Davies Arnold Cooper LLP
reviews the year’s highlights
2010 top ten
1 Why have a dog and bark yourself?
Levicom International v Linklaters
2 With friends like these, who needs enemies?
Nouri v Marvi
3 Up the bracket
K/S Lincoln v CB Richard Ellis Hotels
4 The problem of not knowing the full story
Williams v Lishman Sidwell
5 Alas Miles Smith & Jones
Jones v Environcom
6 Brokers beware the director’s cut
Crowson v HSBC Insurance Brokers
7 I’m an expert – get me out of here!
Jones v Kaney
8 Bribery beyond solicitor risk
Nayyar v Denton Wilde Sapte
9 The one about the developer’s lost chance
Joyce v Bowman Law
10 All that glitters...
Nahome v Last Cawthra Feather
About Davies Arnold Cooper LLP
2010 top ten
The new decade was kick-started on 14 January with the publication of Lord Justice
Jackson’s Final Report on civil litigation costs. The report was lengthy and wide-
ranging, with many of its conclusions of real relevance to professional indemnity
claims. For example, the report recommends that success fees and ATE insurance
premiums should cease to be recoverable. If implemented, such a change has the
potential to reduce significantly insurers’ costs liabilities. However, this is counter-
balanced by the possible introduction of US-style contingency fees. Qualified one-way
costs shifting, whereby the claimant will not be required to pay the defendant’s costs
if the claim is unsuccessful but the defendant will be required to pay the claimant’s
costs if it is successful, is also now on the agenda. These issues, together with
claimant-friendly Part 36 reforms, feature in the consultation paper issued by the
Ministry of Justice – the consultation period is due to end on 14 February 2011.
New legislation also featured in 2010 with the Bribery Act and the Third Party
(Rights Against Insurers) Act being passed by Parliament. They both are due to take
effect in April 2011 – although the latest noises suggest there could yet be some
delay – and have the potential to impact on professional indemnity insurers.
As for the courts, the legal profession once again bore the brunt of publicity, with
reported figures from the High Court indicating a staggering 163% rise over the
previous year in the number of lawsuits issued against solicitors during 2009. The
recession and the decreasing property market have had a significant effect on claims
as people look to recover losses from their solicitors. The increase in third-party
funding options and “no win, no fee” arrangements is also a contributing factor
given their tendency to encourage more speculative claims.
Although claims against insurance brokers, independent financial advisers, valuers
and even an expert witness feature in our Top Ten, that five of our selection are
solicitors’ / licensed conveyancers’ cases should therefore come as no surprise.
Perhaps what was surprising, however, was the drop in declared premium income by
Qualifying Insurers for Assigned Risk Pool participation at the October 2010 solicitors’
renewal, although there are suggestions that the structuring of insurance
Davies Arnold Cooper LLP reviews the year’s highlights
programmes could be partly responsible for this. Once again, relatively new entrants
have met falling capacity elsewhere. The SRA has proposed fairly radical changes to the
solicitors’ compulsory cover, which if adopted should reduce the ARP burden and lead
to separate cover for lender liability. Watch this space.
From a legal perspective, this year’s Top Ten offer plenty of scope for intellectual navel
gazing: illegality and the doctrine of ex turpi causa (Nayyar); the familiar battle over
contingent versus actual loss for limitation purposes (Nouri); the differences between
the legal and evidential burdens of proof and where they lie (Levicom); ascertaining
the value of a loss of a chance (Joyce). However, possibly the most important case of
the year for PI insurers is one which can affect the date on which an insurer is informed
of a potential claim in the first place: Quinn Direct v The Law Society. This case can
be found in our accompanying Insurance & Reinsurance booklet which also has cases
on ‘innocent insureds’ and arbitration clauses in PI policies.
The available choice of cases for our Top Ten was particularly broad and we have no
doubt omitted some that could easily have featured. Two accountants’ cases, Griffin v
UHY Hacker Young (which concerns the ex turpi causa defence) and the Court of
Appeal decision in Pegasus v Ernst & Young (involving the issue of the
commencement of the limitation period in tort) are obvious examples, as is Co-
operative Group v John Allen (a professional’s entitlement to rely on a specialist). We
have also seen cases on lender file requests (Mortgage Express v Sawali), valuer
liability to a buy to let purchaser (Scullion v Bank of Scotland) and on solicitors’
liability in trust (Lloyd’s v Markandan). You will no doubt have your own views, so
please let us know. We will be delighted to debate the merits of our choices with you!
Davies Arnold Cooper LLP
The Insurance 2010 Top Ten publications are not a substitute for detailed advice on specific transactions and
problems and should not be taken as providing legal advice on any of the topics discussed.
why have a dog and bark
Levicom, a telecommunications company in the Baltic States, entered into a shareholders’
agreement with NetCom and Tele2 in relation to the acquisition of shares in Levicom’s
Estonian company, AS Levicom Cellular (ASLC). The agreement prevented NetCom and
Tele2 from carrying on cellular network business in the Baltic States which was the same
or competed with any business carried on by ASLC. NetCom and Tele2 acquired Baltkom,
a Latvian mobile telephone network business, and a dispute arose as to whether the
acquisition was in breach of the agreement. Linklaters advised Levicom that Baltkom was
carrying on the same business as that carried on by ASLC and Levicom could recover
damages for breach of the agreement. Levicom rejected settlement proposals by NetCom
and Tele2 and commenced arbitration proceedings which they later settled. Levicom then
brought an action in negligence against Linklaters, claiming that had it received proper
advice, it would have reached a more financially advantageous settlement and avoided
the costly arbitration proceedings.
At first instance, the judge held that Linklaters’ advice on construction of the shareholders’
agreement was within the range of opinions that could properly have been given. However,
its advice on the prospects of obtaining a declaration compelling NetCom and Tele2 to sell
Baltkom was adjudged negligent, because it failed to advise about a number of difficulties
faced by Levicom. Also, Linklaters’ advice that damages would be substantial had no basis.
Nevertheless, the judge found that Levicom had always known that there was some risk
that it would fail to recover substantial damages. Further, Levicom had not challenged
Linklaters’ optimistic advice and had read more into it than was justified. The court
awarded Levicom nominal damages of £5 and ordered it to pay Linklaters’ costs.
Levicom’s appeal to the Court of Appeal was allowed.
The Court found that Linklaters’ bullish advice, coupled with the lack of any significant
analysis or discussion of the issues, was striking, and negligent. As to reliance and
causation, Levicom expressed discomfort at proceeding further without the input of
someone senior at Linklaters. The Court could not see why a commercial company
would repeatedly seek expensive advice from a magic circle firm if it was not going to
SOLICITORS • CAUSATION • RELIANCE • INFERENCES AND REBUTTABLE PRESUMPTIONS
Levicom International Holdings BV v Linklaters
Court of Appeal 11 May 2010 1
act on it. The Court considered that the normal inference is that negligent advice given
by a solicitor, if followed, is “causative” – presumably of any loss caused by following
that advice. The presumption is rebuttable.
Until now, where a solicitor has negligently failed to advise, a claimant has
had to show on the balance of probabilities that, had they been correctly
advised by their solicitor, they would not have proceeded in the way that they
actually did. However, where the solicitor has negligently given incorrect
advice, the claimant has had to prove only reliance on that advice and not
what they would have done if they had been correctly advised (Bristol & West
v Mothew). The Court of Appeal appears to add a rider to the second limb of
that proposition to the effect that the claimant’s reliance on incorrect advice is
normally to be inferred. That seems to depart from the normal approach that
a claimant must prove their case on the balance of probabilities. The evidential
burden is now on the defendant to prove an absence of reliance.
An added complexity is that this was also a claim for Levicom’s lost chance of
concluding a better settlement than in fact it did. The starting point and
threshold for that enquiry is normally whether the claimant’s chance was
“better than minimal” or “had a real and substantial rather than merely a
negligible prospect of success” (Mount v Barker Austin  CA). The chance
is not assessed on the traditional civil basis of the balance of probabilities and
it may be that is what the Court had in mind.
The case gave rise to a surprising analysis of the facts and perhaps the evidential
burden of proof on causation, which no doubt explains why Linklaters sought
permission, unsuccessfully, to appeal to the Supreme Court. Claimants in
similar positions will be buoyed by the decision and will have comfort on issues
of causation and reliance, although these issues are always fact-sensitive.
with friends like these, who
Mr Nouri agreed that a family friend, a Mr Marvi, could occupy his property, provided
that Marvi paid monies into Nouri’s bank account to meet the mortgage repayments,
and met outgoings. While Nouri was away, Marvi approached the defendant solicitors,
holding himself out as Nouri, with instructions to sell the property to a Mr Marvi who
had separate solicitors instructed. On 2 April 2001 there was simultaneous exchange
and completion based on a transfer containing Nouri’s forged signature. The
registration was effected on 4 July 2001.
In July 2007 Nouri issued proceedings against Marvi (who had disappeared), the Chief
Land Registrar and the solicitors. The claim against the solicitors was based in tort; it
was alleged that had they adopted proper procedures, they would have realised that
Marvi was an impostor. The solicitors argued the proceedings were time-barred on the
basis that Nouri suffered damage sufficient to create a cause of action more than six
years from issuance – with time running from completion in April 2001. Nouri
contended that damage was sustained only upon registration in July 2001 (and thus
the claim was in time), and also that there was a continuing duty, which would have
the effect of creating fresh limitation periods.
Mr Justice Norris found for the solicitors, holding that by completion Nouri had “the
detriment of having a blot upon his title, a detriment which is to be measured by the
cost of removing the detriment”. The continuing duty argument failed as this was a
“once for all breach”. Nouri appealed.
The Court of Appeal upheld the judge’s decision. It held that the correct analysis was
to assume awareness of any breach at completion. Nouri would have had to disclose
the attempted fraudulent purchase, which had not then been registered, if he tried to
sell to another party. It was conceded that this would have led to a diminution in the
price otherwise achievable. There was therefore damage, and the limitation clock
started ticking, at completion, before registration. It also could not be said that the
solicitors assumed a continuing duty and any steps taken by them post-completion did
not change that. The Court of Appeal went further, holding that even if there were to
SOLICITORS • LIMITATION IN TORT • CONTINUING DUTIES
Nouri v Marvi & Others
Court of Appeal 14 October 2010 2
have been a continuing duty, this would have no bearing – the loss would have started
time running at completion in April 2001 come what may, and so there would be no
fresh limitation periods.
This is yet another example of the courts refusing to find a claimant as
having suffered only a contingent loss at the relevant date – as occurred in
Law Society v Sephton – which would not start the limitation clock ticking.
Once again, the Court has found that damage occurred, and thus limitation
began running, at the earlier available point. Here this makes perfect sense:
it would be counter-intuitive to imagine that the completion of an
unauthorised disposition of one’s property would not represent sufficient
damage as to allow the commencement of proceedings against a
professional identified as culpable.
The continuing duty argument is less frequently seen but rarely appears
attractive, given it necessitates a duty to uncover one’s own breach of duty.
In Nouri, as is often the case, the argument was based on a first-instance
decision in Midland Bank Trust Co v Hett, Stubbs & Kemp , which has
generally been interpreted as turning on its own facts, being based on a
continuing retainer. Professionals and their insurers now have a helpful and
recent Court of Appeal precedent with which to combat such arguments.
This case, together with another Court of Appeal case from 2010 – Pegasus v
Ernst & Young – represents good news for PI insurers and professionals as
part of a continuing trend that damage sufficient to start time running in
tort is fairly easily found, with Sephton being interpreted narrowly on its
own facts. Davies Arnold Cooper acted for the successful solicitors and their
PI insurers in this matter.
up the bracket
The four claimants were Danish corporate entity investors who were controlled by a
Danish company named Scanplan. Scanplan arranged for the purchase of four hotels in
England in each of the investors’ names.
The four hotels were leased to Accor and each lease contained a provision that Accor
was to pay a base rent which automatically increased to a “turnover rent” once the
turnover of the hotels reached a specified level. However, the sting in the tail was that
the shortfall between the base and turnover rent in the years before this point was
reached was to be set off against the increased turnover rent (known as the shortfall
clawback provision). The set-off reduced the turnover rent to the base rent until the full
amount of the earlier shortfall had been exhausted. The net effect was to delay
significantly the point at which the increased turnover rent became payable and, from
the perspective of the investors, made the hotels an undesirable investment.
The defendant, CB Richard Ellis Hotels Ltd (CBRE), was appointed by the investors to prepare
valuation reports to aid the acquisition of the hotels. The investors claimed that CBRE’s
valuations were negligent because they failed to take into account the shortfall clawback
provision in its tables of anticipated rental growth which were attached to the valuations,
and the valuations fell outside the permitted “bracket” of non-negligent valuations.
The court accepted that CBRE owed the investors an independent duty to take care not
to mis-state in its report any important matter considered by it when undertaking its
valuation exercise. It was found that CBRE breached this duty in relation to three of the
hotels because its tables of rental growth were incorrect. However, on the facts, the
court determined that Scanplan was well aware of the shortfall clawback provision and
understood its effect. In fact, it had appeared that Scanplan had concealed its effect in
the prospectuses prepared by it for the investors. Accordingly, the first claim failed on
causation and reliance grounds.
The investors were also unsuccessful in relation to their second claim. They argued that the
permissible variation in the computation of net yield percentages for each hotel (given that
VALUERS • BRACKET DEFENCE • CAUSATION AND RELIANCE
K/S Lincoln & Others v CB Richard Ellis Hotels Ltd
First instance 24 May 2010 3
a variance is accepted on the basis valuation is an art, not a science) should have been no
more than 0.5% (or 0.25% each way), whereas CBRE argued that the permitted bracket, or
margin of error, should be 10% or more given the unusual nature of the valuation exercise.
CBRE’s submissions were accepted by the court and it was concluded that an “appropriate
margin” in this case might well be in excess of 10% but no more than 15%. This decision
was based on there being only limited comparables available, the investment market in
hotels being immature and the hotel investment market rising at the time of the
valuations which gave rise to particular difficulties for valuers. As CBRE’s valuations all fell
within the appropriate margin (they were less than 10% out), the investors’ second claim
failed on liability.
The judgment provided a review of recent case law in this area and applied the
Court of Appeal decision in Merivale Moore PLC v Strutt & Parker that a valuer is
not liable in negligence if, notwithstanding any error in his calculation of the
valuation, the “figure that he produced was within a reasonable bracket”. That is, it
is the outcome or result that is important as opposed to the methodology adopted
by the professional valuer when reaching his advice. A similar approach was taken
in the 2010 Chancery Division case Dennard & Others v PricewaterhouseCoopers LLP.
A valuer’s duty to his client and the permissible bracket for a non-negligent
valuation is an area of close interest to many professionals and their insurers in
the current property market. This decision provides comfort as it demonstrates the
court’s pragmatic approach to resolving disputes relating to the complexities of
commercial valuations. Specific advice within a valuation report may still be
actionable if wrong, notwithstanding that the valuation itself fell within a
permitted range of non-negligent valuations, although claimants would have to
establish any such negligence was causative of loss.
the problem of not knowing
the full story
In 1997 Mr and Mrs Williams were advised by the defendant firm of financial advisers
(Lishman) to transfer their pension funds from an occupational pension scheme to a
drawdown plan. The Williamses had stipulated that they did not want to make any
transfer that could cause them to be in a worse position than if they remained with
their current scheme and were assured that there would be no reduction in their
capital as a result of the transfer.
The new scheme performed badly. The Williamses had, by October 2003, come to the
conclusion that the financial planning had caused them loss and that the defendants
were probably to blame. However, proceedings were not commenced against Lishman
until October 2006. It was only then, through an expert’s report, that it was revealed
for the first time that an early surrender penalty of £38,000 had been incurred as a
result of the transfer.
Lishman applied to strike out part of the claim on the ground that it was time-barred.
The Williamses argued that the limitation period was delayed from running by their
lack of awareness of the relevant facts necessary to found their cause of action. The
arguments concerned sections 14A and 32(1)(b) of the Limitation Act 1980. Under
s14A of the Act, where facts relevant to the cause of action are not known at the
date of actual loss, there is a three-year limitation period for negligence claims
running from the date when that knowledge was acquired or might reasonably have
been acquired. Under s32(1)(b) time does not run where any fact relevant to the
claimant’s cause of action has been deliberately concealed from him by the
defendant. The Williamses argued that since a loss they suffered (the surrender
penalty) had been deliberately concealed from them and this loss had occurred first in
time, limitation did not start to run by virtue of s32(1)(b) of the Act until they had
knowledge of that fact.
Lishman argued that the primary limitation period commenced at the time of the
scheme transfer in 1997 and that neither s14A nor s32(1)(b) of the Act applied.
IFAS • LIMITATION • TORT • KNOWLEDGE • CONCEALMENT
Williams v Lishman Sidwell Campbell & Price Limited
Court of Appeal 21 April 2010
The Court of Appeal found that both the concealed loss (the surrender penalty) and
unconcealed loss (the transfer to the new fund in 1997) had occurred at the same time:
when the new scheme was put into effect in late 1997. It was therefore not possible for the
investors to rely on s32 of the Act to argue that the concealed loss was the first loss and that
time did not start to run until that loss was discovered. Accordingly, the Williams’ claim was
partially struck out on the ground that it was time-barred and the court held that the investors
had the requisite knowledge of damage pursuant to s14A of the Act by mid-May 2003.
The Court went on to address a further question worthy of comment, although it
was not one which required an answer in the context of this claim and the
decision on this point is therefore not binding. The Court considered what the
position would be if the concealed loss were the first loss in time. It decided that
had the penalty preceded the loss caused at the time of the scheme transfer, then
the first (concealed) loss would not have been statute-barred as time would not
start to run until that loss was discovered by the investor, and s14A would not
apply to an action to which deliberate concealment under s32 applied. This
would be the case even where a claimant already knew of a later loss that was
not concealed and may have known of that loss for a long time before learning
of the concealed loss.
The non-binding comments represent good news for claimants in relation to
concealed losses, but such are thankfully relatively rare. Generally, however,
defendants and their insurers can take comfort that this case adds to the growing
body of case law in which immediate damage has been found in negligence
cases. In this instance it was considered that the investors had suffered immediate
damage upon transferring to the riskier pension scheme (following Shore v
alas miles smith & jones
Environcom was engaged in the business of electrical waste recycling. Its insurance
broker, Miles Smith Insurance Brokers, placed various policies for it with Woodbrook
(acting here, it appears, in the representative name of Jones), including commercial
combined insurance covering property and business interruption risks.
Following a serious fire caused by the use of inflammable plasma guns at its premises,
Environcom made a claim on the insurance policy. Woodbrook declined the claim on
the basis that it was entitled to avoid the policy for material non-disclosure. The non-
disclosure related to the fact that Environcom used plasma guns as part of the process
of de-manufacturing fridges and there had previously been a series of fires (in addition
to two other fires which had led to claims on the policy).
Woodbrook commenced proceedings seeking a declaration of non-liability. Environcom
counterclaimed for an indemnity under the policy. Environcom subsequently joined
Miles Smith as a third party, alleging that it had been negligent when explaining
Environcom’s disclosure obligations at the time of broking the policy. In November
2009 the parties entered into mediation. As a result, Environcom and Woodbrook
settled their disputes. The proceedings then continued in relation to the claim by
Environcom against Miles Smith.
The court dismissed Environcom’s claim. It was undisputed that Miles Smith had a duty
to explain the obligation of disclosure to Environcom. The court outlined how a broker
had to satisfy itself that the position was understood by its client and this would usually
require a specific written or oral exchange on the subject, both at the time of the
original placement and at renewal.
Further, while Miles Smith’s duty did not extend to inquiring specifically about the use
of plasma guns, it was obliged to make clear that the previous fires at the premises
were disclosable to the insurer. Had Miles Smith enquired about the fires it would have
BROKERS • NON-DISCLOSURE • NEGLIGENCE • RISK MANAGEMENT
Jones v Environcom Ltd & Miles Smith Insurance Brokers
First instance 15 April 2010 5
received a full and frank explanation, which would have led to the emergence of the
use of the plasma guns. In failing to fully explain the disclosure obligations to
Environcom and in failing to specifically discuss the occurrence of fires, Miles Smith
had breached its duty of care.
However, on the facts the court concluded that the breaches of duty had not caused
Environcom’s loss. Had the information been disclosed, Environcom would likely have
found itself unable to obtain cover either from Woodbrook or from any other group
of underwriters. If cover had been obtained it would have been on the condition that
the plasma guns were not used and so no fire would have taken place. Environcom
was also in breach of its Waste Management Licence. According to the court, this
was a material fact which would have been relied on by insurers had other grounds
for avoidance not existed.
The court’s judgment sets out a useful outline of the steps insurance brokers
must take to explain disclosure obligations to their clients. Miles Smith had
simply relied on standard explanations annexed to its policy. This was not
sufficient. A broker’s duty extends to making sure that the client actually
understands its disclosure obligations. This is particularly important where, as
in this case, the individual representing the client has changed since the policy
was initially put in place. Brokers would do well to review their standard
practice to ensure sufficient explanation is provided to insureds both at the
time of broking the original risk and also at renewal, and their PI insurers may
wish to consider appropriate risk management steps in this regard.
brokers beware the
Mr Crowson was the managing director of Hughes Brickwork Limited (HBL). HBL was
introduced to HSBC Insurance Brokers Ltd and it was agreed that HSBC would effect
insurance policies to provide cover in respect of all risks that were covered by HBL’s
previous brokers. A dispute arose as to HSBC’s responsibility to arrange directors’ and
Mr Crowson issued proceedings against HSBC and claimed:
• HBL’s previous brokers had put in place a D&O liability insurance policy and
that, in addition to HBL, he and others were entitled to the benefit of that
• HSBC negligently failed to make any arrangement to renew or replace the
• it was a term of the contract between HBL and HSBC that HSBC would effect
a D&O policy and that that term conferred a benefit on Mr Crowson within
the meaning of the Contracts (Rights of Third Parties) Act 1999.
Consequently, Mr Crowson had a right to enforce the contract.
HSBC’s response was that it was not in a contractual relationship with Mr Crowson, it
did not owe him a duty of care and there was no legally recognisable cause of action
against it. Accordingly, it applied to strike out Mr Crowson’s claim.
The court found that an insurance broker can be liable in tort where (i) the broker is
instructed to arrange insurance for both the instructing person and others, and (ii)
where the policy is intended to benefit a third party. In this case, HSBC knew that Mr
Crowson was the managing director and that the directors (including the managing
director) required a D&O insurance policy. This policy would accordingly have been for
the benefit of the company as well as its directors and officers.
BROKERS • LIABILITIES TO DIRECTORS OF INSURED ENTITIES • TORT AND 1999 ACT
Crowson v HSBC Insurance Brokers Ltd
First instance 26 January 2010 6
The court referred to legal commentary stating that in cases where a broker is
instructed to arrange insurance not only for a particular insured but also for others, all
insureds can be properly regarded as the broker’s clients. It followed that the insured
who was directly instructing the broker was acting as an agent, with either express or
implied authority to give such instructions on behalf of others. In this case, it was Mr
Crowson who instructed HSBC.
The court found that even if its conclusion were incorrect, this situation fell within the
1999 Act so that Mr Crowson had the right to enforce the contract.
While HSBC relied on a number of authorities to support its claim that it did
not owe a duty of care to Mr Crowson, the court made it clear that there were
two bases upon which Mr Crowson was entitled to bring a claim: in tort and
under the 1999 Act.
Brokers will be wise to take heed of this decision. It illustrates that they can be
found liable to third parties despite the absence of a direct contractual
relationship in circumstances where they are (or are deemed to be) aware that
third parties are going to be involved and benefit from any insurance
obtained. There are numerous examples of such a situation but D&O insurance
is an obvious example where that is inevitably going to be the case.
I’m an expert – get me out
Mr Justice Blake had to consider whether a negligence claim against an expert
witness, Dr Kaney, should be struck out on the basis that she enjoyed expert immunity
from suit. Mr Jones was seeking damages for personal injury following a road traffic
accident and Dr Kaney was instructed to advise as to whether he was suffering from
post-traumatic stress disorder (PTSD). Dr Kaney’s initial report suggested that Mr Jones
did have PTSD.
However, following a telephone conference with the opposing expert, Dr Kaney
signed a joint statement agreeing that: (1) Mr Jones’s psychological reaction to the
accident did not amount to PTSD; and (2) she found Mr Jones to be “deceptive and
Not surprisingly, as a result of the damaging nature of the joint statement, the
underlying action settled for considerably less than it would have done had Dr Kaney
not signed it. Mr Jones commenced negligence proceedings against Dr Kaney, who
argued that under the principle set out in Stanton v Callaghan, she was entitled to
expert immunity from suit.
Stanton concerned the expert evidence of a structural engineer. Mr Jones argued that
Stanton, which was decided in 1998, was no longer binding because in that case, the
Court of Appeal’s reason for applying absolute immunity to expert witnesses was
predicated substantially upon barristers’ immunity which was abolished by the House
of Lords in Hall v Simons . In addition, Mr Jones averred that expert witness
immunity is inconsistent with the right to a fair trial enshrined by Article 6 of the
European Convention on Human Rights.
Dr Kaney submitted that although the policy basis for the decision in Stanton may
have narrowed, it has never been criticised by the Court of Appeal nor the House of
Lords and indeed was cited in Hall v Simons, the case which the claimant relied upon
in order to undermine expert immunity.
EXPERTS • IMMUNITY FROM SUIT • POTENTIAL SUPREME COURT APPEAL
Jones v Kaney
First instance 21 January 2010
The court was satisfied that Stanton remained binding and Dr Kaney’s application to
strike out was granted. However, just as in cases such as Phillips v Symes 
(which was another case involving alleged psychological injury) there were doubts
expressed as to whether Stanton should continue to stand. A certificate was awarded
allowing for a leapfrog appeal to the Supreme Court, which heard the appeal at the
beginning of January 2011.
The strength of the public policy rationale for retaining expert witness
immunity has certainly weakened over time. Although complete abolition is
a possibility, we expect the immunity to remain in some form, with the court
creating exceptions to the current all-encompassing immunity.
bribery beyond solicitor risk
Ms Advani, a solicitor at law firm Denton Wilde Sapte (DWS), informed the claimant
travel agents of an opportunity to become the global sales agent (GSA) for Air India in
the UK and Ireland. The travel agents pursued this opportunity and were advised that
they could secure the GSA appointment by paying a deposit of over £380,000 to a
former Indian tourism minister, Mr Yadav. Ms Advani introduced the travel agents to Mr
Yadav and the deposit was paid over.
The travel agents were not awarded the GSA appointment and unsuccessfully sought to
recover the deposit. They then issued a claim against Ms Advani as a result of her
involvement in the negotiations when acting as their solicitor. DWS was joined on the
basis that it was vicariously liable for Ms Advani’s conduct.
Ms Advani submitted that neither she nor DWS was retained by the travel agents as
their solicitors and that her role in the GSA transaction was limited to putting the travel
agents in touch with Mr Yadav. She denied knowing anything about a payment to
Mr Yadav. Unsurprisingly, however, she claimed that the introduction was within the
scope of her employment at DWS as she was developing business from her numerous
contacts for her firm (for example, the drafting of the GSA agreement).
DWS argued that it was never retained as solicitors for the travel agents and that if Ms
Advani did act in the manner claimed by the travel agents, she was acting outside the
usual scope of a solicitor’s work and outside the terms of her employment.
Both Ms Advani and DWS contended that the travel agents must have known that the
payment was an illegal inducement since there was no way that an honest businessman
could have believed that it was a legitimate advance payment for a GSA appointment.
They also relied on the defence of illegality or ex turpi causa: the court will not assist a
claimant to recover compensation for the consequences of his own wrongful conduct.
Although the court determined that there was insufficient evidence to find that there
was a bribe as a matter of fact, it held that the payment was intended to be a bribe in
civil law terms as it was made with the intention of procuring the GSA appointment
SOLICITORS • ILLEGALITY DEFENCE • VICARIOUS LIABILITY • COVERAGE IMPLICATIONS
Nayyar & Others v Denton Wilde Sapte & Gauri Advani
First instance 16 December 2009
(but reported in 2010, and ongoing) 8
and accordingly, this was sufficient to engage the illegality or ex turpi causa defence.
The court also found that Ms Advani was not acting within her actual or ostensible
authority as a solicitor employed by DWS and DWS was not vicariously liable for her
actions. This was because Ms Advani’s role at DWS was primarily one of marketing and
business development. Her deal broking role in relation to the GSA appointment went
far beyond this as it was mainly carried out for her personal gain rather than that of
DWS. In fact, the travel agents never entered into a retainer with DWS, no file was
opened and other client procedures were not carried out. Nor were any fees charged.
Despite the illegality defence going before their Lordships recently, in cases
where the criminal offence is one of either strict liability or negligence, the
level of culpability necessary for the ex turpi causa defence to succeed remains
unclear. Accordingly, summary judgment and strike-out applications based on
the defence are unlikely to succeed in the current climate; see for example
Griffin v UHY Hacker Young . However this case shows that the illegality
defence can be successful following a full review of the facts at trial.
Nayyar also raises the issue of whether conduct subject to a claim falls within
the business of a solicitor, thus triggering indemnity under a PI policy. This can
raise complex questions as to the role of a solicitor, particularly where
marketing and business development is an integral part of that role. Without
clear agreement from the outset as to the terms of any retainer, the risk to the
solicitors and their insurers is largely immeasurable. The decision does however
show that in certain circumstances there are opportunities for insurers to
escape liability even under the Law Society’s Minimum Terms.
The Court of Appeal has permitted the claimant to pursue an appeal subject to
significant sums being paid by way of security for costs.
the one about the developer’s
The claimant purchased a “somewhat dilapidated” cottage in Sussex which had been
advertised as having the benefit of a buyer’s option to purchase additional garden land
for £20,000. In fact, the contract contained a seller’s option to sell that land. The
defendant licensed conveyancers who acted for the claimant failed to spot that and
admitted liability. The claimant asserted that he had lost the chance to acquire the
garden land and to re-develop the cottage and additional land which would have
produced a profit of between £270,000 (in 2010) and £400,000 (at the peak of the
market in 2007).
Mr Justice Vos held that although the diminution in value of the property was the
normal measure of damages in cases such as this, there was no evidence of any
diminution in value here. It is possible in principle, however, to recover consequential
loss, such as the loss of anticipated profit, provided the claimant could bring himself
within the second limb of Hadley v Baxendale . In other words, the claimant had
to prove that the defendants knew that he was intending to re-develop the property for
a profit, that he contemplated a specific development and that the garden land was
necessary for that project.
The judge held that the defendants did have the necessary knowledge. This finding was
facilitated by the defendants’ “extraordinary” evidence that it was not the firm’s practice
to make attendance notes. That opened the way to a finding that, despite some
uncertainty about the claimant’s evidence, the defendants were given the necessary
information by the claimant. The judge went on to hold that the claimant had suffered a
loss of a “real and substantial” chance to realise a profit on the development on familiar
grounds (Allied Maples v Simmons & Simmons ). However, he also held that
the claimant had suffered a loss of four independent chances: (i) obtaining a buyer’s
option (as originally advertised) from the seller; (ii) finding the funds to exercise that
option; (iii) obtaining planning permission; and (iv) obtaining funding for the development.
The judge assessed these chances at 85%, 100%, 40% and 85% respectively. Multiplied
together, that produced an overall loss of chance of 28.9%, rounded up to 29%. The
LICENSED CONVEYANCERS • LOSS OF CHANCE • CALCULATION ISSUES
Paul Joyce v Bowman Law Limited
First instance 18 February 2010 9
judge also concluded that the re-developed property would have been ready for sale in
mid-2008 and would have produced a profit of £375,000. However, the claimant had
failed to mitigate his loss by re-developing the cottage alone – a more modest but
practicable scheme – which would have produced a profit of £245,000. The claimant’s
loss was therefore 29% x the lost profit of £130,000 (£375,000 minus £245,000) or
The judge’s approach to loss of chance is the most interesting feature of this
case. It bucks the trend in loss of chance cases which in recent years has tended
towards a “broad brush” evaluation of the overall value of a claimant’s lost
chance. However, in cases where there are genuinely independent chances or
contingencies, this approach assists defendants by significantly reducing
substantial “headline” figures. The contingencies must be independent and
that was the case here where they depended upon, in turn, the seller’s
willingness to grant a buyer’s option, the claimant’s ability to raise money to
exercise the option, the willingness of the local authority to grant planning
permission (in practice, the most controversial aspect of this case) and, finally,
the claimant’s chances of obtaining funding for the development. Note that all
of these contingencies depended, ultimately, on the decision of a third party. It
was recognised that there was some “overlap” between the four contingencies
so that, for example, the claimant could not have exercised a buyer’s option
unless he was able to persuade the seller to grant one. However, that was
insufficient to render them interdependent rather than independent.
In summary, notwithstanding quantification issues, this case provides a useful
example of how the loss of chance doctrine can be used, in appropriate cases,
to effect significant reductions in claims which start out with a significant
all that glitters…
In 2000 the claimant purchased her deceased brother’s retail jewellery business for
£28,000. It operated from a shop in Waltham Cross and the defendant solicitors were
instructed to deal with the renewal of the lease under the Landlord & Tenant Act
1954. Unfortunately, they completed the statutory notice incorrectly in July 2001 so that
the claimant gave up rather than renewed her lease. The claimant failed to secure a new
lease from her landlord and continued the business from her sisters’ houses for a short
period but had then abandoned it by March 2002. Her attempts to establish an internet
jewellery business ended by 2006.
Liability was admitted. The claimant claimed very significant damages: the value of the
lease of £5,000, expenses moving the business of £84,844, lost profits of the retail
business up to 2010 of £102,701, the lost opportunity to establish the internet business
which would have produced profits of £1.033m and, finally, the costs of re-establishing
the business of £585,000. The total claim was £1,810,545 plus interest.
His Honour Judge David Cooke held that, on the facts, damages for lost profits were not
recoverable. Critically, the claimant had given up the business in March 2002 soon after
the failure to renew her tenancy. The short life of the business indicated that damages
should be awarded on the basis of the capital value of the lost asset, which was assessed
at £28,000 (ie just what the claimant had paid for the business in 2000). To that figure
was added advertising costs attributable to the loss of the shop of £2,737.30,
dilapidations payable by the claimant to the landlord of £6,822.45 (accepted by the
defendants), the costs of litigation with the landlord of £3,961.00 and storage costs of
£1,479.25, bringing the total award to a round £43,000.
The judge rejected the claim for lost profits up to 2010 because “where the breach of
contract has resulted in the loss of a capital asset the appropriate measure of
compensation is the market value of that asset at the date of loss”.
He also rejected the claim for the profits of the proposed internet business on
conventional Hadley v Baxendale grounds. The defendants did not know that the
SOLICITORS • QUANTIFICATION • LOST PROFITS • HADLEY V BAXENDALE
Nahome v Last Cawthra Feather
First instance 29 January 2010 10
claimant intended to establish an internet business, nor did she tell them of this at the
outset of the retainer. The claimant’s case was unclear but seems to have been that she
needed the premises as a base from which to operate that business.
The decision contains a helpful review of previous decisions on the measure of
damages where a 1954 Act tenancy is lost following a professional adviser’s
negligence. The approach is highly fact-sensitive. The cases fall into two broad
categories: first, those where the business has ceased or been abandoned
following the loss of the tenancy and, secondly, those where the business
continues in the same or different premises. In the first category, the court is
unlikely to award damages beyond the capital value of the lost asset (ie the
lease). In the second category, the court may award damages representing loss
of goodwill or profits attributable to the lost premises.
This focuses attention on the actions of the claimant after the loss of the lease.
What steps has the client taken to secure a new lease albeit on terms less
favourable than those which might have been negotiated under the 1954 Act?
If the tenant represented a good covenant, the landlord is unlikely to refuse to
retain a rent-paying tenant.
Alternatively, where the claimant tenant gives up on the business (as here), he
or she is unlikely to recover loss of future profits (which seems reasonable)
rather than the capital value of the lost asset.
Finally, the failure of the claim for the “lost” profits of the proposed internet
business is, once again, a reminder of the importance of the well-established
rule in Hadley v Baxendale and the factual enquiry into what the defendant
was told by the claimant at the outset of their contractual relationship.
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