Percy v White & Anor

Factual and Procedural Background

The Appellant, referred to as the Appellant, appeals a judgment of Chief Insolvency Judge Briggs, who ruled in favour of the Respondent, Company A, on a contribution claim under the Civil Liability (Contribution) Act 1978. The claim arose after Company A settled a negligence claim made by a former client, the Claimant, who had originally sued both Company A and the Appellant (a barrister instructed by Company A) but discontinued the claim against the Appellant. Company A settled the claim for £250,000 and sought 40% contribution from the Appellant.

In 2007, the Claimant and his business partner formed a joint venture company, Company B, to develop properties. Shares were held equally by two companies owned by the Claimant and his partner, creating a deadlock in decision-making due to the absence of a shareholder agreement. A falling out ensued, with the Claimant alleging misappropriation of funds by his partner.

Company B was responsible for developing two properties purchased in 2007 and 2008, while the partner was developing separate nearby properties. Suspicious of the partner's dealings, the Claimant instructed Company A to investigate, uncovering misappropriation of at least £450,000.

Company A instructed the Appellant, a senior barrister, to advise on recovery options. The Appellant recommended a derivative claim by the shareholder company against the partner, which required court permission. The claim was issued in November 2010, with the Appellant drafting pleadings. Mediation in December 2010 failed to bridge settlement offers.

Subsequent conferences and negotiations ensued, including discussions on winding up the company and risks of litigation. The Appellant advised continuing proceedings to obtain disclosure. A Part 36 offer was made but later increased at the Claimant's behest. The permission application for the derivative claim was heard in May 2011 and dismissed by a Deputy High Court Judge, who favored winding up the company instead.

The Claimant was dissatisfied and changed solicitors, eventually settling with the partner for £65,000, reflecting a weak negotiating position due to adverse costs exposure. The Claimant then commenced a negligence action against Company A, the Appellant, and another defendant, alleging failures in advice and conduct related to the derivative claim and mediation.

The negligence claim against the Appellant was discontinued in 2017, with a consent order dismissing the claim against him. Subsequently, Company A issued a contribution claim against the Appellant, relying on similar allegations. Company A settled with the Claimant for £250,000 in 2019. The contribution trial took place remotely in December 2020 before Judge Briggs.

Legal Issues Presented

1. Whether the Appellant was negligent in advising the Claimant regarding the derivative claim and settlement options.
2. Whether the Appellant’s alleged negligence caused loss to the Claimant.
3. Whether Company A was entitled to contribution from the Appellant under section 1 of the Civil Liability (Contribution) Act 1978, particularly the interpretation and application of section 1(4).
4. Whether the Appellant could challenge the judgment dismissing the permission application for the derivative claim in defending the contribution claim.
5. Whether the rule against reflective loss barred the contribution claim against the Appellant.

Arguments of the Parties

Appellant's Arguments

• The judge erred by holding that the Appellant could not challenge the Deputy Judge’s decision dismissing the permission application for the derivative claim.
• Section 1(4) of the 1978 Act only applies to the issue of Company A’s liability and does not preclude inquiry into whether the Appellant was negligent or whether such negligence caused loss.
• The Appellant’s advice was within the range of competent professional conduct, and other judges might have granted permission for the derivative claim.
• The contribution claim was not pleaded properly in relation to the alleged failure to warn of risks at the permission hearing.
• There was insufficient evidence to establish causation, especially given that the Claimant was not called to give evidence.
• The rule against reflective loss should bar the claim, as the loss was suffered by the shareholder company, not the Claimant personally.

Respondent's Arguments

• The Appellant was negligent in failing to advise the Claimant of serious risks related to the permission application and in advising to press on after mediation without proper risk assessment.
• The Appellant produced no evidence to rebut the inference that his negligence caused loss.
• Section 1(4) of the 1978 Act precludes the Appellant from challenging Company A’s liability and supports a simplified contribution claim.
• The Appellant’s challenge to the Deputy Judge’s decision would amount to an abuse of process and collateral attack.
• The rule against reflective loss does not apply because the duty was owed to the Claimant personally and the loss was his.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
WH Newson Holding Limited v IMI Plc & Delta Limited [2016] EWCA Civ 773; [2017] Ch 27	Interpretation of section 1(4) of the Civil Liability (Contribution) Act 1978 regarding deemed liability of a settling defendant and limits on inquiry into liability.	The Court held section 1(4) applies only to D1’s liability and does not remove the need to establish D2’s negligence and causation. The judge’s broad application was erroneous.
Secretary of State for Trade and Industry v Bairstow [2003] EWCA Civ 321; [2004] Ch 1	Principles on collateral attack and abuse of process in challenging prior court judgments.	The Court found that the Appellant was not bound by the Deputy Judge’s decision and that challenging it was not an abuse of process given the absence of party or privy status.
Goldsmith Williams Solicitors v E. Surv Ltd [2015] EWCA Civ 1147	Burden of proof on causation in contribution claims and requirement for evidence from the original claimant.	The Court emphasized the necessity of calling the original claimant to prove causation where the counter-factual involves different conduct.
Levicom International Holdings v Linklaters [2010] EWCA Civ 494	Inference of causation where solicitor’s advice leads to client’s conduct.	The Court held that an inference of causation arises when a client acts on negligent advice, but the burden may shift to the solicitor to disprove causation.
Hughes v Weiss [2012] EWHC 2363 (Ch)	Appropriateness of derivative claims versus alternative remedies like liquidation.	Supported the view that derivative claims can be appropriate despite availability of alternative remedies, undermining the Deputy Judge’s reasoning.
Saatchi v Gajjar [2019] EWHC 3472 (Ch)	Consideration of alternative remedies and permission to proceed with derivative claims.	Reinforced that availability of alternatives does not necessarily preclude derivative claims; supports that other judges might have granted permission.
Kimathi v FCO [2018] EWHC 2066 (QB)	Statements of case are not evidence unless adopted in oral evidence.	The Court held pleadings unsupported by witness evidence do not constitute proof, impacting the evaluation of evidence in causation.
Laing v Taylor Walton [2007] EWCA Civ 1146	Abuse of process and collateral attack on prior judgments.	Distinguished on facts; collateral attack abusive where party was bound by prior judgment and did not appeal, unlike the Appellant here.
Saif Ali v Sydney Mitchell & Co [1980] AC 198	Standard for professional negligence claims against barristers involving exercise of judgment.	Emphasized that honest and careful advice may be wrong without constituting negligence, supporting Appellant’s defence.
Hunter v Chief Constable of West Midlands Police [1982] AC 529	Definition of abuse of process in collateral attacks on prior judgments.	Confirmed that collateral attack is abusive only where party had opportunity to contest prior decision and failed to do so; not applicable here.
PriceWaterhouseCoopers v BTI 2014 LLC [2021] EWCA Civ 9	Limits on abuse of process in relitigation of factual findings by non-parties or non-privies.	Supports that collateral attack by non-parties is rarely an abuse of process, reinforcing Appellant’s position.
Arab Monetary Fund v Hashim [2013] EWHC 2833 (Ch)	Reflective loss principle and collateral defences in contribution claims.	The Court rejected use of reflective loss as a collateral defence under section 1(4), but the present Court found it inapplicable on facts.

Court's Reasoning and Analysis

The Court began by clarifying the scope of section 1(4) of the Civil Liability (Contribution) Act 1978, concluding it creates a deemed liability for the settling party (D1) but does not relieve the claimant from proving the liability of the contribution defendant (D2). The Court held that the judge erred in treating section 1(4) as conclusively establishing the Appellant’s liability without addressing negligence and causation.

The Court rejected the judge’s conclusion that the Appellant could not challenge the Deputy Judge’s dismissal of the permission application, finding no res judicata or abuse of process because the Appellant was not a party or privy to those proceedings, and no appeal was possible due to lack of funding from Company A.

The Court noted the Appellant’s evidence that if he had warned of the risk of refusal, he would have advised the risk was low, and that the Claimant likely would have proceeded regardless. The Court found the absence of the Claimant’s evidence on what he would have done was a fatal evidential gap, as the burden to prove causation lay on Company A.

The Court criticized the judge’s reliance on unpleaded allegations of failure to warn and on pleadings as evidence, emphasizing that pleadings are not evidence unless adopted in oral testimony. The Court also observed that the judge’s finding of causation was based on mistaken assumptions about admissions by the Appellant and insufficient examination of evidence.

Regarding the reflective loss argument, the Court found the Claimant’s claim was personal, relating to costs exposure and settlement, and not barred by the reflective loss principle.

In balancing fairness and practicality, the Court determined that Company A’s failure to call the Claimant and reliance on section 1(4) to bypass causation inquiry was unfair to the Appellant. Given the passage of time and nature of the claim, the Court declined to remit for retrial and instead resolved the claim on the existing record.

Holding and Implications

The Court ALLOWED THE APPEAL and DISMISSED THE CONTRIBUTION CLAIM against the Appellant.

The direct effect is that the Appellant is not liable to contribute to the settlement paid by Company A to the Claimant. The Court emphasized the necessity for claimants in contribution proceedings to prove negligence and causation on the part of the contribution defendant, notwithstanding section 1(4) of the 1978 Act. The judgment clarifies that deemed liability of a settling party does not obviate the need to establish liability of other defendants. No new precedent was set beyond the application of existing principles to these facts.