A recent decision1 clarifies how the courts will approach issues of contribution, contributory negligence and apportionment, when assessing damages in negligence proceedings against a professional, where another defendant has been fraudulent.
The Cheshire Building Society (the building society), now part of Nationwide, made two advances totalling £11.5m to a borrower for the purchase of a commercial property. Dunlop Haywoods (the valuer) fraudulently overvalued the property (true value - £1.5m). Cobbetts (the solicitors) acted for the building society in relation to the secured loans. The building society sued the valuer in deceit and the solicitors in negligence.
Before the trial the solicitors served a contribution notice on the valuer. The building society obtained summary judgment against the valuer on the basis of its fraudulent actions. The valuer then went into liquidation. The solicitors settled the building society’s claim against them for £5.5m.
Two issues remained for determination at trial: (1) what damages could the building society recover from the valuer; and (2) what damages could the solicitors recover from the valuer on their contribution claim. The second issue also involved the court deciding the amount of the solicitors’ notional damages exposure to the building society. The solicitors relied on the building society’s contributory negligence and on their own contractual liability cap (£5m per retainer).
The judge held: (1) the building society could recover £15.5m from the valuer as damages in deceit, (2) the solicitors would have been liable to the building society in negligence for £13.2m (but for their other defences), (3) the solicitors (but not the valuer) had the benefit of a contributory negligence defence of 50%, therefore the appropriate sum to be apportioned on the solicitors’ contribution claim against the valuer was £6.6m, and (4) the apportionment split of £6.6m should be 80:20 in favour of the solicitors.
The judge’s reasoning can be broken down. First, the “same damage” must be identified under s1(1) Civil Liability (Contribution) Act 19782 (the Act). The £13.2m was considered to be the same damage for which both defendants were liable. This reflected a deduction made for heads of loss which related solely to the fraud. The judge rejected the solicitors’ argument that the “same damage” figure should take account of their defence of contributory negligence and the benefit of the liability cap, on the basis that s2(3) of the Act itself provides that the total contribution of any defendant cannot exceed the damages for which he might be liable as limited by any contributory negligence or limit imposed by agreement.
Second, the starting point was identified for apportionment. Here, the starting point should not be £13.2m, but rather £6.6m, (ie after taking account of the solicitors’ 50% contributory negligence defence) on the basis that the solicitors should not be exposed to an increased contribution claim from the valuer, simply because the valuer was fraudulent and could not benefit from that defence.
Next the £6.6m figure was apportioned, 80% to the valuer and 20% to the solicitors, reflecting the relative causal potency and moral blameworthiness of their actions. In the final stage the judge deducted 20% of £6.6m from £5.5m (the settlement figure) to give the value of the contribution judgment (£4.2m) the solicitors obtained against the valuer.