Professions and Financial Lines Brief: latest decisions March 2024

A roundup of the latest court decisions touching on the following issues:

The scope of a solicitor’s duty in respect of advice given on legal helplines, whether a judge’s subjective opinion on weight of evidence is appealable, warranty & indemnity insurance and Section 32 of the Limitation Act, 1980.

Defining the scope of legal helpline duties and solicitors’ duty to start acting and advising on a case

Miller v Irwin Mitchell LLP [01.02.24]

The claimant was injured whilst on holiday in May 2014 and contacted Irwin Mitchell’s legal helpline upon her return on 19 May 2014.  After some delay, the claimant eventually instructed Irwin Mitchell to issue a Letter of Claim to the tour operator in February 2016.  The tour operator notified its insurer who declined cover on the basis that the tour operator had known about the accident in May 2014, but had failed to notify its insurer of a circumstance at that time.  Shortly after the Letter of Claim was issued, the tour operator became insolvent and the claimant had no viable recovery route.

The claimant alleged that Irwin Mitchell had a duty to advise her to inform the tour operator of the accident, so that it would notify its insurer of the accident either at the time of the legal helpline call in May 2014, or at any stage between then and February 2016 when the Letter of Claim was sent.  Had it done so, it was alleged that the tour operator’s insurance policy would have responded.

At first instance, HHJ Cadwallader held that Irwin Mitchell was not under a duty to advise the claimant to report the accident to the tour operator. It was held that prior to the service of the Letter of Claim, no express nor implied retainer had arisen and that advice received on the legal helpline call was generic legal advice and did not extend to  case specific advice.

On appeal, the claimant’s case focused on Irwin Mitchell’s duty at the time of the legal helpline call specifically and whether a duty arose at that stage.  It was alleged that in advising the claimant that generally, a claimant has three years to pursue a personal injury claim under English Law, it had wrongly given her the advice to “relax” and that there was no urgency to pursue the claim.  Accordingly, it had failed to adequately advise her as to (a) the risks associated with the requirement for the tour operator to notify its insurer of the accident, and (b) the risk of the tour operator going insolvent.

The Court of Appeal (CA) held that Irwin Mitchell had a duty to ensure any advice given on the legal helpline call was correct. However, providing that advice did not create a contract of retainer to then give further case specific advice.  Accordingly, the CA found that Irwin Mitchell did not have a duty to advise the claimant to notify the tour operator or its insurer of the accident at the time of the legal helpline call. Further, Irwin Mitchell’s duty not extend to advise on the risk of the tour operator becoming insolvent.

The CA’s decision clarifies the scope of duty that applies to a solicitor when providing advice on legal helpline calls. The duty is confined to the advice actually given and does not commit the solicitor to assuming a responsibility to give advice beyond the generic advice given.  It also reinforces the position that, in general, a solicitor is not obliged to advise a client to take steps to safeguard against the risk of unenforceability of a claim due to the financial position of the other party.  Kennedys acted for the successful defendant.

Authors: Aysha Rukaiya-Ali, Chloe Bingham

Related item: Defining the scope of legal helpline duties and solicitors’ duties to start acting and advising on a case

Court of Appeal clarifies rules on condonation and findings of fact

Axis Specialty Europe Se v Discovery Land Company LLC, Taymouth Castle DLC LLC, The River Tay Castle [15.01.24]

Here, the first instance claimants (a property investment company) had been defrauded by a legal services provider (Jirehouse LLP and other associated entities).  The claimants sought to recover their losses from defending Professional Indemnity Insurers. The defendant appealed on the basis that the court had wrongfully made a finding of fact regarding one of the member/director’s conduct.

The fraud itself related to the purchase of a castle whereby Mr Jones, the member/director who principally orchestrated the scam, convinced the claimants to pay him the purchase monies twice, which he misappropriated, and took loans out against the castle without the knowledge of his clients.

Professional indemnity Insurers initially sought to rely on a dishonesty exclusion to avoid liability under the policy. However, whilst it had been proven that Mr Jones was the principal perpetrator of the fraud, the level of complicity or knowledge of Mr Prentice, the other member/director of Jirehouse, remained debatable.

In the initial proceedings, the court made the following findings of fact:

• Mr Prentice’s conduct had fallen significantly below the professional standard expected of him
• He was aware that Jirehouse was facing significant financial difficulties
• He had deliberately lied in evidence to conceal his involvement but
• He did not have sufficient knowledge whereby he knew, or ought to have known, that Mr Jones may steal client funds.

The defendants appealed and challenged the Judge’s findings, namely,  that Mr Prentice had condoned Mr Jones’ dishonest misappropriation of client funds and the subsequent loans taken out against the client’s property. The defendants relied on evidence suggesting that Mr Prentice had previously assisted Mr Jones make good Jirehouse’s debts with client funds. Further, that he had deliberately “turned a blind eye” to the relevant acts.

In the appeal judgment, Lady Justice Andrews clarified that first instance findings of fact can only be disturbed where they are “plainly wrong” or “cannot reasonably be explained or justified”. On that basis, the appellants could not appeal the judgement, namely, that they did not agree with how certain pieces of evidence were weighed and what conclusions had been drawn from a holistic assessment of the body of evidence.

This judgment demonstrates the importance of a  judge’s weighing of contradicting pieces of evidence.  Further, the conclusions they may draw as to a director’s conduct or knowledge in circumstances where the full body evidence is not conclusive. There are circumstances where the outcome of a case may come down to a judge’s subjective opinion as to the importance of a piece of evidence over another.  However, appeals cannot be brought as an attempt to have “fresh eyes” and reassess evidence more favourably. Insurers may consider this judgement indicative of the potential risks associated with a court’s approach to a case that “could go either way” and their aversion to leaving a wronged claimant with no remedy, particularly in cases involving compulsory professional indemnity.

Authors: Greg Coli, Nicola Pangbourne

A new dawn for warranty and indemnity insurance

Project Angel Bidco Ltd v Axis Managing Agency Ltd [2023]

This recent Commercial Court judgment provides clarity in the fast developing area of Warranty and Indemnity (“W&I”) insurance. W&I insurance is usually taken out by purchasers of a company to transfer the risk of a breach of warranty claim from the seller to insurers. W&I insurance, when used correctly, therefore helps facilitate M&A deals.

In November 2019, Project Angel Bidco Ltd (the “Insured”) agreed, via a Share Purchase Agreement (“SPA”), to purchase King Construction, a business providing engineering and construction services to Liverpool City Council (“LCC”). The SPA included a number of warranties and the Insured took out a buyer side W&I insurance policy with Lloyd’s insurers (the “Policy”).

The Insured alleged that the sellers of King Construction breached a number of warranties under the SPA, due to alleged conduct which contravened anti-bribery legislation. The alleged breaches meant that King Construction’s business with LCC was severely reduced. The Insured asserted that it had suffered a loss of at least £11.5 million due to the breach of warranty. Under the Policy, the limit of liability was £5 million and this therefore was the amount claimed from insurers.

Insurers’ defended the claim on the basis that no breach of warranty had occurred, and that it had no liability for this matter due to the, deal specific, Anti-Bribery and Anti-Corruption exclusion (ABC exclusion) in the Policy. As insurers would have no liability if the exclusion applied, the case proceeded to preliminary issue to consider whether, if a breach was established, the exclusion would apply.

The ABC Liability exclusion exempted insurers’ liability for any loss (as defined) that arises out of any “liability or actual or alleged non-compliance by any member of the Target Group … of Anti-Bribery and Anti-Corruption Laws”.

The Insured asserted that the ABC exclusion did not apply as there was an obvious drafting error in the ABC Liability definition and that, instead, the definition should be interpreted as stating: “any liability for actual or alleged non-compliance…”.

The Insured also referred to the cover spreadsheet in the Policy which indicated that the relevant ‘compliance with laws/bribery and corruption’ warranties would be covered. Insurers argued that, despite the warranties being covered in the spreadsheet, the exclusion applied.

His Honour Judge Pelling KC, sitting as a High Court Judge, rejected the Insured’s claim. He found that there was no mistake in the wording and that, on the proper construction of the Policy, the claim would be excluded. The judge applied the natural meaning of the words in the definition of ABC liability. He also agreed with Insurers that the ordinary insured, (the reasonable person with all the relevant background information at the time of entering into the Policy) would have understood, despite cover being available for the relevant warranties in the Policy, that cover was subject to the Policy exclusions (FCA v Arch Insurance UK Ltd [2021]). When the Policy was viewed as a whole, it was clear that the exclusion acted to exempt liability for the type of loss claimed.

Project Angel v Axis also follows the recent decision on W&I insurance in Finsbury Food Group Plc v Axis Corporate Capital UK Ltd [2023].  It confirms that W&I insurance does not just simply enable the buyer to recover, retrospectively from insurers, some of the funds the buyer outlaid for the company. Recent W&I caselaw is clear that insureds who make bad business decisions or do not undertake sufficient due diligence when entering into a business deal, should not just rely on W&I insurance to step in, unless it can be shown that a warranty which is covered by the policy has been breached and there is a resulting loss.

Authors: Samantha Conlon, Thomas Miles

Section 32 of the Limitation Act 1980: the meaning of ‘deliberately concealed’ and ‘deliberate commission of a breach of duty’ 

Canada Square Operations Ltd v Potter [2023]

In July 2006, Mrs Potter (the Claimant) took out a loan with Canada Square Operations Ltd (the Defendant) together with a Payment Protection Insurance (PPI) Policy. The Claimant was not told that over 95% of the premium for the PPI Policy was paid to the Defendant as its commission.

In December 2018, the Claimant issued a claim against the Defendant to recover the amount she had paid under the PPI Policy and argued that the failure to disclose rendered the relationship unfair under section 140A of the Consumer Credit Act 1974. The Defendant argued that the matter was time-barred under section 9 of the Limitation Act 1980.

In light of the non-disclosure, the Claimant argued that time did not begin to run until she discovered the deliberately concealed commission, which came to light in 2018. The Claimant relied upon the exceptions set out in section 32 of the Limitation Act.  The Supreme Court unanimously dismissed the Defendant’s appeal on the following bases:

Issue 1: Deliberate Concealment: The Supreme Court concluded that the Defendant had deliberately concealed a fact that was relevant to the Claimant’s right of action.  Section 32(1)(b) of the Limitation Act therefore postponed the commencement of the usual six-year limitation period for bringing her claim.  As to the meaning of ‘deliberate concealment’, Lord Reed stated that the meaning of “deliberate concealment” required there to be:

1. A fact relevant to the claimant’s cause of action;
2. That there was concealment by the defendant, either by way of a positive act of concealment or by a withholding of the relevant information; and
3. An intention on the part of the defendant to conceal the fact in question.

Issue 2: Deliberate commission of a breach of duty: However, as to the Claimant’s argument that there had been a deliberate commission of a breach of duty pursuant to section 32(2) of the Limitation Act, the Supreme Court concluded that a claimant that wishes to rely upon section 32(2) must show that the defendant knew it was committing a breach of duty, or intended to commit a breach of duty.  The Supreme Court noted that “deliberate” in section 32(2) does not extend to reckless intention nor awareness that the defendant is exposed to a claim.

The Supreme Court’s decision provides useful guidance on the application of section 32 of the Limitation Act 1980. Future judgments on postponement of the limitation period have a clear precedent which emphasises the plain and clear language within the section.  It is however of note that the Supreme Court did not consider the question of whether the Claimant could have discovered “with reasonable diligence” the concealed fact. 
This may be used by defendants going forward as an alternative way of narrowing the application of Section 32(1)(b). 

Authors: Tasmin Tiwana, Chloe Bingham

Related item: Supreme Court simplifies application of section 32 of the Limitation Act 1980

Read other items in Professions and Financial Lines Brief - March 2024