Number crunchers create new opportunities

Jonathan Seitler and Michael Tennet examine the developing trends in professional negligence and ask where the future work is coming from. Jonathan Seitler and Michael Tennet are barristers at Wilberforce Chambers.

Professional indemnity lawyers have prospered from the boom in claims by lenders against solicitors and valuers.

Property finance negligence litigation, however, arose out of the boom-bust period of the late 1980s and early 1990s.

Although the House of Lords' decision in Nykredit Mortgage Bank v Edward Erdman Group has enhanced rather than removed the uncertainties in relation to the question of when the limitation period commences in such cases, professional negligence litigators are now finding that the flow of such work is beginning to slow down.

So what will be the boom areas in the next few years? The most obvious is spin-off litigation from the property finance negligence litigation itself. Two kinds of such spin-off litigation have emerged.

The first involves a firm of valuers or solicitors, who have had to pay out a sum under a compromise or judgment to a lender, suing its own employee (or more commonly ex-employee) for the excess under its indemnity policy that it personally had to pay and for any increase in future insurance premiums.

Such claims are based on the old case of Lister v Romford Ice [1957] AC 555 and the statutory indemnity under the Civil Liability (Contribution) Act 1978.

It is hard to resist the feeling that such claims, against an individual who themselves are likely to be uninsured, are unattractive and that the courts will do what they can to ensure that such actions do not proliferate.

Nevertheless, such claims have been brought and are being pursued. It will be interesting to see what sort of protection the Registered Institute of Chartered Surveyors and the Law Society are prepared to give their individual members when sued by their own firms.

The second type of spin-off litigation emerges when a defendant to a property finance negligence claim raises a defence of contributory negligence to the lenders' claim.

After the decision of the Court of Appeal in Platform Home Loans v Oyston Shipways it is established beyond doubt that significant deductions can be made from the lender's recoverable damages if it is clear that the lending was imprudent.

As a result, lenders have settled many cases at a discount, having been troubled by the apparently cogent criticisms of their lending. Such lenders, however, have now begun to look at the reasons for their poor quality lending.

In some cases, they have found that their lending systems were checked and passed by their accountants. Large claims can therefore be mounted against such accountants on the basis that they ought to have pointed out the shortcomings in the lender's processes.

Another developing area in professional negligence relates to the work of actuaries. Although at present, actuaries do not merit a separate section in Jackson & Powell on Professional Negligence, claims against the profession are not infrequent.

Such claims occur both in relation to advice given to trustees and managers of occupational pension schemes and more general commercial advice.

One interesting aspect of claims against actuaries arises from the fact that firms of actuaries frequently work alongside other professionals.

This gives rise to difficult (and hence litigious) issues of apportionment when losses are alleged to have resulted from negligent advice.

Further, in the context of pension funds, the actuary will usually be advising trustees who will almost always also be receiving advice from solicitors.

Much of the work undertaken by the actuary (for example, benefit and bulk transfer calculations, advice on the funding of the scheme) will clearly be his or her sole responsibility.

However, in a large number of areas, it is not so evident where the boundaries of responsibility between the actuary and the solicitor lies.

One example is advice in relation to the levels of self investment in a scheme (that is, the proportion of investments connected with the employers under the scheme).

If a poor investment is made, both the actuaries and solicitors may be liable. The actuary may be under a duty to advise on the financial implications of the investment and the solicitor may be under a duty to advise that if the investment is motivated by a desire to improve the principal employer's cashflow, it would be a breach of trust to proceed.

Similar problems may arise in relation to a return of funds to the principal employer, on the basis that they represent “surplus” assets.

The precise duties of the actuary and solicitor in such cases have yet to be the subject of judicial consideration, although a number of cases have raised the issue.

It seems likely that, at least until the boundaries of responsibility are more clearly defined, third party and contribution proceedings between solicitors and actuaries (and other professional pensions advisers and consultants) will occur with increasing frequency.

A further reason for believing that there may be developments in relation to the duty of care owed by actuaries are the new duties imposed on “the actuary” to an occupational pension scheme by the Pensions Act 1995.

Section 48 imposes obligations on the person appointed as “actuary” to the scheme to report in writing to Occupational Pensions Regulatory Authority if there is reasonable cause to believe that any duty relevant to the administration of the scheme has not been or is not being complied with.

While the primary sanctions under the section are fines or disqualification, the “watchdog” role which section 48 envisages, might increasingly be seen as an incident of the actuary's contractual and common law duties of care.

Therefore, in the coming years, barristers can expect developments in new areas of professional negligence litigation as well as variations in existing areas.

Changing trends

The Lawyer looks at solicitor Ian Hammond's top 10 cases

for 1996 and lists his top 10 for 1997 (see pages 18-19).

1 South Australia Asset Management v York Montague

2 Platform Home Loans v Oyston Shipways

3 Theodore Goddard v Fletcher King Services

4 Bristol & West Building Society v Mothew

5 Downs v Chappell

6 National Home Loans Corp

v Giffen Couch & Archer

7 Williams v Natural Life Health Foods

8 Virgin Management v De Morgan Group & ors

9 Smith New Court Securities v Scrimgeour Vickers (Asset Management) & ors

10 St Albans City & District Council v ICL