Important Court of Appeal clarity on the operation of s1(4) of the Civil Liability (Contribution) Act 1978

A recent Court of Appeal decision (in which RPC acted for the successful barrister Appellant) provides important clarification on the operation of section 1(4) of the Civil Liability (Contribution) Act 1978 (“the Act”). Although the matter concerned a contribution claim by a solicitor against a barrister brought pursuant to the Act, the decision is of wider relevance/application for litigation practitioners and the Insurance market.

Background facts

A firm of solicitors, Merriman White ("MW") and a barrister ("Mr Mayall") were retained by Mr Percy to advise in respect of litigation against Mr Percy's former business partner ("Mr Trevor"), who was suspected of misappropriating funds from the business ("Seven").  Three options were available to Mr Percy, specifically (1) pursue the matter by way of a derivative claim (2) apply for a just and equitable winding up of Seven or (3) pursue an unfair prejudice petition. The litigation was ultimately brought by way of a derivative claim.  

A mediation (which Mr Mayall was not instructed to attend) took place and culminated in a costs-inclusive offer of £500,000 ("the Offer") being made by Mr Trevor, which was rejected by Mr Percy.  Mr Mayall advised in conference shortly thereafter and gave appropriate warnings in relation to the costs and risks of litigation – Mr Mayall (and MW) advised that appropriate settlement parameters were between £400,000 and £750,000 plus costs.  Mr Mayall was not aware (but MW was aware) that Mr Percy's costs at this stage were £105,000, bringing the Offer roughly within the recommended settlement parameters.  The derivative claim proceeded to the permission stage, at which Mr Donaldson QC (sitting as a Deputy High Court Judge) exercised his judicial discretion and refused permission for the claim to continue – he was of the view that the matter should have been pursued by way of a just and equitable winding up of Seven.  Mr Percy subsequently dis-instructed MW and settled the derivative claim in the sum of £65,000 on a full and final basis. 

Mr Percy subsequently brought a negligence claim against MW and Mr Mayall, broadly alleging that the litigation against Mr Trevor should not have been brought by of a derivative claim and that, had he been advised to accept the Offer, he would have done so.  Mr Mayall denied the claim on the basis that (1) he had given appropriate advice on correct strategy and risks and he not been instructed to advise as to whether the Offer should be accepted and (2) even if such advice had been given, Mr Percy's attitude to the litigation (and to Mr Trevor) was such that he would never have accepted it.   Mr Percy agreed to a dismissal of the claim against Mr Mayall and pursued MW only.  Mr Percy's negligence claim against MW settled in the sum of £250,000.  MW pursued Mr Mayall for a contribution pursuant to the Act – the contribution claim was defended and proceeded to trial. 

The first instance decision

The three-day trial of the contribution proceedings took place before Chief Insolvency and Companies Court Judge Briggs ("the Judge").  Mr Percy was not called to give evidence by either party.  

MW relied upon WH Newson Holding Limited v IMI Plc & Delta Limited [2016] EWCA Civ 2773 in submitting that section (1)4 of the Act operated so as to remove the requirement for the party seeking contribution to prove liability against the defendant to the contribution claim.  They submitted that all MW needed to prove was that the settlement between Mr Percy and MW was bona fide and that there was no requirement for MW to prove liability against Mr Mayall because he was automatically liable pursuant to the operation of section (1)4 of the Act.  In making this submission, MW relied upon the following passage of Sir Colin Rimer's judgment in WH Newson:

"In my judgment the sense of that [the proviso] is that all that D1 needs to show is that such factual basis would have disclosed a reasonable cause of action against D1 such as to make him liable in law to C in respect of the damage. If he can do that, he will be entitled to succeed against D2".

The Judge was persuaded by MW's argument and found (erroneously) that Mr Mayall was liable to MW on this basis, irrespective of the fact that no pleaded allegations of negligence against Mr Mayall had been proven and without considering whether Mr Mayall was, in fact and law, liable to Mr Percy.  Specifically, the Judge found that "for the reasons given, and based on the permitted assumed facts, the breach of a duty of care pleaded in the Negligence Claim resulting in loss and damage gives rise to a reasonable cause of action between Mr Percy and MW. It follows, without more, that MW is entitled to a contribution from Mr Mayall" (our emphasis added).

Separately, the Judge found that Mr Mayall was precluded in his defence from challenging the decision of Mr Donaldson QC, on the basis that it constituted a collateral attack and was therefore tantamount to an abuse of process – instead, the judgment of Mr Donaldson QC was binding on the parties.  The Judge also found that MW was not required to call Mr Percy to prove its case on causation and, on the contrary, that burden was on Mr Mayall.  

The Judge ultimately held that Mr Mayall was liable to MW for a 40% contribution. We took the view that the decisions of the Judge on each of the points outlined above were wrong in law, and that the judgment could not be allowed to stand.  Permission to appeal was granted on paper by LJ Newey.  

The appeal

The Court of Appeal ("the CoA") was highly critical of the first instance judgment and unanimously found for Mr Mayall on every point outlined above.  The CoA's leading judgment was given by Sir Julian Flaux, Chancellor of the High Court, and was approved by Lewison LJ and Andrews LJ – notably, Lewison LJ gave a following judgment of his own due to "the importance of this appeal to those who practise in the field of professional negligence". 

The Judge's interpretation of section 1(4) of the Act

Sir Julian Flaux, Chancellor of the High Court, held in his leading judgment that the Judge's interpretation of the operation of s(1)4 of the Act was fundamentally flawed and found that the Judge's reliance on the passage from WH Newson was out of context and misplaced – specifically, the facts in that case were such that liability on the part of the defendant to the contribution claim had already been established whereas, in this instance, no liability had yet been found to attach to Mr Mayall.  He characterised the Judge's conclusion that liability attached to Mr Mayall in these circumstances without any negligence being proven as "startling". 

Lewison LJ elaborates on this issue further in his following judgment: "The Judge was wrong to side-step the question [as to] whether Mr Mayall was negligent.  The settlement between Merriman White and Mr Percy established only that Merriman White had been negligent. It did not establish that Mr Mayall had been. The facts are, in my judgment, fundamentally different from those in Newson where both IMI and Delta had already been found to have been participants in the unlawful cartel. As against each other, neither was entitled to go behind that binding decision. That is not this case. No court has yet found that Mr Mayall was negligent". 

Challenge to Mr Donaldson QC's judgment

The CoA found that the Judge was wrong to preclude Mr Mayall from challenging Mr Donaldson QC's judgment (and for apparently treating the same as determinative of some form of negligence on Mr Mayall's part).  Although Laing v Taylor Walton [2007] EWCA Civ 1146 [2008] PNLR 11 prevents a Defendant who was a party to a previous decision of the Court from challenging that decision, that was not the case in this instance because Mr Mayall was not a party to the derivative claim – he was "outside the key mischief which this species of abuse of process is designed to prevent" and should therefore have been entitled to challenge Mr Donaldson's QC's judgment. 

Negligence and causation

The CoA held that, because of the Judge's erroneous approach to section 1(4) of the Act, he did not sufficiently address the "critical issues" as to whether Mr Mayall had acted negligently and, if so, whether that negligence was causative of Mr Percy's loss.  The only potential negligence the Judge had found against Mr Mayall was a failure to advise as to the risk that the Court may refuse the derivative claim permission to continue, but that allegation was not pleaded against Mr Mayall.  Importantly, the CoA also reaffirmed the principle that, just because a barrister gives advice which turns out to be wrong because the Court takes a different view, it does not necessarily follow that the advice was negligent.  The CoA considered that the advice given by Mr Mayall was within the range of reasonable advice and was therefore not negligent.  

The CoA was also critical of the Judge's approach to the issue of causation and, contrary to the analysis in the judgment, held that the burden of calling Mr Percy to determine the issue of causation lay at the door of MW, not Mr Mayall - the fact that MW did not call Mr Percy to give evidence was deemed to be a "fatal lacuna" in MW's case.  

Disposal

For all the reasons outlined above (and others, which are not mentioned here in the interests of brevity), the CoA held that the first instance decision was inherently flawed and that the Judge should have concluded that the contribution claim by MW against Mr Mayall failed.  Accordingly, the CoA allowed the appeal and also dismissed the claim, rather than remitting it to the lower Court for a retrial, stating that it would be "unfair and oppressive to allow MW a second bite of the cherry on the correct legal basis…when...the judge should have dismissed the claim", particularly in circumstances where the case on negligence/causation now advanced against Mr Mayall was not the same case pleaded against him.  

Commentary

In allowing the appeal, the CoA has provided welcome confirmation that a Claimant bringing a contribution claim must show that the contribution Defendant is liable.  It could not, in the context of this case, be fair or just for Mr Mayall's liability to be conclusively determined against him by a settlement made between Mr Percy and MW, because that approach would be tantamount to depriving Mr Mayall of his right to defend himself and to have his liability determined by an impartial tribunal.  This is (and in our view always has been) the rational and logical interpretation of the relevant provisions of the Act.

The decision also provides important confirmation that a Defendant is entitled to avail itself of collateral defences in such circumstances and, particularly, that to question the previous decision of a Court (in proceedings in which the Defendant advised but was not a party) is permissible and will not constitute an abuse of process.  To disallow a Defendant from adopting this approach is, in effect, to force it to defend the claim with one arm tied behind its back.  These are, of course, important considerations for potential Claimants and Defendants (to contribution claims and otherwise) to bear in mind when considering bringing and defending such actions.

In dismissing the claim, the CoA's judgment also serves to remind practitioners that causation and a properly pleaded case are of fundamental importance.