Unfavourable expert reports – Prohibition on ‘Expert shopping’
May 8, 2012
Edwards-Tubb v JD Wetherspoon [2011] EWCA Civ 136
The claimant suffered an injury as a result of an accident at work, for which the defendant employer admitted liability.
Under the pre action protocol the claimant suggested three potential medical experts in the letter of claim, and subsequently one of the expert orthopaedic surgeons was instructed to prepare a report. This report was never disclosed.
Proceedings were issued and the expert report that the claimant relied on in the particulars of claim mentioned the previous undisclosed report.
The defendant employer applied to the court for an order that the first report be disclosed. They argued that disclosure ought to be made a condition of the permission which the claimant needed under CPR r35.4 to rely on the second expert report. The application was initially successful, and a conditional order was granted to this effect. The order was then overturned as the appeal judge felt that the decision overrode the right of privilege.
The defendant appealed to the court of appeal and there was a unanimous decision to restore the first instance judge’s order. Hughes LJ found that:
i) Part 35 of the CPR dealt with experts who were instructed to report ‘for the purpose of proceedings’. Although there is a distinction between an expert instructed privately, and an expert instructed under Part 35, there is no difference in principle between a change in expert instructed for the purpose of proceedings pre-issue, and a change in expert, who is instructed for the purpose of proceedings, post-issue;
ii) Once a party has commenced the pre-action protocol procedure, there is no good reason as to why an expert’s report should not be disclosed; and
iii) It was necessary for the court to exercise its discretion under CPR 35.4 in order to discourage so called ‘expert shopping’, and to maximise the information available to the court.
Parties who are dissatisfied with the contents of an expert report therefore need to be aware that the courts have this discretionary power under CPR r35.4, and will order the disclosure of earlier reports if they feel it is in the interests of justice to do so.
Keydata Claims
May 1, 2012
FSCS’s Lifemark action
The FSCS has paid out millions to consumers following the collapse of Keydata in June 2009.
In the last week it has instructed Herbert Smith to send letters to hundreds of IFAs relating to Lifemark products: the Secure Income Bond 4, Secure Income Plan 1 – 12 and Defined Income Plan 1 – 8, requesting early payment of claims. We understand that Herbert Smith will be sending similar letters relating to other products in the coming weeks.
From a professional negligence perspective, it is unclear how the FSCS and Herbert Smith have reached the conclusion that the advice on these products was negligent. No doubt the professional indemnity insurers of IFAs forwarded a letter will be examining the issues carefully.
However, IFAs need to ensure that they speak to their insurance broker or insurer as soon as they receive any letter from Herbert Smith. Even if no letter has been received it is worth speaking to your insurance broker to discuss whether a notification under your PI policy is appropriate.
However, if you have made a notification and it has been declined then please contact us as we may be able to assist. We are currently forming a group of IFAs which have Keydata exclusions, or have had Keydata notifications declined, which can share the legal fees involved in defending the claims against them, thereby massively reducing the cost.
Please email info@fenchurchlaw.co.uk
or call 020 7337 6116 and ask for Rob Fink
High Court decision on the recovery of “mitigation costs” under Professional Indemnity Insurance Policies
March 20, 2012
Standard Life Assurance Ltd v ACE European Group [2012] EWHC 104 (Comm)
The Claimant owned an investment fund containing a substantial proportion of asset-backed securities. Following the collapse of Lehman Brothers in 2008, the asset-backed securities became increasingly illiquid, making their valuation more and more subjective. The Claimant decided to switch to a different source of prices, which resulted in a fall in value of units of the fund by 4.8%. There followed a mass of complaints, and due to the Claimant’s fears that many of its customers would make a claim, it made a cash injection into the fund of over £100 million.
The Claimant then sought to recover the cash injection from the Defendant, which was the Claimant’s professional indemnity insurer, on the basis that the cash injection constituted ‘mitigation costs’. Under the insurance policy mitigation costs were described as:
“…any payment of loss, costs or expenses reasonably and necessarily incurred by the assured in taking action to avoid or reduce a third party claim (or to avoid or reduce a third party claim which may arise from a fact, circumstance or event) of a type which would have been covered under this policy”.
The Defendant insurers argued that the payments were made for the dominant purpose of reducing damage to the Claimant’s brand, and not for avoiding claims and, as such, were not covered under the policy.
Mr Justice Eder rejected this argument and ruled in favour of the Claimant, deciding the correct approach was to look at the intended effect of the payment, not the motive behind it. The mitigation clause was not concerned with purpose, only with whether the intended result was to reduce claims.
The Judge also dismissed the argument that there should be apportionment to reflect the fact that there may have been mixed motives (to reduce claims, and to protect reputation). He also commented that insurers should not inappropriately attempt to apply the marine property insurance principle of apportionment to professional liability policies.
Claims for compensation under the Riot (Damages) Act 1886
September 7, 2011
The Riot (Damages) Act 1886 is designed to compensate people and businesses which suffer losses following riots. It also enables insurance companies which have paid out claims under policies to recover the cost of such claims from the relevant police authority in charge at the place of the riots. The thinking behind the Act appears to be that it is right and proper that where, as a society we put in place a system to protect us from riots (ie, the police), and that system, for whatever reason, fails to do so, then it is appropriate that that system compensates us, the public.
There has been much debate in the press, as well as within the insurance and legal industries, as to whether businesses can claim compensation under the Act for consequential losses, ie for losses other than damage to property, such as loss of profits. The government has, perhaps unsurprisingly, stated that only damage to property can be compensated under the Act. If consequential losses were to be allowed then the cost of the riots to the police and, by extension, the taxpayer would rise exponentially.
However, having reviewed the Act and the relevant Regulations, it is unclear on what basis consequential losses would be excluded.
The Act states:
Where a house, shop, or building in a police area has been injured or destroyed, or the property therein has been injured, stolen, or destroyed, by any persons riotously and tumultuously assembled together, such compensation as hereinafter mentioned shall be paid out of the police fund of the area to any person who has sustained loss by such injury, stealing, or destruction…
Claims for compensation under this Act shall be made to the compensation authority of the police area in which the injury, stealing or destruction took place, and such compensation authority shall inquire into the truth thereof, and shall, if satisfied, fix such compensation as appears to them just
It is in our view arguable that loss arising from the destruction of property can properly be said to include consequential loss. Further, the only restriction on the calculation of the loss is limited to what appears “just”, albeit what is “just” is to be determined by the compensation authority itself leading, perhaps, to a conflict of interests.
In any event, until the issue is decided, businesses may wish to include consequential losses in claims for compensation made to the body set up by the government in Glasgow for the purpose of handling the claims but ensure that they do so within the 42 day time limit from the date of the damage to property during the riot.
When does time begin to run when an insurer refuses indemnity under a third party liability policy?
August 24, 2011
William McIlroy Swindon Ltd, Rannoch Investments Ltd v Quinn Insurance Ltd
[2011] EWCA Civ 825
Quinn Insurance Limited (“the Insurer”) provided public liability insurance to one of the Claimants’ sub-contractors (“the Policyholder”). The Policyholder was sued by the Claimants in relation to a fire which occurred in 2006, and the Insurer refused indemnity under the public liability cover in February 2009 alleging that the Policyholder had been in breach of certain policy conditions.
The Claimants’ claim against the Policyholder was successful, and damages were assessed by the Court at two separate hearings, on 11th December 2009 and 13th January 2010. The Policyholder failed to satisfy the judgement obtained by the Claimants, and went into liquidation shortly afterwards. The Claimants then issued proceedings against the Insurer, under the Third Parties (Rights Against Insurers) Act 1930 (“the 1930 Act”), in April 2010.
The Insurer defended the 1930 Act claim on the basis that there was a clause within the policy which required a dispute about liability under the policy to be referred to an arbitrator within 9 months of the dispute arising. The Insurer said that such a dispute arose when it refused indemnity in February 2009, and that the Claimants’ 1930 Act claim was therefore time-barred. The judge at first instance, hearing the matter as a preliminary issue, found in favour of the Insurer.
On appeal the Claimants succeeded in arguing that the 9 month time limit did not begin to run until the Policyholder’s liability had been established and quantified. The Court of Appeal followed Post Office v Norwich Union Fire Insurance Society Limited [1967] 2 Q.B in finding that an insurer’s liability under an indemnity policy does not accrue unless and until the existence and amount of the Policyholder’s own liability has first been established.
In this case the arbitration clause therefore did not operate to bar the Policyholder’s claim, since quantum was not established until December 2009 / January 2010 and the Claimant’s 1930 Act claim, which was issued in April 2010, was therefore brought within the nine month period required by the policy.
Court of Appeal decision on CFA success fees
May 13, 2011
Sousa v London Borough of Waltham Forest [2010] EWCA Civ 194
The Claimant suffered subsidence damage to his property caused by the roots of a tree which was owned by the Defendant. The Claimant claimed on his house insurance policy for the damage, and his insurer provided him with a full indemnity. The insurer then proceeded to exercise its right of subrogation and instructed a firm of solicitors who were to work under a collective conditional fee agreement.
The claim succeeded but the Defendant objected to the payment of the success fee on the basis that the Claimant was never at any risk of having to pay costs as he had the benefit of an insurance policy. At first instance this argument was upheld. The Claimant appealed the decision and the Court of Appeal has now reinstated the success fee.
In reaching its decision the Court followed the decision of the House of Lords in Campbell v MGN (No.2) [2005] UKHL 61 and allowed recovery of the success fee, holding that “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”.
The Court also dismissed as without merit any argument that the case was comparable to the ECHR decision in MGN v UK (Application No. 39401/04) on the grounds that (i) the question of whether the success fee interfered with freedom of speech was not applicable; and (ii) as the liability to pay a success fee did not interfere with the Defendant’s rights under the European Convention for Human Rights in this case, questions of proportionality and reasonableness did not arise.
High Court decision on solicitors’ undertakings
Halliwells LLP v NES Solicitors and Quinn Insurance [2011] EWHC 947
NES was approached by a new, apparently wealthy, client and asked to provide an undertaking to pay Halliwells £1.5 million as part of a share purchase agreement. The client provided a “gold delivery certificate” purported to be worth £10 million. The partners of NES, in reliance on the certificate, but knowing the funds had not cleared, provided the undertaking. The certificate was later found to be worthless.
NES failed to honour the undertaking and was sued by Halliwells. Halliwells obtained summary judgment. The professional negligence insurers of NES, Quinn, refused to pay the claim made by NES on the basis that:
i) the partners of NES were dishonest or condoned dishonesty;
ii) that the undertaking was not given in a solicitorial capacity; and
iii) that the undertaking was given for the benefit of NES (ie a £15,000 fee)
It was held that NES had acted dishonestly and as such Quinn was not required to provide an indemnity.
Solicitors should always carry out the requisite money laundering checks and consistently be on the look out for unusual transactions. With regard to undertakings the giving of an undertaking in a ‘solicitorial’ capacity requires substantive legal advice to have been given or a legal service provided. Undertakings have to be given in connection with legitimate legal work and not merely in order to receive remuneration.
Immunity of expert witnesses
April 15, 2011
In Stanton v Callaghan [1998] EWCA Civ 1176, it was held that the immunity of an expert witness extended to protect him from liability for negligence in preparing a joint statement for use in legal proceedings. This rule was designed to ensure that witnesses were not deterred from giving evidence in court due the risk of later allegations of negligence.
However, in Jones v Kaney the Supreme Court held by a majority of 5:2 that immunity for experts should be abolished. In this case the Claimant was involved in a road traffic accident. When bringing proceedings his solicitors appointed Dr Kaney, a consultant clinical psychiatrist, who initially concluded that Mr Jones was suffering from severe PTSD.
When only quantum remained in dispute Dr Kaney held discussions with the Defendant’s expert. A joint experts’ report was then signed that was extremely damaging to Mr Jones’ claim and contrary to Dr Kaney’s initial prognosis. The Claimant ultimately settled for significantly less than could have been achieved without this joint statement.
The court held it would be unjust for Dr Kaney to be immune from the effects of signing a statement which detrimentally affected the Claimant, especially when she admitted afterwards that it did not reflect what was agreed in the telephone conversation, and that she had felt pressurised to agree to it.
The majority were confident that this would not reduce the number of practitioners willing to give expert evidence and would not make an expert witness less likely to be willing to concede points or to comply with his duty to the court. They disregarded the suggestion that experts would quickly become subject to a multiplicity of claims and the decision is an attempt to ‘professionalise the expert witness industry’.
ECHR decision on Conditional Fee Agreements
February 10, 2011
In February 2001, the publisher of the Daily Mirror newspaper (‘MGN’) was sued by Naomi Campbell for breach of confidence and misuse of private information. At first instance, Ms Campbell was successful. The Court of Appeal overturned the decision in 2004 and subsequently, the House of Lords (as it then was) reinstated the first instance decision and Ms Campbell was awarded £3,500 in damages.
MGN was ordered to pay Miss Campbell’s costs of the litigation, in the sum of just over £1 million. £600,000 of this sum related to the House of Lords Appeal in which solicitors and counsel acting for Ms Campbell had acted on a CFA with a success fee.
MGN appealed to the House of Lords (the ‘Costs Appeal’) on the basis that it should not be liable to pay the success fee due to the huge disparity between the amount awarded in damages and the level of Ms Campbell’s costs. MGN argued that the disparity constituted an infringement of its right to freedom of expression under Article 10 of the European Convention on Human Rights (“Article 10”).
MGN was unsuccessful in the Costs Appeal, which was conducted by Ms Campbell’s solicitors on a CFA with a 95% success fee. The House of Lords found that the existing CFA regime, with success fees, was compatible with Article 10, even when used by wealthy litigants. MGN was ordered to pay the costs of the Cost Appeal, which were in the region of £250,000.
On 18 January 2011, the European Court of Human Rights (“ECHR”) found that the requirement that MGN bear the cost of the success fee was disproportionate and a violation of Article 10. MGN’s total costs liabilities were subsequently settled for £500,000.
Four “flaws” in CFAs were particularly noted by the ECHR:
1) The lack of a qualifying requirement for claimants entering into a CFA, so that CFAs can be used by wealthy individuals who are able to pay legal fees;
2) That there is no incentive on the claimant to control costs under a CFA;
3) Than an opposing party would often be “held to ransom” for early settlement due to the excessive costs burden being put on them;
4) That cases funded by CFAs could be “cherry picked” on the basis of their chances of success, which the ECHR considered indicated that recoverable success fees did not achieve the intended objective of providing access to justice to all.
Paying parties in non-defamation/privacy cases will want the principles in this case expanded to all civil cases. However this may prove to be difficult in cases not concerning Article 10, especially if the shield of Article 6 (Right to a fair trial) is used by CFA funded claimants.
The recoverability of CFA success fees was already under attack before the ECHR’s decision in Campbell –v- MGN. However, this decision may hasten the abolition of recoverability which was recommended by Lord Justice Jackson in his review of civil litigation costs. Solicitors will now need to consider alternative ways to fund claims on a basis that Claimants can afford.
Court of Appeal decision on the “date of knowledge” under s14A Limitation Act 1980
January 4, 2011
In personal injury cases proceedings must be issued at court within 3 years of the date on which the injury occurred or, if later (for instance, where the injury is latent), within 3 years of the date that the injured person had the knowledge required in order to bring the claim (s.14A Limitation Act 1980).
The ‘Atomic Veterans Litigation’ (Ministry of Defence v AB and others [2010] EWCA Civ 1317) concerned injuries alleged to have been caused by atmospheric nuclear tests that took place in the Pacific between 1952 and 1958. Claims were issued by a group of 1,011 ex-servicemen who claimed to have suffered injury through exposure to radioactive fallout. The Ministry of Defence denied liability.
Upon the making of a Group Litigation Order in favour of the Atomic Veterans, 10 lead cases were tried on limitation as a preliminary issue. The trial judge found in favour of the claimants in all 10 cases: five on the basis that the claimants did not have the relevant knowledge of the injury, for the purposes of s.14A, until less than 3 years before proceedings were commenced.
On Appeal it was held, in all but one of the five cases originally allowed to proceed under s.14A, that they were statute barred, as the claimants had relevant knowledge more than 3 years before the claims had been issued. On the question of what exactly constitutes knowledge, the Court of Appeal held that a claimant only needs enough knowledge for it to be reasonable to expect him to set about investigation. In this case the claimants sought to rely on the fact that they were awaiting the results of expert evidence as to the cause of their injuries before pursuing the claims. The Court of Appeal refused to allow them to do so, finding that time began to run for the purposes of s.14A when it was reasonable to the claimants to investigate, not when the result of that investigation was known.
