Firms’ defences tested after rash of negligence actions

The case is one of several high-profile, high-value claims against solicitors reaching court this year. Pinsent Masons is currently fighting an £18m claim brought by pension trustees Capital Cranfield.

On Friday 20 January, Fulham Leisure Holdings began an £8m case against Nicholson Graham & Jones (now Kirkpatrick & Lockhart Nicholson Graham), which continues today (23 January) with the cross-examination of Mohammed Al Fayed, among others. In February, the Football League is taking Hammonds to court, claiming £150m in a dispute over negotiations with OnDigital (now ITV Digital).

Other cases launched against solicitors’ firms include the £3m claim facing Barlow Lyde & Gilbert (BLG) and Maclay Murray & Spens over their allegedly negligent handling of a shipping insurance claim. As revealed by The Lawyer this week , Lovells is also gearing up to defend itself against an action brought by supermarket giant Tesco. It is an ironic twist that Lovells and BLG find themselves on the receiving end of claims. The firms are the first ports of call for most other solicitors when negligence is alleged.

The combined effect of the £70m TAG claims, the gigantic Hammonds case and the assorted other negligence claims reaching trial, means that 2006 could potentially be rather painful for professional indemnity insurers. But past experience shows that many cases are likely to settle before reaching the end of trial. Already this year Baker & McKenzie and Linklaters have reached agreements with Formula 1 teams McLaren and Williams, staving off a trial that was due to start last week (16 January).

This has not always been the case. Prior to 2000, the Solicitors’ Indemnity Fund (SIF) handled all solicitors’ insurance in England and Wales. SIF would fight a case if it believed that it might set a precedent or test a concept. Insurers on the open market tend to be more commercially-minded.

“The realism of settling claims and wanting to dispense with them at an early stage is more of a feature now,” says Steve Holland, a director with brokers Alexander Forbes.

Not every claim will settle before trial. Hammonds sources have affirmed its intention to fight the Football League case every inch of the way. The last two organisations facing hefty negligence claims to assert this were Ernst & Young and the Bank of England, and both the Equitable Life and BCCI cases collapsed last year in the defendants’ favour.

The increase in large commercial claims against solicitors is attributed by some to the same blame culture that has caused an escalation in claims against auditors. The extension of ‘deep pocket theory’ to solicitors will concern firms, which were recently proclaiming the demise of the theory following the collapse of Equitable.

But lawyers do see a trend towards negotiation. “As seems to have been the case over the last few years, I suspect that in the coming years the reported cases will be fewer and fewer,” says Paul Nicholas of Reynolds Porter Chamberlain. “You can’t claim that professional negligence is any different from any other area of contentious business.”

Most professional negligence claims against solicitors still arise from property and conveyancing transactions, but these are relatively low in value. TAG is pushing up the number of personal injury-related claims this year. However, the big commercial cases, while a small percentage of total claims, still account for a large proportion of the value – and experts say that they are rising.

“There’s definitely evidence around of more of them,” says Frank Maher of professional indemnity boutique Legal Risk.

The claims coming to court this year are, of course, all historical. The cases against Hammonds, Lovells, Pinsents and Kirkpatrick all originated with firms that, in name at least, are long gone. Pinsents’ Capital Cranfield case, for example, concerns work carried out by legacy firm Pinsent Curtis.

In an attempt to stave off future claims, firms are nowadays gearing up with risk management strategies. Holland at Alexander Forbes adds that more and more law firms are seeking to reduce the risk of litigation through liability capping and new partnership structures such as limited-liability partnerships.

The future of professional negligence claims against the profession could therefore turn out to be very different. But that will be of little comfort to the firms in court over the next few months, haunted by work undertaken many years before.