PNBA

Newsletter: March 2015

Welcome to our third digital newsletter.  I would like to thank the editor, Simon Hale, for producing it, as well as all the contributors.

This month, we are very pleased to be able to publish a paper given Lord Justice Jackson, our President, which was first delivered to TECBAR in October 2014. It is entitled “Concurrent Liability: Where have things gone wrong?” and is a fascinating comparative study of the interface between contract and tort as seen in four different legal systems: Roman, French, German and the common law. It concludes that the House of Lords took a wrong turning in Henderson v Merrett [1995] 2 AC 45, and calls for the implementation of Law Commission proposals on limitation together with a reconsideration of Henderson by the Supreme Court. I urge you to read it.

We also feature case notes of recent decisions that have considered, among other matters: a radical change of approach to claims where a clinician fails to inform a patient about a treatment option or risk (Montgomery v Lanarkshire, in the Supreme Court); a consultant engineer’s duty to warn of risks to temporary works (Goldswain v Beltec); causation on the loss of a chance basis, in a claim against tax consultants who had advised with respect to corporation tax liabilities (Altus Group v Baker Tilly Tax); a solicitor’s duty to warn about solvency risks on an unusually structured transaction (Kandola v Mirza); and a Part 24 application where deliberate concealment was alleged against a firm of solicitors (BPC Hotels v Brook North).

On 21 April we will celebrate the 25th year of the PNBA with the Peter Taylor Memorial lecture, followed by a champagne reception.  Yet again we are indebted to Lord Justice Jackson, who will speak on “The Professions: Power, Privilege and Legal Liability.”  Who is better placed to reflect on the role of the professions, and their liabilities? To reserve a place for this event, please email the Hon. Secretary Victoria Woodbridge, by clicking here: woodbridge@crownofficechambers.com.

Anyone who came to the January event, and some who did not, may like to know that Prof Paul Davies’s paper is to be published in the Modern Law Review.  The Secretary has received a copy; we are currently trying to have it put on the website on a password-protected basis so that members may read it there.

We will shortly be circulating printed calendars to members, setting out the events which are planned for the rest of the year (better late than never).

May I invite all members to contribute ideas and suggestions for this newsletter or for talks and events.

William Flenley QC
william.flenley@hailshamchambers.com


Upcoming events

To reserve a place for any PNBA event please email: woodbridge@crownofficechambers.com

 

21 April 2015

The 17th Annual Peter Taylor Memorial Address

“The Professions: Power, Privilege and Legal Liability”, delivered by Rt. Hon. Lord Justice Jackson, Hon. President of the PNBA.

5:30 pm – 7:00 pm, Inner Temple Hall

The lecture will be accredited for 1 1/2 hours CPD

Followed by a champagne reception.

 

1 June 2015

“Falling into a Black Hole” 

Identifying claimants and loss in assignment, securitisation and syndication cases.

Moderator: The Hon. Mr Justice Newey

Speakers: Tom Grant QC, Mark Cannon QC, Tom Leech QC

Parliament Chamber, Inner Temple

The lecture will be accredited for 1 1/2 hours CPD

 

1-5 September 2015

AIJA Annual Congress

The Association Internationale des Jeunes Avocats (AIJA) will hold its Annual Congress in London from 1-5 September 2015. The Congress may be of interest to PNBA members. We have been asked to pass on the following information:

The Annual Congress offers an excellent opportunity for private practice lawyers and in-house counsel from around the world to gather for seminars on hot topics across the whole range of legal practice areas, to network and exchange business, to socialize and to discuss issues of importance to the profession.  It is a very popular event, usually attended by some 700 lawyers.  It has a strong history in continental Europe and in the last few years has developed a significant following amongst junior partners in City law firms. The AIJA is for lawyers under 45 years old.

For more information, visit http://london.aija.org/ or contact Ned Beale at Trowers & Hamlins: NBeale@trowers.com.


CONCURRENT LIABILITY: WHERE HAVE THINGS GONE WRONG?[1]

Lecture by Lord Justice Jackson to the Technology & Construction Bar Association and the Society of Construction Law on 30th October 2014

INDEX
1. Introduction
2.  Roman law
(i)   Tort
(ii)  Contract
3.  French law
4.  German law
5.  Common law
(i)   Development of the law of tort and contract
(ii)  The two streams of authority
(iii) Where are we now?
6.  Analysis
(i)   What is to be learnt from the comparative law exercise?
(ii)  Limitation
(iii) Other objections to concurrent liability
(iv) Contribution
(v) Overall conclusion

1.  INTRODUCTION

1.1 Purpose of this paper.  The general purpose of this paper is to examine the boundary between contract and tort in four different legal systems.  The specific purpose is to argue that the common law took a wrong turning in Henderson v Merrett [1995] 2 AC 45 and that the House of Lords drew an inappropriate conclusion from its use of comparative law.  If the law of limitation is reformed as the Law Commission has proposed, then it might be possible to redefine the law on concurrent liability.  In particular, it is submitted that contracts should not, and generally do not, generate duties of care in tort which mirror the contractual obligations.

1.2 Historical context.  Before discussing the central issue, I must first look briefly at the historical background.  It is unwise to tackle any issue concerning the structure of the law without having regard to the broader context.

1.3 Tort and contract.  The law of tort or delict requires D to refrain from injuring C’s person or property, alternatively to compensate C for any injury or loss caused.  The law of contract requires D to fulfil his promises to C or, in default, to make compensation.  The rules of contract and tort are now an essential feature of every civilised and prosperous society.

1.4 Tort is older than contract.  It may be thought that tort and contract are the twin foundations of every legal system, both ancient and modern, but not so.  The notion of tort is of ancient origin, being the sibling of crime.  Criminal offences were directed against the state or the community, whereas torts were directed against individuals.[2]  The law of contract is a more recent arrival on the scene.  Sir Henry Maine famously described social history as “a movement from status to contract”.[3]

1.5 Abbreviations used.  The abbreviations “C” and “D” mean claimant and defendant.

2.  ROMAN LAW

2.1 Rome leads the way.  The Romans led the way in clearly differentiating between the law of contract and the law of tort. The Institutes of Gaius[4] classified obligations as arising under two headings.  These were ex delicto and ex contractu.  The Institutes of Justinian[5] added two more categories, namely quasi ex delicto and quasi ex contractu.  These two additional categories, which have enriched many modern academics, are not relevant for present purposes.

(i) Tort

2.2 Overlap between crime and tort.  There is an obvious overlap between crime and tort, since many acts, e.g. theft or assault, are both crimes and torts.  In Rome the criminal courts only dealt with and punished the most serious offences, such as murder.  Delict was left to deal with numerous matters which we would regard as more appropriate for the Crown Court.

2.3 Categories of delict.  Both Gaius and Justinian identified four categories of delict:

  • Furtum, theft: taking away someone’s goods with intent.
  • Rapina, robbery: violent damage to property or theft with violence.
  • Iniuria (literally meaning absence of right)[6]: assault or insult.
  • Damnum iniuria datum: loss wrongfully caused.  This included damage caused by negligence.  It also included damage indirectly caused, for example cutting the painter of a boat so that it was subsequently wrecked.

(ii) Contract

2.4 Ahead of their time.  The Romans were ahead of their time in recognising a version of contract law.  The original Roman conception of a contract was little more than a debt arising from a solemn promise to pay (stipulatio).  By the first century BC the Romans recognised bilateral contracts, i.e. arrangements under which each party owed obligations to the other.  Such contracts rested on bona fides and were enforced by bonae fidei actions.  Gaius said that contractual obligations arose in one of four ways, namely re – by transfer of a thing; verbis – by uttering formal words; literis – by a document; consensu – by a consensual contract.

2.5 Consensual contracts.  A consensual contract did not mean anything that the parties might agree.  It meant a contract falling into one of four recognised categories:

  • Emptio venditio, meaning sale and purchase.[7]
  • Locatio conductio, meaning hire.  In this context hire included the provision of services, such as building a house.
  • Societas, meaning partnership.  This included any joint commercial venture, whereby each party contributed financially or otherwise and they all shared in the outcome: i.e. the ancient precursor of the modern JV.
  • Mandatum, meaning mandate.  This meant an agreement to perform a service for no reward, other than payment of expenses.

Any agreement which did not fall into one of the four recognised categories was of no effect.

2.6 Pros and cons.  This system had certain advantages.  In particular, the law could specify the rights and duties of the parties in each category of contract.  Busy Roman centurions, traders and slave dealers would not have time to spell out all the details of what they were agreeing.  The system also had its disadvantages.  In particular, there were gaps.  People might wish to agree things falling outside the recognised categories, but there was no effective mechanism for such agreements.  Over all the advantages seem to have outweighed the disadvantages.  The Romans successfully administered Europe, the Middle East and North Africa for several centuries.  They maintained a vibrant economy with much cross-border trade, major infrastructure works and massive building projects.  Some may say that denarii and sesterces[8] were a more stable European currency than the euro.

2.7 Privity of contract.  Privity was an essential feature of Roman contract law.  A third party could not acquire rights under a contract. This was so, even if the third party was identified in the contract as the intended beneficiary.  The privity rule was subject to one limited exception.  Purchases made by a slave belonged to the paterfamilias.  But that was hardly an exception: slaves were regarded as items of property like furniture.  It would be illogical for one piece of property to own another.

2.8 Concurrent liability was not an issue.  The law of contract and the law of delict were separate domains.  The thorny modern problems of concurrent liability did not trouble Roman jurists.

2.9 Britain rejects Roman law.  In 409, after four centuries of subjection, Britain threw off the shackles of Roman law.[9]  Thereafter it was the other former provinces, in particular Gaul and Germany, which preserved the principles of Roman jurisprudence.  It is to these jurisdictions we must now turn.

3.  FRENCH LAW

3.1 France follows Rome.  The French Civil Code (“CC”) is built upon the foundations of Roman law.  Many of the rules by which Roman law defined specific contracts, such as sale and hire, were retained in the CC, but these now became examples of the general concept of contract.  The draftsmen of the CC subjected the Roman law of delict to a similar process of generalisation.

3.2 Contract.  Article 1101 CC defines a contract as an agreement by which one or several persons bind themselves, towards one or several others, to transfer, to do or not do something.[10]  After this general provision there follow numerous specific articles dealing with consent, capacity, damages for breach and other incidents of the law of contract.

3.3 Privity rules relaxed.  French jurists, departing from their Roman heritage, have substantially relaxed the rules of privity of contract.  Under articles 1121 and 1165 CC a third party who would benefit under a contract may enforce its terms.  Manufacturers of products are liable in contract not only to the immediate purchasers, but also to subsequent purchasers.  Likewise under article 1792 CC builders are liable to future purchasers of buildings.  The French courts have generally construed these and similar provisions broadly.[11]

3.4 Tort/delict.  Article 1382 CC provides that any act whatever of man, which causes damage to another, obliges the one by whose fault it occurred, to compensate it.[12]  Article 1383 CC provides that everyone is liable for the damage he causes not only by his intentional act, but also by his negligent conduct or by his imprudence.[13]  After these general provisions there follow more specific articles dealing with vicarious liability, product liability, limitation and other such matters.  The tort provisions are widely drawn.  There is no restriction upon recovering pure economic loss.[14]

3.5 The non-cumul principle.  In the late nineteenth century there was a debate about the classification of civil liability.  Some argued that liability for non-performance of contracts and delictual liability were essentially the same.  Others argued that there was a fundamental difference, namely that delict applied to everyone whereas contracts only bound the parties.[15]  The latter view prevailed.[16]  The principle non-cumul des responsabilités contractualle et délictuelle was established and remains part of French law.  The contracting parties cannot bring a separate or alternative delictual claim in respect of the same subject matter.

3.6 Justification of the non-cumul rule.  The rationale of the rule is that the parties have chosen to be bound by the terms of their contract and the legal rules attaching to a contract of that type.  Therefore the law of contract, not delict, should govern their rights and remedies.  A separate justification is that the tort provisions are so wide that if concurrency were not prohibited,  contracting parties would at all times be able to resort to a tort claim.[17]

3.7 Exception for professional negligence.  As an exception to the rule, French law recognises concurrent liability in the context of professional negligence.  If a lawyer, doctor, architect or similar professional acts in breach of his “obligations professionelles” he will be liable to his client in both contract and delict.[18]  A builder may also have concurrent liability in both contract and delict if his breach is classified as ‘faute professionelle’. However, if there is a complete or partial collapse of the building, then the builder’s liability is solely contractual under article 1792 CC.[19]

4.  GERMAN LAW

4.1 German Civil Code.  The German Civil Code, Bürgerliches Gesetzbuch (BGB), came into force on 1st January 1900, following the unification of the German state in 1871.  It adopted many principles of Roman Law, both good and bad.[20]  The BGB has undergone many revisions and additions over the last tumultuous century.

4.2 Contract.  It must be conceded that the German law of contract is somewhat cumbrous.  Article 311 (1) GMB, the general provision, states:
“In order to create an obligation by legal transaction and to alter the contents of an obligation, a contract between the parties is necessary, unless otherwise provided by statute.”[21]
Subsequent provisions deal with the legal incidents of different categories of contract.[22]

4.3 Privity of contract and its exceptions.  Article 328 BGB and the following articles provide for exceptions to the privity rule.  A contract may specifically confer rights on a third party.  Also there are specific provisions covering annuity contracts and similar matters.  Overall it can be seen that Germany has departed substantially from the Roman concept of privity of contract, but has not gone as far as France in relaxing that rule.
4.4 Tort/delict.  Articles 823–853 BGB are the delict provisions of the Code.[23]  These contain three important general provisions.  Article 823 (1) provides that anyone who wilfully or negligently injures the life, body, health, freedom, property or other right of another contrary to law must compensate him for any damage caused.[24]  Article 823 (2) imposes similar liability on anyone who breaches a statutory duty intended for the protection of another.  Article 826 provides that anyone who, in a manner contrary to public policy, intentionally inflicts damage on another person is liable to compensate him for the damage.[25]  These three articles in conjunction with other more specific provisions, e.g. article 824 re defamation, capture most of what we would classify as torts.  It should be noted that the German tort provisions are narrower than those of France.  They do not generally permit recovery of pure economic loss caused by negligence.[26]

4.5 Concurrent liability.  Unlike Roman and French law, German law allows concurrent liability.  If D acts in breach of contract and his conduct also fulfils the definition of a tort, C may sue in contract and/or tort.[27]  There are, however, exceptions to this general rule (just as there are exceptions to the reverse rule – non-cumul – in France).  Sometimes the contractual relationship between the parties imposes restrictions upon what C can recover in tort.  The caselaw in this area is not entirely consistent, but is broadly favourable to claimants.[28]

4.6 Exceptions.  One exception is if the tort claim exactly corresponds to a contractual warranty for defects.  Also there are rules to prevent evasion of a contracting party’s privileged position.  If a high degree of culpability is required for contractual liability, then the same degree of culpability is required for the corresponding tort law claim.

4.7 Overall comment.  The study of comparative law plays, or should play, a vital part in any consideration of law reform.  When considering the issues surrounding concurrent liability, it is instructive to analyse the opposing approaches of France and Germany.  But merely to say that France “has” or Germany “does not have” concurrent liability is a barren comment.  It is necessary to look at the context in which France’s non-cumul rule and Germany’s concurrent liability rule sit.  In France the rules of both contract and tort are more expansive than in Germany.  Accordingly, it may be said that France has less need of concurrent liability.  Also, as a matter of principle, the non-cumul rule has much to commend it.

5.  COMMON LAW

(i) Development of the law of tort and contract

5.1 Development of the law of tort.  In the twelfth and thirteenth centuries tort law developed alongside, but subordinate to, the criminal law.[29]  Throughout the mediaeval period the common law was focused upon trespass and similar deliberate torts.  Negligence appeared on the scene in the eighteenth century.  In Coggs v Bernard[30] Holt CJ, citing Roman law principles,[31] held that the liability of a bailee for loss of or damage to goods was based upon negligence.  Blackstone, citing Justinian,[32] stated that persons injured through “neglect or want of skill in physicians or surgeons” could recover damages in tort: Commentaries book 3, chapter 8.  As is well known, the law of negligence developed through the nineteenth century by identifying duties of care which were owed in particular situations.  It was only in the twentieth century that the courts formulated the general principles of negligence.

5.2 Development of the law of contract.  Roman theories of contract did not take root in the common law either during or following the mediaeval period.[33]  Even Blackstone’s Commentaries, published in 1765-9, only dealt briefly with agreements.[34] Nevertheless the growth of trade and the coming of the industrial revolution highlighted the importance of classifying and enforcing contracts.  JS Mill was the first economist to identify that enforcing and regulating contracts was the responsibility of the state.[35]  Judges, pre-eminently Lord Mansfield, started to lay the foundations of modern contract law in the late eighteenth century.  Textbooks on the law of contract did not appear until the turn of that century.[36]  It was only in the nineteenth century that wholly executory contracts became the paradigm.[37]

5.3 The challenges of the twentieth and twenty first century.  It can be seen from the foregoing that Britain took about one and a half millennia to catch up with the legal principles which it roundly rejected in 409.  One of the challenges of the twentieth and twenty first centuries is to establish the proper relationship between contract and tort.  On one view, the two categories of civil liability are closely linked.[38]  On the alternative view, the two domains are entirely separate sources of legal obligation and they should be kept as such.[39]

5.4 The proper use of comparative law in that exercise.  The task of judges and jurists is not to “choose” between the French and German rules.  The experience of those two jurisdictions serves to illumine the options, as well as the benefits and pitfalls of the two approaches.  Our objective must be to adopt an approach which fits with the common law principles of contract and tort as developed in England and Wales.[40]

(ii) The two streams of authority

5.5 Over the last century there have been two distinct streams of authority.  Neither has yet prevailed, so as to vanquish the other.

5.6 Cases excluding concurrent liability.  It is not feasible to compile a comprehensive inventory of such cases.  The following decisions are illustrative:
Jarvis v Moy, Davies, Smith, Vandervell & Co [1936] 1 KB 339: Stockbrokers liable to client only in contract.
Groom v Crocker [1939] 1 KB 194: Solicitor liable to client only in contract.
Bagot v Stevens Scanlan & Co Ltd [1966] 1 QB 197: Architect liable to client only in contract.
Murphy v Brentwood DC [1991] 1 AC 398: Builders liable in contract but not tort for the costs of repairing defects.[41]
Payne v John Setchell Ltd [2002] BLR 489: Builders did not owe a concurrent duty of care to protect their employers against economic loss.
Robinson v P E Jones (Contractors) Ltd [2012] QB 44:  Absent assumption of responsibility (and there was none in this case) builder/vendor of house did not owe to purchaser a concurrent duty of care co-extensive with its contractual obligations.

5.7 Rationale for excluding concurrent liability.  In Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80, 107 (a case concerning the relationship of banker and customer) Lord Scarman, delivering the opinion of the Judicial Committee of the Privy Council, articulated most clearly the reasons for keeping contractual and tortious liabilities separate:

“Their Lordships do not believe that there is anything to the advantage of the law’s development in searching for a liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial relationship. Though it is possible as a matter of legal semantics to conduct an analysis of the rights and duties inherent in some contractual relationships including that of banker and customer either as a matter of contract law when the question will be what, if any, terms are to be implied or as a matter of tort law when the task will be to identify a duty arising from the proximity and character of the relationship between the parties, their Lordships believe it to be correct in principle and necessary for the avoidance of confusion in the law to adhere to the contractual analysis: on principle because it is a relationship in which the parties have, subject to a few exceptions, the right to determine their obligations to each other, and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort, e.g. in the limitation of action”.

5.8 Academic support for keeping contract and tort separate.  There is strong academic support for keeping contract and tort separate.  See e.g. B. Markesinis, An expanding tort law – the price of a rigid contract law (1987) 103 LQR 354; S.Whittaker, Privity of contract and the law of tort: the French experience (1995) 15 OJLS 57; P. Birks, Wrongs and remedies in the twenty-first century, Clarendon Press 1996, chapter 2, “Professional and client, the duty of care” by John Powell QC.  Powell points out that considerations which negative a duty of care in a statutory or regulatory context are often brushed aside when the issue arises in a contractual context.  In cases such as Caparo v Dickman [1990] 2 AC 605 the statutory context limits and sometimes excludes any duty of care.  Also, the existence of other remedies is often held to militate against imposing a duty of care, even if those other remedies are of no assistance to the claimant in the current case: see e.g. Jones v Department of Employment [1989] QB 1 at 25-26; X v Bedfordshire CC [1995] 2 AC 633 at 751 A-B per Lord Browne-Wilkinson, with whom the other members of the Appellate Committee agreed.[42]  This is allied to the “overkill” argument, which also may negative a duty of care: see e.g. Rowling v Takaro Properties [1988] 1 AC 473 at 502.  Powell argues that similar considerations should militate against injecting tortious duties into a contractual relationship.  These considerations should be relevant when the court is considering the third limb of the well-known threefold test, viz whether it is “fair, just and reasonable” to impose a duty of a given scope upon a party (see Caparo at 617-8).  I agree with that analysis.

5.9 Cases allowing concurrent liability.  Again it is not possible to compile a comprehensive list, but the following decisions are illustrative:
Midland Bank v Hett Stubbs & Kemp [1979] 1 Ch 384: Solicitor liable to client in both contract and tort for negligently failing to register an option.
Pirelli v Oscar Faber & Partners [1983] 2 AC 1: Engineers designing a chimney owed concurrent duties in contract and tort to their client.
Storey v Charles Church Developments Ltd (1995) 73 Con LR 1: Design and build contractor owed concurrent duties in contract and tort for negligent foundation design.
Henderson v Merrett [1995] 2 AC 145: Managing agents at Lloyd’s owed concurrent duties in both contract and tort to direct Names.  The tortious duty was based upon a Hedley Byrne assumption of responsibility.
Riyad Bank v Ahli United Bank plc [2006] EWCA Civ 780; [2007] PNLR 1: Bank advising claimant re setting up investment fund owed a duty of care in tort; although contractual framework could negative a tortious duty, it did not do so in this case.

5.10 Rationale for asserting concurrent liability.  Lord Goff’s speech in Henderson v Merrett contains the most well known articulation of the case for concurrent liability.  He contrasted the approach of France with that of Germany and commented that “no perceptible harm has come to the German system from admitting concurrent claims”.  He argued that there were good practical reasons for imposing tortious liability, in particular to overcome limitation defences.  He noted that the Latent Damage Act 1986 applied to tortious claims, but not to claims in contract.  From this he argued that the courts should favour concurrent liability in order to defeat limitation defences.  [For reasons discussed below these are dubious arguments.]  Lord Goff criticised the approach in Tai Hing and said that courts should resist “the temptation of elegance”.  He embarked upon a scholarly review of English and overseas authorities, warmly commending those which favoured concurrent liability.

(iii) Where are we now?

5.11 An ambivalent position.  The proposition that a contractual relationship displaces any tortious duty of care is at least for the time being, untenable.  Equally untenable, I would suggest, is the opposite proposition, namely that (absent disclaimer) every contract generates tortious duties of care co-extensive with the contractual duties.  That would result in an absurd commingling of contractual and tortious liabilities.  No-one would say that a purchaser owes a duty to take reasonable care to pay the vendor or that he is liable in negligence if he loses the funds set aside for payment.  To graft a tortious duty of care onto every contractual obligation would be contrary to principle.  Also such an approach would generate excessive limitation periods, because time may start to run in tort at the end of the contractual limitation period, when D “negligently” fails to perform his contractual obligation.

5.12 It is therefore necessary to determine in each case whether the relationship between contracting parties also gives rise to a tortious duty of care and, if so, what is its scope.

5.13 Determining whether a duty of care arises and what is its scope.  Here there are a range of tests to apply, including of course the threefold Caparo test.  At the moment fashion favours the Hedley Byrne/Henderson assumption of responsibility test.  It is by no means certain that this approach will remain pre-eminent for ever.  Whichever test the court applies, the existence of the contract and its terms will form part of the circumstances to be taken into account.

5.14 The impact of the contract.  As stated above, I accept that there are two streams of authority on the effect which the contract will have.  It is submitted, however, that the better view is that the existence of a contract defining the obligations and liabilities of the participants should be a pointer (although not conclusive) against finding parallel duties of care in tort.  The recent Australian High Court decision Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 provides some support for that viewpoint.

5.15 The builder conundrum.  Commentators have criticised the distinction which emerges from some of the authorities between (a) the position of building contractors and (b) building professionals.  I accept that if assumption of responsibility is the touchstone, it may be argued that a builder ‘assumes responsibility’ to his employer.  Indeed it may be said that every contracting party in every situation ‘assumes responsibility’ to the other party for the performance of his promises.  But that would be to stretch the assumption of responsibility test too far.  Whilst there are always problems in drawing the line, there is a discernable distinction between those who design buildings and those who construct buildings.  The former provide a service and are subject to the implied term contained in s. 13 of the Supply of Goods and Services Act 1982.  I doubt that the latter are providing a service within the meaning of s. 13.

5.16 In ‘design and build’ contracts the contractor embraces both functions.  He provides professional advice/design.  He also carries out work in accordance with his own design.  The House of Lords’ discussion of the position of builders in Murphy seems to be directed to those who physically carry out the building work.

6.  ANALYSIS

(i) What is to be learnt from the comparative law exercise?

6.1 The universal features of contract and tort.  Despite their different historical trajectories, the law of contract and tort have certain universal features across both civilian and common law systems:

  • Tortious duties are imposed by the general law.  Contractual obligations are voluntarily undertaken.
  • The law of tort is based on notions of moral culpability, so that ‘fault’ is usually a pre-condition of liability.  Contractual obligations (having been undertaken voluntarily) are strict, so that ‘fault’ is not usually a pre-condition of liability.
  • The law of tort is primarily concerned with compensation for harm caused.  The law of contract is concerned with ensuring that each contracting party receives the benefits promised by the other party, alternatively their monetary equivalent.

6.2 The underlying differences.  Those universal features are all at a high level of generality.  The actual incidents of contract and tort vary starkly between different legal systems.  The rules governing privity of contract, scope of duty in tort, remoteness of damage and limitation defences are useful illustrations.

6.3 Privity of contract.  As explained in sections 3 and 4 above, France has substantially relaxed the privity rule, so that third parties intended to benefit under contracts have extensive rights.  Germany allows limited exceptions to the privity rule.  These apply to parties who are identified as beneficiaries under contracts.  England has, until the turn of the millennium, enforced the privity rule more strictly.[43]  In this respect, curiously, we have stuck more closely to the orthodoxy of Roman law than our civilian colleagues.  Recently however, following a Law Commission report, Parliament has enacted the Contracts (Rights of Third Parties) Act 1999, which introduced limited exceptions to the privity rule.  In essence, and subject to specified exceptions, a third party may enforce a contractual term, if (a) the term expressly so provides or (b) the term purports to confer a benefit on him.

6.4 Scope of duty in tort.  In France the scope of a person’s tortious duty is broad.  The “dommage” he which must not cause (alternatively for which he must pay compensation) embraces pure economic loss.  Judges do not restrict recovery by reference to the ‘purpose’ of the duty which article 1382 imposes.[44]  In Germany the “Schaden” which a person must not cause (alternatively for which he must pay compensation) is primarily personal injury or damage to property.  Article 823 BGB does not include financial loss amongst the types of injury for which a tortfeasor must pay compensation.[45]  In England and other common law jurisdictions the law of tort restricts recovery for economic loss, as graphically illustrated in Spartan Steel & Alloys Ltd v Martin & Co [1973] QB 27.  The law of tort also restricts recovery by reference to the scope of the duty which the tortfeasor undertook: Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191.

6.5 Remoteness of damage in contract and tort.  In France the rules of remoteness are broadly similar in contract and tort.  The principle of full compensation (“réparation intégrale”) governs the assessment of damages for both breaches of contract and torts.  This is subject to limitations, of which the most important is that C cannot recover for damage which was not foreseeable.[46]  In England there is a stark difference between contract and tort.  The rules of remoteness are much tougher in contract.  In contractual claims the well known rule in Hadley v Baxendale (1854) 9 Ex 341 restricts the recoverable heads of loss.  The operation of this rule substantially reduced the amount of damages for late redelivery of a vessel under a charterparty in The Achilleas [2008] UKHL 48; [2009] AC 61.  On the other hand, in tort claims C need only establish that the type of harm which he suffered was foreseeable.  This is a much less stringent test, as exemplified in Hughes v Lord Advocate [1963] AC 837 and Page v Smith [1996] 1 AC 155.

6.6 Limitation defences.  In Germany the limitation rules are set out in articles 194-218 BGB.  The standard limitation period is three years, subject to numerous qualifications.  Time starts to run at the end of the year in which the claimant acquired or ought to have acquired knowledge of the relevant facts.  Significantly, the rules including the latent damage provisions are the same in both contract and tort.  In France the limitation rules are set in out in articles 2219-2281 CC.  In tort the limitation period is generally ten years after the occurrence of the injury or its manifestation.  The limitation period for most contract claims is shorter.  In England there is a stark difference between contractual and tortious limitation periods.  Not only does time start to run later in a tort claim, namely when C suffers damage.  But more importantly the latent damage provisions contained in section 14A of the Limitation Act 1980 only apply to tort claims.  There is no similar indulgence towards contractual claimants.

6.7 Submission.  In each legal system which we have looked at the rules of contract and tort are complementary.  Together they cater for a wide range of situations in which lawmakers, reflecting the general sentiments of society, assert that there should be redress.  Because the rules of contract and tort vary starkly between different jurisdictions, the boundaries of the two regimes will not be the same.  Nor can they interrelate in the same way.  Therefore, with all due respect to the reasoning in Henderson v Merrett, the fact that “no perceptible harm has come to the German system from admitting concurrent claims” is not a reason why we should follow Germany.

6.8 The true benefits from the comparative exercise.  The real benefits which we gain from a comparative law study of contract and tort are more nuanced.  The foreign systems which one examines (in this case Roman, French and German) expose the possibilities.  They show how both “non cumul” and concurrent liability can work.  They also reveal what are the contexts in which both doctrines sit.  In other words, what are the other incidents of contract and tort (a) in jurisdictions which accept concurrent liability and (b) in jurisdictions which reject it?  It is much easier to consider options for law reform, when you can see how they are actually working somewhere else.  One can then ask the question, “is that what we want here?”  On the other hand, the bare fact concurrent liability is accepted in Germany (a very different legal system from our own) is not an argument either for or against adopting it here.

(ii) Limitation

6.9 The driving force.  The difference between the limitation periods for contractual and tortious claims has been the driving force behind many of the cases asserting concurrent liability.[47]  This is unfortunate to say the least.  If it is felt that the contractual limitation periods are unsatisfactory, then surely the remedy is to amend the law of limitation, not to mangle the law of tort.  The fact that a contractual claim is time-barred is not a good reason to ‘invent’ a tortious claim.

6.10 The concern in individual cases.  In any particular case there is always an understandable concern to ensure that the wronged claimant recovers redress.  That concern should not drive the court into contortions.  Either we have limitation periods for sound policy reasons or we do not.  If the judiciary and Parliament really do not like limitation periods, then we could extend them or even get rid of them altogether.  We could put civil law on the same footing as criminal law – viz anyone can be sued for anything irrespective of how long ago it happened.

6.11 Limitation rules serve a valuable purpose.  For what it is worth, I think that limitation rules serve a valuable social purpose.  They mean that people know where they stand and do not have potential claims hanging over them for ever.  The more distant an event is in the past, the more difficult it is to prove what actually happened.  Witnesses die.  People forget what they saw, heard or said.  Documents and other evidence are lost.  It is a lottery which snippets of contemporaneous evidence survive.  Putting it bluntly, as time passes it becomes more and more likely that the court will reach the wrong decision.  Furthermore most people insure against their potential liabilities.  They and their executors cannot be expected to go on insuring for ever.

6.12 A self-inflicted problem.  The limitation problem, which has been the driving force behind some of the more dubious decisions on concurrent liability, is self-inflicted.  There is no need for the wide divergence which currently exists between the limitation rules for contract and tort.

6.13 Law Commission proposal.  In its report number 270, “Limitation of Actions”, the Law Commission proposed a single core limitation regime which would apply to contractual, tortious and other claims.  In essence, this would comprise (a) a primary limitation period of three years from the date of actual or constructive knowledge; (b) a long-stop period of ten years from the date of accrual of the cause of action or, in the case of negligence etc, from the date of D’s breach; (c) discretion to extend time for personal injury claims.  In 2009 the Government rejected these recommendations.

6.14 Submission.  The time has now come to take a fresh look at this issue and to consider implementing the Law Commission’s recommendations. Once Parliament has removed the perceived anomalies and injustices of the Limitation Act 1980, judges will no longer need to stretch the common law in order to circumvent the statute.

(iii) Other objections to imposing tortious liabilities upon contracting parties

6.15 Evasion of contractual restrictions.  If strangers deal with one another pursuant to a contract which they have freely entered into, that contract should govern their relationship.  Specific provisions may exclude or limit liability for breach.[48]  It would be wrong if contracting parties could evade the effect of exclusion or limitation clauses by suing in tort.

6.16 Evasion of contractual rules re remoteness.  As stated earlier, the rules governing remoteness of damage are much tougher in contract than in tort.  This is because of the difference between the nature of the interests which – traditionally – have been protected by contract and tort.  In a contractual situation it is wrong in principle that C should be able to evade the contractual remoteness rules by formulating a concurrent claim in tort.  In Wellesley Partners LLP v Withers LLP [2014] EWHC 556 (Ch); [2014] PNLR 22 at [210] to [216] Nugee J felt understandable reluctance in allowing the claimant in a solicitors’ negligence action to do precisely that.  Nevertheless the judge concluded that he was obliged to do so, because there was concurrent liability in both contract and tort.

6.17 Defining damage.  There are problems in defining what constitutes damage when tortious duties of care are super-imposed upon what is essentially a contractual relationship.[49]  This is particularly so in cases where the claimant incurs contingent liabilities.

6.18 Standard of performance.  Sometimes a contract specifies the standard of care required or the specific steps to be taken by D.  If so, those provisions determine the extent of D’s obligations.  The universal standard of “reasonable care” demanded by the law of tort has no place in such a relationship.

6.19 Rights of third parties.  If contracting parties desire to confer rights on third parties, they can now do so using the Contracts (Rights of Third Parties) Act 1999.  If the parties choose not to do so, the law of tort should not ordinarily step in and impose such liabilities.  If tort law does so, contrary to the will of the parties, it is effectively undermining their contract.

6.20 Construction contracts.  In construction contracts parties sometimes use the 1999 Act to confer rights of action on future purchasers or tenants.[50]  Usually these rights are carefully delineated.[51]  It would subvert the contractual scheme if the purchasers or tenants had wider remedies for economic loss in tort.  The contractual provisions (extended to benefit purchasers/tenants under the 1999 Act) should determine what and against whom they can recover.  This has the benefit of certainty.  If prospective purchasers or tenants are dissatisfied with the extent of their contractual protection, they need not proceed.  If they do proceed, then the extent of that contractual protection may be one of the matters affecting price.  The purchasers or tenants should not get the benefit of both a reduced price and enhanced protection.

(iv) Contribution

6.21 The present law.  The partial defence of contributory negligence under s. 1 (1) of the Law Reform (Contributory Negligence) Act 1945 is available where C sues in tort, not where C sues in contract.  This is, however, subject to one exception.  Where C has concurrent remedies available in both contract and tort, C cannot defeat the plea of contributory negligence by framing his claim in contract alone.  In that situation, D can still rely upon a plea of contributory negligence: Forsikringsakitielskapet Vesta v Butcher [1989] AC 852.

6.22 Possible objection to the theme of this paper.  It may objected that if the scope of concurrent liability is reduced, this will defeat meritorious defences of contributory negligence.  There are two answers to this argument.
(i) Implementation of Law Commission Report No 219 (1993) is now long overdue.  The 1945 Act should be amended so that a plea of contributory negligence is available in cases where D is in breach of a contractual duty to take care.  Indeed there is a case for permitting the partial defence of contributory fault across a wider spectrum of contractual claims.[52]  But that is an issue for another day.
(ii) The common law should not be distorted in order to circumvent statutory provisions.  Parliament has decided that contributory negligence should only be available in actions based on tort.  If contributory negligence is to be extended to contractual claims, then that is a matter for Parliament, not the courts.

(v) Overall conclusion

6.23 Implementation of Law Commission proposals.  The previous Government in November 2009 rejected the proposals in Law Commission Report 270.  May I suggest that this government or the next one might consider taking those proposals forward?  The limitation rules are not simply a matter of “lawyers’ law”.  They serve a valuable social purpose.  For obvious reasons, it is not always easy for coalition Governments to establish full legislative programmes.  The Law Commission’s proposals on limitation might form a useful package on which a present or future Government would be able to agree.

6.24 Restore the integrity of the common law.  The juridical arguments for keeping contract and tort separate are powerful.  Judgments asserting concurrent liability have not satisfactorily answered those arguments.  Instead they rest upon pragmatic considerations.  If the Law Commission proposals are adopted, those pragmatic considerations will be swept away.  The path will then be clear for the Supreme Court to look again at the issue of concurrent liability.  In my view the rights and liabilities of contracting parties should generally be regulated by the contracts which they have made, not by some amorphous and ever expanding law of tort.


[1] I am grateful to Marie-Claire O’Kane and Peter Morcos, pupils at 4 New Square, Lincoln’s Inn, for their assistance in researching French and German law; also to Professor Hugh Beale and Dr Janet O’Sullivan for reading this paper in draft and for stimulating discussions with them about the issues.
[2] See Sir Henry Maine, Ancient Law (John Murray, 1897), chapter 10, ‘The early History of Delict and Crime’.
[3] Ibid at page 170
[4] Mid-second century AD
[5] Sixth century “Roman” emperor based in Constantinople, now Istanbul.  Justinian recently sprang to fame once more as a result of the British Museum’s Byzantium exhibition.
[6] Non iure
[7] Even though there were formal legal rules, self help sometimes prevailed especially on the outer fringes of the Empire.  A foreign merchant who delivered sub-standard goods to the Roman fort at Vindolanda in Northumberland was summarily flogged; his entire stock of merchandise was then confiscated and poured down the drain: see Tab Vindol II, 180.
[8] There was a modest devaluation in the late first century AD, but this did not cause anything like the chaos which followed within a few years after the introduction of the euro.
[9] According to Zosimus, the Britons ejected the magistrates and resolved to “live by themselves, no longer obeying Roman law”: Historia Nova 6.5.  In those days, sadly, judges had no security of tenure.
[10] “Le contrat est une convention par laquelle une ou plusieurs personnes s’obligent, envers une ou plusieurs autres, à donner, à faire ou à ne pas faire quelque chose.”
[11] See S. Whittaker, ‘Privity of contract and the law of tort: the French experience’ (1996) 16 Oxford Journal of Legal Studies 327 at 337-367.
[12] “Tout fait quelconque de l’homme, qui cause à autrui un dommage, oblige celui par la faute duquel il est arrivé à le réparer.”
[13] “Chacun est responsable du dommage qu’il a causé non seulement par son fait, mais encore par sa négligence ou par son imprudence.”
[14] See S. Whittaker, ‘Privity of contract and the law of tort: the French experience’ (1996) 16 Oxford Journal of Legal Studies 327 at 331.
[15] E. Bonnet, ‘Responsabilité délictuelle et contrats’ (1912) Rev crit de lég et jurisp 418.
[16] See S. Whittaker, ‘Privity of contract and the law of tort: the French experience’ (1996) 16 Oxford Journal of Legal Studies 327 at 333-334.
[17] See Van Rossum, ‘Concurrency of contractual and delictual liability in a European perspective’ (1995) 3 European Review of Private Law, 539 at page 7 of the online version.
[18] Van Rossum, ibid at 8-9
[19] Van Rossum, ibid at 10
[20] See Markesinis, Unberath and Johnston, German Law of Contract, 2nd edition (Hart Publishing, 2006), pages 6-12 ‘The genesis of the Code’.
[21] “Zur Begründung eines Schuldverhältnisses durch Rechtsgeschäft sowie zur Änderung des Inhalts eines Schuldverhältnisses ist ein Vertrag zwischen den Beteiligten erforderlich, soweit nicht das Gesetz ein anderes vorschreibt.”
[22] For an excellent commentary on these provisions, see Markesinis, Unberath and Johnston, German Law of Contract, 2nd edition (Hart Publishing, 2006).
[23] For an excellent commentary on the provisions, see Markesinis and Unberath, German Law of Torts, 4th edition (Hart Publishing, 2002).  At the time of writing a new edition is expected.
[24] “Wer vorsätzlich oder fahrlässig das Leben, den Körper, die Gesundheit, die Freiheit, das Eigentum oder ein sonstiges Recht eines anderen widerrechtlich verletzt, ist dem anderen zum Ersatz des daraus entstehenden Schadens verpflichtet.”
[25] “Wer in einer gegen die guten Sitten verstoßenden Weise einem anderen vorsätzlich Schaden zufügt, ist dem anderen zum Ersatz des Schadens verpflichtet.”
[26] See Markesinis and Unberath at pages 52-55.
[27] See International Encyclopaedia of Laws, Vol 1, Tort Law (2011), Germany.
[28] See Van Rossum, ‘Concurrency of contractual and delictual liability in a European perspective’ (1995) 3 European Review of Private Law, 539 at pages 11-14 of the online version.
[29] See generally Holdsworth’s History of English Law vol. II, pages 357-367 and vol. III, chapter III.
[30] (1704) 2 Ld Raym. 909.
[31] As set out by Bracton
[32] Institutes 4.3.6-7: physician liable for killing a slave through negligent treatment.  Obviously it was only the slave owner who could claim for such an inconvenient mishap.
[33] See Holdsworth’s History of English Law pages 412-454
[34] Blackstone discusses contracts in volume II chapter XXX as a means of acquiring title to property and in volume III chapter IX as part of the law of private wrongs.
[35] Principles of Political Economy, 1848.
[36] Powell, Essay Upon the Law of Contracts and Agreements, 1790; English translation of Pothier, Law of Obligations, 1806; Chitty, 1826.
[37] See Atiyah, The Rise and Fall of Freedom of Contract (Clarendon Press, 1979) at pages 419-448. This magisterial work traces the development of the law of contract from the 18th to 20th centuries against the background of political/social history and the changing intellectual climate.
[38] As argued by Atiyah at page 505 of The Rise and Fall of Freedom of Contract
[39] See the discussion of French law above.
[40] See Dworkin’s discussion of integrity at chapter 6 of Law’s Empire (1986, Fontana Paperbacks).
[41] See Lord Bridge (with whom Lords Mackay, Ackner and Oliver agreed) at 475.
[42] The Court of Appeal applied this line of reasoning in Green v Royal Bank of Scotland [2013] EWCA Civ1197; [2014] PNLR 6.
[43] See Tweddle v Atkinson (1861) 1 B & S 393 and numerous authorities following Tweddle.
[44] Bussani and Palmer, Pure Economic Loss in Europe (2011), pages 126-128.
[45] See Bussani and Palmer, supra at 148-9.  In certain exceptional situations outside article 823 BGB the court may award compensation in tort for economic loss.
[46] See article 1150 CC; also Bermann and Picard, Introduction to French law, Kluwer Law International BV at pages 234-236 re contract and 258-262 re tort.
[47] See J. O’Sullivan, “The meaning of ‘damage’ in pure financial loss cases – Contract and tort collide” 28 Professional Negligence (2012) 248-265.
[48] Subject to any statutory restrictions, such as the Unfair Contract Terms Act 1977
[49] See J. O’Sullivan, “The meaning of ‘damage’ in pure financial loss cases – Contract and tort collide” 28 Professional Negligence (2012) 248-265.
[50] This is an alternative approach to using collateral warranties.
[51] See H. Beale, “A Review of the Contracts (Rights of Third Parties) Act 1999” in A Burrows & E Peel (eds), Contract Formation and Parties (OUP, 2010) 225, 242-244.
[52] See O’Sullivan and Hilliard, The Law of Contract, 6th edition (OUP, 2014), pages 414-415.

Montgomery v Lanarkshire Health Board
Supreme Court
11 March 2015
[2015] UKSC 11

Subject: Clinical negligence—Consent—Duties of health care professionals to discuss treatment options—Causation of harm to wrong

Summary: A bench of seven Supreme Court Justices held that whether a particular treatment option ought to have been discussed with a claimant patient was not a question of negligence, but a question of patient autonomy. This was for determination by the courts, not experts. The test is in such a claim is whether the doctor has exercised reasonable care to ensure that the patient is aware of material risks, and alternative treatments, when judged by the standard of whether a reasonable person in the patient’s position would be likely to attach significance to the risk. Bolitho and Sidaway were overruled.

Abstract

A pursuer whose child suffered serious injury at birth claimed that she ought to have had the option of caesarean section [“CS”] discussed with her as a valid treatment option, as well as vaginal birth.

The child’s delivery (vaginally) was impeded as a consequence of shoulder dystocia, resulting in traumatic birth leading to cerebral palsy. The small stature of the mother (who was diabetic) and the large size of the foetus were such that there was an elevated risk of shoulder dystocia, which was not communicated to the mother in clear terms or at all. It was accepted by the Defenders that if a planned CS had taken place, the injury to the child would not have occurred.

At proof (viz trial) the Lord Ordinary (Lord Bannatyne) held that medical practice did not require that CS be discussed with the pursuer as the risk was such that it would not have been negligent of the doctor in question to advise of the risks of vaginal birth, and thus the doctor was under no obligation to discuss CS with the patient. Further, he held that had the pursuer been offered a CS, she would probably not have accepted it.

On Appeal to the Inner House of the Court of Session, the Appeal was refused and the judgment of the Lord Ordinary adhered to. Both courts applied the law as stated in Bolitho v City and Hackney Health Authority [1998] AC 232 and Sidaway v The Board of Governors of Bethlem Royal Hospital and Maudsley Hospital [1985] AC 871.

The Supreme Court held unanimously (a bench of seven justices):
(1) That the option of CS ought to have been discussed with the Pursuer as a treatment option;
(2) That the issue of whether it ought to have been discussed with the patient was not one of negligence, but one of patient autonomy and for determination by the courts and the law, not medical practice [para 85];
(3) That (despite the views of the Lord Ordinary on the evidence) a review of the evidence was such that he (and the Inner House on appeal) had come to an incorrect conclusion;
(4) That the true test is in such a case is whether the doctor exercised reasonable care to ensure that the patient was aware of material risks, and alternative treatments, when judged by the standard of whether a reasonable person in the patient’s position would be likely to attach significance to the risk [para 87]; and
(5) That the evidence in fact demonstrated that had the option of CS been discussed with the pursuer she would probably have accepted that course of treatment.

Accordingly, judgment for the agreed damages (of approximately £5.5m plus approximately £2m in interest) would be pronounced in the pursuer’s favour.

The cases of Bolitho and Sidaway overruled [para 86], the Supreme Court holding that they no longer reflected modern attitudes to patient centred treatment and failed to give due respect to the ability of patients to understand the treatment options, and resulted in unacceptable medical paternalism.

Comment

One can argue whether this case is the most important clinical negligence claim in the last 30 or 60 years. But what can be said is that it causes a profound and fundamental change in the rights of patients; and in the grounds upon which litigation can be conducted. The fact that the case emanated from Scotland makes no difference to its effect throughout the United Kingdom. Indeed, leading counsel for the appellant was of the English Bar. The GMC intervened, in essence supporting the Appellant’s position.

The following points are critical to the decision:

  1. The issue of what should be discussed with a patient is a matter of law, not professional practice. In Scotland, the equivalent of Bolam v Friern Hospital Management [1957] 1 WLR 582 is contained in the case of Hunter v Hanley [1955 SC 200] (which is in fact relied upon in Bolam). In pleading a case of lack of consent, it is therefore not a matter for expert opinion from Doctors of the medical profession. It is for the courts and the law to determine, not doctors. Thus, if there is a failure to obtain consent, that is a matter of fact for the trier of fact and not for expert evidence.
  2. The obligation of a doctor to discuss treatment options is largely determined by the views of what a reasonable patient might wish to know. But that objective test is tempered by the requirement that if a patient asks for information it should not be withheld from him (by the adoption of the reasoning in Rogers v Whittaker from the Australian courts).
  3. The only exception to the requirement to provide information is rare and is the therapeutic exception: that to tell the patient the true position would be positively harmful to his or her health and welfare.
  4. The obligation is not discharged by barraging the patient with statistics about risks. Neither is it discharged by obtaining a signature on a consent form [see paragraph 89]. Doctors will have to take much care now to make clear and careful notes (as is in fact a requirement of GMC guidance).
  5. Although the views of a trier of fact are usually more or less sacrosanct, in this particular case the Lord Ordinary failed to have due regard to the evidence as a whole. He failed to record that the allegedly negligent doctor had stated that if CS was offered to women they would usually accept it. Thus the evidence from all of the witnesses was that had the option been offered it would probably have been accepted. The Supreme Court therefore felt entitled to revisit the issue and specifically reserved their views on whether Chester v Afshar [2005] 1 AC 134 was correctly decided.

An interesting issue of practice now arises in proof of lack of consent. I simply offer as a suggestion how matters may progress in England, as opposed to how matters may progress in Scotland which has fundamentally different procedures, in the light of the decision.

The decision is in essence retrospective. In concluding that Sidaway and Bolitho are wrong, despite the fact that this change in the law is based upon modern attitudes to patient care, the decision of the Supreme Court adopts the legal fiction of stating what the law always was. Reference is made to the GMC guidance in 2008 for the decision; and Sam Montgomery was born in October 1999. There is therefore a powerful argument that cases going back many decades will be capable of litigation – provided there are no limitation issues. However, there are undoubtedly strong arguments as to why limitation will not apply (such as only now knowing that a claim is sound, or that the injured party had no capacity to sue until the present time). In Scotland, there is a debate raging over whether cases which proceeded decades ago and failed, but did not argue informed consent, can now be re-litigated: the argument is that the matters were not res judicata and an incapax child could not be represented afresh.

The GMC’s submissions were to the effect that their guidance (going back to 1995) simply reflected the position in law and practice and was not a new rule that had to be complied with. Practitioners who represent claimants should therefore rely upon the GMC guidance as the foundation of their claims in this area and probably upon the submissions put in by the GMC to the Supreme Court. (I am sure GMC Legal will provide them if requested). It is suggested that the most important factual issues are: was the patient engaged in a discussion about treatment options in a way that they could understand? [see GMC guidance on this]. If not, then if they had been advised of the treatment options and risks, would they have opted for a different treatment or no treatment? And if they had adopted that alternative course, would the injury have occurred anyway? All this has to be clear in witness statements and the final point in an expert report. Even if the treatment would still have taken place, it may be that a Chester v Afshar approach could be successful although causation of damage would still be an issue.

Much debate has been had on whether a small risk of slight damage has to be discussed. That is not in fact resolved, and I suggest that one will know a negligent failure when it presents itself. Equally if the risk was slight of tiny injury, is it realistic that such would be litigated at all?

Both the medical and legal professions will face challenges as to exactly how this case will change practices. But past misdemeanors will be ripe for litigation now. As was observed in the principal judgment, if a patient truly consents in the full knowledge of risks, it is highly unlikely that they will be able to complain if the risk in fact manifests. That patients can then ‘own’ the decision with the attendant risks is a factor to reduce, not increase, litigation. And as a final note, as one who practises on both sides of the border, it is refreshing to note the impact of Scottish cases on the rest of the UK. I do hope that my English colleagues will not in the future stop reading when they hit the words “It was held by the Lord Ordinary….”

Andrew Smith QC
Advocate and Barrister,
Compass Chambers, Scotland
Crown Office Chambers, London


Goldswain (and Anor) v Beltec Limited (t/a BCS Consulting) (and Anor)
Technology and Construction Court (Akenhead J)
10 March 2015
[2015] EWHC 556 (TCC)

Subject: Professional Negligence—Engineers—Residential cellar conversion—Underpinning—Collapse of property—Works undertaken by contractor not in compliance with engineer’s method statement and drawings—Inspection by engineer—Duty to warn contractor and/or claimants about shortcomings in contractor’s works—Whether duty breached—Mechanism of collapse

Summary: Akenhead J reviewed the law on a professional’s duty to warn and helpfully distilled five key principles. On the facts, the Defendant engineers had not been in breach of any duty to warn when they inspected the building contractor’s temporary works. The Defendant had acted as many other competent engineers would have done and there was no evidence of any actual danger to the property at the time of their inspection.

Abstract

The Claimants were the leasehold owners of a ground floor flat at 4 Stanhope Avenue, London N3 3LX (“the Property”). The Property had a cellar which the Claimants decided to convert into living accommodation by underpinning the outer walls to create more height.

Ms Hale (the second claimant) approached Beltec Ltd (“Beltec”) by telephone on 10 February 2012 with a view to Beltec providing structural engineering services. On 17 February 2012, Mr Smith of Beltec wrote to the Claimants with a quotation:

“…to prepare details and justifying calculations, based on our conversation which I understood to be carrying out a survey of the existing basement/ground floor, designs for excavating the basement, underpinning the perimeter walls, providing support to the internal walls and structure as necessary, providing details for damp proofing and drainage, in sufficient detail to satisfy the building regulations…”

The quoted price was £1,350.00. Mr Goldswain signed an enclosed letter of instruction and returned it on 18 February 2012.

Mr Pistilli, a structural engineer who worked for Beltec, visited the Property to take measurements and notes. He produced five drawings referenced 12065 and numbered S001 to S005. It was later agreed that he would revise the drawings to include for light wells. He sent the revised drawings to Mr Goldswain on 28 March 2012.

Drawing S0002A was entitled “Basement Underpinning Plan”. This showed a plan of the basement with each individual “pin” – namely, each section of the basement to be excavated and underpinned – marked with numbers 1 to 5, to indicate the sequence of their excavation. The notes on this drawing included an “Underpinning Method Statement” and certain “Underpinning General Notes”. The method statement included requirements to construct a basement slab ‘kicker’, and for the use of propping, to absorb the horizontal forces that would be imposed by the Property’s walls.

In May 2012, the Claimants retained AIMS Plumbing and Building Services Ltd (“AIMS”) to carry out the works. They accepted AIMS’s quotation in the sum of £20,995 (although this was later revised), which offered to carry out underpinning “as per drawing the Method Statement and notes included on drawing 12065/S002 Rev A“. It was clear that AMIS had been sent the Beltec drawings and the calculations.

AIMS started the work in September 2012. AIMS and Beltec agreed that Mr Pistilli would visit the Property to inspect the initial pin to be constructed, at an agreed price of £200 plus VAT. Upon inspection on 26 September 2012, Mr Pistilli concluded that the reinforcement for the pin had not been carried out in accordance with Beltec’s design. He told Mr James of AMIS that the pin should be completely replaced and spent some time explaining the drawings to him so that AMIS could understand how to rebuild the pin and proceed with the works. He explained the importance of placing the reinforcement as shown on the drawings, of first casting the kicker section of the basement slab at the base, and of following the underpinning sequence and the recommended method statement.

AMIS completed the underpinning in October 2012 but no part of the reinforced concrete slab or the thickened parts of the slab forming the kicker connected to the underpinning were ever cast.

On returning from a holiday at around this time, Ms Hale began to notice a few cracks in the Property’s walls. She reported these to AMIS, who came back in the second or third week of November 2012 to inspect. The cracks worsened. On 24 November 2012, the Claimants noticed that daylight was visible through the walls of their bedroom. They contacted AMIS, and Mr James attended immediately. He fitted some sort of brace over the relevant crack, and then left. But by midday, the Claimants and their upstairs neighbours could actually hear the fabric of the house tearing apart. They rushed from the Property; Ms Hale was eight months pregnant at the time. The Property tilted and collapsed in upon itself. Fortunately, no one was injured.

The buildings insurer declined cover on the basis that the failure was inadequate construction and design, and these factors were not insured contingencies. Mr Goldswain and Ms Hale issued proceedings against Beltec and AIMS on 31 January 2014. AMIS played no part in the proceedings; judgment in default was entered against it. However, AMIS was believed to be insolvent.

The Claimants made a number of allegations against Beltec. By trial, the key remaining allegations were of: failures in relation to the preparation of the drawings; an alleged lack of guidance as to how the base slab sections to the corner pins were to be constructed; and of a failure properly to warn AIMS and the Claimants about the shortcomings in AMIS’s works in the light of what Mr Pistilli observed on 26 September 2012. Beltec denied all of these complaints. It blamed the collapse on the failures of AIMS properly to construct the underpinning, to provide the kickers and to provide any temporary propping.

Akenhead J dismissed the claims against Beltec. He surveyed the case law relevant to a professional’s duty to warn, beginning with Oldschool v Gleeson (Construction) Ltd (1976) 4 BLR 103, and taking in:

  1. Plant Construction PLC v Clive Adams Associates [2000] BLR 137;
  2. Aurum Invetsments Ltd v Avonforce Ltd [2000] EWHC 184 (TCC);
  3. Hart Investments Ltd v Fidler [2007] EWHC 1058 (TCC);
  4. Cleightonhills v Bembridge Marine Ltd [2012] EWHC 3449 (TCC); and finally
  5. Stagecoach South Western Ltd v Hind [2014] EWHC (TCC).

Helpfully, the learned judge set out the following five conclusions from these authorities in relation to a professional’s duty to warn (para 47):

“(a) Where the professionals (engineers in this case) are contractually retained, the Court must initially determine what the scope of the contractual duties and services were. It is in the context of what the professional person is contractually engaged to do that the scope of the duty to warn and the circumstances in which it may in practice arise should be determined.

(b) It will, almost invariably, be incumbent upon the professional to exercise reasonable care and skill. That duty must be looked at in the context of what the professional person is engaged to do. The duty to warn is no more than an aspect of the duty of a professional to act with the skill and care of a reasonably competent person in that profession.

(c) Whether, when and to what extent the duty will arise will depend on all the circumstances.

(d) The duty to warn will often arise when there is an obvious and significant danger either to life and limb or to property. It can arise however when a careful professional ought to have known of such danger, having regard to all the facts and circumstances.

(e) In considering a case where it is alleged that the careful professional ought to have known of danger, the Court will be unlikely to find liability merely because at the time that the professional sees what is happening there was only a possibility in future of some danger (see Aurum); any duty to warn may well not be engaged if all there is a possibility that the contractor in question may in future not do the works properly.”

In the context of an engineer’s obligations to inspect and warn about the condition of temporary works, Akenhead J also observed:

There are a number of cases and textbooks in which it is said that, generally, the engineer or architect is, often, required to design the permanent works but that it is the contractor’s responsibility to build those permanent works and the temporary works and how it constructs the permanent works is the responsibility of the contractor. In general terms, that is true but it will always be necessary to consider what services the professional is engaged to provide. There may well be contracts for professional services in which, for instance, the engineer is retained to consider and approve temporary works proposals and, if so, that must be done with reasonable care and skill. On other contracts the engineer may be retained to supervise or inspect the works and, again, that will have to be done with reasonable care and the scope of that duty may well involve a consideration of how safely the works are being carried out by the contractor.”

On the evidence, the judge found Beltec’s engineering expert the more impressive witness. He dismissed the allegations that related to Beltec’s drawings, because there was nothing in the permanent works design documentation which would have prevented the contractor from doing its work in a reasonably safe way. Beltec’s design was capable (indeed readily capable) of being implemented safely by AMIS, provided that what was specified was provided with care, by following the recommended sequence and using appropriate propping. Had this been done, the basement could have been created without any significant damage to the structure above.

The only other allegation with any potential causative significance was the alleged failure to warn either AMIS and/or the Claimants about the shortcomings in AMIS’s work, following on from the 26 September 2012 visit by Mr Pistilli.

When considering this allegation, the context was important. The inspection arose out of an informal contractual retainer made as between Beltec and AIMS, not the Claimants. The visit was arranged simply to enable Mr Pistilli to see what AIMS had done in relation to the first pin.

When he attended, Mr Pistilli looked at it and formed the view that the pin should be re-done, because it appeared to have been constructed in a way which was obviously non-compliant with Drawing S002A. However, there was no danger to the structure at that stage, which was unsurprising given that only one small hole had been excavated. It had not been established that Mr Pistilli should have realised that AIMS was completely out of its depth or not competent to do the job which it had been employed to do. On the facts, Mr Pistilli did no more and no less than what a sizeable number of engineers in his position would have done. He  advised his client (AIMS at that stage) to follow the requirements set out on the relevant drawings, he made sure that Mr James actually had those documents, and he explained the requirements of the drawings to Mr James orally during his visit. In these circumstances, Akenhead J said it was “very difficult to see how Mr Pistilli’s or Beltec’s conduct at or following that visit could be considered to be negligent.”

The learned judge concluded that the cause of the collapse was undoubtedly breaches of contract on the part of AIMS, and gave judgment against them in the sum of £287,754.55.

Comment

The Claimants in this action were effectively forced to pursue allegations against Beltec given that AMIS was insolvent. The outcome on the facts appears an unremarkable one.

Nonetheless, Akenhead J’s review and summary of the law relating to a professional’s duty to warn is a useful restatement of the relevant principles, in the context of construction design and beyond.

Simon Hale
4 New Square


Altus Group (UK) Limited v Baker Tilly Tax and Advisory Services LLP (and Anor)
Chancery Division (HHJ Keyser, sitting as a Judge of the High Court)
7 January 2015
[2015] EWHC 12 (Ch)

Subject: Professional Negligence—Tax advisers—Tax mitigation structures—Allocation of losses to corporate members of limited liability partnership—Changes brought about by Corporation Tax Act 2009—Failure to advise on implications—Loss of a chance to implement alternative tax mitigation structure—Principles to be applied—Approach to assessment of loss of a chance in tax advice cases—Ramsay principle

Summary:   In a tax advice claim involving the loss of a chance to mitigate or avoid a corporation tax liability, the Court was required to apply the second limb of Allied Maples v Simmons & Simmons so as to determine the prospects of a successful challenge by HMRC to the tax planning in question. Tax advice cases were not in their own special category and did not require a derogation from Allied Maples on SAAMCO or public policy grounds. However, the claims failed on primary causation as the Claimant would not have undertaken the restructuring necessary to obtain the benefits it claimed to have lost.

Abstract

The claimant (“Altus”) was a corporate member of Altus UK LLP (“the Existing LLP”). The Existing LLP was incorporated on 24 September 2007 as the corporate structure by which its Canadian parent company (“AGL”) acquired the business of a firm called Edwin Hill.

The acquisition of Edwin Hill gave rise to an asset in the Existing LLP’s accounts in respect of the goodwill of that business; the total cost of the goodwill was approximately £26.5 million. In late 2007 it was decided that the goodwill would be amortised over a five-year period concluding at the end of the third quarter of 2012. This resulted in amortisation of goodwill at the rate of approximately £5 million per annum.

An LLP which carries on a trade is not itself liable to tax. Rather, its profits and loss arise to its members, who are then subject to taxation. Individual members are subject to the income tax regime. Corporate members are subject to the corporation tax regime. For the purposes of corporation tax, the amortisation of goodwill is an allowable deduction against profits. In contrast, such amortisation is not an allowable deduction for the purposes of personal income tax.

In addition, the allocation of losses to an individual (personal) member of an LLP was at all material times controlled by a mechanism in section 850 of the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”). Until 2009, and again in contrast, it appeared that there was no equivalent controlling mechanism in the case of corporate members of an LLP.

By an Engagement Letter dated 7 January 2008, the defendant (“Tilly”) was engaged to prepare Altus’s corporation tax returns. In February 2008 Altus and Tilly agreed that the returns would be prepared on the basis that the two corporate members of the Existing LLP would be allocated 100% of the deduction for the amortisation of goodwill. In practice, this inevitably resulted in Altus incurring a loss, which it could then carry forward to set aside its liabilities for corporation tax in future years.

The returns were prepared in this manner. However, on 1 April 2009 the Corporation Tax Act 2009 (“the Act”) came into force for accounting periods ending on or after that day. The effect of sections 1263 and 1264 of the Act was that it became impermissible for Altus to be allocated a loss from the Existing LLP for corporation tax periods from the period ending 31 December 2009 onwards.

Tilly did not provide advice to Altus about the implications of these legislative changes until November 2011. By that point, the corporation tax returns for 2009, 2010 and 2011 had been prepared on the previously agreed basis, allocating losses to Altus so as to mitigate the amount of tax payable.

In November 2011, Tilly did inform Altus of Act and its consequences for the corporation tax returns which Altus had filed for 2009, 2010 and 2011. At that time, Altus consulted Ernst & Young (“EY”). EY had undertaken the tax planning work in connection with the original acquisition of Edwin Hill. EY agreed with Tilly’s advice about the effect of the changes under the Act, and confirmed that Altus would need to de-recognise losses of £3,299,000.

At the same time, EY suggested it may have restructuring proposals which Altus could implement “to facilitate the tax efficient allocation of profit and losses arising to the corporate and individual members of Altus UK LLP“—in other words, proposals to seek to circumvent section 1263 and 1264 of the Act. This was referred to as “the New LLP Proposal”. A key hallmark of the structure was that a new UK would be created (“the New LLP”).

Altus consulted Tilly about the New LLP Proposal in January 2012. Tilly were sceptical, considering that the New LLP might look “somewhat artificial” and be vulnerable to challenge by HMRC. Altus relayed Tilly’s concerns to EY, but EY felt the issues could be overcome. EY advised that it was hard to see how HMRC could establish that the New LLP Proposal was unlawful.

Altus discussed the merits and demerits of the New LLP Proposal internally. The Director of Finance, Ms Webster, was concerned that “HMRC may see this as a tax avoidance scheme and as such will seek to unravel it”. However, EY stood firm to their advice that the structure was lawful. On 3 February 2012 the New LLP was incorporated.

However, there remained an internal divergence of views among senior Altus personnel about whether to proceed with the restructuring. The individual members of the Existing LLP then received independent legal advice, which recommended that they should seek a full indemnity from AGL, the parent company. AGL was only prepared to offer them a limited indemnity.

Amid these issues, and amid other persistent concerns that the implementation of the restructure was impractical, Altus ultimately chose not to proceed any further with the New LLP Proposal in 2012.

Altus later sued Tilly for breach of retainer and negligence. It argued that if it had been properly advised in 2009, Altus would within about four months have implemented a restructuring materially similar to the New LLP Proposal, and that there would have been a substantial chance that the restructuring would have been successful in mitigating its corporation tax liabilities from 2009 onwards. Altus claimed damages for the loss of that chance.

Tilly admitted that it was in breach of duty in failing to advise Altus about the Act in July 2009, when it was preparing Altus’s corporation tax computation for the six-month period to 30 June 2009. (Altus alleged, and proved at trial, that the relevant advice should in fact have been given sooner, namely in January 2009, prior to the coming into force of the Act).

However the key questions were of causation: Tilly argued that Altus would not have implemented the restructuring proposal as a result of timely advice; that, if it had done so, the restructuring would have taken approximately eight or nine months rather than four months to implement; that as a matter of law the restructuring would not have been effective to mitigate Altus’s tax liabilities and that therefore damages for the loss of the opportunity to mitigate those liabilities were irrecoverable in principle; and that if, in fact, damages for the lost opportunity were recoverable in principle, they were either small or illusory because of the strong likelihood that HMRC would successfully have challenged the restructuring.

These issues engaged the well-known principles set out in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 W.L.R. 1602. On the conventional application of that case, the court would first need to decide on the balance of probabilities whether Altus would have implemented the New LLP Proposal (or something like it) in 2009. If Altus would have done so, the court would then need to assess the chances that the restructuring would have been successful in mitigating the amount of tax paid by Altus—in other words, to assess the chances that HMRC would not have made a successful challenge to the restructuring.

Interestingly, Tilly sought to argue for a different approach to that second limb of the enquiry.
Tilly contended that the second question should be whether the restructuring would on the balance of probabilities have had the desired tax effect as a matter of law. It was incorrect, Tilly argued, to assess the chances that HMRC might have chosen not to challenge it or that the Upper Tribunal might have rejected the legal challenges to it; rather, the court should itself rule on the legal question of the efficacy of the New LLP Proposal. If the proposal were held to be ineffective as a matter of law, no damages should be recoverable, even if there might (in practical terms) have been a significant chance of the New LLP Proposal succeeding.

Tilly deployed a number of arguments in support of this approach. It argued that if the New LLP Proposal was ineffective in law, there was no legally recognised loss for Altus to pursue. It relied on a SAAMCO scope of duty argument to the effect that no tax adviser could owe a duty to a client save a tax that was, in fact, lawfully payable. It argued that it would be contrary to public policy to award damages in respect of the chance to avoid tax that was lawfully due, and it would be unreasonable for such damages to be awarded (applying Voaden v Champion [2002] EWCA Civ 89). Tilly also relied on Harrison v Bloom Camillin [2001] PNLR 195 (per Neuberger J) for the proposition that the court should be “far more ready to determine that the claimant would have failed or succeeded on a point of law than to determine that the claimant would have failed or succeeded on a point of fact”.

The Judge rejected these arguments. He held that the benefit Altus might have gained from implementing the New LLP Proposal depended on the prospects of it being successfully challenged by HMRC. If the scheme had not been successfully challenged, Altus would as a matter of fact have paid less tax. The Judge felt that the resulting financial loss was no less real than, for example, the loss resulting from the lost opportunity to negotiate a more advantageous settlement of a dispute. The proper approach was therefore the conventional loss of a chance enquiry.

At paragraph [61], His Honour Judge Keyser stated:

“61 The fact that one of the contingencies on which the outcome was dependent was a judicial decision by the First-tier Tribunal or Upper Tribunal would not by itself preclude the “loss of a chance” approach. The usual principle is that, where the chance in question relates to the outcome of curial proceedings, it is inappropriate to try those proceedings as a trial within a trial: Dixon v Clement Jones Solicitors [2004] EWCA Civ 1005, [2005] PNLR 6 , per Rix LJ at [27]. Of course, if the law on a point is clear, it will be inappropriate to proceed on the assumption that the court or tribunal would have got it wrong. But that does not mean that the court trying the professional negligence claim is bound to resolve disputed points of tax law.”

He concluded that Tilly’s alternative approach would involve a trial within a trial, namely the litigation of an HMRC challenge that was never actually brought. HMRC would not be involved in that process and it would be conducted on a wholly hypothetical basis. The Judge considered there was an “obvious potential for difficulty more widely” if the Court were called upon to make rulings on tax law on the basis of hypothetical facts.

The SAAMCO argument was rejected: the adviser’s relevant duty to its client was to adopt any filing position that was properly arguable and was in the client’s best interests, while at the same time making full disclosure of any matter that would be necessary for HMRC to understand and appraise the filing position. There was also no offence to public policy in such a duty, and it would therefore be inconsistent to hold that no damages could be recovered for a breach of such a duty on public policy grounds.

Despite rejecting Tilly’s arguments of principle, and despite finding Tilly in breach of duty over and above its admissions, the judge dismissed Altus’s claims. The case failed at the first limb of the factual causation test. On the detailed evidence, Altus failed to prove on the balance of probabilities that it would have taken the course of action upon which it relied, namely that it would have implemented the New LLP Proposal (or a similar scheme) in or around early 2009 if it had been otherwise advised.

The judge went on to make detailed obiter findings on the second limb of the causal enquiry. The central issue was to assess the chances of the notional restructure having been effective. This meant looking at the prospects of HMRC challenging the scheme, and the bases upon which that might have been attempted. The judge therefore had to consider the parameters of the New LLP Proposal in the context of the Act and other applicable anti-avoidance case law.

He first considered challenges based upon the decision in W. T. Ramsay Ltd. v. Inland Revenue Commissioners, Eilbeck (Inspector of Taxes) v. Rawling [1982] A.C. 300 – the so called Ramsay principle. He concluded that a Ramsay challenge to s.1263 would have had no merit because the New LLP Proposal, properly understood, simply did not engage section 1263 at all. He also dismissed an argument that HMRC could have based a legitimate challenge to the New LLP Proposal on Heastie v Veitch & Co [1934] 1 KB 535, which deals with monies paid by a partnership to a partner otherwise than in his/her capacity as a partner; and he dismissed certain other subsidiary bases of challenge (including a transfer pricing objection on the basis of a deemed disposal of goodwill).

However, a Ramsay challenge based on section 54 of the Act would have been more problematic for Altus. Section 54 prohibits the deduction, from the calculation of a corporation’s profits, of expenses that are “not incurred wholly and exclusively for the purpose of the trade”, and of losses which are “not connected with or arising out of the trade.” Although expenditure does not fail the “wholly and exclusively” test simply because the corporation arranges its business so as to involve deductible expenditure, and although there is no general rule that an otherwise permissible deduction would fail the test if the corporation had traded “deliberately and for fiscal motives” in such a way as to generate the deductions, nonetheless the judge considered that HMRC would have challenged the New LLP Proposal on this ground. The restructure had, arguably, no commercial purpose for the Existing LLP and was simply a method of creating a fiscal advantage for Altus.

The judge held there was a 60% chance that HMRC would have brought such a challenge. The challenge would have enjoyed a 50% chance of success, which meant that ultimately, there was a 30% chance of the New LLP Proposal failing on the grounds of a section 54 challenge.

Finally, the judge concluded that if HMRC had brought a challenge based on section 54, there was a 40% chance that it would have included a transfer-pricing challenge, and a challenge to Altus’s original filing position. Either of these additional arguments would have had a 33% chance of success. Accordingly, there was a 7.2% chance of Altus’s tax benefits from its original filing position being set aside.

Comment

Tilly’s contention that the second limb of Allied Maples should not apply amounted to an argument that the assessment of lost chance damages should be approached differently in tax advice cases, where a potential variable was a challenge by HMRC to the tax planning in question.

The judge rejected this approach for a number of reasons. But the sense is that his fundamental concern was to avoid the court making findings about tax legislation in circumstances where HMRC was not represented, and where the findings would be predicated on hypothetical facts.

Tilly’s argument highlighted a consistent interplay between two rival pronouncements in the surrounding case law on loss of a chance. Clement Jones confirms the established injunction against the Court conducting a ‘mini-trial within a trial’. On the other hand, Bloom Camillin advocates a greater readiness to make a black and white decisions on points of law (as distinct from contested facts or matters of opinion).

The learned judge interpreted Bloom Camillin as meaning that, in a tax advice case, the correct approach “…will generally be to assess the chance of the scheme succeeding or failing upon a challenge, although there may be cases where it is appropriate to determine the legal point.”  He gave no guidance on what might constitute an appropriate case.

One then considers the approach the judge actually took on the facts. Although not conducting a ‘mini trial’, he proceeded to assess in considerable detail the arguments which would have been fought out upon a variety of potential challenges by HMRC. Indeed, he also determined in absolute terms that a number of the possible challenges would simply have had no merit at all.

It therefore seems that tax advice cases do not stand apart from Allied Maples in their own special category. But once the second limb enquiry is on foot, the dividing line between what the Court will and will not definitively resolve may lie in whether the point would ever have come before the notional arbiter of the tax challenge:

  1. In concluding that certain of the potential challenges by HMRC would have had no merit, the judge was apparently comfortable making findings that HMRC would not have run those points, and that no deduction to damages should be made for the chance that it might have done so.
  2. In contrast, for those points which might properly have been argued by HMRC before a tribunal, the Court would not decide as a certain fact what that arbiter would or would not have concluded. An assessment of the percentage chances of any outcome was as far as the Court should go.

Simon Hale
4 New Square


Karmjeet Singh Kandola v Mirza Solicitors LLP
Chancery Division (HHJ David Cooke, sitting as a Judge of the High Court)
27 February 2015
[2015] EWHC 460 (Ch)

Subject: Professional Negligence—Solicitors—Conveyancing—Unusually structured transaction—Whether risks properly explained to client—Risks if vendor became insolvent—Whether structure of transaction gave rise to duty to investigate vendor’s solvency prior to exchange—Explanation of and advice about risks to client—Relevance of client’s sophistication to advice which must be given

Summary: An unusual arrangement whereby a 22% deposit would be paid and released to the vendor gave rise to a clear risk if the vendor failed to complete or became bankrupt. The solicitor was required to (and did) give proper advice about that risk. However, the mere existence of that risk did not impose a duty on the Defendant to investigate the vendor’s solvency prior to exchange of contracts, in circumstances where he had not been instructed to do so. At that stage of the transaction, the Law Society’s Conveyancing Handbook did not call for such enquiries to be made and this was an important contra-indicator of any duty to make them.

Abstract

The Defendant solicitors acted for the Claimant in his proposed purchase 40-42 Dymoke Rd, Hornchurch in Essex (“the Property”). It consisted of 3 adjacent plots and was owned by (or at least registered in the name of) Mr. Shahid Qamar Siddiqui (“the Vendor”).

The Claimant’s nephew Sukhvir was in business with the Vendor. After agreeing to cut out the selling agents, the Claimant and Sukhvir began to negotiate the contract terms directly. In the course of those discussions, they discussed the terms of a loan arrangement whereby the Claimant would lend Sukhvir and the Vendor a sum of money in order to buy and resell a separate property.

The Claimant and Sukhvir proposed that the loan payment be made by way of an increased deposit upon the exchange of contracts for the Property, and having that deposit released to the Vendor prior to completion instead of being held by his solicitors. On 9 June 2010, the Claimant met with Mr Elahi of the Defendant and informed him of these proposals, and stated that he wished to pay a deposit of £96,000 (approximately 22% of the price) to be released to the Vendor.

Mr Elahi advised the Claimant against this course of action. His attendance note of the relevant advice stated:

“Queried why 96k dep[osit] + to be released- exp[lained] previously offering 5%. Seller is Sukh’s business partner agreed this level of dep. To be released, normal practice dep. held by buyer’s sol. Advised cl[ient] too risky if seller goes bankrupt or unable to complete. Esp[ecially as] we don’t have total level of o/s charges.

Cl[ient] satisfied he is taking risk. Says should be ok, will pay more than 10% dep.

Getting good price and to help out Sukh’s business partner. Not doing anything illegal- exp[lained] will need to sign auth[ority] to proceed…”

The judge was satisfied that the notes recorded an accurate summary of the matters discussed with the Claimant, and in particular that the risk arising from the possibility of bankruptcy was mentioned. It followed that the Claimant was aware that the deposit would be released to Vendor, that if the transaction did not complete he would be at risk if the Vendor failed to repay it, particularly if he was insolvent, and that there was a risk that the Vendor would not be able to discharge the various charges against the property. He was further aware that his solicitor considered it inadvisable to take these risks.

Mr Elahi also requested the Claimant to sign a form of waiver, which the Claimant did, in these terms:

“I confirm that I have been advised by Mirza Solicitors not to exchange contracts in this matter without having sight of the replies to pre-contract enquiries. I have also been advised not to exchange contracts without having evidence of the total outstanding charges over the properties. I have also been advised against releasing the deposit of £96,000 to the seller. I am also aware that I risk losing my £96,000 deposit if the seller is unable to complete the sale… “

However, contracts were exchanged by telephone on 10 June 2010.

On 24 June Mr Elahi received updated documents from the Land Registry, having made a Priority Search with the intention of registering the contract. Those documents revealed, for the first time, that a bankruptcy petition had been presented against the Vendor on 1 June, resulting in a bankruptcy notice being registered against each title on 2 June. This had not been shown in the Office Copy Entries previously sent by the Vendor’s solicitors, because they had been obtained before 1 June.

The Claimant instructed Mr Elahi to request the return of the deposit from the Vendor. In response, the Vendor’s solicitors stated that:

“…it was agreed between us we will be holding the deposit monies as agent. Upon our client’s instructions, these monies were transferred to him. We are therefore not holding any monies at present…”

The correspondence dwindled. The vendor ignored a notice to complete. On 19 August 2010 the Vendor’s solicitors were intervened by the SRA. Completion did not take place. The SRA confirmed that there was no money the solicitors’ client account. The deposit was lost.

The Claimant alleged that the Defendant should have made a bankruptcy search or a Land Registry priority search prior to exchange of contracts, either of which would have disclosed the bankruptcy petition which by that time had been filed. He accepted that it would not be normal for either such search to be done by a buyer’s solicitor before exchange. There was no recommendation to do so in the Law Society’s Conveyancing Handbook, either generally or even if the deposit is to be released. However, the Claimant argued that the circumstances required that Mr Elahi should have gone “beyond the Handbook” and taken steps that could assist in gauging the extent of the credit risk being run.

The Defendant relied upon the decision of Millett LJ in Brown v Gold & Swayne [1996] PNLR 130. There, his Lordship had commented that if the court required evidence as to matters of conveyancing practice, the proper way of providing it would be by reference to textbooks.

As to this, HHJ David Cooke expressed a “note of caution”. He held:

It is plain [that Lord Millett] was speaking of matters of practice only, to be distinguished from questions of law such as whether a solicitor was obliged to inspect a property on behalf of his client. It may be a nuanced question in any instance whether a particular step should be taken as a matter of a duty to comply with accepted practice or by virtue of a legal duty to take that step specifically.”

Nevertheless, the Defendant submitted that the Law Society’s Conveyancing Handbook was plainly a good guide to accepted practice, and its recommendation was only that in a case where a deposit was to be released the client should be advised of the risks. No other work had been cited to suggest the solicitor should go further without instructions and investigate the extent of those risks.

The learned judge agreed that it was not, in general, a solicitor’s duty to check on the credit status of his client’s counterparty in a transaction unless instructed to do so. Such a duty could not arise merely because the client is incurring a risk of loss if the counterparty becomes insolvent, for that would be true in most if not all transactions.

Nor in the judge’s view did such a duty arise merely because the transaction took an unusual form which did involve a solvency risk (such as upon the release of a deposit), where the more normal form would not (if the deposit was held as stakeholder). In such cases the duty of the solicitor was to advise of the unusual risk, but not to seek to evaluate it unless specifically instructed to do so. The Judge said:

“In part that is because the decision whom to trust in business is a commercial decision for the client to take and not the solicitor. In part it reflects the submission that Mr. Wood [for the Defendant] made, with which I agree, that just because a solicitor (or other professional) could take a particular step does not mean that it is his duty to do so. His duty is always defined by his retainer.”

The Judge commented that the position would have been different if there was an established practice of obtaining particular types of information in the course of a particular type of transaction:

“Conveyancing is a process extensively set about with established procedure of this sort, for instance as to the making of searches and enquiries of local authorities and environmental registers which go well beyond the establishment of title to land and bear on its value and the costs and risks of ownership. But it is accepted that there is no established procedure to make either of the suggested searches at the time of exchange of contracts. [Emphasis added]

Even if the judge were wrong in his conclusions on liability, the Claimant had ultimately accepted in cross examination that if he had been told prior to exchange that a bankruptcy petition had been presented against the Vendor, and had been told that it related (as it did) to a debt of only £10,000, this would not have affected his willingness to proceed to exchange contracts. Accordingly, the Claimant had no viable case on causation in relation to the failure to investigate the credit risk in any event.

The learned judge concluded that the risks of this transaction were adequately explained to a person of the Claimant’s experience. Mr Elahi had positively advised his client against proceeding with the transaction, but the Claimant had elected to proceed nonetheless. The Defendant relied upon Yager v Fishman & Co [1944] 1 All ER 552 and Carradine Properties v DJ Freeman & Co [1999] Lloyd’s Rep PN 48, in support of the proposition that the solicitor’s duty to explain matters to his client takes account of the client’s own experience; the solicitor is not required to explain matters that should be obvious to a person with the client’s experience or background. This was particularly relevant in considering the extent to which a solicitor should explain matters such as the risks involved in taking a particular step. The judge agreed that the solicitor is not a guarantor of his client’s subjective understanding, and will have fulfilled his duty if he gives an explanation in terms the client reasonably appears to him to be able to understand, and to have understood, even if the client later alleges that he did not in fact understand what was said.

Comment

Despite the ‘note of caution’ sounded by HHJ Cooke in relation to Brown v Gold & Swayne, it is clear that the content of the Law Society’s Conveyancing Handbook had a decisive impact on this case. The absence of a procedure for investigating solvency prior to exchange strongly countermanded the Claimant’s argument that Mr Elahi should, without instructions, have investigated and evaluated the extent of the credit risk being run.

The decision fits into the wider demographic of cases which distinguish commercial risks, which a client undertakes as a party to any given transaction, from legal risks, about which a solicitor is required to advise. In this case, “…the decision whom to trust in business is a commercial decision for the client to take and not the solicitor”. Unless the client instructs the solicitor to enquire into whether that trust is well-founded, it is beyond the solicitors’ ordinary responsibility.

Simon Hale
4 New Square


BPC Hotels Limited v Brooke North (A firm)
Technology and Construction Court (Edwards-Stuart J)
16 January 2015
[2015] EWHC 27

Subject: Professional Negligence—Solicitors—Limitation and Summary Judgment—Advice given in relation to a Deed of Warranty—Section 32 of the Limitation Act 1980—Deliberate Concealment under section 32(1)(b) and 32 (2)—Claimants had no real prospect of establishing that solicitors had deliberately concealed documents which would have supported a negligence claim against them.

Summary: The Claimants could not rely upon section 32 of the Limitation Act 1980 and the Defendant was granted summary judgment. There was no real prospect of the Claimants establishing that the Defendant had conspired to remove certain documents from their files. Summary judgment was given even though the Claimants wished to attempt to adduce further evidence at trial, by cross examination of the Defendant’s witnesses upon factual matters.

Abstract
The Claimants were a company, BPC Hotels Limited, and two private individuals, Mr and Mrs Chandra, who were the directors and shareholders in that company. The Defendant was a firm of solicitors.

In 1998, BPC purchased a property in Manchester within the intention of developing it into a hotel under the Holiday Inn Franchise. Funding for this development was provided by the Royal Bank of Scotland (“RBS”). The main contractor was Costain Limited (“Costain”).

In July 2001 a Deed of Warranty was entered into by BPC, Costain and RBS (“the Deed”). Importantly, the Deed contained a provision whereby, if Costain became entitled to and did terminate the building contract as against BPC, then RBS could step in as the employer under the building contract. This was known as the ‘step-in’ provision. BPC was advised in relation to the Deed by the Defendant.

In May 2003 BPC got into financial difficulties and, in August 2003, RBS put BPC into administrative receivership and, pursuant to the terms of the Deed, RBS through a nominee stepped in as the employer under the building contract. The following year the development was sold leaving RBS with a shortfall of about £4million, which they claimed from the Chandras under personal guarantees which they had given previously.

The Claimants issued two claims against the Defendant arising out of the advice given in respect of the Deed. The first claim was issued in 2009 (“the First Claim”). The second claim, which was the subject of this judgment, was issued in November 2014 (“the Second Claim”).

The allegations made in the Second Claim arose out of what was perceived by the Claimants to be the onerous effect of the step in provision. In short, the Claimants alleged that the Defendant should have advised them in 2001 to enter into a further Deed which would have nullified the effect of the step in provision. Alternatively, it was alleged that in May 2003 the Defendant should have negotiated an exit route for the Claimants, the effect of which would have been to nullify the step in provision.

Plainly the Second Claim gave rise to limitation issues. The Claimants sought to overcome these by alleging that three partners in the Defendant had, between November 2000 and May 2003, conspired to destroy or remove documents which indicated or might have indicated that they had given the Claimants negligent advice. The Claimants further alleged that they did not know about the destruction of the documents until they read a witness statement which was served by the Defendant in September 2014 in the course of the First Claim.

The Claimants, therefore, sought to rely upon section 32 of the Limitation Act 1980, the relevant parts of which provide:

(1)     …. where in the case of any action for which a period of limitation is prescribed by this Act…
          (b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant…
          the period of limitation shall not begin to run until the plaintiff has discovered the… concealment… or could with reasonable diligence have discovered it.
(2)     For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty…

The Defendant made an application for summary judgment in respect of the Second Claim. As Edwards-Stuart J recognised, the usual practice in applications of this nature is to make assumptions in favour of the party opposing the application – in this case, the Claimants. However, that did not preclude the Court from considering and determining whether the Claimants’ prospects of success were any more than fanciful. In this case that meant that the Court could and would consider the Claimants’ prospects of establishing that the solicitors employed by the Defendant had, knowing that negligent advice had been given, conspired to remove certain documents from their files.

The Judge, having analysed the evidence before him, found against the Claimants on both points. First, he found that there was no evidence that the solicitors knew that they had given incorrect advice to the Claimants (it being assumed for the purposes of this hearing that inadequate advice had been given). Second, he found that the allegation that the solicitors had removed certain documents was “at best, fanciful speculation”.

Comment

It is apparent from the judgment that the Judge was acutely aware that he was determining the application without giving the Claimants the opportunity to cross examine the Defendant’s witnesses and so to adduce further evidence at trial. However, the Judge was satisfied that given the weight of the evidence against the Claimants, and in view of the fact that any trial would be likely to take place 14 or 15 years after the events giving rise to the alleged conspiracy, that there was no prospect of evidence in support of the Claimants’ case being adduced. He therefore decided that the Second Claim was hopeless and, in his words, should be stopped in its tracks and “stopped now”.

This decision underlines the readiness of the Court, in appropriate circumstances, to deal summarily with cases where the preponderance of the evidence adduced is contrary to the respondent’s and where there is no cogent basis for suggesting that the evidence adduced at trial will lead to a different outcome. This is, perhaps, even more likely where the allegations made are tantamount to fraud and, consequently, the trial judge will require commensurately cogent evidence to make such a finding.

Clare Dixon
4 New Square