Professional liability case law update: June 2013

Santander UK plc v R A Legal Solicitors

The claimant was a mortgage lender whose advance the defendant firm of solicitors unwittingly paid into the hands of an imposter.  The main issues at trial were (i) whether the defendant acted in breach of trust in releasing the advance, and (ii) if so, whether there was a defence under section 61 of the Trustee Act 1925.

Applying last year’s Court of Appeal decision in Nationwide Building Society v Davisons Solicitors, Andrew Smith J held that because the defendant had deliberately (albeit innocently) paid the advance to the fraudster, that was sufficient to establish a breach of trust given the wording of the CML Handbook.  However, the Judge went on to find that the solicitors had a complete defence under section 61.  The test was threefold: did the trustee act honestly, did it act reasonably, and ought it fairly to be excused for the breach of trust?  Although Santander could point to various criticisms of the defendant’s handling of the matter, none of those were causative of its loss, for which the fraud of an unconnected third party was to blame.  That, said the Judge, was sufficient for R A Legal to meet the section 61 test.  The Judge did, however, go on to say as follows:

“I also conclude that [the criticisms] do not amount to fault on the part of RA Legal that was sufficiently serious or involved such a departure from ordinary and proper standards as to cut them off from the court's discretion to relieve them of liability.”

Although obiter, this does suggest that in certain cases a trustee’s conduct could be sufficiently reprehensible that a court refuses to grant them relief under section 61 (which is ultimately a matter for the court’s discretion), even if that conduct did not cause the claimant’s loss.

Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd

Litigation solicitors who practise in the field of professional negligence will probably have experience of costs budgets through the Mercantile Court and TCC pilot schemes.  As we all know, costs budgets and costs management orders are now of general application as a result of the April 2013 changes to CPR 3.  CPR 3.18 says that when assessing costs on the standard basis, the court will not depart from approved or agreed budgets ‘unless satisfied that there is good reason to do so’.  In this case Coulson J was asked to order costs that exceeded what had been budgeted for, on the basis that he should assess those costs on the indemnity basis.  In the event, the Judge refused indemnity costs.  He went on, however, to say what he considers the position would have been had he decided otherwise.

On one view, because it is only to assessment of costs on a standard basis that the rules refer when stipulating that budgets should not be departed from without good reason, it may seem that costs budgets can be thrown out of the window if indemnity costs are ordered.  Coulson J disagreed, however, for two reasons.  First, the simple fact is that a costs budget represents a party’s estimate of the costs it thinks it will incur.  It is logical, therefore, for the court to take into account that budget on assessment, even if on the indemnity basis.  Secondly, it would be undesirable for an award of indemnity costs to render budgets irrelevant, since that would encourage parties to apply for indemnity costs every time, and would remove the certainty which costs budgets are intended to provide.

The Judge did suggest, however, that if the receiving party’s costs are being assessed on the indemnity basis, the court is more likely to depart from costs budgets than it would have done if assessing costs on the standard basis.  Nevertheless, successful parties’ representatives will still have to justify any costs incurred beyond the budget.

West v Ian Finlay & Associates

This case has cast a welcome spotlight on net contribution clauses.  Familiar to those who practise in the construction negligence field, net contribution clauses are intended to limit the liability of a professional to a fair share of the claimant’s loss – or, to put it another way, such share of the loss as the defendant would have been found liable to pay had it made a contribution claim against a third party contractor under the Civil Liability (Contribution) Act 1978.  The practical effect of such clauses – if effective – is to place on the claimant’s shoulders the risk of a third party contractor being insolvent.

The Wests’ claim was against their architect.  Broadly speaking, it alleged a failure to identify defects in the main contractor’s works.  The defendant sought to rely on a net contribution clause which, if effective, would have reduced its liability by the extent to which the main contractor would have been held responsible had he been joined in contribution proceedings.  The clause referred to limiting liability ‘in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by you.’  The claimants argued that in circumstances where, at the time the contract was entered into, the main contractor had already been appointed by them, the reference to other contractors could not include the main contractor.  Accordingly, they argued that the clause was of no effect.  The Judge, Edwards-Stuart J, resolved this ambiguity in the claimants’ favour because of regulation 7(2) of the Unfair Terms in Consumer Contracts Regulations 1999, which provides: "If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail…"

The claimants also argued that the clause was unfair within the meaning of the 1999 regulations.  The Judge did not accept this, however, considering that the inclusion of the clause within the defendant’s terms and conditions was consistent with fair and open dealing.