Overview

By far the most significant number of professional liability cases in 2022 dealt with the existence or scope of professionals’ duties. The case of McClean v Thornhill [2022] EWHC 457 (Ch) grappled with the issue of whether a barrister owed any duty to investors in a tax scheme who saw and relied on his advice – but were not his clients. In a similar vein, McDonnell v Dass Legal Solutions [2022] Costs LR 855 considered when and how a retainer can be implied between a solicitor and a would-be client. These cases took a restrictive view to professional’s duties, which might at first blush seem to be at odds with the outcome in BTI 2014 LLC v Sequana SA [2022] UKSC 25, a seminal case on the duty of company directors to creditors.

Other litigation tackled the issue of what work is “reasonably incidental” to a retainer – with both the Court of Appeal authority of Spire Property Development LLP v Withers LLP [2022] EWCA Civ 970 and the High Court case of Lennon v Englefield [2022] PNLR 3 demonstrating a cautious approach to extending the obligations of professionals beyond what they were asked to do.

The reinvigorated focus on scope of duty is unsurprising given that the implications of last year’s Supreme Court decisions in the appeals in Manchester Building Society v Grant Thornton [2021] UKSC 20 and Khan v Meadows [2021] UKSC 21 are still being worked out. How these decisions are bedding down into the case law can be seen in this year’s solicitors’ negligence case of Aurium Real Estate London Ultra Prime v Mishcon de Reya [2022] EWHC 1253 (Ch) and the experts’ negligence case of Radia v Marks [2022] PNLR 12. Both claims demonstrate the new “duty nexus” enquiry in action.

Moving away from duty, 2022 reimposed clarity on the application of the Civil Liability (Contribution) Act 1978, with Percy v Merriman White [2022] EWCA Civ 493 laying to rest some misunderstandings about what a claimant has to prove, and what defences a professional can rely on.

Finally, on the coverage front, there have been interesting developments on the question of whether insurers have to indemnify professional fees (RSA v Tughans [2022] EWHC 2589 (Comm), and on aggregation (Spire Healthcare  v RSA [2022] EWCA Civ 17 ). Both demonstrate the factual complexities that can easily  creep into what may seem like a question of contractual interpretation.

In this review of the year, Helen Evans KC, Pippa Manby, Anthony Jones and Ian McDonald of 4 New Square Chambers explain in more detail how the 2022 cases clarify the law, and look ahead to the core themes likely to emerge in 2023.

No duties to third parties- barristers off the hook?

One of the most eye catching cases of 2022 was McClean v Thornhill [2022] EWHC 457 (Ch)) – a claim against a tax silk by a range of non-clients who had invested in tax schemes. Andrew Thornhill KC found himself as a Defendant because he had advised the scheme’s Promoters, and because his advice was made available to any investors who wanted it. The non-client investors attempted to establish that although they had not instructed him, he owed them duties because he knew that they could call for the advice – and were likely to rely on it.

McClean was one of two recent cases to have recognised that barristers’ duties are not driven by reliance alone, arising in very different circumstances. We consider each in turn.

Tax advice doesn’t need to be taxing?

McClean v Thornhill involved 10 sample claims in which the Claimants were wealthy individuals who had participated in various film finance schemes. Those schemes had failed, with the Claimants later entering into settlements with HMRC in respect of their tax liabilities.

Mr Thornhill, the defendant tax barrister, had provided various opinions on the tax consequences of the schemes to their Promoters. Each scheme was then promoted to potential investors via an Information Memorandum (“IM”). Mr Thornhill was not engaged to advise any of the Claimants and none of the Claimants was his client. However, he consented to being named as tax adviser to the Promoters in the IM, and to the Opinions being made available to investors if requested. Some of the investors or their advisers did indeed request them.

The Claimants sued Mr Thornhill, alleging that he owed them a duty of care in respect of the advice given to the Promoters and which he had consented to being made available to them, and that they had relied on that advice in entering into the schemes.

Building on authorities such as NRAM v Steel [2018] UKSC 13, Mr Justice Zacaroli made clear that the foundation of liability in such circumstances would be the concept of assumption of responsibility. This in turn involved considering:

• Whether it was reasonable for the representee to have relied on what the representor said; and
• Whether the representor should have reasonably foreseen that the representee would do so.[1]

A core feature of the present case was that Mr Thornhill’s clients, the Promoters, were the opposite side to the transaction to each of the Claimants as potential investors. The Promoters were selling the schemes to the investors. In no sense was any investor a client of Mr Thornhill.

On the other hand however:

• Mr Thornhill was a person with special skill, who had given his advice in the knowledge that it was to be made available to potential investors;
• Mr Thornhill realised that potential investors were likely to take comfort from his role as named tax adviser to the Promoters and the fact that he had given positive advice on the scheme;
• Mr Thornhill accepted that his advice assisted investors and their IFAs; and indeed was on the very point of critical importance to potential investors (namely the likelihood of them obtaining the tax benefits).

Against this backdrop the Claimants stressed that:

• Mr Thornhill’s decision to permit investors to see his advice was a voluntary one;
• Mr Thornhill had not insisted on any disclaimer being attached to his advice;
• There was no conflict of interest between the claimants and the Promoters in respect of the issues on which Mr Thornhill advised: they both wanted the tax benefits to be achieved.

Whilst accepting some of these points and that there were factors pointing towards a duty being owed, the Judge concluded that Mr Thornhill did not owe a duty to the Claimants:

• In the first place, there was a distinction to be drawn between Claimants who had seen the Opinions or had had them explained to them by their advisers on the one hand, and those who had not on the other. The second group were not owed a duty because no advice from Mr Thornhill was ever communicated to them.
• In relation to the first group, whilst Mr Thornhill’s advice had crossed the line between him and the Claimants, the factors against imposing a duty outweighed those in favour of imposing one. The Judge held that the Claimants could not reasonably rely on Mr Thornhill’s advice without making their own independent enquiry and Mr Thornhill could not reasonably foresee that they would do so.

The IM clearly advised potential investors to consult their own tax advisers on the tax aspects of the schemes and stated that investors could only participate if they had warranted that they had only relied on their own such advice. The simple absence of a disclaimer in the Opinions did not mean that it was reasonable for investors to rely on Mr Thornhill’s advice without making independent enquiry. The Promoters and investors were on opposite sides of a sales transaction in which the Promoters were actively disclaiming responsibility to give advice to investors and were acting on an execution-only basis. Furthermore, the schemes could only be marketed via independent professional advisers, so that, by definition, all investors would have the benefit of an IFA to assist them. Mr Thornhill could therefore reasonably assume that independent professional advice would indeed be taken by investors.

The claim against Mr Thornhill accordingly failed at the duty stage[2]. The Claimants have sought and obtained permission to appeal, with the hearing listed for March 2023. If the outcome at first instance is upheld, it is likely to provide comfort to tax professionals concerned about the extent to which they may have assumed a duty of care towards third parties.

In the meantime, McClean has already brought to an end a claim against another tax silk: in July 2022 Fancourt J refused the claimants permission to stay an action pending the outcome of the appeal in McClean: Lancaster v Peacock QC [2022] EWHC 2662 (Ch).

Is McClean part of a theme?

It is worth considering whether McClean is a “one off”, or part of a wider line of case law taking a narrow approach to the parties who are entitled to rely on a barrister’s advice. Glancing back at 2021, the decision in McFarland-Cruickshanks v England Kerr Hands Solicitors Ltd [2021] EWHC 525 (Comm)  suggests that McClean does not stand on its own in terms of limiting duties to third parties. The McFarland-Cruickshanks case concerned whether a barrister’s duties lie to their lay clients or their instructing solicitors. The case was prompted by a barrister suing her solicitors for unpaid fees. Her claim was met by a novel counterclaim from those solicitors alleging that she had acted in breach of contract and/or negligently towards them with the result that the solicitors had suffered financial loss in the form of lost fees under a CFA between the solicitors and their own client.

The barrister successfully applied to strike out the counterclaim. The Judge pointed out that the written contract entered into between the barrister and solicitors[3] contained clauses providing that the barrister would exercise reasonable care and skill in supplying the legal services but that, “unless otherwise agreed in writing, the … Services would be provided to the Solicitor as the Barrister’s client, acting for the benefit of the Lay Client. Subject to the duties of the Barrister and the Solicitor to the court, the Barrister and Solicitor acknowledge and agree that each owes a primary duty to the Lay Client.”

The Judge depicted the claim against the barrister as a novel one in both contract and tort. Properly construed, the barrister’s terms created obligations towards the lay client alone and there was no reason to impose a duty in tort where the parties’ contract could have included one but did not[4].  Again, the claim demonstrates a disinclination to extend the classes of people to whom barristers owe duties of care unless the facts clearly warrant it.

No retainers of convenience – necessity is key

The failure of the claim against the barristers in McClean and McFarland-Cruickshanks also accords with the failed attempt to establish an implied retainer against solicitors in McDonnell v Dass Legal Solutions [2022] Costs LR 855. There a Claimant sought to establish an implied retainer based on nothing more than a conversation lasting a few minutes. The court took an exacting approach to the tests that the Claimant would have to satisfy in order to show that a retainer had come into existence. In particular it made plain that:

• The test for implication is necessity and not convenience;
• The fact that the parties had chosen not to enter into an express retainer meant that it was unlikely that an implied retainer would have arisen;
• It was only if it was so clear, on an objective consideration of all the circumstances, that the solicitor ought to have realised that he was retained, that an implied retainer would be recognised.

A note of contrast? Confirmation of directors’ duties to third parties

One context in which a duty to third parties was emphatically endorsed in 2022 was in company and insolvency law, where the Supreme Court in BTI 2014 LLC v Sequana SA [2022] UKSC 25 made clear that company directors’ duties extend, in certain circumstances, to creditors as well as, and sometimes in preference to, shareholders.  That outcome is not as surprising as it might at first seem. Although the Supreme Court explicitly confirmed a long-posited common law “creditor duty”, it did so in a way which professional liability and not just company law practitioners would have recognised. In other words, the Supreme Court focused on fact-specific reasons to show when such a duty is engaged, and what it practically requires of directors. Furthermore, the corporate context was key.

The facts of the case were as follows. In May 2009 the directors of a company called AWA authorized the distribution of a €135 million dividend to the company’s only shareholder, Sequana SA, extinguishing a debt owed by Sequana to AWA. At the time, AWA was solvent (both on a balance-sheet and cash-flow basis), but AWA had contingent liabilities relating to potential environmental clean-up costs in respect of pollution in a river in Wisconsin, the value of which was highly uncertain such that there was a real risk that AWA might become insolvent. As it turned out, the clean-up was much more expensive than initially anticipated and AWA did become insolvent in October 2018 – more than nine years after the distribution of the dividend. BTI – the assignee of AWA’s claims – brought proceedings against the directors of AWA on the basis that their decision to pay the May 2009 dividend was a breach of their duty to consider the interests of the company’s creditors. BTI failed at first instance and on appeal, but obtained leave to appeal to the Supreme Court.

The 160-page judgment merits close consideration. Lords Reed, Hodge, Briggs, Kitchin, and Lady Arden considered four issues:

• Whether there is a common law ‘creditor duty’ at all;
• If so, when such a duty is engaged;
• What the content of such a duty is; and
• Whether the duty can apply to a decision by directors to pay an otherwise lawful dividend.

On the first issue, in the face of a direct attack by AWA’s directors against the idea of a duty to creditors in principle, the Supreme Court concluded that a “creditor duty” has long been presumed in English and Commonwealth jurisprudence, and is expressly referred to (as an existing or at least potential duty) in section 172(3) of the Companies Act 2006. This provides that such section “has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of the creditors of the company”. But the Court unanimously agreed that the duty was not a free-standing duty owed to creditors per se, but rather an implied aspect of the directors’ fiduciary duty to act in good faith in the interests of the company – those interests embracing creditors’ interests in certain circumstances.

On the second issue, the Supreme Court rejected BTI’s argument that the duty should be engaged whenever there is a real risk of insolvency, largely because risks of insolvency come and go, or may be contingent as in this case. Instead, the likelihood of insolvency must be much more immediate. Lords Briggs, Kitchin, and Hodge held that the trigger is either imminent insolvency or the probability of insolvency which the directors know or ought to know.

On the third issue, the Supreme Court considered that, once insolvency is inevitable, directors are obliged to treat creditors’ interests as paramount, but prior to that point, they must engage in a balancing exercise as between creditor and shareholder interests. The greater the company’s financial problems, the more the directors should prioritise the interests of creditors. While directors may despair at what might seem a lack of guidance and the potential for competing demands, it should be noted that the relevant interests to be considered are those of creditors as a body, rather than individual creditors. Further, Lady Arden made clear that directors will likely stay on the right side of the line so long as they remain consistently up-to-date on the company’s financial position.

Finally, given the importance of the creditor duty, the Supreme Court confirmed that even a decision to pay a dividend which complies with all other legal requirements (set out in Part 23 of the 2006 Act) may still constitute an actionable breach of duty.

Standing back, despite the headlines about the case recognising duties to creditors, a close reading makes clear that the potential duties are narrower than might be assumed and are heavily dependent on the corporate context.

Two ambitious cases on what is “reasonably incidental” to a solicitor’s retainer

We turn now to cases where it is common ground that there is a retainer between the client and a professional, or the professional accepts that it owed a client duties – but the dispute is over how far those duties extend.

Although the duties owed by professionals are usually limited to the tasks which the client has instructed them to undertake, and which they have agreed to do, there are cases where professionals owe duties to proffer advice that is “reasonably incidental” to that work. The classic example used to illustrate the principle is the situation where a dentist agrees to perform particular dental work and in the course of doing so notices that another tooth is rotten. In such a case, the dentist would owe a duty to point that out to the patient.[5]

The example of a dentist being under an obligation to inform his patient what he has noticed is straightforward, because it does not impose a duty on the part of the dentist to carry out any particular extra work. The whole concept of what is “reasonably incidental” to an existing retainer is bound up with issues including the extent of the burden that the allegedly incidental task would place on the professional.[6] Other core questions include the sophistication (or otherwise) of the client, and the extent of connection with the professional’s existing work.

A key 2022 case where the claimants faced challenges on all of these fronts was Spire Property Development LLP v Withers LLP [2022] EWCA Civ 970.  The claim involved a firm of solicitors which had acted on a conveyancing transaction, and which was asked questions about problems that had arisen. The core issue was whether the solicitors only owed a duty to answer those questions, or to go further and suggest what legal remedies the former client may have.

The problems with the conveyancing transaction concerned the fact that property searches had not identified the presence of electrical apparatus or wayleaves affecting the land the Claimants had bought. After the issues came to light, the Claimants contacted their solicitors to ask about whether the cables should have shown up on searches. The first instance Judge found that the solicitors ought to have gone further than merely answering these questions, and to have proffered advice that the Claimants could require UK Power Networks to move the cables at their own expense. Having lost at trial, the solicitors appealed to the Court of Appeal.

The solicitors were successful on appeal. The Court of Appeal made clear that the earlier case law on “reasonably incidental” work does not suggest that a solicitor is required to carry out investigative tasks in areas that he has not been asked to deal with, however beneficial to the client that might in fact have turned out to be.[7]

A second case where the Claimants advanced ambitious arguments on the scope of solicitors’ duty was Lennon v Englefield [2022] PNLR 3. There, a Ms Lennon instructed solicitors via an agent who gave instructions on her behalf. That agent turned out to be a fraudster who had in fact been struck off as a solicitor previously. Neither Ms Lennon nor her solicitors were aware of her agent’s track record (although it was easily discoverable on the internet). When the agent misappropriated money, Ms Lennon sued her solicitors contending that it was “reasonably incidental” to their retainer for them to have advised her on the risk of money being paid to the agent. The claim failed, the court holding that if a client instructs her solicitors where to send the proceeds of a conveyancing transaction, it is usually no part of the solicitors’ duty to proffer advice about the commercial wisdom of that step

The duty nexus issue

The renewed focus on the need for a nexus between duty and loss – evident since the Supreme Court’s judgments in Manchester Building Society v Grant Thornton [2021] UKSC 20 (commonly known as “MBS”) and Khan v Meadows [2021] UKSC 21 – continued in 2022. This is well illustrated by both Aurium Real Estate London Ultra Prime v Mishcon de Reya [2022] EWHC 1253 (Ch) and Radia v Marks [2022] PNLR 12. These cases show that the increased focus on the link between scope of duty and the type of loss that has been suffered can tempt claimants to try to stretch their advisers’ responsibilities as far as they can.

Aurium: duties to whom, and to do what?

In Aurium, the Claimant had incorporated various subsidiaries, including Bayswater Road (Holdings) Limited (“BRHL”), in connection with a development project near Hyde Park. Aurium’s plan was to assemble the freehold titles which comprised the site, convey them to the subsidiaries, secure vacant possession (including by offering tenants inducements to surrender their leases, for which it had obtained finance) and obtain planning permission for conversion of the site into high-end residential apartments.

One tenant (“BCG”) refused to surrender its lease and vacate the site, so Aurium contemplated “building around” it instead. Mishcon de Reya (“MdR”), which had been engaged in relation to the development project, gave some advice on BCG’s rights under its lease. Aurium’s case was that, in doing so, MdR:

• Confirmed that a “build around” strategy was viable,
• Failed to advise that it carried a material risk of infringing BCG’s rights, and
• Caused Aurium to cease negotiating with BCG as a result.

BCG subsequently issued proceedings for a declaration that a “build around” approach breached its lease. Citing uncertainty caused by that litigation, a buyer which Aurium had negotiated with for the sale of its shareholding in BRHL withdrew its interest. By then, Aurium was in default of its repayment obligations in respect of the finance that it had raised, and the finance company enforced its security. Aurium then sued MdR for the loss of its investment in BRHL, in the sum of £48million.

Aurium’s claim was dismissed. The Judge held that as MdR was not instructed under a general retainer to provide all advice necessary to conclude the development project, but rather to advise on a matter-by-matter basis, the exact contractual basis under which it provided the relevant advice had to be identified. This included considering whether advice was given to Aurium or BRHL.

Deciding that such advice was not covered by MdR’s “Vacant Possession Engagement Letter” addressed to Aurium, and that various factors (including the parties’ subsequent conduct) suggested that the contract was between MdR and BRHL, the Judge found that MdR did not owe any duty to Aurium in respect of the advice.

In case he was wrong, however, the Judge further held – applying MBS and Khan – that the advice in question was “high-level and preliminary”. The risk that it guarded against was that some aspect of BCG’s rights was overlooked (which might lead to a defective “build around” scheme being devised, and costs being incurred or wasted). It did not guard against the risk that Aurium would lose its investment in BRHL by not being able to sell its shareholding due to BCG’s refusal to vacate. Thus, even if MdR had owed Aurium any duty, the loss claimed – suffered when the finance company enforced its security following the failed sale to the buyer – fell outside the scope of MdR’s duty.

You should have saved me from myself!

The relevant risk was also found to be outside the scope of duty in Radia v Marks. In that case, the Claimant had brought proceedings in the employment tribunal against his employer, alleging disability discrimination on the grounds of his acute myeloid leukaemia. The Defendant (“Professor Marks”) was instructed as a single joint expert to report on the claimant’s condition. The tribunal rejected the claim, finding that the claimant had not told the truth about his condition and had intentionally misled it – and ordered him to pay costs of around £600,000. At the heart of the criticism of the Claimant’s credibility was the idea that he had significantly exaggerated the weight loss he had suffered as a result of his treatment, in order to overplay the seriousness of his condition.The Claimant sued Professor Marks, claiming that he failed to notice a discrepancy between what he claimed he had weighed on leaving hospital and his weight as recorded in the hospital medical records; and alleging that that discrepancy had led the tribunal to conclude that the Claimant had been untruthful, resulting in the adverse liability finding and costs order.

The claim was dismissed. Mrs Justice Lambert – again applying MBS and Khan – held that the harm identified in the claim was the tribunal’s finding of dishonesty, but that Professor Marks’ duty of care did not extend to protecting the Claimant from the risk of such a finding or an adverse credibility finding. This was because:

• Professor Marks had been instructed to opine on medical matters, not to assist on credibility;
• Medico-legal experts could not give evidence about credibility, since their opinions were admissible only to the extent that they addressed issues within their expertise;
• To extend the scope of experts’ duties to the protection of parties from the risk of such findings would create a real conflict between their overriding duty to the court and their duty to the parties.

Radia is likely to be of limited wider application in a professional liability context, given that the factors which led to the judgment are peculiar to experts, who occupy a unique position. Nonetheless, both Aurium and Radia emphasise the importance, post-MBS, of analysing exactly what harm is alleged, and whether it falls within the scope of any duty owed – a point which, as the Judge observed, was not explored by either party in submissions in Radia.

What can be challenged in contribution claims? Percy v Merriman White lays misunderstandings to rest

In April 2022, the Court of Appeal handed down judgment in the contribution claim between solicitors and counsel in Percy v Merriman White [2022] EWCA Civ 493. The litigation had its origin in company law proceedings. A solicitor and barristers advised that a Claimant could bring a derivative claim rather than seeking the just and equitable winding up of a company. Unfortunately, the Judge to whom the application for permission was made disagreed and denied the Claimant permission to do this. The Claimant settled his company law dispute for less than he thought it would have been worth if his derivative claim had not come to a premature end, and thereafter sued his solicitors. The solicitors agreed a settlement with the Claimant, and brought a claim under the Civil Liability (Contribution) Act 1978 (“the Contribution Act”) against the barrister.

The contribution claim culminated in a finding at trial that the barrister should make a 40% contribution to the solicitors. This outcome was based on two misapprehensions, namely:

• That there was no need for the solicitors to show that the barrister’s advice been negligent.
• That the barrister was not permitted to argue that there could have been any other outcome to the derivative claim than failure (permission having been refused to bring that claim by the company law judge).

The first error – over whether  it was necessary for the solicitors to show that the barrister had been negligent – arose out of a “deeming provision” in s. 1(4) of the Contribution Act. The purpose of that provision is that if a professional person enters into a bona fide settlement and then sues another professional, that new contribution defendant cannot contend that the underlying claim against the contribution claimant would have failed at trial on the issue of liability – provided of course that the facts gave rise to a proper cause of action. In other words, the provision was there to stop the barrister arguing that the solicitors were not liable to the original Claimant, rather than vice versa. At first instance in Percy however, the court applied the provision “the wrong way round”, and erroneously suggested that the barrister could not argue that he had not been negligent. There is no need for a “deeming provision” to operate that way round, and indeed it would be inappropriate to suggest that a fresh defendant to contribution proceedings is unable to defend his own conduct.

The second error – over whether the barrister could argue that another judge might have allowed permission for the derivative claim – had its origin in the misapplication of recent “abuse of process” cases such as Allsop v Banner Jones [2021] 3 WLR 1317. In Percy the Court of Appeal made clear that these abuse cases did not stop a defendant in a contribution claim from arguing that the correctness of a judge’s decision was in doubt. In any event, defendants rarely need to go so far as to say a judge was wrong in order to defend their own advice – they just need to show that their advice fell within a range of reasonable opinions.

The Percy v Merriman White decision of the Court of Appeal did not break any new ground, but instead re-established the orthodox understanding of how the Contribution Act works, and what issues are and are not up for dispute in contribution claims.

Coverage Issues

While academics and practitioners will be kept busy for a long time working through the developments in respect of scope of duty in recent years, the bottom line for many professionals will often not be what the nature of a claim against them may be, but whether their insurance will cover it.

Two cases regarding professional indemnity insurance issues are worth considering, the first regarding the scope of insurance cover when it comes to fees, and the second regarding the thorny question of aggregation.

Fees and Coverage

In RSA v Tughans [2022] EWHC 2589 (Comm), the Commercial Court considered the circumstances in which claims for the recovery of fees against solicitors would be covered under the SRA Minimum Terms and Conditions of Professional Indemnity Insurance. The case is particularly complicated, but in summary RSA was the insurer for a Northern Ireland firm Tughans. A US private equity fund agreed to pay its US lawyers – Brown Rudnick – a success fee of £15 million if a purchase of a book of loans completed. Brown Rudnick agreed to pay Tughans 50% of the fee for its role in the deal. The terms of the arrangement required Tughans to provide representations and warranties regarding compliance with anti-corruption conditions.

The deal completed and the success fees were paid. But then it was revealed that a partner in Tughans had breached the anti-corruption conditions by diverting most of the success fee to his own benefit. The US private equity fund and Brown Rudnick sued Tughans and recovered the funds. Tughans notified insurers, stating that it was not seeking an indemnity for the success fee but asking for cover in respect of its costs of defending the claim. Tughans then qualified its position, stating that its agreement not to pursue an indemnity for the success fee did not apply insofar as the fee was no longer available to the firm to meet its liabilities because it had been paid out in tax/VAT. This was described as the “qualified claim” in relation to the success fee.

RSA refused cover, arguing, inter alia, that

• If a solicitor accrued a contractual entitlement to a fee, an award of damages in that regard would constitute a loss covered by the policy;
• However, Tughans had suffered no loss because the firm was never in fact entitled to the success fee. Therefore liability to repay the success fee was a restitutionary obligation not covered by ordinary professional indemnity cover.

The case became mired in some difficulty relating to what was or what was not properly before the arbitrator of the insurance coverage dispute. However, Mr Justice Foxton:

• Dismissed arguments that if the allegations made by BRUK were true, the payment of the success fee had been procured by fraudulent or negligent misrepresentations. He pointed out, for instance, that BRUK had not purported to rescind the letter of engagement giving rise to the fee. Furthermore, the terms on which the success fee was payable required only that representations and warranties be given, not that they were true;
• Held that the US entities’ entitlement to recover the fees was via a breach of contract claim rather than a restitutionary claim. Therefore, Tughans’ loss was exposure to a contractual claim – something which came within the ordinary scope of the cover which RSA was obliged to provide.

Foxton J granted insurers permission to appeal against this outcome. Despite this, the decision will doubtless lead many insurers to consider whether they can tighten cover so far as they are able so that arguably undeserving cases or commercial risks do not attract cover, but the Minimum Terms sometimes provide little room for manoeuvre.

Aggregation: an update

Last year’s update by Helen Evans KC, Ben Smiley and Anthony Jones highlighted a number of cases relating to aggregation of claims against professionals, and noted that the judgment of the Court of Appeal in respect of Spire Healthcare v RSA was expected and might provide some firm guidance on aggregation principles.

By way of refresher, Spire was the operator of two private hospitals where a rogue surgeon – a Mr Paterson – conducted many operations for a decade and a half. Around 750 former patients brought litigation, and Spire was obliged to contribute £27 million in compensation. Spire claimed on its insurance, and its insurers RSA sought to aggregate the claims to come within a £10 million indemnity limit.

The wording of the policy did not talk of related claims or a series of acts. The factor allowing for aggregation was “all claims … consequent on or attributable to one source or original cause…”.

At first instance [2020] EWHC 3299 (Comm), His Honour Judge Pelling QC looked at the claims in two categories. The first category was patients for whom the surgery (a mastectomy) was clinically indicated but performed ineptly. The second category was patients for whom there was no medical reason for the surgery. So inept surgeries on the one hand, and inapt surgeries on the other. The Judge held that those categories amounted to two sources or original causes of claims, and so they could not all be aggregated together.

But on appeal the Court of Appeal [2022] EWCA Civ 17 allowed the insurers’ appeal, and allowed aggregation of all the claims.

The leading judgment was given by Lady Justice Andrews. She said that source and original cause are equivalent, and their import is to “emphasize that the doctrine of proximate cause should not apply, and that the losses should be traced back to wherever a common origin can reasonably be found.”

The task when confronted with such wording, according to the Court of Appeal, is to go back further in the causal chain than proximate cause, but not to go back so far that one enters the realm of remote or coincidental causes which provide no meaningful explanation for what has happened. The Court of Appeal held that the single original cause was the doctor’s misconduct, in each of its different flavours. The analysis should go back further than the type of misconduct to the author of misconduct in this case and his pattern of cavalier conduct. And so all the claims were subject to aggregation.

As is often the case with aggregation arguments, the outcome is highly dependent on the wording – and the case demonstrates that the same situation is capable of being looked at in two entirely separate ways by two courts.

Conclusions

It is not surprising – given the prominence of MBS and Khan – that so much of 2022’s case law grappled with who owed duties to whom, and what those duties comprised. We expect more of the same in 2023, as the new approach mandated by the Supreme Court continues to be worked out in practice.  Of particular interest will be the outcome of the appeal in the McClean v Thornhill case, which is due to be heard in March 2023. By far the majority of 2022’s cases in this area focused on lawyers’ liability, and we anticipate hearing more about the application of MBS to other professionals as well.

We also detect a trend for cases testing the limits of professional indemnity cover, and await with interest how that will play out in the next year – including in the insurers’ appeal for which permission has been granted in the RSA v Tughans case.

Helen Evans KC, Pippa Manby, Anthony Jones and Ian McDonald of 4 New Square Chambers

Contact details: hm.evans@4newsquare.com, p.manby@4newsquare.com, a.jones@4newsquare.com and i.mcdonald@4newsquare.com

9 January 2023

© Helen Evans, Pippa Manby, Anthony Jones and Ian McDonald, 4 New Square Chambers

 Disclaimer: this article is not to be relied on as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.

[1] This was an objective question taking into account the representor’s actual or presumed knowledge as well as all the circumstances of the case: BCCI v Price Waterhouse [1998] BCC 617.

[2] Other points of dispute included breach of duty, and limitation – but these fall beyond the scope of this article.

[3] This was based on the standard terms in the COMBAR / CLLS model terms.

[4] The court considered the Australian authority, O’Doherty v Birrell [2001] VSCA 44, which had rejected the existence of a similar duty between co-counsel.

[5] Credit Lyonnais v Russell Jones & Walker [2003] PNLR 2.

[6] Minkin v Landsberg [2016] 1 WLR 1489

[7] The case also affirmed the importance of “assumption of responsibility”.