Update: professional negligence

Hall v Simons [2002] 1 AC 615 HL ended the immunity of advocates in the conduct of proceedings on public interest grounds. In the recent case of Paul Wynne Jones v Sue Kaney [2010] EWHC 61 (QB) the High Court struck out a negligence claim against an expert witness on the basis that it was bound by the Court of Appeal's decision in Stanton v Callaghan [1998] EWCA Civ 1176, providing the defence of expert witness immunity.

Dr Kaney, a clinical psychologist, was retained to report on a psychiatric injury sustained by the claimant. Her initial assessment was that the claimant was suffering from post traumatic stress disorder. She subsequently signed a joint statement, which concluded that the claimant had no more than an adjustment reaction that did not amount to a psychiatric disorder and that the claimant was a deceptive and deceitful individual. After questioning by the claimant's solicitor, Dr Kaney explained that the joint statement had been signed by her without any comment or amendment and that she had felt pressured to sign it.

In light of the joint statement, the case ended up settling for a significantly decreased value. The claimant subsequently brought proceedings against Dr Kaney in negligence, and Dr Kaney pleaded expert witness immunity relying on Stanton. The claimant argued that Stanton was no longer good law for two reasons: 1) that expert witness immunity is inconsistent with the right to a fair trial under section 6 of the Human Rights Act 1998; and 2) in light of the House of Lord's decision in Hall.

The judge held that Stanton remained good authority and binding, and, therefore, required him to strike out the claim. Blake J granted a certificate to enable the Supreme Court to consider whether it would wish to grant leave to appeal to it. Blake J noted that while Stanton remained good law, there was a substantial likelihood that, on re-examination by a superior court, the public policy justification for immunity of an expert witness could no longer be justified. The public does benefit from the ability of experts to provide their true and frank opinions but this should not require such a broad immunity.

The Supreme Court has yet to grant permission to appeal. If permission is granted the protection afforded to expert witnesses may not survive, or at least be significantly reduced. The scope and effect of this will need to be examined closely. The negligent act in this case took place in 2005 and it may be that any future decision affecting immunity will be of retrospective application.

Summary judgment against a claimant

In Webb v Macdonald [2010] EWHC 93, the court was asked to determine whether lawyers could successfully apply for summary judgment in a claim for negligent advice.

The claimant instructed a barrister and a firm of solicitors to defend him in an action brought against him by a bank for possession of his home and the sums due under a guarantee in relation to the liabilities of a company, of which he was managing director and shareholder. His property was secured by a legal charge in favour of the bank.

The bank demanded money due under the guarantee and the company went into voluntary liquidation. The claimant entered into an IVA, which excluded his home. The bank admitted its claim in the IVA but only for dividend purposes; it stated that it had not relinquished its right to rely on its security over the property. The claimant raised various defences including that the bank's proof in the IVA amounted to a release of security over the property. Counsel advised that the IVA argument was unlikely to succeed.

The claim by the bank settled. The claimant, however, brought a claim against his lawyers alleging that they had negligently advised him to settle at too high a level. The claimant further alleged that counsel told him he would withdraw from the case if he did not accept the settlement figure offered by the bank. The lawyers applied for summary judgment.

It was held that the allegations made were not sustainable and that there was no real prospect of the claim succeeding against the lawyers. The judge adopted the approach of Lord Carswell in Moy v Pettman Smith [2005] UKHL 7. Counsel's approach was prudent and realistic and he had advised the claimant in a sensible and balanced way. The claimant had no prospect of showing that the advice provided was such that no reasonably competent counsel of that level of seniority or reasonably competent solicitor would not have given.

The court was able to resolve a number of complex underlying issues from the terms of the IVA, and also had the benefit of detailed attendance notes recording meetings and discussions. This decision highlights that cases do not necessarily have to be simple to make them suitable for summary judgment and demonstrates the advantages of using it for professional negligence claims where the facts are not disputed in any material respect.

Terminating a retainer

The recent case of Richard Buxton (Solicitors) v Mills-Owen & Law Society (intervener) [2010] EWCA Civ 122 highlights the importance of firms revisiting their terms and conditions on terminating a retainer. In particular, the circumstances in which a solicitor is permitted to terminate, and whether, in the event of termination, the retainer provides for payment of costs.

In this case, the question arose as to whether a firm could terminate its retainer where the client insisted on advancing a 'hopeless' case and recovery of costs up to the date of termination. On both issues, the court's starting point was the firm's terms of business. These provided for termination for a 'good reason' and made no mention of payment of fees on termination.

The client instructed Mr Buxton to conduct a statutory appeal against the grant of planning permission. Mr Buxton and counsel correctly advised that in order to be successful the appeal had to be based upon a procedural or legal error by the planning inspector. The client rejected this advice and firmly maintained that the case should be argued on the planning merits of the case and the effect on the environment. As a result, Mr Buxton terminated his retainer and sought payment of his costs. The costs judge and appeal judge held that Mr Buxton was not entitled to terminate the retainer as there was no impropriety on behalf of the client. Mr Buxton appealed. The Law Society was given leave to intervene in the proceedings as the issues raised by the case were of considerable importance to the legal profession.

At common law, a solicitor may terminate his retainer before completion of the work on reasonable notice if he has 'reasonable grounds' for refusing to act further for the client. Dyson LJ emphasised that solicitors should not make the decision to terminate their retainers lightly and should consider each case on its facts. The right to terminate should not be restricted to circumstances where the solicitor is asked to do something which is improper or misleads the court.

It was held that Mr Buxton had good reason to terminate the retainer because continuing to advance a case which was 'bound to fail' would render him in breach of his professional duties and the Civil Procedural Rules. Mr Buxton was entitled to recover his costs and disbursements for all work carried out prior to the termination date. The fact that the court did not take a restrictive approach to the meaning of 'good reason' is to be welcomed. The court was, however, also satisfied that the solicitor had acted in a thoroughly professional manner throughout.

Limitation '“ the latest on actual damage

Limitation issues continue to occupy the courts. The appeal has now been heard in Pegasus Management Holdings SCA, Ivan Bradbury (2) Bradbury v Ernst & Young and another [2010] EWCA Civ 181.

The principal question for determination by the Court of Appeal was whether the appellants had suffered actual damage more than six years before issuing their claim for professional negligence.

The defendant accountants advised Mr Bradbury on his personal tax affairs and on the tax liabilities of his companies. Mr Bradbury sold his business for which he received consideration in the form of loan notes which enabled him to defer liability for capital gains tax. On the advice of the defendants, Mr Bradbury was advised to create Pegasus, a registered holding company incorporated in Luxembourg, with a view to investing in healthcare companies. On 2 April 1998, Mr Bradbury sold his loan notes and subscribed for shares in Pegasus. When Pegasus later sold some of its assets a significant tax liability accrued. The claimant issued proceedings against the defendants in November 2005 alleging negligence. It was claimed that the detriment suffered at the time of the transaction did not constitute actual damage for limitation purposes as the taxation liability was dependent on certain trades taking place at a later date, and that it was at this point the losses arose.

It was held that the alleged flaw in the defendant's advice was a material one, which immediately reduced Mr Bradbury's flexibility. He was left in a materially worse commercial position than he ought to have been. The loss of flexibility was sufficient to constitute actual damage for limitation purposes, and he was subjected to this disadvantage on the completion of the transaction on 2 April 1998. This meant Mr Bradbury's claim was statute-barred by the time he brought it.

The Court of Appeal categorised cases as: 1) no transaction cases, where, but for the negligence, the claimant would not have entered into the transaction; 2) wrong transaction cases, where had there have been no negligence the claimant would have entered into a similar transaction, and; 3) other cases, involving the purely contingent liability. Pegasus was considered to be a wrong transaction case, and the Court of Appeal clarified that the general tort principle that actual damage must be suffered before the tort is complete does apply to this category.

Limitation cases will always be fact sensitive. This decision demonstrates, however, that in wrong transaction cases such as this, it is not necessary to show the claimant is immediately financially worse off. For professionals, and their insurers, this is good news and, even where the background may involve complex issues, it may well be worth pursuing a preliminary issue hearing to save costs.