Richard Terrence Percy v (1) Merriman White (2) Raymond John Murphy v (3) David Mayall [2021] EWHC 22 (Ch)

The High Court has recently (12 January 2021) applied the principle set out in 2016 by the Court of Appeal in the case of WH Newson Holding Ltd v IMI [2016] EWCA Civ 773 in a solicitors / barrister contribution claim. In particular, this concerns the limited scope of enquiry allowed in the defence of a subsequent contribution claim under the Civil Liability (Contribution) Act 1978, following a bona fide settlement by one defendant.

Chief ICC Judge Briggs, sitting as a Deputy High Court Judge in the Chancery Division, confirmed that a party against whom a contribution is sought (D2) can seek to challenge whether the underlying claimant had a reasonable cause of action against the settling defendant (D1), but D1 need only demonstrate that the assumed factual basis of the claim against him disclosed a reasonable cause of action. D1 does not have to prove that he was in fact liable to the Claimant. In particular, however, it was found that this was an answer in respect of collateral defences of all defendants.

Background

D1 in this case, Merriman White, was a firm of solicitors. It sought advice from David Mayall, Counsel (to whom we shall refer as D2, albeit there were a multiplicity of Defendants), in relation to a dispute involving their clients, Langley Ward Ltd and its sole director and shareholder, Richard Percy. The dispute concerned a joint venture company, Seven Holdings Ltd (“SHL”), which was jointly owned by Langley Ward and another sole shareholder company, Maddisonjay Estates Ltd, owned by a Mr Trevor. Mr Percy considered that Mr Trevor had misappropriated the assets of SHL.

Upon advice, Mr Percy pursued a derivative claim against Mr Trevor in the name of Langley Ward, for which the court’s permission to continue the claim was required. Eventually, the issue of permission to continue the action was addressed at a hearing in June 2011 and Mr David Donaldson QC refused permission (Langley Ward Ltd v Trevor & Another[2011] EWHC 1893 (Ch)), instead encouraging a just and equitable winding up of SHL.

Before the hearing, there had been a mediation between Mr Percy and Mr Trevor, at which a global offer of £500,000 inclusive of costs was rejected by Mr Percy. A conference with Counsel, Mr Mayall, took place shortly thereafter, before the permission hearing. Mr Mayall was informed as to events at the mediation and advised Mr Percy to press on with the claim.

Following the judgment of Mr Donaldson QC, Mr Percy settled with Mr Trevor on a substantially reduced basis and then sought damages both from Merriman White and David Mayall.

Initially, the professional negligence action continued against both Defendants. Then, in 2017, Mr Percy agreed the dismissal of his claim against Mr Mayall. Merriman White was granted permission to file a notice of contribution against Mr Mayall, and later settled with Mr Percy on 7 January 2019. The judgment in this case therefore related solely to the contribution claim between the solicitor and the barrister.

Decision

Three principal issues arose at trial: whether Mr Mayall had been negligent, and whether there was an entitlement to a contribution under the Civil Liability (Contribution) Act 1978, in circumstances where issues of (i) reflective loss and (ii) causation in respect of any negligence on Mr Mayall’s part, were raised in the context of the requirement for liability in respect of the same damage.

As to negligence, the court found that Mr Mayall had failed to warn sufficiently as to the risks of the derivative action, and rejected any suggestion that the judgment of Mr Donaldson QC had been wrong. With this established, the focus was on the issues of reflective loss and causation, and the extent to which Mr Mayall, in the D2 position, could resist a contribution claim on such grounds, both of which could undermine the basis of the settlement pursuant to which contribution was sought.

The state of the law on contribution claims was addressed in detail in the Newsondecision in 2016. The leading judgment of Sir Colin Rimer, agreed by Lord Justices Hamblen and Gross, found as follows:

59. The proviso of course shows that D1 must still prove at least something in order to succeed against D2. That is that “he would have been liable [to C] assuming that the factual basis of the claim against him could be established”. In my judgment the sense of that is that all that D1 needs to show is that such factual basis would have disclosed a reasonable cause of action against D1 such as to make him liable in law to C in respect of the damage. If he can do that, he will be entitled to succeed against D2. There may of course remain issues as to quantum, as to which section 1(4) makes no assumptions.

…61. … It has provided expressly that there is to be no inquiry as to whether D1 was or was not actually liable to C and the proviso cannot therefore fairly be read as impliedly qualifying that prohibition so as to let in an inquiry directed at showing that D1 was not actually liable. Such an interpretation is repugnant to the express intention of the primary provision of section 1(4) . In my judgment, the only permissible interpretation of the proviso, read in the context of section 1(4) as a whole, is that the limit of the inquiry it permits is as I have summarised it in para 59 above.

As Sir Colin Rimer explained at paragraph 46, if D1 can establish the matters summarised at paragraph 59, “ ...that is the end of the inquiry: and D2 is not entitled to raise any other matters that might have defeated C's liability claim, including any collateral defences that D1 had pleaded against C (and regardless of where the burden of proof in relation to any such defence may lie).” The judgment explained at length the difficulties that would arise otherwise in relation to partial settlements if the settling defendant faced the challenge in a recovery claim of re-establishing what had been alleged against it.

Mr Mayall argued that the principle against reflective loss recently considered by the Supreme Court in the case of Marex Financial Ltd v Sevilleja [2020] 3 WLR 255 should bar the claim against him. This was because, whilst Mr Percy was the Claimant in the professional negligence claim, his company, Langley Ward, was the Claimant in the underlying proceedings.

Judge Briggs decided that the principle in Newson barred such an argument by Mr Mayall for the same reason as the arguments on limitation were barred in the Newson case. He also decided that the principle of reflective loss did not apply on the facts because Mr Percy was a creditor / shareholder of his company which excluded him from the ambit of the Sevilleja decision. Further, both legal advisers owed Mr Percy a duty of care on the basis that his interests in the joint venture were bound up with those of his company.

A similar decision was reached in relation to causation. Mr Mayall sought to argue that causation could not be established in relation to any negligence on his part, if found. The judge nevertheless found as a matter of law:

Sir Colin Rimer was careful not to define the term “collateral defence” recognising that it may take more than one form. It could, for instance, take the form of a defence based on causation or the no reflective loss principle. There is no need to carry out a search within the pleadings for a “collateral defence”. That leads to a rejection of the submission that the Court of Appeal was confining the analysis to the statutory defence of limitation on the basis that it provides a bar to recovery but does not negate liability.

Yet further, causation was also found to have been proven on the facts, on the basis that on the balance of probabilities, had appropriate advice been given, Mr Percy would have taken account of the commercial risks and settled the claim. Merriman White did not need to call Mr Percy to give evidence to this effect as the position could be inferred from the other various evidence before the court. This was not therefore a case, it was found, where the court was ““driven to speculate what would have happened”: Goldsmith Williams solicitors v E. Surv Ltd [2015] EWCA Civ 1147.

Whilst Merriman White was also liable for the failure to settle the claim, the judge concluded that Mr Mayall must shoulder some of the responsibility for failing to warn of the risks in the litigation, to advise that the mediation offer made should be revisited when advising about a range of acceptable offers and for the advice on the nature of the proceedings to be pursued. The judge apportioned liability against Mr Mayall at 40%.

Comment

Contribution claims are often not as straightforward as they may at first blush seem. Here, the issues were largely resolved by the application of the relatively recent Court of Appeal precedent.

The judge acknowledged that this may seem unfair to Mr Mayall, in relation to how his reflective loss and causation defences were treated. However, the judge recognised that “These arguments are to look at the proceedings through the eyes of the party against whom a contribution notice is served.” Instead, such matters had to be treated as collateral defences which could not be pursued in the defence of a contribution claim, for the reasons stated in Newson. In any event, on the facts, the judge found that the defences in question would fail.

Issues of contribution regularly arise in professional liability claims, and professionals and their insurers will be familiar with the risk that avoiding being a party to the original claim, or achieving settlement with the Claimant, will not preclude liability to a co-defendant by way of contribution. The decision is a helpful reminder of the challenges that may be faced in opposing such contribution claims.

Phil Murrin, Sara Robertson and Camilla Elliot of DAC Beachcroft LLP acted for the successful Claimant solicitors in this action.