A professional negligence claim is a headache for any lawyer – and as companies try to recoup their losses, there are plenty out there right now
Last year’s big professional negligence case – Credit Suisse’s claim against Linklaters and former Italian ally Gianni Origoni Grippo & Partners – never made it to trial. Linklaters settled the case before it was heard.
However, several other claims filed in 2011 and before look set to be fought all the way. One of the most complex is the Innovator One claim involving Collyer Bristow, as 500 investors seek to recoup losses sustained in an alleged sham investment scheme. The case was heard in the High Court between October last year and last week, with judgment now awaited.
Another two cases have also been the subject of initial hearings.
Pinsent Masons won an early victory in January when Mr Justice Akenhead ruled that former client Shepherd Construction could not amend its negligence claim against the firm to include legacy practices Masons and pre-LLP Pinsent Masons.
Meanwhile Ashfords, fighting a claim brought against legacy firm Bevan Ashford, suffered a setback as the Court of Appeal found that a first-instance judge had been wrong to dismiss the case after only one day in court.
Cases yet to reach court, but that are still being fought, include London Underground’s £140m-plus case against Freshfields Bruckhaus Deringer and Newcastle International Airport’s claim against Eversheds.
The London Underground case sees commercial bar heavyweights Laurence Rabinowitz QC of One Essex Court and George Leggatt QC of Brick Court Chambers face off against each other.
In the Eversheds case, set down for an April hearing, 4 New Square members Nicholas Davidson QC and Ben Patten QC will appear against each other.
Many of the cases concern drafting errors, with claimants seeking to find a flaw in the advice given by a firm to recoup losses sustained.
Brown & Ors v Innovator One & Ors
Claim filed: February 2009
Date of hearing: 17 October 2011-23 February 2012. Judgment later this year
Judge: Mr Justice Hamblen
For the claimant: Michael Green, partner, Enyo Law; John Powell QC, Graham Chapman, Shail Patel and Can Yeginsu of 4 New Square
For the defendant (Collyer Bristow): Julian Miller, partner, DAC Beachcroft; Justin Fenwick QC and Ben Hubble QC of 4 New Square
Collyer Bristow is one of several defendants in the mammoth Innovator One action currently grinding its way through the courts.
The case is being brought by 500 investors in the Innovator One investment scheme, which they allege was a sham.
Collyer Bristow is alleged to be liable for the dishonest conduct of the individuals who promoted the scheme, as well as being liable to account for subscription monies paid by claimants. The firm is also alleged to have acted negligently and breached both contract and fiduciary duties.
Various issues have already been heard, but the substantive issues have not yet been argued.
Padden v Bevan Ashford
Claim filed: April 2009
Date of hearing: Unknown
For the claimant: Judith Thompson, solicitor, Samuels Solicitors; instructing Richard Owen-Thomas of 13 KBW
For the defendant: Louise McPhie, solicitor, Ashfords; instructing Karen Shuman of 1 Chancery Lane
The hearing of the professional negligence claim brought by former Bevan Ashfords client Heather Padden against the firm (now Ashfords) is being rescheduled after original first-instance judge His Honour Judge Denyer QC halted the trial after a single day.
HHJ Denyer concluded midway into a three-day hearing that there was no case to answer. However, in January 2012 the Master of the Rolls Lord Neuberger, alongside fellow appeal court judges Lord Justices Hughes and Sullivan, said the case should be heard fully. A date has not yet been set.
London Underground Ltd v Freshfields Bruckhaus Deringer
Claim filed: 27 January 2011
Date of hearing: Unknown
For the claimant: Andrew Ottley, partner, Ince & Co; instructing George Leggatt QC and Stephen Midwinter of Brick Court Chambers
For the defendant: Sean Connolly, partner, Mayer Brown; instructing Laurence Rabinowitz QC and Sa’ad Hossain of One Essex Court
Freshfields Bruckhaus Deringer remains determined to fight the £140m claim filed against it by London Underground Limited (LUL) more than a year ago.
LUL claims that Freshfields made a drafting error when it advised the company on a PPP deal with transport company Metronet. LUL alleges that this error led to it having to pay out “approximately £180m” it should not have paid when Metronet went into administration in 2007.
Shepherd Construction v Pinsent Masons
Claim filed: May 2011
Date of hearing: Unknown
For the claimant: Martin McKervey, partner, Nabarro; instructing Paul Darling QC and Simon Hughes QC of Keating Chambers
For the defendant: Antony Smith, senior partner, Beale and Company; instructing Roger Stewart QC of 4 New Square
Shepherd Construction has alleged that Pinsent Masons and its predecessor firms failed to give adequate advice on the effectiveness of ‘pay when paid’ clauses and the impact of the Enterprise Act 2002 on those clauses in a series of contracts.
The claim was filed initially against Pinsent Masons LLP and not its legacy firms, but the company then sought to amend the claim to add legacy Masons and Pinsent Masons.
In a judgment in January, Mr Justice Akenhead agreed to strike out the amendment. Shepherd’s claim against Pinsent Masons continues.
Wellesley Partners v Withers
Claim filed: 24 October 2011
Date of hearing: Unknown
For the claimant: Ian Hammond, partner, Simmons & Simmons; instructing David Mumford of Maitland Chambers
For the defendant: Unknown
Recruitment company Wellesley Partners is suing Withers for £374,385 plus legal costs, which it says it lost as a result of errors in the drafting of an agreement with Bahrain-based Addax Bank.
Wellesley alleges that Withers’ negligence meant Addax withdrew a £2.5m investment immediately, instead of after a period of three and a half years. The company is seeking to recoup a loss sustained through movement in the sterling-to-dollar exchange rate, as well as the legal costs of a court action against Addax.
Newcastle International Airport v Eversheds
Date of hearing: 23 April 2012 for 10-15 days
For the claimant: Tim Toomey, partner, Ward Hadaway; instructing Nicholas Davidson QC and Ben Wood of 4 New Square
For the defendant: Sarah Clover, partner, Clyde & Co; instructing Ben Patten QC and Scott Allen of 4 New Square
Newcastle International Airport is claiming that Eversheds was in breach of its duty when it accepted an unauthorised instruction from two former executive directors relating to draft contracts of employment.
It is alleged that the contracts provided for an entitlement of multimillion-pound bonuses as a result of a refinancing to the directors, and the airport suffered a loss when it executed the contracts without realising what they contained.
Many predicted that the number of professional negligence claims against law firms would rise substantially following the economic downturn. This is proving to be correct but only in certain areas so far.
For some time, there have been many more claims involving fraud, both where the solicitor was inadvertently taken in by others and where they were a knowing participant. There has also been an increase in claims relating to pensions funds.
Typically, changes in members’ benefits with the aim of reducing the cost of the scheme (such as equalisation of the retirement ages of men and women) have not been implemented properly, with the result that the trustees have continued to have more expensive funding obligations than intended, often for many years. Law firms are being blamed for the failure to advise on the correct implementation of the changes.
Once a relatively rare event, there has also been a rise in claims brought by the bigger blue-chip financial institutions against their legal advisers arising from failed transactions following the financial crisis. However, the anticipated flood of claims has not materialised.
Further good news for the profession is that the courts continue to provide a relatively benign environment for law firms, particularly in relation to the scope of their duty.
Most recently in the case of Shepherd Construction (January 2012), the court rejected arguments that a firm that took on a large number of individual pieces of work for a client and sent them marketing materials had accepted an overarching general retainer, including an ongoing duty to review earlier advice. The client was seeking to argue that the firm was responsible for failing to review a piece of 1998 drafting and advice and updating it to reflect a 2002 statutory amendment. The court rejected the claimant’s case, although it accepted that there may be arguments that there is a duty to review earlier advice in some circumstances.
Looking forward, one recent development to watch is the case of Futter (2011). In the past, trustees – and thereby their lawyers – were able to obtain indulgence from the court when they made mistakes based on legal advice. This would, for example, allow a transaction by trustees to be set aside if it transpired that there were adverse tax consequences associated with it. The Court of Appeal decision in Futter effectively brought this possibility to an end. However, the Supreme Court is due to hear an appeal in March 2013.
It remains to be seen whether the continued economic difficulties in the UK and troubles in the eurozone create conditions ripe for more claims against law firms.
Sarah Clover is head of the professional and commercial disputes team at Clyde & Co