Update: professional negligence

Dishonesty, limitation, loss of a chance and (by a side wind) relitigation are four common professional negligence themes. Whether the continued stream of decisions on these issues reflects the ingenuity of lawyers, the complexity of the law or merely the fact that professionals appear in these credit-crunch-hit times to be attractive defendants is a matter on which everyone no doubt has a view. Whatever the reason, though, the growth in the volume of professional negligence cases shows no sign of abating.

The test for dishonesty in civil proceedings

Hopes that the Court of Appeal in Zambia v Meer Care & Desai [2008] EWCA Civ 1007 might definitively decide the question of whether, in civil law, dishonesty requires a subjective appreciation by the alleged wrongdoer that the conduct is question is dishonest (see SJ 152/25, 'Professional negligence update') were dashed when it was agreed by counsel that the court below had applied the correct test. It was accepted that the appellant would have been dishonest if either he knew that his instructions involved the improper appropriation of Zambian government money, or suspected as much but deliberately failed to make the requisite enquiries (Nelsonian/blind-eye dishonesty).

Nonetheless, reference in the judgment to the individual's knowledge of 'the facts that showed that the relevant conduct was dishonest' (para.146, emphasis added in italics) suggests that the Court of Appeal would have agreed with the judge that subjective appreciation that the conduct would be considered dishonest is unnecessary. However, in overturning the judge's findings the Court of Appeal stressed the importance of assessing the characteristics of the individual in deciding whether he in fact knew or suspected those facts. The question was not whether a hypothetical honest and competent solicitor would or should have done so. The judge had failed to allow for the possibility that the appellant was foolish and incompetent but honest, and had simply not suspected the conspirators' dishonesty (para.251).

The Court of Appeal appears to have accepted, however, that comparison with the conduct of a hypothetical honest solicitor might be evidence of dishonesty; see, for example:

'If a judge can be satisfied that the conduct of the party in question cannot be explained in a way that is consistent with honesty, then it is legitimate to conclude that the conduct was not honest.' (para.251)

'The judge was of course entitled to have regard to the fact that Mr Meer was an experienced lawyer with an international practice. It was for him to assess whether he was intelligent.' (para.263).

Overall, therefore, while the Court of Appeal did not finally decide the issue, its decision does suggest that Peter Smith J's formulation of the test of dishonesty at first instance (essentially, that it is objective, taking account of the individual's characteristics and knowledge) will be accepted as correct.

In addition to the legal issues to which it gives rise, the Court of Appeal's decision in Meer Care & Desai is a reminder of just how hard it can be to sustain an allegation of dishonesty, the Court of Appeal having, as already noted, overturned the trial judge's finding on that issue. Peter Smith J, the trial judge, has since said, in Sibley & Co v Reachbyte Ltd [2008] EWHC 2665 (Ch) (para.34), that it is 'unclear' how the Court of Appeal felt able to do this, but that perhaps only reinforces the point: those seeking to prove dishonesty may face not only the hurdle of persuading the trial judge, but also the additional hurdle of having to persuade the Court of Appeal. (While mentioning Sibley, it is worth noting that it contains some interesting observations on the proof of the terms of a solicitor's retainer. Those dealing with this issue will need to consider the judgment in full, but in summary it confirms that in a dispute about the terms of a retainer, the client's evidence is likely to be preferred.)

Limitation and contingent liability revisited

The previous update considered the Court of Appeal's first decision on the application of the 'contingent liability' principle derived from Law Society v Sephton [2006] 2 AC 543. The court grappled with the issue again in Shore v Sedgwick Financial Services Ltd [2008] EWCA Civ 863. Mr Shore complained that due to the negligent advice of his financial advisers, he had entered into a pension arrangement that involved what was to him an unacceptably high level of risk. Upholding the decision that the claim was statute barred, the Court of Appeal stressed that this was a 'transaction case': Mr Shore's cause of action had accrued on the date he entered into an arrangement that was riskier than he wanted; that was itself a detriment. The facts that Mr Shore paid market value for the transaction, and could have ended up in a more beneficial position, did not make it a contingent liability case (paras.37'“38). The case re-emphasises that risk is not to be equated with contingent liability: there was no sense in which the transaction exposed Mr Shore to a liability of any kind, only to the risk that he might lose money.

Loss of a chance

It is often very difficult to persuade a court that a lost chance had no value. That does not, however, mean that the claimant's task will be straightforward. In particular, where what is being considered is the prospect of reaching a settlement, Dayman v Lawrence Graham [2008] EWHC 2036 (Ch) shows that each stage of the process has to be dealt with separately, with the result that some stages (those relating to the claimant) will be dealt with on the balance of probabilities and some (those relating to third parties) on a 'loss of a chance' basis.

Thus, when evaluating the lost chance of negotiating a settlement (in Dayman the reduction of a debt), since the claimant has to prove each act that he or she would allegedly have taken on the balance of probabilities, the claimant must prove, on the balance of probabilities, that absent the adviser's breach he would have sought to negotiate with the third party. If he succeeds, the court has to determine what (if any) was the best offer from the claimant's perspective that there was a real and substantial prospect that the third party would have made. The claimant then has to prove on the balance of probabilities that he would have accepted that deal.

If the court finds the third party's bottom line would have been rejected, the claim will fail on causation. If it would have been accepted, the court must repeat the exercise; that is, it must seek to identify the third party's preceding offer. It will be noted that if evaluation reaches this stage, the claimant will be seeking to disprove on the balance of probabilities that he would have accepted that less favourable offer. If he fails in that, the court will repeat the exercise again, continuing until it has identified the offer least favourable to the claimant that would, on the balance of probabilities, have been accepted by the claimant (paras.79-81).

Extension of witness immunity to solicitors

Witnesses have long been immune from suit in respect of their evidence. They should not, it is said, be inhibited by fear of being sued, even at the risk that some dishonest witnesses will go unchecked.

The scope of this principle was considered and, it seems, extended by the Court of Appeal in Sprecher Greer Halberstam v Martin Walsh [2008] EWCA Civ 1324. The appellants were a firm of solicitors who had acted for a Mr Staines, Mr Walsh's opponent in earlier litigation. In that litigation a freezing order had been obtained against Mr Walsh and he alleged that the affidavit sworn by Mr Staines in support of it had contained a number of false allegations. He therefore brought a claim in deceit and conspiracy to deceive against Mr Staines, the defendant firm and the partner who had conduct of the case. The content of Mr Staines' affidavit was clearly immune. The interest of the case lies in the fact that the Court of Appeal extended the immunity to cover instructions given to the solicitors and repeated by them in inter partes correspondence (para.52).

The decision therefore seems to go beyond the narrow confines to which the principle of witness immunity has traditionally been restricted. Although the principle has previously been extended to statements made by the witness in the preparation of his evidence, this decision seems prima facie capable of being applied to all statements made in correspondence in the context of litigation by the parties or their solicitors. Whether the decision will in fact be taken to go that far remains to be seen and further litigation on the point seems likely.