Out-Law News | 21 Apr 2022 | 9:20 am | 5 min. read
Professional services firms should consider how the terms of agreements they enter to settle negligence claims might be used to support the future recovery of part of the cost of that settlement from others allegedly responsible for the negligence, experts have said.
Michael Fletcher and Emilie Jones of Pinsent Masons, who specialise in dispute resolution, said a recent ruling by the Court of Appeal in London highlights the hurdles which must be overcome to succeed with so-called contribution claims.
Contribution claims are provided for under the Civil Liability (Contribution) Act 1978. The 1978 Act provides organisations or individuals liable for damage with a right to recover contribution from others who are also liable for the same damage. This includes a right to pursue contribution in cases that have settled, if the professionals can show that they would have been held liable for the damage if the factual basis of the claim against them could be established.
In a judgment handed down last week, the Court of Appeal overturned an earlier ruling by the High Court in respect of a contribution claim.
The contribution claim was brought by solicitors firm Merriman White against a barrister, David Mayall, it had engaged to advise a client, Richard Percy, in relation to the alleged misappropriation of money from a joint venture company. Percy was, via another corporate entity, a partner of that joint venture company.
On the advice of Mayall, Percy pursued a derivative claim under the Companies Act as a shareholder on behalf of the joint venture company against his joint venture partner. At a subsequent mediation, at which Mayall was not present, Percy was offered £500,000 to settle the case. Percy chose to reject the offer. When the legal proceedings went against Percy, he changed solicitors and then accepted a figure of £65,000 in full and final settlement of the case against his joint venture partner.
Percy originally brought a professional negligence claim against both Merriman White and Mayall, alleging that they were responsible for providing negligent advice, such that he had not accepted the £500,000 settlement. However, Percy then discontinued the claim against Mayall, explaining to Merriman White that he thought it arguable that Mayall’s alleged negligence was not causative of his loss.
Merriman White then issued contribution proceedings against Mayall, in terms which reflected the allegations of negligence originally made by Percy against Mayall. Merriman White and Percy subsequently reached a settlement in respect of the claim between them – Merriman White paid Percy £250,000.
Merriman White continued to pursue the contribution proceedings against Mayall and was successful with its case before the High Court, where the judge ordered Mayall to make a contribution of 40% of the settlement sum Merriman White had paid Percy. However, the Court of Appeal has now overturned that finding and dismissed the contribution claim.
The Court of Appeal found that the approach taken by the High Court in assessing the contribution claim was wrong. It considered the judge had not adequately grappled with the issues of whether Merriman White had established that Mayall had been negligent or whether this had caused Percy’s loss.
On the issue of alleged negligence, the Court of Appeal held that, in the circumstances, Mayall’s advice to Percy was within the range of advice which could be given by a reasonably competent barrister and so not negligent. It also found that Merriman White had failed to establish that Mayall’s alleged negligence had caused Percy any loss.
On establishing the link between alleged negligence and loss, the burden is on the contribution claimant to establish that something different would have been done – here, that Percy would have taken a different approach and sought to settle for the £500,000 offered at mediation. Merriman White had not called Percy to give evidence, and he was the only person who could give evidence of what he would have done, so there was no evidence before the court to discharge their burden of proof on this critical issue. The Court of Appeal considered this a “fatal lacuna” in Merriman White’s case.
Michael Fletcher of Pinsent Masons said: “This decision is a useful reminder of the matters which need to be proved by a defendant who, having settled a professional negligence claim with a claimant, pursues a contribution from a third party said to have been liable to the claimant in respect of the same damage.”
Fletcher said that Mayall’s counsel had, in his submissions, provided a useful summary of the four issues which arise in contribution proceedings.
The first issue is whether the contribution claimant was liable to the original claimant in respect of the relevant damage. Under the 1978 Act, this only requires the contribution claimant to show that they would have been liable if the factual basis of the claim against them had been established.
The second issue is whether the contribution defendant is liable in respect of the damage suffered by the original claimant. The correct approach to this question was a central point of dispute between the parties in this case.
Third is the question of whether the damage for which the contribution defendant is liable is the “same damage” as that for which the contribution claimant is liable.
The fourth issue to determine is how the liability is to be apportioned between contribution claimant and contribution defendant.
“The 1978 Act is intended to encourage settlement by removing the need for the settling defendant to fully establish in the contribution proceedings that it would have been found liable to the claimant at a trial of the claimant’s claim against it. However, contrary to the argument made by Merriman White, that defendant – now in their role as contribution claimant – must nonetheless prove a number of critical points against the defendant from whom contribution is sought. Amongst other things, they must prove that the defendant from whom contribution is sought was both in breach of duty and that that breach caused the original claimant loss,” he said.
“Careful thought needs to be given to what evidence is needed to prove these matters, for example whether the original claimant will be needed as a witness and, if the settlement with the claimant took place before disclosure, whether any of the claimant’s documents will be needed. A settling defendant needs to give thought to this when settling with the claimant, as it may well be advisable to secure the claimant’s agreement on these issues as part of the terms of settlement,” Fletcher said.
Emilie Jones of Pinsent Masons said: “While it was suggested by Merriman White’s counsel in submissions that the case raised ‘concerns in the market generally as to the practicability of bringing contribution proceedings’, the Court of Appeal’s decision is, in my view, a correct application of the 1978 Act and of existing principle, with any practical issues generally capable of being overcome by way of suitable terms in the settlement agreement.”
“The outcome also seems fair from the perspective of a defendant like Mayall who had managed to secure his own settlement with the claimant such that the claim against him would not proceed. If such a defendant could too easily be brought back into the litigation by way of contribution proceedings in which that defendant was – had Merriman White’s argument on the effect of the 1978 Act been accepted – deprived of the opportunity to argue in their defence that they were not negligent or did not cause loss to the claimant, that could similarly undermine the objective of encouraging sensible early settlement between parties to professional negligence claims,” she said.