Strategic weapons in risk management
15 July 2002
The recent, much publicised House of Lords decision in Cave (The Lawyer, 29 April) restored the position on limitation periods, to the relief of solicitors and their insurers all round. On another level, the case was a clear demonstration of the importance of strategic litigation as a risk management tool.
Every insurer notified of a claim against a solicitor wants the claim resolved as quickly and cost-effectively as possible. Brokers on behalf of clients want the same, so that 'burning costs' are contained and their clients' claims record does not discourage or alarm underwriters. Legal advisers are therefore often required to advise on terms for a commercial settlement, namely a payment that will settle the claim while ignoring the strict legal position, stop escalating the litigation costs and eliminate the uncertainty of trial. It all makes perfect sense, unless by settling case after case on a commercial basis the matter becomes uncommercial overall, because there are so many cases in which the same point is raised.
What many commentators will not know is that Mr Cave was one of two company directors who both sold land to Hyde Securities. The other director was Mr Cooper. Robinson Jarvis was instructed by both directors to secure mooring rights for 100 years over the land in question and to register the rights. The facts of Cooper v Robinson Jarvis & Rolf were identical to Cave, as was the advice and recommendation on how to handle the litigation. Liability was indefensible unless reliance could be made on a defence of limitation. The risk with this tactic was that Brocklesby would be applied. By taking the point, however, pressure was placed on Cave and Cooper to assess their risk. The defendant's risk was protected by a payment into court of £6,000, representing the cost of acquiring an equivalent mooring on the Isle of Wight, discounted for the possibility that the claimants would lose completely on the issue of limitation. Cooper took the money, which was a good commercial settlement.
Had Cave taken the money, there would be no column. If the 150-odd other cases identified by the Solicitors' Indemnity Fund (SIF) as raising the Brocklesby limitation argument settled for £6,000 (plus costs of, say, £4,000), that represents a cost to one insurer of £1.5m. Some of the cases are probably worth substantially more and professions other than just the legal profession are likely facing similar issues.
SIF has done well on behalf of the legal profession to fight the right case in order to clarify and establish the law. SIF was in a unique position to do so, as it had a monopoly on the information surrounding claims against the entire profession. It could spot the trends. It knew the potential exposure, as against the cost of fighting one individual case, and could therefore assess the overall risk. In cases such as Etridge, Bristol & West v Mothew and Target Holdings v Redfern, SIF also successfully contained and managed the collective risk of the legal profession by delivering a collective and consistent response. The fragmentation of the solicitors' insurance market may reduce the opportunity to identify and pursue similar cases; an opportunity which has, perhaps, never been fully utilised in other professions. Major players in the general insurance market have already recognised the importance of such strategic litigation, as seen in the cases on funding: Callery v Gray and Sarwar v Alam.
But the success of strategic litigation depends on coordination and cooperation. The insurance market has shown that it is capable of constructive cooperation, and a good example is the professional negligence pre-action protocol. By bringing together those with influence, with the power to take the necessary decisions, there is now a consistent and coherent protocol. Had that cooperation been absent, the result might have been a plethora of separate protocols applicable to each different type of profession.
Clearly, the challenge for the insurance market is to find an appropriate internal forum to identify critical issues, assess risks and determine which cases could be run as strategic litigation for the wider benefit of the legal profession. In this way, the industry sets the agenda rather than reacts to it.
Helen Staines successfully acted for the defendants in Cave v Robinson Jarvis & Rolf