Establishing Loss of a Chance in Section 212 Notes: Centenary 6 Ltd v TLT LLP [2023] CSOH 28

Introduction

The case of Centenary 6 Ltd v TLT LLP ([2023] CSOH 28) adjudicated by the Scottish Court of Session presents a pivotal exploration into the application of the "loss of a chance" doctrine within the context of insolvency law, specifically under Section 212 of the Insolvency Act 1986. The litigation centers around Centenary 6 Limited (the "Pursuer") suing its former solicitors, TLT LLP (the "Defender"), for professional negligence and breach of contract stemming from the failure to lodge a caution in a Section 212 Note during the liquidation process of Centenary Holdings III Ltd ("CHIII").

This commentary dissects the judgment to elucidate the court's reasoning, the precedents cited, the legal principles applied, and the broader implications for future insolvency proceedings and negligence claims within Scottish law.

Summary of the Judgment

In 2016, Centenary 6 Ltd initiated proceedings against the Joint Liquidators of CHIII, alleging that their decision to enter into a compromise agreement with Deka Immobilien Investment GmbH ("Deka") constituted a breach of duty under Section 212 of the Insolvency Act 1986. The crux of the matter was that the liquidators settled Deka's claim at an inflated sum of approximately £28 million, whereas the actual amount due was around £4.5 million, thereby causing a significant windfall to Deka.

The Defender, acting as the Pursuer's solicitors, admitted liability but contended that the Section 212 Note was invalid due to the Pursuer's failure to lodge a caution, a contention upheld by the courts on appeal. Centenary 6 Ltd then shifted its focus to claiming loss of a chance to recover damages, asserting that the negligence of the liquidators deprived them of the opportunity to secure a favorable outcome.

The judgment meticulously examines issues surrounding prescription under Scottish law, the viability of "loss of a chance" claims, and the role of litigation funding in such proceedings. Ultimately, the court found in favor of Centenary 6 Ltd, awarding substantial damages based on the established loss of a chance.

Analysis

Precedents Cited

The judgment references several key cases that have shaped the current understanding of negligence, loss of chance, and insolvency proceedings:

Montgomerie v Glasgow City Council [2010] CSOH 1 – Establishing the foundational aspects of negligence in public bodies.
Mount v Barker Austin [1998] PNLR 493 – Discussing causation in loss of chance claims.
Perry v Raleys Solicitors [2020] AC 352 – Elaborating on the threshold for loss of chance in negligence.
Assetco Plc v Grant Thornton UK LLP [2019] Bus LR 2291 – Addressing professional negligence in corporate contexts.
Julien v Evolving Tecknologies and Enterprise Development Co Ltd [2018] BCC 376 – Pertaining to derivative actions in company law.

These cases collectively inform the court's approach to evaluating negligence claims where the plaintiff alleges a loss of potential benefit rather than direct harm.

Legal Reasoning

The court's reasoning delves into several complex legal areas:

Section 212 and Prescription: The court analyzed when the prescriptive period under the Scottish Prescription and Limitation (Scotland) Act 1973 began. It concluded that the obligation on the Joint Liquidators had not prescribed by the time the Section 212 Note was brought forward.
Loss of a Chance Doctrine: Recognizing that traditional negligence requires a showing of direct causation, the court embraced the "loss of a chance" theory, allowing claims based on the deprivation of a probabilistic opportunity for a favorable outcome. The Pursuer needed to establish that there was a real and substantial chance, which was quantified at 65%.
Mitigation and Funding: The court examined whether the Pursuer could have secured funding to pursue the Section 212 Note, ultimately finding that it had a virtually certain chance to do so, especially with the backing of Woodsford Litigation Funding Limited.
Quantum Assessment: The court calculated the damages by applying the assessed 65% chance of success to the quantified losses, resulting in substantial awards to the Pursuer.

The judge meticulously balanced the legal standards with the factual matrix, ensuring that the principles of fairness and justice were upheld.

Impact

This judgment sets a significant precedent in Scottish insolvency law by affirming the viability of "loss of a chance" claims under Section 212. It clarifies the application of prescription in derivative actions initiated by shareholders and underscores the critical role of litigation funding in enabling such claims.

For legal practitioners, this case highlights the necessity of meticulous adherence to procedural requirements in insolvency proceedings and the potential ramifications of professional negligence. It also emphasizes the courts' willingness to entertain innovative approaches to causation in negligence claims, thereby potentially broadening the scope for future plaintiffs.

Complex Concepts Simplified

Section 212 of the Insolvency Act 1986

This provision allows shareholders or other contributors to seek remedies against negligent liquidators who mishandle the liquidation process, causing financial loss to the company.

Loss of a Chance Doctrine

Traditionally, negligence requires direct causation between the defendant's breach and the plaintiff's loss. The "loss of a chance" approach permits claims where the plaintiff alleges that the defendant's negligence deprived them of a probabilistic opportunity for gain, even if the exact outcome cannot be guaranteed.

Prescription in Scottish Law

Prescription refers to the statutory time limits within which legal actions must be initiated. Under the Prescription and Limitation (Scotland) Act 1973, certain obligations extinguish if not enforced within a specified period, typically five years.

Litigation Funding Agreements

These are arrangements where external funders provide the necessary resources for litigation in exchange for a portion of any successful damages awarded. They play a crucial role in enabling parties to pursue legal claims without bearing the full financial burden upfront.

Conclusion

The ruling in Centenary 6 Ltd v TLT LLP [2023] CSOH 28 marks a noteworthy advancement in Scottish insolvency and negligence law. By affirming the applicability of the "loss of a chance" doctrine within Section 212 claims and providing a clear analysis of prescription, the court has paved the way for more nuanced negligence claims in complex corporate settings.

Legal practitioners must be cognizant of these developments, ensuring that clients are adequately advised on the procedural intricacies of liquidation processes and the potential avenues for redress in cases of professional negligence. Furthermore, the judgment underscores the indispensable role of litigation funding in facilitating access to justice, particularly in high-stakes insolvency disputes.

Overall, this decision reinforces the accountability of liquidators in safeguarding the financial interests of companies and their contributors, while also expanding the jurisprudential landscape to accommodate innovative legal theories in proving causation and negligence.