Honesty and “counterfactuals” in lost litigation cases – what has the Supreme Court judgment in Perry v Raleys got to tell us?
Helen Evans and Simon Teasdale of 4 New Square examine yesterday’s Supreme Court judgment in Perry v Raleys Solicitors (available here) and explain what light it sheds on the proper approach to the trial of “lost litigation” claims. Is the law more defendant friendly as a result of the Supreme Court’s judgment?
How do courts grapple with lost litigation claims?
In claims against solicitors where a former client complains that he has lost the chance to bring or pursue legal proceedings, the court takes the two-stage approach set down in Allied Maples v Simmons & Simmons. First it considers whether, on the balance of probabilities, the claimant would have chosen to issue and pursue the proceedings. Then it considers whether the claimant had a real and substantial chance of securing the outcome that he says would have resulted if his solicitors had not been negligent. This latter exercise is often referred to as the “counterfactual”, i.e. the court has to consider what would have happened if history had unfolded differently.
The approach has not been without its problems, or its critics.
First, aspects of the dividing line separating issues falling into the two stages of the Allied Maples approach have been unclear. For instance, in Perry v Raleys there was argument over whether the claimant’s honesty in bringing his claim had to be determined on the balance of probabilities, or only as part of the analysis of whether his claim had a real and substantial chance of success.
Secondly, there has been debate about whether the “loss of a chance” assessment of the prospects of the lost litigation is too unsophisticated. Repeated authorities have stated that the proper approach is to assess the “prospects and not the hypothetical decision in the lost trial” and warned against engaging in a “trial within a trial”. However, this method can lead to broad brush outcomes. Taken to extremes, it can result in litigants recovering damages from their former lawyers when they had as little as 10% prospects of success in their lost claim. Further, certain types of allegations of dishonesty have been swallowed up in the overall assessment of lost prospects rather than serving to defeat a claim entirely (see Hanif v Middleweeks).
The effect of the above issues was that some defendant solicitors have come to feel that their clients were better off suing them than they would have been if the underlying lost proceedings had been allowed to continue.
This feeling was not, however, discernible in the Court of Appeal’s judgment in Perry v Raleys (judgment here). There the Court of Appeal held that there were “sound public policy reasons” for the “loss of a chance” approach. They suggested that it would be “far too easy for negligent solicitors, or, perhaps more pertinently, their insurers, to raise huge obstacles to claimants ……… pursuing their claims, if the latter are required, effectively, to prove in the litigation against solicitors that they would have succeeded in making such a claim against the third party”.
Below in this article, we consider whether the Supreme Court’s judgment of yesterday has done anything to tilt the balance towards defendant solicitors.
What were the issues in Perry v Raleys?
Perry v Raleys is part of a spate of litigation arising out of the Vibration White Finger (“VWF”) compensation scheme applying to former miners. Under that scheme, claims could be made for compensation akin to general damages, and also for compensation akin to special damages where the claimant required assistance with household or gardening tasks that he could no longer perform (known as a “Services Award”).
It is important to note that in order to succeed in a claim under that scheme, a miner did not have to withstand the rigours of civil litigation. The Court of Appeal described claims under the compensation scheme was “not subject to a particularly robust process of assessment”. Many miners had not kept documents about their domestic needs, and could not reconstitute years later the material that they would have relied on had a proper claim been made on their behalf.
Mr Perry, represented by Raleys, had made a claim under the scheme for the “general damages” type of compensation, which was settled successfully. However, years later, Mr Perry complained that as a result of negligent advice by Raleys he had lost the opportunity to make a claim for a Services Award in addition.
Breach of duty was admitted shortly before trial. However, Raleys denied that the negligent advice caused Mr Perry any loss. In particular, Raleys argued that Mr Perry could not have met the “factual matrix” required for a Services Award and so could not have made an honest claim for one.
At trial, HHJ Saffman concluded that Mr Perry had failed to prove that Raleys’ negligent advice had caused him any loss. This was because, in summary, the judge found that the VWF from which Mr Perry was suffering had not caused him any significant disability in performing any of the relevant household tasks without assistance (as required in order to make a claim for a Services Award). Mr Perry had not complained to his GP about a loss of manual dexterity. There was photographic evidence of him out fishing. The judge found that, accordingly, Mr Perry could not have made an honest claim for a Services Award, and therefore he could not prove causation.
The Court of Appeal disapproved of the trial judge’s reasoning in strong terms and allowed Mr Perry’s appeal on the basis that HHJ Saffman had:
- Erred in law by conducting a ‘trial within a trial’ of issues of the underlying claim, in particular whether Mr Perry did in fact need the assistance for which a Service Award would be made;
- Erred in law by requiring Mr Perry to prove, on the balance of probabilities, that his claim for a Services Award would have been successful and honest; and/or
- Made findings of fact which were no reasonable judge could have made.
In the Supreme Court, Lord Briggs delivered a judgment (with which the rest of the Court agreed) allowing Raleys’ appeal. The judgment has brought some clarity to the issues which a court requires a claimant to prove on the balance of probabilities in a lost litigation claim. Defendants are likely to welcome Lord Briggs’ judgment, not least because it has the potential to widen the issues which a claimant must prove on the balance of probabilities before the more “broad brush” (and perhaps claimant-friendly) task of quantification is begun.
What approach should a court take to considering a claimant’s honesty?
A key debate before both the Court of Appeal and the Supreme Court in Perry v Raleys was whether Mr Perry had to prove on the balance of probabilities that he would have brought an honest claim for a Services Award, or whether his honesty was merely one of the factors to which the court would have regard in deciding whether such a claim would have had real and substantial prospects of success.
A concession had been made by Mr Perry’s legal team that his claim for a Services Award would have to have been an honest one in order for his action against Raleys to succeed. Counsel for Mr Perry in the Supreme Court sought to resile from that concession, but Lord Briggs made clear that it was rightly made. Just as the court would not recognise a mere “nuisance value” in a lost litigation claim, so too it would refuse to recognise the value of a dishonest claim.
The Supreme Court therefore decided that it fell to Mr Perry to prove on the balance of probabilities that properly advised and acting honestly, he would have made a claim for a Services Award. Lord Briggs made clear that he regarded this issue as conceptually different from the issue of whether any Services Award claim would have had real and substantial prospects of success. This was because whether he had honestly suffered difficulties performing domestic tasks was a matter within Mr Perry’s own knowledge.
The Supreme Court regarded this as an important distinction with Hanif v Middleweeks. In that case Mr Hanif’s insurers had sought a declaration that they were not liable to pay an insurance claim on grounds including that the fire at Mr Hanif’s nightclub had been started deliberately by his co-owner. Mr Hanif’s litigation against his insurers was struck out for want of prosecution as a result of the negligence of his solicitors. The judge trying the professional negligence claim against the solicitors assessed Mr Hanif’s prospects of resisting the insurers’ allegation of arson by his co-owner at only 25% and the Court of Appeal held that the judge had been correct not to conduct a trial within a trial of whether the fire had been started deliberately. The case had been used as authority for the proposition that the issue of whether a claim was tarred by dishonesty only fell to be considered at the second stage of the Allied Maples test.
In Perry v Raleys, the Supreme Court depicted Hanif as a different type of case in that the issues of dishonesty were not within the claimant’s own personal knowledge.
While the approach of the Supreme Court yesterday will help defendants where a claimant’s honesty is impugned, the reference to Hanif is an important reminder that Perry v Raleys may have limited reach. Many claims against solicitors for lost litigation simply do not involve deciding a live question of whether the claimant could have taken the step of issuing litigation honestly. As Lord Briggs pointed out (at paras. 26-27) where litigation had already been commenced before it was lost, the defendant may be in more difficulty in showing that a claimant could not honestly have decided to pursue it.
When (if ever) can a court conduct a trial within a trial?
Having decided that Mr Perry had to prove on the balance of probabilities that he would have pursued honest proceedings, the Supreme Court devoted less time than some commentators had hoped to the issue of when (if ever) a court can conduct a trial within a trial. This issue arises at the second stage of the Allied Maples test and is essentially a debate about how sophisticated an exercise a court can or should perform in assessing the prospects of the lost litigation.
Lord Briggs offered some two alternative justifications for the second stage of the Allied Maples test proceeding on a “lost chance” basis.
First, he suggested that the approach was appropriate where requiring a claimant to prove on the balance of probabilities that he would have succeeded at trial would lead to absurd results. He gave the example that if a litigant had lost a case with 49% prospects of success he would recover nothing on a “balance of probabilities” approach, whilst a litigant who had lost a case with 51% prospects of success would recover everything (para 17).
Secondly he suggested that there were cases where it was “simply unfair” to impose a burden on a litigant of proving that he would have won. It may be impossible to obtain documents that would have been available at an earlier trial, and witnesses may no longer be available (para. 18). It is perhaps not surprising that it would be difficult for Mr Perry to put before the court material enabling it to make a detailed assessment of his lost prospects of pursuing a Services Award claim under a compensation scheme that called for relatively informal evidence, and which related to his lost ability to perform domestic tasks (which do not tend to give rise to copious paperwork). Tantalisingly, however, Lord Briggs suggested that it was only “sometimes” and not invariably the case that there would be significant evidential gaps.
We say “tantalisingly” because reference was made during oral argument to the fact that permission has recently been given for an appeal to the Supreme Court in Edwards v Hugh James Ford Simey  EWCA Civ 1299. That is another loss of chance dispute arising out of a claim for compensation for VWF. However, it is a case in which the defendant solicitors had expressly attacked the notion that it would never be possible to conduct what might amount to a “mini trial” of the issues in the “lost” litigation. It seems to us that there remains room for debate about the type of exercise that a court should conduct where:
- The parties are able to reconstitute all or large parts of the evidence that would have been available at the trial of the lost litigation, or
- Where the key issue would have been one of law rather than fact.
Perhaps regrettably for defendant solicitors, the Supreme Court did not consider the rate of interest that the Court of Appeal had imposed on Mr Perry’s damages for his “lost” Services Claim.
The Court of Appeal had allowed Mr Perry to recover interest on the Services Award he would have received at the 8% judgment rate. This was on the basis that it “more adequately compensate[d] Mr Perry for the fact that he has been kept out of his money for so long”, but also to mark the court’s criticism of Raleys’ “long drawn-out defence of this claim”.
Interest is another area where defendants to lost litigation claims tend to regard claimants as doing far too well. This is because interest on the damages that would have been recovered in the lost litigation is often awarded at the judgment rate of 8%, whereas the Bank of England’s base rate has hovered between 0.25 and 0.75% for the best part of a decade.
There are two debatable points of principle here:
- Litigants obtaining interest on judgments are commonly unable to cover more than say 2.5% to 3% in excess of base rate: see e.g. Carrasco v Johnson  EWCA Civ 87 para. 23 or Reinhard v Ondra  EWHC 2943 Ch.
- If lost litigation had been pursued properly then it is likely that the defendant would have paid promptly, leaving the claimant to invest the money rather than enjoy 8% judgment rate interest on it.
However, the arguably punitive approach to the award of interest taken by the Court of Appeal in Perry v Raleys remains another issue for another case.
Helen Evans is recognised in the directories as a leading junior in professional negligence law. She is also the co-author of the solicitors and barristers chapters in Jackson & Powell on Professional Liability.
  Lloyd’s Rep. P.N. 920 (judgment available via Westlaw or i-law)
 Hanif v Middleweeks (a firm)  Lloyd’s Rep. P.N. 920 (judgment available via Westlaw or i-law)
 In Edwards, the defendant solicitors argued (in reliance on cases like Harrison v Bloom Camillin  PNLR 195) that when dealing with a professional negligence claim, if some or all of the issues of loss from the underlying proceedings can still be fairly tried, then they should be tried.
© Helen Evans and Simon Teasdale of 4 New Square, January 2019. The authors assume no responsibility to any party in respect of this article. Specific legal advice tailored to specific problems should always be obtained.