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Banking Matters – January 2016

Banking Matters – January 2016

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Landmark decision allows recovery from non-debtors

The Chancery division of the High Court has produced a landmark judgment in relation to […]

The Chancery division of the High Court has produced a landmark judgment in relation to charging orders over a debtor’s beneficial interest. In a decision which will be of great benefit to judgment creditors, the court ordered that a charging order could be granted over the property of a non-debtor. Walton v Allman [1] therefore allows a creditor to recover from a debtor even though an asset may not be in the debtor’s own name.

Walton v Allman – facts and proceedings

The claimant, Mrs Walton, brought a breach of contract claim in 2011. In the course of the proceedings the defendant, Mrs Allman, issued an application for security for costs against Mrs Walton, who appeared to have no assets in her name. Mrs Walton opposed that application and adduced evidence that she held a beneficial interest in the marital home, which was registered in her husband’s sole name. The claim was dismissed at trial and Mrs Allman was awarded her costs in the sum of £30,000 When the costs went unpaid Mrs Allman applied for a charging order over the Mrs Walton’s interest in the home.

Mrs Walton’s husband joined the proceedings and disputed that his wife had any interest in the property. In addition, Mrs Walton then filed a witness statement which stated that she accepted that she did not have an interest in the property on a legal or equitable basis and that she had never held such an interest. Finding for Mrs Allman, the court held at first instance that Mrs Walton did hold a beneficial interest in the property, and made the charging order final, although it did not quantify the nature of the beneficial interest [2].

Mrs Walton was granted permission to appeal on the basis that it was in the public interest to determine whether a final charging order could be obtained over the beneficial interest of a debtor when the beneficial interest had not been quantified.

Landmark decision

The High Court decided that there was no need to quantify the extent of a judgment debtor’s beneficial interest before making a charging order final.

Snowden J first stated that, pursuant to section 2(1)(a) of the Charging Orders Act 1979 (the 1979 Act), a charging order can be granted over any interest held by the debtor beneficially. In addition, under s.3(4) of the 1979 Act, a charge imposed by a charging order shall have the same effect as an equitable charge created by the debtor.

The court rejected the Mrs Walton’s arguments regarding the requirement for the beneficial interest to be quantified [3]. Snowden J highlighted that the case law used by counsel for Mrs Walton was in relation to section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA), rather than to charging orders, and drew a distinction between the two. In a TOLATA application a claimant makes an application to ascertain the extent of the interest. However the purpose of a charging order is to give a judgment creditor the equivalent of an equitable charge to secure payment of a judgment debt. Therefore, in the same way that it must be possible for a debtor to grant an equitable charge over their beneficial interest without calculating the value or extent of that interest, Snowdon J found that there was no reason why it should be necessary for the court to quantify the extent of the beneficial interest before granting a final charging order. The judge also referred to the fact that the relevant court forms do not require the extent of the beneficial interest in the relevant asset to be quantified.

The High Court also highlighted the importance of policy considerations and the practicalities of the 1979 Act. A delay in being able to obtain a final charging order can be fatal, as the debtor can be subject to insolvency proceedings before the charging order is made final. The purposes of the 1979 Act may therefore be defeated if a judgment creditor has to wait for the interest to be quantified before a charging order will be granted.

WM Comment

The practical consequences of this decision for a judgment creditor are beneficial: it confirms that a creditor can obtain a charging order over an asset that is not in the debtor’s name. Therefore, where a debtor does not appear to have any assets, judgment creditors can and should make enquiries as to whether the debtor has any beneficial interest in any asset[s] that could be made subject to a charge. The case also shows that a charging order can be made over the relevant asset[s] without the need for the court to quantify any beneficial interest. It is therefore sensible to make any application for a charging order promptly. However it would be advisable to clarify the extent of any beneficial interest before taking subsequent steps to enforce any charging order obtained, to ascertain how much would be recovered and whether taking enforcement action would be cost effective.

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[1] [2015] EWCH 3325 (Ch)
[2] Mrs Allman argued that Mrs Walton held a beneficial interest in the property pursuant to a common intention constructive trust. The court held that Mrs Walton held a beneficial interest, but did not quantify the nature of that interest.
[3] Counsel for Mrs Walton had sought to rely on the two-stage test in Jones v Kernott [2012] 1 AC 776 (see Landmark decision allows recovery from non-debtors for previous Walker Morris briefings on the subject of ascertaining beneficial interests).

Limiting solicitors’ liability

Limited retainer = limited duty In the recent case of Minkin v Landsberg [1] the […]

Limited retainer = limited duty

In the recent case of Minkin v Landsberg [1] the client (Ms Minkin) had negotiated settlement of a dispute before consulting a solicitor. Ms Minkin then asked the defendant (the solicitor) to record the settlement in a consent order, in a form likely to be approved by the court. When Ms Minkin later came to regret the terms of her settlement, she claimed that the solicitor should have gone further than merely documenting the settlement and should have advised on the merits of the deal. The Court of Appeal disagreed, acknowledging the existence and validity of a retainer which limited the scope of the solicitor’s duty.

Practical points

The following important practical points arise, which will be of interest to professionals and clients alike.

A solicitor’s contractual duty is to carry out the tasks which the client has instructed and the solicitor has agreed to undertake. A solicitor and client may limit their retainer accordingly.
A solicitor’s duty of care under the law of negligence is to carry out those tasks with reasonable care and skill.
It is important that clients must be able to instruct solicitors, and solicitors must be able to accept instructions, on a limited basis. Otherwise impecunious clients may not be able access legal services and solicitors might refuse instructions for fear of an unreasonably broad duty.
As a matter of good practice, a solicitor should confirm any limitation to the retainer in writing. If it does not, there is an evidential risk and a court may not accept that any limitation was agreed.
However, it is implicit that a solicitor will give advice which is reasonably incidental to the work being carried out.
To determine what is reasonably incidental, the court will have regard to all the circumstances of the case, including the character and experience of the client.
It is possible that the experience of lenders and commercial clients in certain matters may be such that a limitation on the scope of a solicitor’s duty may be more readily implied.
Lenders and commercial clients should therefore check their terms of their solicitors’ retainers carefully. Clients should ensure that any retainers are broad enough that their interests – and therefore their potential for future recovery, should it be required – are sufficiently protected.
Clarity of the scope of the retainer, and written confirmation of this, is paramount.

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[1] [2015] EWCA Civ 1152

Borrower’s attempt to avoid enforcement amounted to abuse of process

Important principles Res judicata is the fundamental legal and public interest principle which states that […]

Important principles

Res judicata is the fundamental legal and public interest principle which states that there should be finality to litigation and that defendants should not face repeated litigation in respect of the same set of circumstances. This can be particularly relevant in banking litigation cases and/or cases involving litigants in person who may not always be familiar with court rules and due process.

The courts also have the power, under rule 3.4 (2) (b) of the Civil Procedure Rules (CPR) to strike out claims which amount to an abuse of process. Although there is no specific definition of ‘abuse of process’ in this context, it is clear that this covers (non-exhaustively) re-litigation situations, advancing a case or issue that is inconsistent with an earlier judgment [1], and advancing claims or arguments that could and should have been made in earlier proceedings [2].

In the 2007 Aldi [3] case, the Court of Appeal ruled that, for reasons of public interest and the efficient use of court resources, parties should inform the court in ongoing proceedings of any possibility of bringing a related claim in subsequent proceedings. That has become known as the ‘Aldi requirement’.

In the recent case of Dickinson v Acorn Finance [4] the lender raised these principles before the Court of Appeal, and succeeded in having the borrower’s attempt to avoid enforcement of a possession order dismissed as an abuse of process.

Particular case

The lender had obtained a possession order and the borrower’s application to set aside the order and subsequent appeal were dismissed. Then, as the lender was about to recover possession, the borrower issued entirely new proceedings, claiming that the charge was unenforceable pursuant to section 26 of the Financial Services and Markets Act 2000 (FSMA) [5]. That argument had not been raised before in any of the previous litigation. The question for the Court of Appeal was whether section 26 FSMA should ‘trump’ the rules against re-litigation.

Court of Appeal clarification

The Court of Appeal confirmed that the principles preventing re-litigation should be approached in a broad, merits based way. As such, there may be differences between transactions rendered illegal by statute and those rendered unenforceable and, further, there may be differences between cases where statute dictated a blanket unenforceability and those where there might be a nuanced unenforceability. When it came to FSMA, section 26 allowed the court to enforce if it was just and equitable to do so. That nuance meant that it could not be said that applying the rules against re-litigation would mean that the court was enforcing an unenforceable agreement. In addition, it would be consistent with the Aldi requirement not to interfere with another court’s decision in circumstances where the claimant had failed to inform the court of the new issue or claim. FSMA did not therefore ‘trump’ the rules against re-litigation, and the borrower’s claim amounted to an abuse of process.

WM Comment

The crucial question in any potential abuse of process situation is whether, in all the circumstances, a party is misusing or abusing the court process when raising an issue which could have been raised before. To decide whether there has been an abuse of process, the court must adopt a broad, merits-based approach to the facts of the particular case. Res judicata and the rules against abuse of process exist for the protection of all. The certainty and finality of litigation; the authority and supremacy of a judgment of the court; and the cost-efficiency of the court process for individual parties and for the public as a whole all depend upon these important principles. So far as lenders are concerned, there can also be significant time, cost and reputational savings for defendants who can apply the rules to successfully counter or strike out unmeritorious or vexatious claims or repeated litigation.

Please contact any member of the Banking Litigation team for further advice and assistance.

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[1] This abuse of process is known as ‘collateral attack’
[2] This is known as the rule in Henderson v Henderson (1843) 3 Hare 100, or the Henderson principle
[3] Aldi Stores Ltd v WSP Groups & Ors [2007] EWCA Civ 1260
[4] Dickinson and Anor v Acorn Finance Ltd [2015] EWCA Civ 1194
[5] The claimant alleged that most of the land included in the charge was used in connection with a dwelling, that the charge was therefore a regulated mortgage contract entered into by an unauthorised person, and that it was therefore unenforceable under FSMA.

Caution for interest rate swap claimants

In April 2014 the Supreme Court refused permission for the claimants to appeal the high […]

In April 2014 the Supreme Court refused permission for the claimants to appeal the high profile decision that Royal Bank of Scotland Plc did not make any misstatements, and as such was not held liable, to Mr Rowley and Mr Green in connection with the interest rate swap which formed the basis of their mis-selling claim [1]. The Supreme Court’s refusal was welcomed by banks because it left undisturbed the previous approach of the lower courts, regarding both the non-existence of an advisory relationship and the adequacy of the bank’s disclosure regarding the swap’s break costs.

In another important case, Thornbridge v Barclays [2], the High Court has dealt another blow which means that those considering interest rate mis-selling claims should proceed only with real caution.

Claimant’s allegations

In this case the borrower claimant entered into a swap agreement to hedge its interest rate exposure on a £several million commercial real estate loan. When the market crashed following the 2008 financial crisis and interest rates fell to historically low levels, the swap (in particular the level of break costs) became much more expensive than the borrower had anticipated. In an attempt to recoup losses, the borrower brought a claim against the lender, alleging that the bank had acted in breach of contract and/or in breach of duty by failing to provide adequate information and advice, including by failing to provide examples of the break costs that would apply when interest rates were very low and by failing to set out comparative advantages and disadvantages with other hedging products.

Court’s decision and key issues

In a clear and helpful decision which will be of interest and importance to anyone bringing or defending an interest rate swap mis-selling claim, the court found as follows.

The bank had not assumed an advisory role. It was clear that the bank was selling a swap product and that any predictions and views given by the bank had not gone beyond the daily interactions of a sales force and its customers. The fact that the bank had not received any fee was also relevant to the finding that there was no advisory relationship.
The terms of the swap itself precluded the claimant from asserting that the bank had given any advice. The claimant had signed up to a non-reliance representation within the swap contract. The court held that such a clause was not an exclusion of liability clause which would be enforceable by the bank only if it was reasonable pursuant to the Unfair Contract Terms Act 1977 (UCTA) [3]. Rather, the representation was a clause which explained the basis of the parties’ relationship and agreement, and it therefore created an estoppel which prevented the claimant from asserting that the bank had given any advice.
The scope of the bank’s duty in relation to its provision of information about the swap was limited to providing information that was accurate and not misleading. There was no wider duty to ensure that it provided full information. The bank could not be criticised for not providing break cost illustrations for interest rates as low as those caused by the global financial crisis.
The lack of advisory role also meant that the bank could not be criticised for not providing information about the comparative advantages and disadvantages of the swap as against different hedging products.
More generally, although the claimant was a retail customer, he was carrying on business and so he could not claim under the Financial Services and Markets Act 2000 (FSMA) for alleged breaches of the (then) Financial Services Authority’s (FSA) conduct rules. In addition, the reference in the bank’s general terms of business to transactions being subject to FSA rules did not incorporate those rules into the claimant’s swap contract with the bank.

WM Comment

The High Court clearly and comprehensively dismissed each of the claimant’s attempts to recoup its interest rate swap losses from the bank in Thornbridge. Our advice to lenders in the current climate would be to strongly resist any swap mis-selling claims. Whilst every case will turn on its own facts, the courts seem to be doing all they can to keep the floodgates closed. Lenders currently facing such claims may even wish to consider making a summary judgment or strike out application, in light of recent decisions.

As a brief aside, in another interest rate swap mis-selling claim heard even more recently [4], the High Court has made a procedural decision which may further assist defendant lenders. The court refused a claimant’s application for specific disclosure of documents which did not pertain directly to matters in dispute, but which the claimant argued might establish collateral facts relating to other complaints of swap mis-selling by the lender, and which might therefore be admissible as similar fact evidence. Taking into account a variety of factors, including the need to protect against a ‘fishing expedition’, the need to prevent satellite issues derailing the trial, proportionality and oppression to the lender, the court stated that even if the requested documents would be relevant and admissible, the court had the discretion to refuse to admit them.

Please do not hesitate to contact Richard Sandford, Sandip Singh or any member of Walker Morris’ Banking Litigation team for further advice or assistance.

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[1] See Walker Morris’ earlier briefings on the case.
[2] Thornbridge Ltd v Barclays Bank Plc [2015] EWHC 3430 (QB)
[3] In any event, the court also considered that if the clause in question had been an exclusion clause, it would nevertheless be reasonable under UCTA, and would therefore be enforceable to exclude liability on the part of the bank.
[4] Claverton Holdings Ltd v Barclays Bank plc [2015] EWHC 3603 (Comm)

PPI complaints and Plevin – update

In the last issue of Banking Matters, we highlighted the FCA’s consultation proposals for the […]

In the last issue of Banking Matters, we highlighted the FCA’s consultation proposals for the handling of Payment Protection Insurance (PPI) complaints generally and for dealing with the so-called ‘Plevin problem’ (that is, the uncertainty following the Supreme Court’s decision [1] that non-disclosure of a significant amount of PPI commission earned by a lender created unfairness in the lender/borrower relationship).

The FCA has now published its consultation and full proposals. The consultation is open until 26 February 2016 and sets out (and asks for views on) proposals for:

a new rule that would set a deadline by which consumers would need to make their PPI complaints or else lose their right to have them assessed by firms or by the Financial Ombudsman Service (2 years as originally proposed, likely to come into effect sometime in 2016, after the FCA set out their final rules);
an FCA-led communications campaign designed to inform consumers of the deadline;
a new fee rule on funding this consumer communications campaign (to be funded by the 18 firms with the most PPI complaints between them);
new rules and guidance on the handling of PPI complaints, to include single and regular premium PPI; and
the proposed deadline also to apply to PPI complaints falling within the scope of the proposed new rules and guidance on Plevin.

Walker Morris will continue to report on the consultation. In the meantime, if you have any queries in connection with PPI mis-selling or any other regulatory issue, please contact a member of our Banking Litigation team.

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[1] Plevin v Paragon Personal Finance Limited [2014] UKSC 61.

Goldsmith Williams case: Conveyancers’ duties and causation

The “Bowerman duty” The duty of conveyancing solicitors to report to a lender was established […]

The “Bowerman duty”

The duty of conveyancing solicitors to report to a lender was established in Mortgage Express Ltd v Bowerman & Partners [1] and is commonly referred to as the “Bowerman duty”.

In that case the conveyancer discovered that the seller was proposing to buy a property and sell it on to the borrower in an immediate sub-sale. The solicitor drew the proposed sub-sale to the borrower’s attention but did not mention it in his report to the lender. The lender brought a claim for negligence against the solicitor and the Court of Appeal found that the solicitor owed duties of confidence and to act in each client’s best interests to both the borrower and the lender. The court found that there was no conflict between the duties owed to both clients where the borrower knew and intended that the solicitor should investigate and report on title to the lender. The duty to report to the lender on title was not limited and it compelled the solicitor to report the sub-sale. The solicitor should have appreciated this was information the lender would have wanted to know.

Later case law [2] clarified the Bowerman duty as follows:

The duty does not arise where the contractual retainer expressly excludes it. However, unless it would be inconsistent with the circumstances of the solicitor’s instruction, the duty is ordinarily implied when a solicitor acts for a lender in a mortgage transaction.
When the duty arises, the solicitor is required to disclose information discovered in the course of completing the instructions for the lender. Information discovered in some other way is not disclosable under the Bowerman duty.
The solicitor is under a duty to disclose information relating to title or to the adequacy of the lender’s security.

The Goldsmith Williams case

In Goldsmith Williams Solicitors v E.Surv Ltd [3] the borrower had purchased a property for £390,000 in September 2005. Two months later, the borrower having misled the surveyor as to the purchase price, the property was valued at £725,000. In December 2005 the borrower applied to the lender for a loan of £580,000, claiming that the property had been purchased in October 2005 for £450,000 and relying on the valuation. Goldsmith Williams Solicitors were instructed to act for the borrower and the lender. They obtained Official Copies recording the purchase in September 2005, but did not pass this information on to the lender.

The lender subsequently brought a claim against the surveyor for negligent overvaluation. The surveyors, after settling the claim with the lender, brought a claim against Goldsmith Williams for a contribution under the Civil Liability (Contribution) Act 1978.

The surveyors argued that the solicitors had a duty, effectively the Bowerman duty, to report the discrepancy between the actual purchase price, the stated purchase price and the valuation. This information was material to the value of the lender’s security and the lending decision. Had the solicitors reported the information to the lender, so the surveyors argued, the loan would not have been made.

Goldsmith Williams’ primary defence was that their obligations were defined in the CML Handbook [4] which, they argued, was a complete and exhaustive code. The solicitors argued that they had not breached the obligations as set out in the Handbook, which were to investigate and report on title, save where there was evidence of fraud.

Goldsmith Williams also argued, in reliance on the fact that the lender had accepted the loan even though the application had declared the property had been purchased for £450,000, that even if they reported the discrepancy to the lender, the lender would have made the loan. They therefore argued that they had not caused the lender’s loss.

Court of Appeal clarification

The Court of Appeal found that the CML Handbook is not a complete and exhaustive code of instructions. The court referred to paragraph 1.3, which states that the Handbook “… does not affect any responsibilities you have to us under the general law or any practice rule or guidance issued by your professional body from time to time”. The court therefore concluded that the Handbook did not exclude the Bowerman duty.

So far as the solicitors’ causation argument was concerned, however, the Court of Appeal held that the surveyors had failed to show that the purchase price of £390,000 would have made any difference to the lender’s decision to lend. The judgment raises an interesting evidential point for lenders and their representatives. Sir Stanley Burton noted the surveyor’s failure to adduce evidence from any of the underwriters making the decision for the lender. However he also stated that the surveyors had failed to bring evidence of “any lending manual that might have indicated what action should be taken when information … comes into the possession of the Lender” [5]. This indicates that the court is prepared for lenders to adduce evidence from their underwriting manuals and guidance, as opposed to having to call evidence from underwriters as to whether a loan would or would not have been made.

Conclusion

Goldsmith Williams is therefore a valuable case for lenders and their advisors to bear in mind. It confirms that the Bowerman duty applies to conveyancers when acting for lenders, and that conveyancers have an obligation to report to the lender even if that is not expressly stated in the solicitors’ retainer. This duty to report will include information known to the conveyancer which may affect the lender’s decision to lend, for instance to report previous sales transactions and their purchase prices and even possibly information that the conveyancer knows about the purchaser such as his creditworthiness. The case also suggests that lenders will be able to rely on their lending manuals and guidance when submitting evidence of their lending decision. That could save significant time and cost in the preparation and delivery of witness evidence, especially as in many cases the underwriters may no longer be employed by the lender and may, in any event, be unlikely to recall specific details about a transaction but would be more likely to speak of the usual practices and procedures that were applied.

The case is also a very clear reminder that causation is an essential component of any successful cause of action, and that it can therefore be an effective weapon for defendants to deploy.

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[1] [1996] 2 All ER 836
[2] including National Home Loans Corporation v Giffen Coach & Archer [1998] 1 WLR 207 and Nationwide Building Society v Balmer Radmore [1999] PNLR 606
[3] [2015] EWCA Civ 1147
[4] After the Bowerman duty had been codified in case law, the CML Handbook, an extensive code of instructions for conveyancers instructed by lenders in residential conveyancing transactions, was released in 1999.
[5] Para. 45

A case to help lenders – guaranteed!

The High Court has upheld a lower court’s decision to award summary judgment for a […]

The High Court has upheld a lower court’s decision to award summary judgment for a bank on its claim for payment of monies due under a guarantee. The guarantee was signed by the defendant personally for one of his companies. The case, Barclays Bank v Sutton [1], will be of interest to lenders looking to enforce personal guarantees following the failure of a company.

Legal and factual background

The defendant (Mr Sutton) traded for a number of years in expensive motor vehicles. He operated two companies, ‘CSF’ and ‘PSL’. CSF had a poor trading year for a number of reasons and operated an overdraft with the claimant bank (the Bank) in the sum of £250,000. The overdraft was supported by a personal guarantee provided by Mr Sutton. Mr Sutton then decided that he wanted to wind up CSF and to continue trading with PSL instead.

At a meeting between the parties it was agreed that the overdraft would be transferred from CSF to PSL, subject to certain conditions. An email from the Bank, following the meeting, confirmed provision from the Bank to Mr Sutton of a personal guarantee in the sum of £250,000 in respect of the liabilities of PSL, a charge over Mr Sutton’s property to secure the guarantee and provision from PSL to the Bank of a debenture. The guarantee contained a term that Mr Sutton would be bound by the guarantee even if “other arrangements to secure Customer liabilities are never actually put in place”. The Bank also stated that, from 2012, it would be “looking to convert the overdraft to an on demand term loan being repaid over a maximum 4 year term”.

Guarantee claim

Although the personal guarantee was provided by Mr Sutton, the other aspects of the security were never actually complied with and, in particular, he never executed a legal charge against his property. No further action was taken in relation to the proposed transaction for some time. The debts of CSF continued to grow and, by February 2013, the overdraft had reached £266,665. At this time, and without any formality, the Bank transferred the overdraft to PSL, giving that company indebtedness of – £266,665. Mr Sutton argued that this transfer without warning placed PSL into cash flow difficulty. Shortly afterwards PSL stopped trading. The Bank demanded sums due under the guarantee from the Mr Sutton.

Defence

Mr Sutton argued that the guarantee could not be relied upon in isolation, on the basis that it was subject to a collateral contract or warranty that the overdraft would be converted by the Bank into a term loan. Mr Sutton argued that it was not the enforceability of the guarantee which was in dispute in these proceedings, but whether there was any debt owed by PFL to the Bank to which the guarantee could attach. Mr Sutton also counterclaimed for the alleged losses incurred by PFL as a result of the unexpected saddling of its accounts with the transferred overdraft debt.

Decision

The High Court concluded that Mr Sutton had no real prospect of successfully defending the claim. The transfer of the overdraft from CSF to PSL was subject to the Bank being satisfied on the security provided. Upon receipt of the guarantee, the Bank was willing to transfer the overdraft, despite Mr Sutton never having provided the remainder of the security requested. In addition, the specific terms of the guarantee alerted Mr Sutton to the fact that the Bank could rely upon it even if other security was never put in place. Although the court found that there had been discussions regarding converting the overdraft into a term loan, it was clear from the language of the correspondence that there was no concluded agreement to that effect – that was merely a contingent aspiration. The Bank therefore summarily succeeded on its claim.

WM Comment

This decision will be welcomed by lenders for two reasons in particular. Firstly, the court has confirmed that a lender can rely on clear wording of security documentation even if discussions have taken place in relation to future transfer of facilities and/or provision of other security. This will be of some comfort to lenders who may have made similar arrangements for customers throughout the recession who wound down their business and re-traded in a ‘phoenix company’.

Secondly, the decision is a reminder of the relevance and validity of strike out/summary judgment applications in the court process today. Strike out/summary judgment applications can be a very effective method of disposing of a claim quickly and at lower cost than proceeding to a full trial. However there has been a perception recently that lower courts are reluctant to grant such applications and that all but the very most straightforward of matters are required to proceed to a full trial. Whilst every such application would be judged on its merits, consideration should always be given as to whether a case is suitable for strike out and/or summary judgment.

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[1] Barclays Bank Plc v Mr Clive Jeremy Sutton [2015] EWHC 3192 (QB)

Causation and loss of chance: claiming damages in professional negligence cases

In Harding Homes & Ors v Bircham Dyson Bell [1] the court considered arguments by […]

In Harding Homes & Ors v Bircham Dyson Bell [1] the court considered arguments by a firm of solicitors that their negligence had not resulted in the claimant construction company losing a real and substantial chance to negotiate a more favourable resolution to a dispute that had arisen between it and its bank.

Background facts

The claimant (Harding) had borrowed £9.4 million to finance a residential development. Harding defaulted on the loan and the bank demanded that its shareholders pay the sum due (£5.9 million). Alongside the loan documentation was a guarantee, which should have been limited to interest shortfall and cost overruns. However, in breach of his duty of care to his client, the drafting solicitor had included an all-monies clause in the guarantee. Following a period of negotiation, the bank accepted £4.4 million in full and final settlement. Harding completed and sold the development to fund the settlement payment.

Harding asserted that it had lost the chance to obtain a more favourable settlement with the bank. The defendant solicitor (BDB), whom the court described in this judgment as being “sloppy” and as habitually cutting corners [2], admitted negligence but denied that the existence of the all-monies clause had any material effect on Harding’s negotiating position with the bank.

Legal issues

The High Court decided that damages were to be assessed on the basis of loss of chance as per the Court of Appeal case of Allied Maples Group Limited v Simmons & Simmons [3], stating that the causal link between a defendant’s negligence and a claimant’s alleged loss depends on:

what the claimant would have done in events which did not, in fact, happen; and
what the defendant would have done in events which did not, in fact, happen.

In this case (in short) this meant that Harding would only be entitled to succeed on its loss of chance claim if it could show that:

on the balance of probabilities, it would have acted differently had there been no all-monies clause in the guarantee (Harding argued that it would have agreed a settlement with the bank of £2 or £3 million); and
there was a real and substantial (as opposed to a ‘speculative’) chance that the bank would have acted differently – that is, that it would have agreed to settle for £2 or £3 million.

BDB relied on Mount v Barker Austin [4], which confirmed the following principles for proving loss:

The legal burden is on a claimant to prove he has lost something of value – that is, that a claim has real and substantial rather than a merely negligible prospect of success.
The evidential burden is upon a defendant to show that the claimant has not lost anything as a result of the its negligence – that is, that the defendant’s negligence did not, of itself, cause the claimant’s loss.
When assessing whether the claimant’s prospects of success are more than merely negligible the court should make a realistic assessment of what would otherwise have been the claimant’s prospects, and that assessment can tend towards a general assessment for the claimant, in light of the defendant’s negligence.

The court accepted this was the right approach and asked: “Would a better deal have been agreed by [Harding]…if there had been no breach of duty by [BDB]?” [5]. The judge concluded that, on the balance of probabilities, Harding would probably have acted differently in negotiations had the mistake by BDB not been made, as it would not have had the “spectre” [6] of the all-monies clause hanging in the background, but that Harding had not demonstrated that it had lost a real and substantial chance that the bank would ever have accepted a lower settlement figure. The judge therefore awarded nominal damages on account of BDB’s breach of duty, but otherwise found for the solicitor because, for all practical purposes, the loss of chance claim failed.

WM Comment

This case will be of interest to potential claimants and professionals alike. It reminds potential claimants to critically assess, before spending time and cost becoming embroiled in litigation, the really crucial question of whether in fact any alleged negligence is really causative of loss claimed. It also reminds defendants that the burden is on them to prove that negligent act(s) did not cause loss. In particular, however, the case highlights the really significant difficulty with loss of chance claims: although a party can give witness evidence to prove what it would have done in different circumstances, proving what another party may or may not have done can be extremely challenging. Factors affecting the mind-set of parties need to be considered and can be notoriously difficult to establish yet, without causation being proven, claimants will be entitled to recover only negligible damages.

This means that, even if negligence is a slam-dunk, where damage suffered is as a result of a loss of chance, claimants should be careful not to throw good money after bad by pursuing a claim where causation is not absolutely clear cut. Where, however, claimants have undertaken this assessment and still proceed confidently, defendants whose professional reputations could be at stake may be well advised to settle privately in the pre-action protocol period, rather than facing the burden of proof in open court proceedings.

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[1] Harding Homes (East Street) Ltd (1) Jason Scott Harding (2) Mark Ronald Harding (3) Peter Leslie Williams (4) v Bircham Dyson Bell (A Firm) (1) Bircham Dyson Bell LLP (2) [2015] EWHC 3329 (Ch)
[2] Ibid. para 43
[3] [1995] 1 WLR 1602
[4] [1998] PNLR 493 and followed in Browning v. Brachers [20015] EWCA Civ 753
[5] Harding Homes & Ors v Bircham Dyson Bell para 125
[6] Ibid. para 164

Contacts

Richard Sandford, Partner, Banking Litigation

Richard Sandford
Partner
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