In Capita (Banstead) 2011 v RFIB Group Limited (2015), the Court of Appeal considered the law relating to continuing breach of contract and duty, and held that the obtaining and receiving of advice after a mistake had been made, even if the mistake could be easily rectified, could not mean that an obligation to correct one's mistake or negligence continued to accrue and give a fresh cause of action every day after the mistake had been made.

Background


RFIB Group Ltd (the "Seller") sold the shares in Capita Hartshead Benefit Consultants (the "Company") to Capita (Banstead 2011) Ltd (the "Buyer").  The Company provided pension management and advisory services to the Trustees of the Queen Elizabeth's Foundation for Disabled People ("QEF").  The transfer date of the shares under the share purchase agreement was 30 April 2004 (the "Transfer Date").  An indemnity provided that:

"The Seller undertakes to indemnify and keep indemnified the Buyer on behalf of itself and the Company … from any liabilities costs claims demands or expenses which any of them may suffer or incur arising directly or indirectly from …any services or products supplied by the Company … or any advice provided by the Company (or any of its employees or agents) prior to the Transfer Date."

In 2010, QEF made a claim against the Company for approximately £4.2 million on the basis that the Company, by one of its employees, Mr Le Cras, had negligently advised on the management of QEF's pension scheme.  The Company had negligently failed to ensure that various amendments to the scheme designed to reduce liabilities to members, which should have been made from April 2000 to April 2004, had been made effectively.  Further, in April 2004, the Company, through Mr Le Cras, came to realise that the amendments had not taken effect, but it continued to make representations that the amendments had been put into place.  The High Court held that the Company was therefore guilty of negligent misrepresentation, if not deceit.  Amendments were only effected in July 2008, making the liabilities of the scheme substantially greater than if the amendments had been properly effected in a timely fashion.  QEF's claim against the Company was settled for £3,850,000, which the Buyer and the Company sought to recover under the SPA indemnity.

The High Court held that the indemnity covered only losses whose effective cause was wrongful conduct before the Transfer Date.  The losses incurred after the Transfer Date had two effective causes:1) the breach of contract and duty when the Company failed to make effective amendments to the scheme from April 2000 and April 2004, which was a continuing breach after the Transfer Date; and 2) the negligent or deceitful representations made once the Company became aware that the amendments had not been effective.  The Judge held that "immediately after the Transfer Date, [the Company] was in continuing breach of duty which gave rise to the continuing losses on a day to day basis."  Therefore, the Judge held that it was appropriate to apportion the £3,850,000 between losses incurred before the Transfer Date, payable by the Seller, and losses incurred after the Transfer Date, payable by the Buyer.  The Buyer appealed.

Decision

The Court of Appeal considered whether the Company's breach of contract and duty was indeed a continuing concurrent cause of loss.  In his majority judgement, Longmore LJ considered the judgments in Midland Bank Trust Co v Hett Stubbs & Kemp (1979) and Bell v Peter Browne & Co (1990), both of which consider negligence claims against solicitors.  In Midland Bank, it was held that a solicitor was under a continuing duty to register an option every day after the deed granting the option had been executed.  This was because of a number of factors, including that the solicitors had retained the deed, were consulted in relation to the option from time to time, and had not closed the file.  In Bell, however, a solicitor who took no steps to register a divorcing husband's interest in the matrimonial home, so that his ex-wife was able to sell the house and spend the proceeds, was not under a continuing duty to rectify this mistake.  The cause of action accrued at the time that the solicitor failed to register the husband's interest.  Midland Bank was distinguished on the basis that after the divorce was concluded, the solicitors had no further contact with the husband: there was no on-going consultation as in Bell.  Longmore LJ considered, however, that the situations in these two cases were not "inherently different". He held that there is no distinction of principle between Midland Bank and Bell, and that Bell is to be preferred: "The obtaining and receiving of advice after a mistake has been made (even if a mistake can be easily rectified) cannot mean to my mind that an obligation to correct one's mistake or negligence continues to accrue and give a fresh cause of action every day after the mistake has been made." Therefore, the Company's breach occurred before the Transfer Date, and accordingly was covered by the indemnity.

In her dissenting judgment, Gloster LJ, held that the failure of the Company to rectify its mistake was a continuing breach of its continuing obligations.  She held that the contract between the Company and QEF was wholly distinguishable from the one-off transactions in Midland Bank and Bell.  She highlighted the wide range of the consultancy services and advice which the Company provided to QEF and the on-going, day-to-day provision of services by the Company.

The Court of Appeal also considered the legal relevance of Mr Le Cras' negligent or deceitful misrepresentations that the amendments had been validly effected, which were given after the Transfer Date.  These were concurrent causes of loss with the Company's original breach of contract or duty.  Applying EE Caledonia Ltd v Orbit Value Co Europe (1994), the Court held that recovery under an indemnity is precluded where a concurrent cause of the relevant loss is negligence, or deliberate action.  Losses incurred in the period after the misrepresentations were, therefore, not recoverable under the indemnity.  The Buyer was entitled to recover under the indemnity costs incurred up until 31 December 2004, after which date, the losses were also caused by Mr Le Cras' misrepresentations, and were, therefore, irrecoverable under the indemnity.

Comment

This case provides useful and detailed commentary on the case law on continuing breach of contract.  In particular, the Court of Appeal confirmed its preference for the position set out in Bell (and that there is no distinction of principle between Midland Bank and Bell). This suggests that a court is likely to hold that an unrectified mistake will not constitute further breaches of duty, even where there is ample opportunity to rectify a mistake in the context of an on-going duty to provide services. In this case the Court of Appeal confirmed that the causative potency of the original breach of duty continued in undiminished force and the subsequent negligent or fraudulent representations were a concurrent cause.  However, the Court of Appeal confirmed that where, as a matter of construction, negligence precludes recovery under an indemnity, the losses arising after the concurrent negligent/fraudulent acts were not recoverable under the indemnity.