Update: professional negligence

Immunity from suit

On 30 March the Supreme Court handed down its long-awaited judgment in the case of Jones v Kaney [2011] UKSC 13 in which it abolished expert witnesses' immunity from suit in all civil proceedings.

The underlying claim was brought by Jones in April 2009 for negligence against Kaney, a clinical psychologist whom he had instructed as an expert in a personal injury claim. Kaney applied to the High Court that the claim should be struck out as she was an expert and thus immune from suit. Blake J did strike out the claim but granted a 'leapfrog' appeal to the Supreme Court. Jones' appeal was allowed by a majority of five to two, abolishing immunity.

The Supreme Court's decision raises a number of interesting legal issues:

Reluctance to testify: one of the reasons experts have been traditionally protected from suit is to allow an expert to speak readily and truthfully at court without fear of suit. When considering whether experts would still give full and frank disclosure to the court in accordance with their overriding duty as set out in part 35.3 of the Civil Procedure Rules, Lord Phillips compared expert witnesses to advocates (whose immunity was abolished in 2001) and stated that the 'removal of [advocates'] immunity has not, in my experience, resulted in any diminution of the advocate's readiness to perform that duty'.

Vexatious claims: it has long been mooted that removing an expert's immunity could result in an influx of vexatious claims by disappointed litigants. Lord Phillips again made a comparison to the removal of advocates' immunity and commented that he was not aware of an influx of claims from disappointed litigants following this and thus doubted whether the removal of immunity in this instance would lead to a 'proliferation of vexatious claims'.

It seems an inevitable consequence of this judgment that experts will have to obtain or extend existing insurance policies and that this demand may result in increased premiums which may act as a deterrent for some experts, particularly those in smaller practices. However, before this decision experts had to act professionally and to the highest standards; the ruling hasn't changed this, and claims against experts, although now permissible, are unlikely.

Scope of duty

In South Australia Asset Management Company (Saamco) v York Montague [1997] AC 191, Lord Hoffmann categorised scope of duty cases. In a 'category 1 case', an adviser provides information on which the client decides the best course of action. In these circum-stances, the adviser will be responsible for the consequences of that information being wrong.

A 'category 2 case' is where an adviser is under a duty to advise the client what course of action it should take. In doing so, the adviser will be responsible for all foreseeable loss attributable to that action being taken.

The Saamco principle was applied in the Court of Appeal decision of Haugesund Kommune v DEPFA ACS Bank [2011] EWCA Civ 33. A firm of solicitors, Wikborg Rein, advised a bank that two Norwegian local authorities (the Kommunes) had capacity to enter into contracts with the bank. Pursuant to Wikborg's advice, the bank advanced money to the Kommunes. The Kommunes did not have authority to enter into the transaction and subsequently sought a declaration that they had no liability to the bank under the contracts. The bank joined Wikborg as a party to the proceedings, claiming damages as a result of Wikborg's negligent advice to enter into the contracts.

At first instance the judge concluded that Wikborg was instructed to advise on the viability of the transaction and so it was liable to make good the bank's loss. On appeal the fundamental question to be determined was the scope of Wikborg's duty to the bank.

In applying the Saamco principle, the Court of Appeal concluded that, although the transaction would not have proceeded but for the negligent advice, the failure to affect the recovery of the money was a consequence of the creditworthiness of the Kommunes which did not fall within Wikborg's scope of duty.

In Thorpe v Fellows Solicitors LLP [2011] EWHC 61, following the sale of a property by the claimant's mother, the claimant (acting as a litigation friend for the mother) sought damages arising from the sale of a property at an undervalue and from paying the proceeds of the sale to the claimant's sister.

The claimant alleged that the firm of solicitors acting for his mother should have made inquiries into the claimant's mental capacity as she was elderly and suffering from dementia. While the mother did have dementia, Justice Sharp held that this did not mean that she lacked capacity at the time of instructing.

It follows that a solicitor is generally only required to make inquiries into a person's capacity in circumstances where capacity is doubted, or ought to have been in doubt in the mind of a reasonably competent practitioner (Hall v Bennett's Estate [2003] WTLR 827).

In Mason v Mills & Reeve [2011] EWHC 410 (Ch), the claimants (executors of the estate of their father) brought a claim in professional negligence against Mills & Reeve for failing to advise on the possible tax consequences which could arise upon their father's death.

Mills & Reeve was instructed to facilitate the sale of the father's business by way of a management buy out (MBO). During the course of their instructions, Mills & Reeve was blind copied into a chain of emails relating to the MBO and mentioning the father's impending heart operation. Two weeks after the completion of the MBO, the father died. As a consequence, the father's estate was liable for capital gains tax and inheritance tax in the region of £1m. The claimants alleged that Mills & Reeve was under a duty to advise their father of the tax consequences of the MBO in the event of the father's death.

Mr Justice Arnold concluded, although Mills & Reeve should have defined its responsibility in relation to tax advice as part of their retainer, it was not open to Mills & Reeve to advise the father as to the tax consequences if he were to die, in spite of the fact that they knew of the father's health concerns.

The judge concluded that he had reached this decision given the manner in which Mills & Reeve had been provided with the information about the heart operation; they had not been specifically instructed or requested to advise upon this issue.

Accordingly, the receipt of the email did not trigger any duty for Mills & Reeve to provide advice about the tax consequences arising.

These recent cases are a pertinent reminder to solicitors of the importance of clearly defining the scope of their work in the retainer.

Broker's duties

The recent decision in Ground Gilbey and Another v Jardine Lloyd Thompson UK Ltd [2011] EWHC 124 (Comm) is a reminder for insurance brokers that they are under a duty to provide the insured with a 'clear, unequivocal right' to cover.

Jardines acted as the broker for Camden Market and placed insurance cover which included cover for fire damage. Both Jardines (and the insurers) were aware that market traders used portable heaters. The insurers, alive to the risk posed by the use of these heaters, added a new endorsement on the policy which required certain risk improvement measures, including the removal of the heaters.

Having made this amendment to the policy, the insurers learned that the heaters were still in use and therefore issued a further risk improvement measure requiring the 'immediate' removal of the heaters. Jardines passed on the first risk improvement requirement but failed to inform the market of the later requirement. A fire causing damage in the region of £3.8m occurred.

After the fire the market owners settled their insurance claim for 70 per cent of the loss incurred. They subsequently brought a claim against Jardines for the remaining 30 per cent on the basis that Jardines had failed in its duty to pass on the second risk improvement measure.

Despite Jardines' argument that even if it had done this the market traders would not have 'immediately' removed the heaters, Justice Blair held that Jardines was under a duty to ensure that the insured was not put in a position where they were 'doubtful or uncertain [of their] rights' of insurance.

This case highlights brokers' duties to ensure that their clients are aware of all policy requirements.

Limitation

The decision in Bowling & Company Solicitors v Edehomo [2011] EWHC 393 (Ch) held that a property owner's cause of action in negligence accrued on the date on which contracts were exchanged, rather than the date the transaction was completed.

Roth J, on appeal and following the approach of the court in Nouri v Marvi & Others [2009] EWHC 2996, found that the existence of the fraudulent contract constituted a loss, even if the loss would only be realised when the property was sold. This was owing to the fact that no potential purchaser would choose to enter a binding contract at full market value with knowledge of the fraud, and therefore it is at that point the solicitors were potentially negligent for failing to identify the fraud. Accordingly, the underlying claim in negligence was statute barred.