Liability and aggregation 'in peer-to-peer lending

Mr Justice Teare’s recent decision in AIG Europe Limited v OC320301 LLP (formerly The International Law Partnership LLP) [2015] EWHC 2398 (Comm) has rightly attracted considerable interest within the legal profession ?and the insurance industry generally. Readers will recall Patrick Gaul’s review of the decision (see SJ 159/34).  

The legal focus of the case was clause 2.5 of the SRA Minimum Terms and Conditions of Professional Indemnity Insurance and, in particular, whether the claims from multiple investors arose out of ‘similar acts or omissions in a series of related matters or transactions’ and should therefore be aggregated. While Teare J concluded that ?the claims were similar because there was ‘a real and substantial degree of similarity’ between them, he also found that the claims were not conditional or dependent upon each other ?(a necessary ingredient in his view), and so clause 2.5 did not operate to aggregate the claims. 

Law firms and their insurers in particular continue to absorb that decision and what it means for them. However, it remains to be seen whether the Court of Appeal will agree that, for example, ‘related’ matters and transactions must also be dependent, especially where Teare J’s analysis focused only on transactions.  

Similar issues of liability and aggregation arise in relation ?to peer-to-peer (P2P) lending, which emerged onto the UK market about ten years ago. ?In light of the government’s plans to allow investment in ?P2P agreements via tax-efficient ISAs from April 2016, the market is potentially set to grow. Alongside this growth, the ?role of professional advisers ?in relation to P2P lending, in particular solicitors, surveyors, and accountants, can reasonably be expected to develop concurrently. So, what are the potential wider implications?

Risk report

Take, for example, surveyors appointed to value properties, provide opinions on yields and rent risk, or assess the viability ?of development projects against which P2P lenders intend to invest. It is conceivable that a surveyor’s report would form a core part of any risk report ?relied upon by the lenders when considering whether to invest, ?to progress with the release ?of staged funding payments, ?or to sell their ‘investment’ on ?the aftermarket.  

Similarly, solicitors’ reports ?on title may form part of information given to and relied upon by individual investors in relation to property investment. Both solicitors and accountants could have a role to play ?advising in relation to the structure, operations, and financial health of a business investment. As the trustees pursued claims against The International Law Partnership on behalf of the Midas investors, one can imagine platforms pursuing claims against professionals on behalf of investors, potentially ?on the basis of assignments ?of rights similar to the circumstances seen in ?Financial Services Compensation ?Scheme (FSCS) recovery ?actions against independent financial advisers (IFAs). 

Each and every claimant

In that context, where multiple investor clients have taken statutory compensation to cover losses sustained as the result of allegedly negligent advice, the FSCS may pursue the advisers ?for recovery of those payments. ?The litigation that arose following the collapse of Keydata is an excellent example. Such circumstances can give rise to interesting aggregation points where an IFA’s professional indemnity policy provides for an ‘each and every claimant’ excess. Does the aggregation of claims via the FSCS mean that only ?one excess is payable, or should multiple excesses apply to reflect the individual causes of action assigned to the scheme by the underlying investors?

One also cannot rule out liability to individual investors. Any professional adviser supplying advice in the knowledge that individual investors would subsequently rely on that input would appear to adopt a tortious duty to those investors as a defined class of individuals. Class actions are a real possibility and substantial risks arise around aggregation, both to the insurer if the investor claims are aggregated for the purpose of the excess and to the professional in the event that claims are aggregated for the purposes of the indemnity limit.

Russell Behn and James Denison, pictured, are associates at Weightmans @Weightmans www.weightmans.com