 whose long-term partner had just died. Mr Ward instructed a doctor to visit Ms Charlton at her nursing home to report on mental capacity. Unfortunately this took five weeks. In the context this was unacceptably long. He also decided unilaterally, not to implement instructions until Ms Charlton raised the matter with him directly. This too was negligent. Having accepted instructions, he needed to clarify his retainer by visiting his client once he had satisfied himself about mental capacity. This would have dispelled
Good and bad news about breach of trust All that glitters is not gold - perils of mediation agreements It’s all about money Crystal ball required to determine limitation Hitting where it hurts - costs! Overspend at your peril
his concerns about Ms Feltham whom he regarded as a gold digger, a view the court considered groundless. As FB failed to respond to Ms Feltham’s letter, Ms Charlton asked Ms Feltham to prepare a homemade will. When she died soon afterwards, Mr Ward encouraged two beneficiaries under an earlier will to challenge the new one. Following mediation Ms Feltham paid £325,000 to each beneficiary and incurred costs of £62,800. She sought to recover losses from FB.
Take what you are given - prioritising loss in programmes of excess liability insurance
Was Ms Felthan owed a duty of care? White v Jones (1995) extends to intended beneficiaries an assumption of responsibility where it could reasonably be foreseen that a solicitor’s negligence might result in loss of a legacy and there is no other route for redress. Ms Feltham fell within this principle. On the evidence Ms Charlton had mental capacity and when her instructions were not carried out by FB, she made alternative and less satisfactory arrangements. The court was certain that had Mr Ward drafted her will, there would have been no legal challenge. Causation was thus established.
Ms Feltham could recover the ÂŁ650,000
plus mediation costs. A claim for lower share values was, however, too remote in accordance with the principles in SAAMCo. Solicitors preparing wills for elderly testators must act speedily and any concerns about mental capacity addressed promptly, the appropriate time element being case-specific.
Assessment of a testator’s hypothetical intentions White v Jones scenarios fall within one of the three principles enunciated in Allied Maples Group v Simmons & Simmons (1995), treating the testator as a third party. Questions about what the third party would have done which if the claimant shows there was a substantial, rather than merely speculative chance, are evaluated as a question of quantification of damages and in percentage terms. Lorraine Studholm Feltham v Freer Bouskell (2013) EWHC 1952 (Ch)
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Good and bad news about breach of trust Santander UK Plc v RA Legal Solicitors (a firm) bears out
To obtain relief, trustees must have acted honestly,
the sober prediction in our previous newsletter that the
reasonably and ought fairly to be excused from liability. The
legal profession must brace itself for a slew of breach of
court noted that the approach is similar to that adopted in
trust claims by lenders. On the positive side, the indications
cases under s727(1) of the Companies Act 1985.
are that courts will exercise the exculpatory jurisdiction contained in s.61 of the Trustee Act 1925 if the effective cause of loss is fraud of unconnected third parties. The two questions any solicitor confronted with a breach of trust claim will ask are (a) was there breach of trust and (b) can he shelter behind the relieving provision? An excellent starting point for analysis is the decision of Nationwide Building Society v Davisons Solicitors (2012), summarised in our last communiqué.
Reasonableness does not mean compliance with best practice in all respects. The standard is reasonableness, not perfection. Shortcomings unconnected with loss are irrelevant. Fortunately, section.61 was available – RA acted reasonably because none of the criticisms levelled against them were connected with loss or were particularly serious. For insurers, the most insightful commentary concerns the court’s approach to the question of when it is fair to exercise s.61. It
The instant facts can be distilled as being a variation on
was suggested that where the cause of loss is fraud, courts
a familiar mortgage fraud theme. In 2009, Santander (as
prefer to confine responsibility of professionals towards a
Abbey National Plc) lent £150,000 to a customer expecting
duty to take reasonable care and against imposing liability
a first legal charge over a property being bought by him.
for loss resulting from a third party’s deceit.
The defendant solicitors (RA) represented both bank and borrower. Sovereign Chambers LLP claimed to represent the vendor. Sovereign were fraudulent. They produced forged documentation and, after RA released £200,000 to
Santander UK Plc v R.A. Legal Solicitors (a firm) (2013) EWHC 483
them, no charge was forthcoming. As the court acknowledged, the unenviable conundrum was which of two reputable parties should bear loss resulting from a third party’s dishonesty. Of course, post Davisons, Santander could not argue for an absolute obligation to comply with the terms of their instructions or to receive a fully enforceable first mortgage. Significantly, RA’s conduct was not without criticism (such as a failure to report back to Santander that completion had been delayed), but none of their failings were of consequence and Santander’s loss was unconnected with them. The court was bound by AIB Group (UK) plc v Mark Redler & Co (2013). Echoing Markandan and Davison, RA deliberately released the trust asset against documents which turned out to be forgeries and before the trust ended. This constituted breach of trust. 05
All that glitters is not gold – perils of mediation agreements That appearances can be deceptive will be plain to the
Any competent solicitor would have warned his client
claimant in Mr David Frost v Wake Smith and Tofields
that, whilst progress had been made, much needed to be
Solicitors. A sigh of relief will have been emitted by the
discussed and agreed to transform the outline agreement
respondent solicitors, Tofields, exonerated from liability for
into an enforceable contract. Some of the lacunae in
failing to secure a binding agreement for David Frost, at the
information would have been apparent to Mr Serby, others
conclusion of mediation. Nevertheless, the court reiterated
not, as he had understandably not yet researched all the
the importance of lawyers clearly advising clients about
background details. It was unrealistic to suggest that time
the workings of mediations to avoid setting up unrealistic
and money be spent in ascertaining a high level of detail at
expectations which might then be dashed.
such an early stage. Indeed, the best the client could hope
The decision under appeal followed the outcome of a
for was a provisional agreement.
mediation in an acrimonious and complex fraternal dispute
As a general observation the CA said that it was unsurprising
over business interests. Against the odds, the mediator
that mediation did not produce an immediately enforceable
succeeded in guiding the Frost brothers towards agreement
agreement given the complexity of the dispute. Mediation is
following a single mediation session in 2003. After a lengthy
a flexible and valuable process of dispute resolution but this
initial meeting the clients departed for a meal leaving Mr
was a paradigm case where flesh needed to be put on the
Serby of Tofields to reduce into writing what was agreed.
bones of agreement. Part of the solicitor’s duty is to advise
The court inferred that (the confusingly named) Mr Searby,
his client, especially a lay one, about the mediation process
his opposite number, was present during this process. A
including the status of any compromise, which is reached.
manuscript agreement was prepared which the parties
The moral is that a well-informed client is less likely to round
signed when they returned.
on his lawyer.
David Frost left for the night believing an agreement had been struck from which brother Ron could not resile. This
Mr David Frost v Wake Smith and Tofields Solicitors (2013)
optimism was misplaced. For his part, Mr Serby understood
EWCA Civ 772
that there was an agreement which would be performed. But crucial detail was missing to transform the skeleton agreement into one which was clear and complete. The main issue under appeal was whether Tofields should have ensured that the agreement reached in principle was binding on the other party. After review the CA endorsed the first instance decision that there was no such requirement. Neither solicitor considered whether they had achieved a binding agreement and it could not be said that Tofields were negligent in failing to achieve one.
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It’s all about money Terence Dowling (1) Anne Dowling (2) Anthony Dowling
interpreted this provision as capping liability at this level and
v Bennett Griffin (a firm) is a cautionary tale about this
constituting an undertaking by APAL to maintain cover and
cardinal rule in litigation. Unless your opponent is worth
promptly notify claims.
powder and shot, any victory is likely to prove hollow. The salutary position is that a solicitor conducting a professional negligence claim cannot compel an opponent to disclose details of insurance cover or to insist upon notification of claims. More extensive rights to disclosure will however be given when the Third Parties (Rights against Insurers) Act 2010 eventually comes into force. The claimants brought a professional negligence claim against solicitors Bennett Griffin, in respect of their conduct of a counterclaim against architects, APAL, in an action for unpaid fees. During the proceedings the architects switched names from Mr Phillips, the principal, to APAL. Nothing turned on this as APAL was the correct claimant.
Relevant knowledge BG fully informed the claimants of all their enquiries and concerns with regard to insurance cover. Unfortunately, all questions on point were stonewalled by APAL’s solicitors whose relevant conduct towards BG and the court was consistent with the existence of cover and notification to insurers. Mr Phillips was considered unlikely to be able to satisfy any judgment beyond the insurance cover. Complicating matters further, BG were sensitive to their clients’ financial constraints and keen to avoid incurring unnecessary costs in disclosure applications with poor prospects of success.
Although successful at trial in 2005, the Dowlings could not
Indeed the judge confirmed that a third party has no right
rely on APAL’s insurance cover because the policy had been
to obtain information about insurance where the insured
avoided by insurers due to late notification. Insurers were
is solvent and before liability is established. BG solicitors
only notified of the counterclaim in 2006 as Mr Phillips had
would not have succeeded with an application for disclosure
wished to maintain a claim-free record. The court agreed that failure to disclose a claim to avoid an increase in premiums is not ‘innocent’. Accordingly, notification after the policy year entitled insurers to avoid cover as a non-innocent nondisclosure, misrepresentation or late notification. APAL went into insolvent liquidation and only a limited recovery was obtained from Mr Phillips. The claimants then turned their fire upon their solicitors, BG. The standard by which BG were judged was that of a reasonably competent practitioner in civil litigation. Also relevant was the Dowlings’
In the circumstances, it was reasonable to conclude that insurance was effective. The sole cause of loss was Mr Phillips’ failure to notify insurers about the counterclaim. This case therefore underscores the need to apprise clients of any doubts about viability of cover and of the risks of proceeding against uninsured parties. It also confirms that generally speaking, insurance details are not disclosable to a claimant in circumstances where the defendant insured is solvent.
financial difficulties and counsel’s input.
Availability of cover
Terence Dowling (1) Anne Dowling (2) Anthony Dowling v Bennett Griffin (a firm) (2013) EWHC
APAL’s letter of appointment confirmed that professional indemnity cover of £250,000 was in place. The court 07
Crystal ball required to determine limitation The perennial issue of limitation raised its vexing head
In her lengthy judgment Gloster LJ considered the answer to
in Susan Berney v Thomas Saul (t/a Thomas Saul & Co
be straightforward having posed the Nykredit question. On
(Solicitors)), a Parabis Law case. When did SB’s cause
an objective analysis SB’s claim was for loss arising from
of action accrue against TS, the solicitors who initially
the premature settlement. She regarded the risk of strike out
conducted her RTA claim against a Mrs Liddell?
as insignificant. Whilst agreeing that the appeal should be
Disappointingly, rather than attempt to reconcile arguably inconsistent CA authorities – Hopkins v MacKenzie (1994) on the one hand and Khan v Falvey (2002) and Hatton v Chafes (2003) on the other – Lady Justice Gloster preferred to answer the fact-dependent question formulated in Nykredit Plc v Edward Erdman Group Ltd (No 2) (1997): when was SB financially worse off as a result of the breach of duty than she would otherwise have been? She concluded November 2005, which was within the six-year limitation period. The motor accident occurred in April 1999 and the claim form was issued in 2002. Thereafter, whilst liability was admitted, the proceedings were largely stagnant. Particulars of claim had not even been served by November 2005 when settlement was negotiated by SB’s new solicitors for £25,000 and costs – terms accepted to avoid the risk of
allowed Moses LJ took issue with such a robust conclusion, considering that there was some real risk that permission to serve particulars would have been given, but with a ceiling on damages – Price v Price (2003). Ipso facto, it could be argued that damage occurred before November 2005 because a restricted claim would have been less valuable. But on the facts, that risk did not arise before 25 January 2005 so the claim was not out of time. Does this appeal assist future similar cases? The jury must be out on this, as the CA emphasised that cases of this nature are notoriously fact-sensitive. Moreover, the authorities provide general principles rather than predicative templates as to the correct approach. Cynics might also wonder whether the fact that SB represented herself elicited a sympathy vote.
the claim being struck out/an adverse costs order. A claim against TS followed on 10 January 2011. In tort the cause of action accrues when damage is first sustained. Actual damage means any detriment, liability or loss capable of assessment in monetary terms including loss arising from contingencies. Was the material date before 10 January 2005? In the court below, HHJ Simpkiss determined the claim out of time, finding that loss was suffered when there was a serious risk of the action being struck out. Reversing his decision the CA accepted SB’s contention that she first sustained damage on settlement when she lost the chance of obtaining more significant damages.
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Susan Berney v Thomas Saul (t/a Thomas Saul & Co (Solicitors)) (2013) CA Civ 640
Hitting where it hurts – costs! A financial rap over legal knuckles was administered to the
formed part of the costs order awarded against them. Costs
Mr Micawber’s advice about happiness: not to overspend – key to costs budgets
recovery being of paramount interest to litigants, this claim
In Kim Murray (1) Jean Stokes (2) v Neil Dowlman Architecture
for professional negligence against surveyors illustrates
Limited, Mr Justice Coulson tackled an issue of importance
when standard orders might be displaced. The dual factors
given radical changes to the costs regime. When can costs
influencing the outcome were the expert evidence coupled
budgets, approved within a costs management order, be
with the negotiations.
revised or rectified? The answer: rarely.
To by-pass standard costs-based orders and leap onto an
A party whose budget is no longer accurate may file and
indemnity scale requires conduct which takes it out of the
serve a revision showing changes and giving reasons which
run-of-the-mill.
the court may approve or disapprove, having regard to any
unsuccessful claimants in Igloo Regeneration (GP) Limited and ors v Powell Williams Partnership where indemnity costs
There were flaws in the claimants’ expert evidence, in
significant developments which have occurred.*
particular, that of the quantum expert, which the court
The claimants wished to amend the budget to show that
considered would have been apparent to both the claimants
it excluded a success fee and ATE premium. This was
and their advisers. A second judge, who initially began to
similar to an application to revise the approved budget
hear the case, also highlighted damaging concessions by
under Practice Direction 51D.6. Guidance on the rules is
the engineering expert in a joint statement.
found in Sylvia Henry v News Group Newspapers Ltd (2013).
As for negotiations, the judge found it ‘absolutely extraordinary’ that the claimants, having offered to settle at a particular figure, rejected the next week exactly the same
This presages an inflexible structure ensuring that costs incurred are reasonable and proportionate. Good reasons are required to depart from it.
amount offered by the defendants. This was a watershed
It will be difficult to persuade a court to revise a budget
moment in the negotiating relationship.
because of a mistake or inadequacy. Parties must get it right
The court concluded that having regard to the overriding objective which includes a duty to consider the impact of costs, the claimant’s refusal to settle was unjustifiable, leading to significant time, costs and court resources being wasted. (1) Igloo Regeneration (GP) Limited (2) Igloo Regeneration (Nominee) Limited (3) Igloo Regeneration Limited (4) Igloo Regeneration Partnership v Powell Williams Partnership (2013) EWHC 1859 TCC.
first time. But this was a very special case, as the other side knew about the items and, more importantly, the fault was attributable to the costs pilot scheme form and the failure to tick a box. The error would not have occurred had the new version of the costs budget form been used, a form that was introduced two months later. *Elvanite discussed below, underscores that formal application is now required. Kim Murray (1) Jean Stokes (2) v Neil Dowlman Architecture Limited (2013) EWHC 872 TCC
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Overspend at your peril The lack of flexibility in the new costs regime appears
from it in accordance with para 8 (and now r3.18(b)) its costs
forcefully in Elvanite Full Circle Limited v AMEC Earth &
would be assessed by reference to the CMO.
Environmental (UK) Limited, a case illustrating the court’s reluctance to depart from an existing costs management order (CMO). Unsurprising perhaps given that the judge was Mr Justice Coulson again. The main focus concerned interaction between the existing costs management order (which approved the defendant’s budget costs of £264,708) and the total costs of £497,593.66. Aside from one minor adjustment neither side applied to amend their costs budgets. However, a month before trial
How does a party obtain approval to vary an order? This requires formal approval by way of application. It is not enough to file material at court as the defendant had done. This should be done immediately it becomes apparent that original budget costs have been exceeded by more than a minimal amount and in any event before trial.
the defendant sent the claimant and court a revised budget
Parties can also make representations to depart from
which was nearly double the original. Because it was not
budget for good reason when the court assesses costs
within the trial bundles, the judge only learnt about it after
on a standard basis. Despite being primarily a job for the
trial.
costs judge, Coulson J expressed his initial response. In
This case was governed by the pilot scheme and PD 51G. The approach as stated in Dowlman is set out in Sylvia Henry. Accordingly, it will rarely be appropriate to depart from a budget if this conflicts with the objective of the scheme.
accordance with para 8 of the pilot scheme the defendant was entitled to argue that there were good reasons to depart from the approved budget, but on the facts he considered that the scope of departure was narrow. It was a significant omission that no explanation was offered as to why an application had not been made. Lawyers with
Indemnity costs?
conduct of the litigation need to detail their justifications – or
This was not an indemnity type case but, even had it been,
client.
face potentially dire consequences from the court and the
the CMO would have been the benchmark for assessment, although the ‘good reasons’ to depart from it were likely to
Elvanite Full Circle Limited v AMEC Earth & Environmental
be more compelling.
(UK) Limited (2013) EWHC 1643 TCC
Could the defendant recover in excess of the CMO? The drama here was that the CMO represented just half the costs apparently incurred. Unless the defendant could amend the CMO or approved costs budget under para 6 of the PD (and now r3.15(3)) or persuade the court to depart
010
Take what you are given – prioritising loss in programmes of excess liability insurance The judgment in Teal Assurance Company Limited
(to that extent) used up – Cox v Bankside Members Agency
(Appellant) v R Berkley Insurance (Europe) Limited clarifies
Ltd (1995).
how losses are prioritised under a programme of excess liability insurance. Lord Mance delivered the coup de grace. The SC confirmed that the aim of layered insurance programmes is that, subject to differences and specific exceptions eg to US and Canadian claims, each layer operates on identical terms and attaches to identical risks, albeit at different times, depending upon the settlement of claims within underlying layers. The appeal concerned the top layer of Black and Veatch Corp’s professional liability insurance for the year from 1 November 2007. The primary layer was with Lexington Insurance Co, then there were three successive excess layers (the PI tower) with the appellant, Teal, a captive of BV, based in the Cayman Islands. Teal reinsured risks with retrocessionaires. Finally, there was the top layer, a
The ascertainment by agreement, judgment or award gives rise to a claim under the insurance exhausting it entirely or pro tanto. The policy thus meets each ascertained loss when and in the order it occurs. Priority of claims cannot be adjusted against the insurance or programme of insurances.
How would this work? Once expenses/third party liability are incurred and ascertained, they are taken into account against Lexington. First the self-insured retention and deductible are used up, then the policy responds to the limit and claims met in the order in which BV incurs the liability. Once used up, the next layer engages and so on up the PI tower until the top and drop policy engages.
‘top and drop’ policy placed with Teal and reinsured with
It followed that Teal as excess layer insurer could not pay
respondents, WR Berkley and Aspen Insurance UK Ltd, for
claims instead of Lexington in order to maximise its recovery
50% each. Only the top and drop policy excluded claims
under its reinsurance arrangements.
from the USA and Canada. BV notified claims, some emanating from these jurisdictions.
Teal Assurance Company Limited (Appellant) v W R Berkley
The issue was whether BV or Teal can choose which claims
Insurance (Europe) Limited and anor (Respondents) (2013)
to meet from the primary and/or lower excess layers to
UKSC 57
ensure that those remaining are not US or Canadian and can be met by Teal out of the top layer and passed to the respondents. The courts below said claims must be allocated to successive layers starting with Lexington as and when BV’s third party liability is ascertained in accordance with general liability insurance principles – Post Office v Norwich Union Fire Insurance Society Ltd (1967).
When does liability arise? Liability arises on the ascertainment of the insured’s third party liability and having arisen, the indemnity is pro tanto
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