Current Definition

What is ‘proportionate’ is the guiding principle for all litigation following the introduction of the Civil Procedure Rules (CPR).

The CPRs refer to the idea of obtaining a just result in litigation with appropriate speed and expense.

The ‘overriding objective’ set out in CPR 1.1 requires courts to deal with cases justly in ways that are proportionate:

-      to the quantum involved;

-      to the importance of the case;

-      to the legal complexity of the issues in question; and  

-      to the financial position of each party.

In his final report on the reforms to the current civil litigation costs and funding system Lord Justice Jackson has said this current definition should be changed and has suggested how this might be done. 

It is Jackson LJ’s opinion that costs are ‘proportionate’ where they bear a ‘reasonable relationship’ to the quantum of that case and the legal complexities that surround it.

The addition of ‘reasonable relationship’ is the key alteration to the current definition.

Changes

Mr Justice Ramsey, who is standing in for Jackson LJ whilst he receives long-term medical treatment, told the Westminster Legal Policy Form that changes required by the Jackson reforms would be held ‘in escrow’ by the Civil Procedure Rules Committee for the planned implementation date of April 2013.

The detail of the definition for example will be left to the Civil Procedure Rules committee to draft and implement.

Whilst the changes do not come into force for almost a year the civil courts are already showing ‘some signs of a change in culture’ according to Ramsey J. 

He has however reiterated that ‘the change has to come so litigation can be conducted at proportionate cost’.

Case Management

Central to making the Jackson reforms work is an improvement in case management.  Ramsey J noted that particularly at district judge level there is a ‘much greater willingness to provide continuity of case management’.

Ramsey J has also drawn attention to the need for improvements to be made to the pre-action protocols.

These were brought into force with the purpose of seeking to reduce the costs of litigation, but Ramsey J pointed out that in some ways the opposite has occurred and they have increased costs.

Latest Position

The Legal Aid Sentencing and Punishment of Offenders (“LASPO”) Act which contains the Jackson Reforms received Royal Assent on 1 May 2012 and will be enacted in stages over the next year.

The solicitors admitted negligence, but the question the court had to consider was how much could AIB recover.  When the property was sold following a possession order, £300,000 was paid to Barclays in respect of the amount outstanding to them and the balance of £867,700 approximately was paid to AIB.  However, the advance had been for £3.3 million and so AIB faced a significant loss.  Was AIB’s claim limited to £300,000 (the amount paid to Barclays) or were the solicitors liable for all of AIB’s loss?

As the court noted the common sense view was that the loss AIB claimed was the result of the fact that either the property was never worth the amount it lent against or because of the fall in the market. AIB’s counsel considered, however, that because of the application of equitable principles, the bank would be able to recover all of its loss.

The court analysed the relationship between the solicitor and the bank in relation to the remortgage. The terms on which a solicitor is authorised to pay out monies held in his client account are to be determined by construction of his contract of retainer.  However, equally a payment out of monies in breach of those terms of the retainer that govern the authority to pay would amount to a breach of trust.  The court’s task, therefore, was to construe the terms of the retainer in order to ascertain what authority they confer on a solicitor to pay out of money that he holds on trust for his client.

In this case the written terms of the retainer did not deal explicitly with the precise circumstances in which the solicitor could pay out the money, so that it was necessary to fill in any gaps arising on the ordinary basis of construction.  Analysing the transaction, the Judge considered that the solicitors’ instructions authorised them to pay to Barclays sufficient sums to procure a release of its charge and to pay the balance to the borrower or to their order.  Had they complied with the instructions they would have paid £1.5 million to Barclays and £1.8 million to the borrower.  In the event they paid £1.2 m to Barclays and £2.1 million to the borrowers.  In so doing they committed a breach of trust, but it did not follow that the whole of the payment was made in breach of trust.  The extent of the breach was the amount they should have retained and not the whole payment.

As a result the bank was entitled to reconstitution of the trust fund by repayment of the amount wrongly paid away.  In addition, the bank was entitled to equitable compensation for the additional amounts accruing due to Barclays which had increased the amount secured in priority to the AIB’S interest, but it was ordered to give credit for the amounts paid by the borrowers to the Barclays account since these had had the effect of reducing the loss caused by the defendant’s breach of trust.

This case confirms that where there has been a breach of trust a claimant will only be entitled to claim for the amount relating to the extent of that breach rather than the whole of its loss.

AIB Group (UK) Plc v Mark Redler & Co (a firm) [2012] EWHC 35 (Ch)

(i) Conditional Fee Agreement (CFA/”no win, no fee”) where the “success fee” is   potentially recoverable from the losing opponent; and

(ii) After the Event Insurance (ATE) where against the costs of losing the case, the premium is  potentially recoverable against the losing opponent.

Under Part 2 of the Government’s proposed Legal Aid Sentencing and Punishment of Offender’s Bill, recovery of the success fee and ATE premiums will be abolished.  Unless the Bill is overturned in the House of Lords in the autumn, it is predicted that the Bill could be in force as early as April 2012.

The Lord Chancellor and Secretary of State for Justice, Kenneth Clarke, introduced the second reading of the Bill in the House of Commons on Wednesday 29 June 2011 and the Bill was passed with a vote meaning it will now be considered for scrutiny by a Public Bill Committee.  Those who are interested and who want to have their say on the proposed Bill, can submit their views in writing to the House of Commons Public Bill Committee.  The deadline for written submissions is at the end of the Committee stage on Thursday 13 October 2011.

The Government does not propose that the Bill be retrospective and so any prospective Claimant reading this article who thinks they may have an eligible civil litigation case (whereby their case is assessed by their lawyer to have at least a 60% chance of success) should seek appropriate advice from their solicitor now because a CFA/ATE must be taken out before the abolition takes effect.

Once the law is changed, many claimants will lose the ability to fund their case because they will need to pay their own success fees and ATE premiums.  These fees and premiums could add up to more than the damages recovered, even if their case were to succeed.

The proposed amendments have been subject to widespread criticism on the grounds that the proposed  legislation will remove access to justice to a large proportion of the population and countless small and medium size businesses who rely on “no win no fee” .  Watch this space for developments and updates.

See also:http://services.parliament.uk/bills/2010-11/legalaidsentencingandpunishmentofoffenders.html

Perhaps unsurprisingly, this case was appealed.  The Court of Appeal has now delivered its Judgment. 

The first issue to be determined was whether the buy-to-let purchaser, Mr Scullion had relied on the valuation report.  The Court of Appeal decided that the Judge at the first hearing had asked the right question and therefore this issue could not be challenged.

The second more fundamental question was whether the valuers, Colleys owed the purchaser, Mr Scullion a duty of care.  Much reliance at first instance was placed on the case of Smith v Eric S Bush [1990] 1 A C 831 where the court concluded that as valuers know that 90 per cent of purchasers rely on a mortgage valuation and do not commission their own valuation since many purchasers cannot afford another second valuation the valuer owed the purchaser a duty of care.  

The Court of Appeal concluded that Colleys did not owe the purchaser a duty of care.  There was no inherent likelihood that a purchaser buying a buy-to-let flat would rely on a valuation.  The Court took into account the following factors:

• The valuation was to purchase a residential unit not as the purchaser’s residence, but for the purpose of an investment. People who buy to let are likely to be richer and more commercially astute than people who buy to occupy and can be regarded as more likely to obtain and more able to afford an independent valuation.   
• There was no evidence to support the proposition that anything like 90% of the people who bought to let in 2002 relied on valuations prepared by a valuer instructed by their mortgagees rather than obtaining their own valuation.
• A purchaser buying a property to let is at least just as interested in its rental value as in its capital value.   A valuer valuing a property for a prospective lender for a buy-to-let purchaser would expect the purchaser if he is prudent to obtain his own advice.  A rental value can be a tricky and sensitive issue. 
• A valuer instructed by the prospective lender would appreciate that the lender is primarily interested in its capital value because a mortgagee’s principal concern is that any loan is properly secured.

The Court of Appeal also considered how much Mr Scullion could claim in respect of the rental value.  Although this analysis did not assist Mr Scullion it will be of benefit to others who are entitled to claim against a valuer. 

• Since Colleys had suggested that it would take a month to find a tenant, the first month of rent would not be allowed. 
• Whilst the flat was not let because of the unrealistic rent, then damages for that period could be awarded less the first month.  Once a tenant had been found at a lower price, then the recoverable loss would be the amount estimated by the rental valuation less the amount actually paid by the tenant. 
• Once the tenant left the property, Mr Scullion then made a decision to keep the property empty so as to try and sell it so there was a powerful case for saying that no damages would be attributed as he would have received no rental income whatever the valuation.  However, he may well have been entitled to some damages and so could claim the difference between what a correct valuation would have been and what it was valued at. 

This is a decision that recognises the realities of the buy-to-let market as compared to a purchaser of residential properties to live in.  It will be interesting to see whether this case will have an impact on purchasers of high end properties who may also be able to afford their own valuations.  It  provides a helpful way in which the rental loss could be determined and the question will be whether lenders will now be able to claim loss of rental value when pursing valuers.  Perhaps we have not heard the last of this case and it may be that this case will go to the Supreme Court.  Of course, this will not be of any comfort to Mr Scullions who as the Court of Appeal recognised was taken advantage of and misled by the sellers.

 Emmett Thomas Scullion v Bank of Scotland PLC [2011] EWCA Civ 693

 In the recent Court of Appeal case of Sousa –v- Waltham Forest London Borough Council [2011] EWCA Civ 194, the Court considered whether a claimant was entitled to recover a success fee under a conditional fee agreement with his legal advisers despite being fully indemnified under an insurance policy.

 Conditional Fee Agreements

 A conditional fee agreement (“CFA”) is an agreement between a client and his solicitor whereby the solicitor agrees not to be paid unless they win the case.  Hence their more common name, ‘no win, no fee’.  The CFA usually incorporates a success fee, which is an uplift on the amount of costs the client would have paid had he engaged his solicitor on a usual retainer basis.

 It is also possible to enter into a collective CFA (“CCFA”).  This is a CFA made between a law firm and a purchaser of legal services, such as a bank, trade union or company.  A CCFA provides for fees to be payable on a common ground relating to a number of cases in a similar class.

 There is no longer a statutory reference to CCFAs as the Collective Conditional Fee Agreements Regulations 2000 (SI 2000/2988) were revoked on 1 November 2005.  This revocation was not retrospective so these regulations still apply to any cases brought under a CCFA that that pre-dates 1 November 2005.

 The Solicitor’s Code of Conduct 2007 refers to CCFAs and hence they are still a valid form of CFA.  There is therefore, no reason for parties not to enter into CCFAs where such a agreement of payment is deemed acceptable.

 Guidance on the recovery of costs

 A court has certain parameters it must give consideration to when making decisions about costs:

 -         it must regard all the circumstances (CPR 44.3(4))

-         it must not allow unreasonably incurred costs or those which are unreasonable in amount to be assessed (CPR 44.4(1))

-         when assessing costs on the standard basis only costs proportionate to the matters under consideration will be allowed.  The court will resolve any argument over reasonableness or proportionality in favour of the paying party (CPR 44.4(2))

-         the court must consider whether there were any other methods of funding available when deciding if a CFA’s success fee was reasonable (section 11.8(1), Practice Direction 44.5 (Costs Practice Direction)

 Background

In the case of Sousa –v- Waltham Forest London Borough Council, Sousa (“S”) incurred damage to his house as a result of the roots of a tree in the street.  S claimed on his own household insurance to repair the damage.

S’s insurance company brought a claim against Waltham Forest London Borough Council (“the Council”) as the trees that caused the damage were their responsibility.  S’s insurers instructed solicitors who acted for them under a CCFA with a success fee of 100%.

The claim was settled and the Council agreed to pay S’s costs on the standard basis.  Costs were agreed, save for whether the success fee was recoverable.

When conducting the assessment, the district judge decided that S was never at risk of having to pay costs, because he was covered by insurance, and therefore he refused to allow any success fee.

An appeal was allowed by Judge Behrens, he considered that the subrogation arrangement (that of the insurers to sue on S’s behalf) was irrelevant.

 The Council appealed.  Their position was that S was indemnified for costs and in accordance with section 11.8(c) of the Costs Practice Direction, this fact should be taken into consideration.  S was to be in no different a position from someone who had before the event insurance – they would not be entitled to a success fee.

S’s insurers position was that the court should disregard the insurance as it was “res inter alios acta” (behind the curtain).

Decision

The appeal was dismissed.  Its position was that S was entitled to recover his costs, including the success fee.  S’s insurers had the same right to enter into a CCFA and recover a success fee as S would have done, notwithstanding the subrogation arrangement.

The decision surrounding the recoverability of the success fee centred on whether the costs had been unreasonably incurred, or were unreasonable in amount.  If the indemnity was ignored then there was no reason why S should not be able to enter into a CFS with a success fee.

However, as already stated, the court had to consider all the circumstances.  As a result the indemnity was relevant.

Bearing in mind the case was as a result of a subrogated arrangement; S had no option by to do whatever his insurers requested in order to pursue the claim.  S could not remove the CCFA arrangement that his insurers had in place as he was not in control of the proceedings. 

The court held that it was reasonable for the insurers to enter into a CCFA.  The Council had also accepted this in accordance with the House of Lord’s earlier decision in Campbell –v- MGN (No 2) [2005] UKHL 61:

‘…the mere fact that a person is able to fund litigation without resorting to a conditional fee agreement does not make it unreasonable for him to do so.’

This decision stood, despite the later decision of the European Court of Human Rights (ECtHR) in MGN Ltd –v United Kingdom [2011] ECHR 66, that the order for MGN to pay the success fee was disproportionate bearing in mind the aims of the government and Article 10 of the European Convention on Human Rights.  The interference in this case was found to be part of a legitimate aim intended to widen the access to justice.

The Council made submissions to the Court that they should bear in mind the ECtHR result even though Article 10 did not feature in the case in question.  Their submissions were rejected as the Court found that it would be illogical if the means of a CFA party were taken into account on a reasonableness question in an Article 10 case only.

The Council put forward a second argument that success fees amounted to a denial of justice and had an impact on the freedom of access to the court.  The Court however was not convinced by this argument either.

Impact

This decision will have obvious benefits to those who use CCFA’s. The decision also enforces the court’s belief that MGN –v- United Kingdom has no immediate effect when it comes to the challenge to success fees.

The decision also demonstrates the court’s support for the Jackson reforms, and sanctioned Jackson LJ’s view that of the flaws in the current regime of recoverability, namely that any individual, rich or poor, human or corporate, may enter into a CFA, regardless of their means to fund litigation without it.

In my blog, I explained how the recent case of Paul Wynne Jones v Sue Kaney [2010] EWHC 61 (QB) threatened to do away with expert witness immunity in its entirety. 

The Supreme Court has now ruled on whether an expert witness should be granted immunity from professional negligence suits…please read on for the decision.

Judgment

 Lord Phillips of the Supreme Court gave the lead judgment in a Judgment handed down on 31 March 2011 in which by a majority of five to two, it was held that immunity from suit for expert witnesses should be abolished. 

In his Judgment, Lord Phillips said that Expert witness immunity (which dates back over 400 years) was originally designed to protect the concerns that an expert may have when giving evidence that may be contrary to his client’s interest.  However, Lord Phillips said that expert witness immunity should only be justified as being necessary in the public interest.

In the case of Wynne Jones v Kaney, and in circumstances going forward, the Supreme Court has confirmed that there is no justification for continuing to hold expert witnesses immune from suit for breach of duty in relation to evidence given in court (concerning both claims in contract or in negligence), or in respect of views expressed in anticipation of court proceedings.

Supporting this view, it was noted that removal of immunity for advocates has not diminished their readiness to perform their duty in court and nor has there been an onslaught of claims from vexatious clients against their former advocates.

This decision of the Supreme Court has not, however, affected experts’ absolute immunity from claims in defamation and long-standing immunity of factual witnesses in respect of litigation.

Please also refer to the press summary at http://www.supremecourt.gov.uk/docs/UKSC_2010_0034_ps.pdf

 In the recent Court of Appeal case of Haugesunde Kommune and another –v- Depfa ACS Bank (2011) EWCA Civ 33, an appeal was allowed which overturned an order against Norwegian Solicitors to pay significant damages after they gave negligent advice. This case emphasises that solicitors’ liability for negligent advice will very much depend on the scope of their duty.

 The Usual Position

 In Professional Negligence cases, the principle applied in order to establish the existence of loss, as set out in South Australia Asset Management –v- York Montague Limited (1996) (“SAAMCO”), is that the court will compare the position the Claimant finds itself in having heeded the advice, with its position had there been no breach of duty.

 In order to establish what losses are recoverable the first point is to define the scope of the duty for which the professional is responsible.  This is often a case of easier said than done.

 The recent European case of Haugesunde Kommune and another –v- Depfa ACS Bank (“the Bank”) has highlighted the importance of this distinction.

 Background

 In Haugesunde Kommune, the Bank took legal advice from Wikborg Rein and Co (“Wikborg”), a Norwegian firm of solicitors, regarding its proposed transaction to enter into Swaps Contracts with two Norwegian municipalities.  The Bank was to pay a lump sum to each municipality and would then be repaid over a period of time.  It required advice from Wikborg as to whether the municipalities had the legal power to enter into these contracts.

 The Bank was advised that this transaction would not constitute “a loan” and that the municipalities did have authority to enter into them.

 The Bank paid the sums.  The municipalities invested the money which sustained losses.  Shortly after the investments were made, the Norwegian Ministry of Defence published a decision that Swaps Contracts, such as these, did in fact constitute loans.

 Following their losses the municipalities sought to establish they had no liability to the Bank under these contracts.  Part of their argument was that they did not have the power to enter into the contracts in the first place and as a consequence the contracts were void.  Not surprisingly, the Bank counterclaimed.  The Bank’s position was that either the contracts were valid or, in the alternative it made a claim of restitution for the advances.

 Wikborg were joined into the action by the Bank, with a claim for the losses they suffered resulting from Wikborg’s negligent advice on the validity of the contracts.

 The municipalities succeeding in showing the contracts were void, but were not successful regarding the Bank’s counterclaim for restitution.  Wikborg also failed to defend the claim for negligence against them but issues relating to quantum were left undecided.

 The Bank’s position was that it had suffered a loss of the total sums paid to the municipalities at the time of payment.  The Bank argued that they were entitled to recover this total loss as a result of the negligent advice it had received, less any sums it recovered from the municipalities.

 The court agreed, finding that the Bank would not have made the advances if it had received advice from Wikborg that there was a risk that the contracts were void and therefore there was no contractual relationship between the Bank and the municipalities.

 Wikborg were ordered to pay millions in damages to the Bank. 

 Appeal

Wikborg appealed against the decision, its argument being that the principles set out in SAAMCO applied.  Wikborg contended they should only be responsible for the losses resulting from negligence regarding advice within the scope of its duty.  Wikborg contended that although its advice was incorrect regarding the ability of the municipalities to enter into the contract, and it was acknowledged that the Bank would not have entered into the contracts but for the advice given, they should not be responsible for the losses suffered because its advice was relied upon.  They should only be responsible for the consequences of the advice being wrong.

 The consequences were that a contractual obligation to repay the advances in the future at a low rate of interest, as agreed with the municipalities, became an obligation in restitution to repay the advances immediately or to incur a higher interest rate.

 Decision

 Rix LJ was of the opinion that Wikborg’s retainer was not a general one but they were asked to advise on a specific point regarding the legal standing of the municipalities to enter into the contracts.

 Wikborg, as part of its advice, warned the Bank that they would be unable to execute a judgment against the municipalities.  The Bank was in the position therefore that it was making up its own mind on the creditworthiness of the municipalities.

 Attention then turned to what extent the Bank’s losses fell within the scope of Wikborg’s duty.  If the losses were due to the contract being invalid, then that was within scope.  In this case though, the losses suffered were due to the bad investments made by the municipalities.  Without the bad investments the sums would have been repaid. 

 The losses would only have been within the scope of Wikborg’s duty if the municipalities had been prevented from repaying the sums back to the Bank as a result of their lack of legal power to enter into the contracts in the first place.

 Rix LJ found that the Bank did acquire a right in restitution.  That right was acquired immediately the advances were made because there was no contractual remedy due to the invalidity of the contracts.

 Wikborg were found not to be responsible for any loss the Bank suffered following the advances.  Even if the Bank suffered a total loss upon the transfer of sums, such loss was not within the scope of Wikborg’s duty.

 Gross LJ arrived at the same conclusion, although through a different avenue.

 Gross LJ simply held that the Bank could not recover from Wikborg loss for which Wikborg was not responsible.  Gross LJ’s position was to establish the proper scope of Wikborg’s liability.

 There was, by Gross LJ’s reckoning, no evidence that the loss resulted from the invalidity of the contracts and hence the Bank was not entitled to a finding that its loss was attributable to Wikborg’s negligent advice.

  Conclusion

 The fact that the two judges did not agree on the reasons for reaching their conclusions illustrates how difficult it can be to apply to principles of the SAAMCO  case.

 It is important in all cases to remember that that it is only when the professional’s scope of duty extends as far as advising on whatever is the direct cause of loss that the professional, if negligent, can be held liable for that loss.

Or, in possibly simpler terms, it is a pre-requisite for the claimant to demonstrate that their loss has been suffered as a result of the negligent advice.

 It cannot, after all, be reasonable for the professional to be liable for losses which would have been sustained even if the professional gave their client the correct advice.

George Key, an 89 year old farmer lost his wife of 65 years in December 2006. A week later he made a Will leaving his two daughters £300,000 each, the bulk of his estate,  unchanged at his death in August 2008. His previous Will in 2001, in the context that his wife Sybil survived him, made provision for his daughter Jane to receive £10,000, his daughter Mary £5,000 and his 2 sons, Richard and John, Hall Farm and the residue of his estate.

The sons contested the 2006 Will, maintaining, in effect, that the 2001 version should prevail. After hearing evidence from 20 factual witnesses, including 2 expert psychiatrists, the issue for Mr Justice Briggs to decide was whether George Key, elderly and grief-ridden, had testamentary capacity in 2006 when he made the last Will. In a conclusion extending the ambit of the traditional tests of capacity, based on comprehension, laid down so long ago as 1870 in Banks v Goodfellow, the Court decided that “Mr Key was simply unable during the week following his wife’s death to exercise the decision-making powers required of a testator ” which ..”compels a conclusion that he did not know and approve the contents of his will”. The sisters were therefore subtantially disentitled, as the greter part of the Estate passed under the 2001 Will to their brothers.

The case is of interest not just for the furious family dispute put in evidence to the Court, but for the wider approach to capacity promoted in Mr Justice Briggs words “by the greater understanding of the mind now available from modern psychiatric medicine, in particular as to affective disorder.” It is also interesting in that it highlights that where you might have thought that in the 20 months or so before he died, if he thought at any time his Will did not reflect his current wishes, George Key could have changed it (and didn’t), that of itself is irrelevant. The key consideration is the testator’s capacity at the time the will is entered into, a circumstance which the solicitor on the case, a Mr Cadge, failed to take into account. Had he done so, then he would have obeyed the Golden Rule, requiring him to satisy himself of mental capacity with the assistance of a suitably qualified medical practitioner, as near as possible to the signing of the Will itself.

Mr Justice Briggs felt that whilst he had dealt with the legal issues before him the family would remain divided. It remains to be seen whether that  results in an appeal, or perhaps consideration of action against the draftsman and overseer of the overturned Will in this case. Either way, in matters of this nature, it pays to take appropriate steps during the testator’s lifetime.

In reaching this conclusion in an otherwise dry case concerning planning law, Dyson J emphasised that “solicitors should not lightly be able to terminate their retainers, leaving their clients with the task of finding fresh solicitors to complete the job” but decided that the solicitor’s right must extend beyond the case “..in which he is instructed to do something improper.”

Lord Dyson went on to say, in words likely to cheer the reasonable advocate (is there such a person?), “In my judgment, if an advocate considers that a point is properly arguable, he should argue it without reservation. If he does not consider it to be properly arguable, he should refuse to argue it.”  How refreshing.