A brief guide to the ‘chain of causation’.

It’s mentioned elsewhere on this site that the three elements you need to establish in a claim for professional negligence are:

1. A duty of care was owed;
2. That duty was breached; and
3. A loss was suffered.

However, we could add a fourth requirement to that list, linking the breach and the loss.

4. “Causation”.

As I have just settled a case where causation was a key issue in dispute, I thought I’d touch on it here.

At its most basic level, causation is very simple: did the breach cause the loss? Or as that great legal encyclopaedia Wikipedia says “causation is the causal relationship between conduct and loss”.

The usual legal test is the ‘but for’ test: ‘but for the action of X, I would not have suffered this loss’.  However, there is a limit to this test.  Technically, if you follow this argument to its ultimate conclusion by reductive logic, you could say that ‘but for’ the Defendant being born, this act would not have happened.  That takes it too far, so there are limits and of course, it comes down to that ubiquitous gent on the Clapham omnibus to adjudicate on what would be considered reasonable and foreseeable.  But that is an article for another day.

Let me put this into context.

My clients wanted to purchase a house.  It was a private sale so there hadn’t been an independent valuation.  The seller wanted £450,000.  I have seen the photos of the house and after all the work my clients have undertaken, it is a truly stunning property. However the early photos show that some work was definitely needed.  Even so, it was still relatively unique, sat in a large plot of land and one of its previous owners had been rather famous (think heavy metal Rock ‘God’!).

Because my clients needed a mortgage, a valuation was carried out on the premises.  I am sure you are aware that when it comes to valuations, the surveyor carries out a comparison test – what other properties in the area are similar?  What price did they sell for?  As my client’s house was a singular property, there weren’t too many comparables but despite this, the surveyor valued the property at £400,000.

The vendor wouldn’t come down in price but my clients liked the property, could see that there was a lot of potential to improve it and quite frankly, they saw it as their ‘forever home’.  It was worth spending the extra £50,000 to get the property.  So this is what they did.

Move forward a few years.  When my clients tried to remortgage the property they got a bit of a shock.  Despite a large amount of work having been done, the property was worth less than when they had purchased it.  Carrying out some research, they found an obscure reference to a valuation having been carried out on the property a couple of months before theirs had been undertaken.  The shock was that the property had been valued at £280,000 – £120,000 less than their own valuation only two months later.

There was some quite substantial argument between the two experts in the subsequent litigation.  Our expert agreed that the earlier valuation of £280,000 was pretty spot on; the other side’s expert disagreed and although he valued the property at less than the valuation carried out by the Mortgage Valuer, it was nowhere near the figures we were citing.

However, that is not the point of this article, which is about causation.  Our claim against the Defendant was for the sum of £170,000 – the difference between the price paid (not the figure in the mortgage valuation which you will recall was £50,000 lower) and our expert’s valuation. A huge argument arose about the extra £50,000.  The Defendants stated that there was not a causal link between the valuation of £400,000 and the price paid by my clients.  They argued that in making the decision to pay the extra £50,000, they had not relied on the valuation at all: they wanted the house and were willing to pay the price for it, regardless of the mortgage valuation.

It is actually a very good argument.  If the mortgage valuation was for £400,000, how can it have caused the client to lose money over and above that sum?  It was an overspend that they chose to accept.  Clearly, they did not rely on the report.

Understandably, we countered that line of argument especially as there is an obscure case called Kenney v Hall, Pain & Foster [1976] 2 EGLR 29 which was analogous to my clients’ situation.  In that case, Mr Kenney obtained a valuation which he felt was rather high and over-egged the pudding somewhat.  He bought the property at the higher price but when it transpired the valuation was way off – more than he had realised – he sued.  The reliance argument was raised in that case as well.  The Court concluded though that whilst Mr Kenney took into account other factors in deciding to purchase the property at a value higher than what he thought it was worth, it concluded that the valuation was still an important consideration in that:

“the valuation made him feel that he could safely commit himself to spending £65,000 on Wickham Lodge and cover his commitments…. He felt that, in light of the advice that he had received from [the defendants], even allowing that his valuation might have been rather high, this was a risk that he could safely take.”

This is the line of argument we took.  My clients were prepared to pay more than the valuation but not infinitely more.  An extra £50,000 on a property worth £400,000 was bearable; an extra £170,000 on a property worth £280,000 was not.  A valuation of £400,000 gave them the requisite comfort that £450,000 was not a wild overpayment.

So how did it end?  Sadly, not the way that I would have liked.  A very low offer was made to my clients and although I strongly advocated against accepting it, at the end of the day, the decision was theirs and they went for it.  They had had enough of the whole thing.  They had been worrying themselves sick for six years before they instructed me, wondering how to cope with the negative equity in their property, not knowing they could bring a claim.  The experts had been hotly contesting each others conclusions and quite frankly, my clients just wanted to move on.

Would we have recovered a higher sum at trial?  I am pretty certain of it.  If proceedings had actually been issued, I could have applied to the Court for an order that the early valuation of £280,000, that had sparked all this off, be released to us.  It would most certainly have popped the Defendant’s expert’s arguments on valuation.  And there is enough case law to pop the causation argument too.  But there you go.  You win some and you lose some and whilst this was technically a ‘win’, I’d have loved to have taken this one to court and have got more money for my client.

Contact our free helpline for further guidance on the chain of causation.

Professional Negligence Solicitor, Lee Dawkins, anticipates an avalanche of professional negligence claims from miners who have lost out due to their lawyer’s negligence

The court of appeal has rejected an application by Raleys Solicitors to overturn an earlier decision that they had been negligent in dealing with a personal injury claim on behalf of a miner.

Raleys Solicitors had been criticised for failing to consider the full extent of a miners personal injury compensation claim, highlighting the solicitors’ over-reliance on standard forms to collect information.

Individual partners have also come under scrutiny, with disciplinary hearings taking place.

The original personal injury claim

The claimant had been employed as a miner and had used vibratory tools.  This had led to him developing vibration white finger, or VWF, and Hand Arm Vibration Syndrome, HAVS.

Raleys Solicitors were appointed to pursue a personal injury claim on his behalf.  However, when his injury claim settled it only included compensation for the injury itself, together with a further sum for “handicap on the labour market”.  Crucially, the compensation award did not take into consideration the claim for “services” which he now required as a consequence of the disability arising from his injuries, such as gardening, car repairs and do-it-yourself.

Impact of the court’s ruling

This decision is likely to lead to further professional negligence claims against solicitors by miners who’s personal injury claims have been under-settled.

It is estimated that 170,000 injury claims were brought under the Government’s Miners Compensation scheme.  Over 100,000 of those claims would have attracted compensation for “services”.  However, it is thought that less than half actually included a “services” award.

Thousands of miners will therefore  be entitled to bring a solicitors negligence claim for the compensation they have lost out on.

Making a professional negligence claim

We deal with professional negligence claims against solicitors on a no-win – no fee basis.  We operate a free solicitors negligence helpline.  So if you are a miner and think you may have missed out on compensation due to under-settlement of your injury claim then give us a call on (0808) 139 1595.

Jasmine Butler looks at the low value road traffic accident protocol and a technical mishap that could result in a personal injury lawyer facing a professional negligence claim

The online low value road traffic accident protocol has been in use for injury claims ranging in value from £1,000 to £25,000 from 31 July 2013. The protocol is based upon information being exchanged between the parties via an online “Portal”.

The Portal is widely used by both solicitors. For anyone who has ever encountered the Portal they are likely to be of the opinion that it is not the most user friendly system. The Portal was designed to avoid delays and save costs.

Settlement negotiations are dealt with under the Portal by sending offers and counter offers. So, for instance, if a Claimant wishes to accept a Defendant’s offer he simply clicks the ‘accept’ button and that’s it; case over.

Unfortunately in the recent case of Draper v Newport the Claimant’s solicitors clicked ‘accept’ by mistake. The lawyer realised her mistake almost straightaway and contacted the Defendants to inform them that the offer had meant to be rejected.

The Defendants were not prepared to accept that the Claimant had accepted the offer by mistake and the case proceeded to Court. The Court concluded that the Claimant’s representative was not allowed to rely upon the common law doctrine of mistake. The Judge commented that to allow the rule in this case “it would have a real risk of undermining the certainty, speed and cost which are all elements which this scheme is designed to deal with, and to deal with in a way which ensures the parties have their cases dealt with justly and at proportionate cost”.

The Claimant was forced to accept the Defendant’s offer rather than being able to reject it and put forward her own counter offer.

The decision seems harsh and unjust. After all, how many people who use a computer on a regular basis can say that they have never clicked on the correct icon? However the court has spoken and careless personal injury solicitors now run the risk of suffering significant financial loss at the push of a button.

If you have suffered loss as a result of a solicitor’s negligent mistake or error then call us on  0333 888 0403 and ask to speak to one of our specialist professional negligence solicitors for a free initial assessment of your compensation claim.

We review the law on compensation claims against third party solicitors.

One of the principles behind any claim for negligence is that the ‘tortfeasor’ (legal jargon for the wrongdoer), needs to owe the claimant a duty of care.  It is difficult to specifically define a duty of care: it is along the lines of an obligation to ensure that one acts reasonably such that it will not cause harm to others.  This does not mean that we are all obligated to look after every Tom, Dick and Harry – there does have to be some proximity between the parties.  In claims for negligence, this is usually identified by the existence of a contract between the professional and the claimant.

We are often contacted by people who want to bring a claim against a solicitor only to find that the solicitor they wish to sue is another other party’s solicitor, not their own.  Unfortunately, in those circumstances, there is rarely a close enough proximity between the parties for a solicitor to offer a third party a duty of care. There are some very specific exceptions to this, including the duty of care owed by a solicitor who drafts a will to the beneficiaries as well as the testator.

However, late last year, the Supreme Civil Court in Scotland (Court of Session Inner House) concluded that, where a solicitor has knowledge of a fraud, despite a duty of confidentiality to his client, he must inform his opponent of this situation.

The case is Frank Houlgate Investment Company Limited V Biggart Baillie Llp [2014] CSIH 79.  In this instance, an investment company loaned a large sum of money to Mr Cameron on the basis that Mr Cameron owned a valuable property.  Although the property was owned by a Mr Cameron, it was not the Mr Cameron in question.  Mr Cameron ultimately confessed to his lawyers (BB) that he did not own the property, but asked them not to tell FH.  Believing that they were under a duty of confidentiality, they did not tell FH who subsequently found out about the fraud.  They sued the solicitors, BB, even though those solicitors had not been representing them.

The judgment from the CSIH makes interesting reading.  Its general conclusion is that a solicitor has a duty to act honestly which, by implication, gives the representation that he is not aware of any fraud on the part of his client.  Further, this is an ongoing representation.  So, at the outset of the transaction, BB were of the belief that the transaction was an honest one so were acting correctly but, when they became aware of the fraud, they were relieved of their duty of confidentiality to their client.

As an aside, the CSIH did mention that even if the Court had not made this finding, the solicitor could still be considered an accessory to fraud.

What is the relevance of this case?

At the moment, we do not know for sure.  This is a Scottish case and it does not mean that the English courts need to follow it, but it is open for parties who have been affected in a similar way to cite this case and invite an English court to come to a similar finding.

Secondly, it is unclear how this will affect situations where the parties have been engaged in litigation.  In litigation, once a solicitor is aware of dishonesty, as they have a duty not to mislead the Court, they should ask to no longer represent the client.  It is unclear whether the solicitor would have to go beyond that and actually inform the other side or the Court of the fraud.

Finally, this only relates to issues of fraud; nothing else.  Even then, it will not be that simple as fraud is notoriously difficult to prove and Courts are reluctant to impute fraud unless the evidence is clear cut.  In this case, a third party told BB of the fraud and Mr Cameron admitted it – quite distinct facts.

Conclusion

This is an interesting case in relation to compensation claims against third party solicitors and certainly one to watch.  It may be that BB will appeal the decision – that has yet to be decided – but it may open up another avenue of redress for a client who has been the victim of a fraud.

For FREE initial advice on any solicitors negligence claim and details of our No Win – No Fee funding option, call us on 0333 888 0403.

Slee Blackwell, the solicitors behind Pro Neg, are featured as a recommended firm in the latest edition of the highly influential Legal 500 guide.

The Legal 500, which is published each year, ranks law firms across the UK based upon independent research. Its website attracts more than 4 million visitors annually.

Slee Blackwell partner, Lee Dawkins, welcomed the news, stating:

“To be recommended by the Legal 500 in the field of professional negligence law is a tremendous honour for us.  It is also a tribute to the quality and expertise of our lawyers.”

Publications like this help consumers to identify the genuine experts in the field who are best placed to achieve a favourable outcome in this highly specialised area of law.

Slee Blackwell Solicitors are also the proud holders of Lexcel accreditation. Lexcel is the Law Society’s legal practice quality mark for excellence in legal practice and legal client care.

Lee Dawkins added:

“Clients dealing with a Legal 500 firm that has also achieved Lexcel accreditation can expect to receive a first class service from lawyers who are experts in their field.”

An announcement by the Solicitors Regulation Authority (SRA) has stated that there has been a massive increase in the number of disciplinary matters it has commenced; an increase of 55% this year alone.  Between January and August 2014, the SRA opened up 90 new cases – an increase of 32 over the same period last year.  There has also been a drastic increase in the number of warnings given by the SRA.  In the same period, 128 warnings had been given compared to 102 in the entirety of 2013 and only 21 in 2012.

The SRA is going to spend time analysing the cause of this increase.  Many of the referrals are queries that can be easily and quickly resolved but there are a number of more complex matters which take time to investigate. These range from money laundering to poor financial management. The SRA are even being called upon to deal with an increase in the number of bogus or unauthorised solicitors’ firms (particularly on the internet) and unregulated persons practising law.

According to the SRA, the problems are not confined to the small firms either.  Larger firms also come under the SRA’s umbrella, but they tend to be more aggressively defended. It has been alleged that some firms make freedom of information requests to “deflect resources” and dissuade the SRA from taking the matter forward.

For FREE initial advice on making a compensation claim against a negligent solicitor or negligent lawyer on a No Win – No Fee basis, call our Helpline on 0333 888 0403

What was intended to be guidance and some fundamental changes to the law of nuisance by the Supreme Court in the matter of Coventry –v- Lawrence, has in fact caused consternation for litigants who entered into CFA’s and ATEI policies before 1st April 2013.

Under the Access to Justice Act 1999 (AJA) which introduced Conditional Fee Agreements (CFA), a successful party is entitled to recover their success fee and any ATEI premium from the losing party.  This altered on 1st April 2013 with the introduction of the Legal Aid, Sentencing & Punishment of Offenders Act 2012 (LASPO).  Under this new regime, the success fee and ATEI premium are not recoverable from the losing party.  This only applies to CFAs entered into after that date; pre-LASPO CFAs remain unaffected: Until 23rd July 2014 that is, when Coventry –v- Lawrence (No 2) [2014] UKSC 46 was heard and the Supreme Court hinted that this may not be the case.

The facts of the matter are very simple.  The Claimant purchased a bungalow in 2006 near a speedway racing track owned by the Defendant that had been operating since 1975.  The Claimants complained about the noise and obtained an injunction against the Defendants from operating above a certain noise level.  The matter was appealed to the Court of Appeal and again to the Supreme Court.  Ultimately, the Claimants were successful, retained their injunction and were awarded £20,700 by way of damages.  The Defendants were also ordered to pay 60% of their costs.

It is the costs that are the crux of the matter.  The Claimants’ basic costs were £398k with a 100% success fee and an ATEI premium of around £350k – a total figure of about £1.06m.  This figure did not include the cost of the two appeals.  Even though the Defendants only have to pay 60% of that figure, it is easy to see that the costs vastly exceed the damages.

It was whilst this was being discussed that Lord Neuberger raised the possibility that the recoverability of success fees and ATEI premiums in pre-LASPO cases could in fact infringe Art 6 of the ECHR.  Article 6 grants the right to everyone to have a “fair and public hearing”.  What was being hinted at was that with the sort of costs involved, it prevents ready access to the courts meaning potential litigants lose the right to a fair trial.

Because the AJA is primary legislation, the Supreme Court cannot overrule it and must be bound by it.  All the Court can do is declare that the AJA is “incompatible” with the ECHR.  According to Lord Neuberger, this could have serious consequences for the government as “victims” could, in theory, claim compensation from the government for additional liabilities that have been paid in the past.  It also raises questions as to how legal representatives deal with cases that they still have in their filing cabinets that have pre-LASPO CFAs in them.

The Court has decided to defer making any decision on this matter and has invited the Government to make any submissions it may wish to by 7th October 2014.  It is also understood that the Law Society is taking advice and considering whether to intervene in the matter simply because of the enormous ramifications that this case will have if the Court does make a declaration of incompatibility.  It is simply a case therefore of waiting to see what the final verdict is.

Even if the Court does declare that pre-LASPO CFAs are incompatible with the ECHR, as said above, they will still be bound by the AJA and it will not change the final outcome for the parties involved.  The irony is that it is simply incurring more costs for the parties involved.

Professional negligence solicitor, Lee Dawkins, looks at the problems caused by Modern Ground Rent provisions under the Leasehold Reform Act 1967.

We have recently been instructed to deal with a number of professional negligence claims involving long leases of National Trust properties which have been extended under the Leasehold Reform Act 1967.

Purchasers of these leases have been caught out by a provision which allows landlords (such as the National Trust) to charge a significantly enhanced ground rent, known as a modern ground rent.  Rents can rise from just £10 or £50 per year to more than £5,000 per year.  The effects of this can be devastating for the un-witting purchaser where they have paid an open market value for the property and have not budgeted for this rise.

Conveyancing solicitors, surveyors and valuers who are experienced in dealing with leases and the provisions of the 1967 Leasehold Reform Act will be alert to this problem and will advise their clients of its likely impact on them.  However, not all conveyancers, surveyors and valuers have the necessary expertise to identify this issue and some transactions proceed without the purchasers realising they are liable in this way. Those who lose out as a result are seeking compensation for their losses by making professional negligence claims.

A liability for modern ground rent can arise wherever a tenant has exercised their statutory right to extend a lease under the 1967 Act by a period of 50 years.  The Act has proved very popular with tenants over the years, but while it benefits the tenant in the short-term it stores up problems for the future with the impact often hitting unsuspecting purchasers.

If a tenant chooses to extend their lease under the Leasehold Reform Act then the landlord is entitled to charge the modern ground rent at the start of the 50 year extension.
The National Trust has defended its position to charge the modern ground rent where it applies on the basis that the Act included the provision in order to strike a balance between the competing interests of tenants and landlords. The National Trust acknowledges that some of their tenants might be unaware that they have this liability and may be taken by surprise.

Calculating the modern ground rent is complex and is a task generally undertaken by a professional valuer or surveyor.  In simple terms the modern ground rent is a proportion of the full rental value of the property.  This is often referred to as the “site value” and is effectively the value of the site on which the property sits.  For example, a property that has an open market value of £300,000 could be deemed to have a site value of £105,000, representing 35% of the total value.  The annual modern ground rent is then calculated on a de-capitalised basis, which in this example would be £5,250 per year.  So, on the date upon which the lease extension starts the property owner could find themselves facing a demand from their landlord for an annual rent of £5,250 rather than just £50 or so previously charged.

The liability to pay such a massively increased ground rent will inevitably reduce the value of the property.  However, sellers and estate agents frequently fail to factor in the liability for an increased rent, leaving purchasers with a bill for rent they cannot afford and a significantly diminished asset.

The National Trust has offered some of its tenants the option of paying a lump sum to ‘buy out’ their future obligation to pay the modern ground rent. The lump sum payment is calculated on a case by case basis and will depend on the rental value of the property and the future date on which the liability to pay the increased rent arises.

In these circumstances the purchaser’s only recourse is to examine the quality of the professional advice given to them by their solicitor, surveyor or valuer at the time they acquired the lease.  If the professional should have known about the potential for such a significant increase in the ground rent, then failure to draw this to their client’s attention may leave them open to a professional negligence claim for compensation.

If you have received a demand for modern ground rent, or have purchased a lease extended under the Leasehold Reform Act which may give rise to a future liability for modern ground rent, then call professional negligence solicitor, Lee Dawkins, on 0333 888 0403, or e-mail him direct at [email protected].

We offer a free legal helpline and are able to deal with many professional negligence claims on a no win no fee basis.

FOS compliants.

Emma Slade, a specialist professional negligence solicitor, examines the recent unanimous Court of Appeal decision in Clark –v- In Focus Asset Management confirming that once a decision by the Financial Ombudsman is accepted, the complainant cannot sue for any shortfall in the courts.

The Financial Ombudsman Service (“FOS”) was set up by the Financial Services and Markets Act (“FSMA”) 2000 as a dispute resolution service between consumers and providers of regulated financial services.  The purpose was to provide a swift and simple service, free at the point of contact to the consumer, whereby the Ombudsman would determine the complaint “by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case.”  He can therefore ignore the technicalities of the law (although if the decision is considered “perverse” or “irrational” a court can overturn it) and even order compensation over and above that which would be allowed by the law.  Currently, there is a maximum compensation limit of £150,000 but the FOS can make recommendation that a further payment in excess of that amount can be paid – although that additional sum is not enforceable.

The procedure for an FOS complaint is that the FOS will invite each party to put their case in writing to the Ombudsman for consideration.  Although oral evidence can be provided, this is very rare and even then, there is no opportunity for formal cross examination or, as in the case of litigation, disclosure of documents between the parties.  At the conclusion of his investigation, the Ombudsman will make a decision and the complainant is invited to accept that decision.

If a complainant accepts an FOS decision, then for the purposes of the FSMA, it is considered “final”.  However, for a long while, it has been accepted that the decision is only “final” in terms of the FOS procedure.  There is nothing in the FSMA which expressly addresses whether or not the decision precludes legal proceedings.

This has been considered at great length by the courts over the past few years.  The view the High Court took in the Clark case was that the FOS was merely dealing with complaints and that it was simply “a scheme for the summary and informal resolution of disputes”, certainly not a court or a tribunal.  Indeed, the Court went so far as to say that:

“It seems to me that for a Complainant to use an award of £100,000 to finance the legal costs of bringing court proceedings for a greater amount is not inconsistent with the statutory aims.”

The defendants in that case appealed the decision, its lawyers citing the legal doctrine of res judicata, a Latin term which basically means that if a ‘cause of action’ has already been adjudicated upon by a judicial tribunal, then it precludes a party from bringing another set of proceedings.  It took the view that as the FOS had made an award which had been accepted by the claimant, they were prevented from seeking further compensation.

The Court of Appeal therefore had to decide whether:

• The FOS is a judicial tribunal
• Whether a complaint to the FOS is a ‘cause of action’
• Whether there is anything in the FSMA which would allow or prevent subsequent litigation proceedings

The issue of whether the FOS is a judicial tribunal was easily dealt with.  Consideration of the procedure – especially the fact that both parties could put forward their case, the fact the decision was determinative and that the FOS had jurisdiction over both parties, meant the Court of Appeal was certain that the FOS is a judicial tribunal for the purposes of res judicata.

But is the FOS considering the same ‘cause of action’?  Indeed, what is a ‘cause of action’?  Quite frankly, it is a high- fallutin’ legal term for describing “the various categories of factual situations which entitle[s] one person to obtain from the court a remedy against another”.  In short, it is simply a set of facts presented for determination.  And the Court of Appeal considered that in many instances, even if the actual complaint itself does not constitute a cause of action, the underlying details that the FOS has to consider may indeed be a cause of action.

So in short, the Court of Appeal came to the conclusion that, if a complainant accepts an FOS decision but then brings proceedings against the respondent on the same set of facts, res judicata will apply and the case will have to be struck out as an abuse of process.

Was there anything in the FSMA which prevented this?  As I have said above, no.  It is entirely silent on the point of whether further legal proceedings are precluded.  In those circumstances, as statute is quiet, we must fall back on the common law.  As common law does not allow “two bites at the same cherry”, subsequent litigation proceedings following an accepted FOS decision will not be allowed.

What did it mean in this instance?  In this case, Mr & Mrs Clark had invested a significant sum of money in endowment policies upon the recommendation of IFAM.  They lost a sum in excess of £300,000.  The FOS agreed the advice had been poor and gave them the maximum award which at that time was £100,000, with the further recommendation that IFAM make further compensation which IFAM ignored.  The Clarks legal team sought advice from the FOS whether, if the award was accepted, it would prevent additional proceedings but the FOS response was that they simply did not know.  The Clarks accepted the offer but on the proviso that it was without prejudice to their right to seek additional recompense via the courts.  Would this work?  No.  Davis LJ dealt with this in the final judgment in this case stating that “purported reservation of the right to sue cannot operate to create such a right when, on acceptance of the award, such a right was never there.”

Conclusion

This is going to be a bitter pill for many claimants to swallow.  It has to be accepted that the litigation animal is not a particularly swift one and invariably, the complaint arises as the complainant has been deprived of much needed funds.  The prospect of a swifter and much cheaper resolution through the Ombudsman service is therefore extremely attractive particularly as it is non-litigious in nature and does not involve the stress, strains and costs that litigation may have.  However, its remedy for large value claims is limited to only £150,000 (as at May 2014) which, given the FOS has admitted it has approximately 87 claims per year over this value, means there should be a serious pause taken before engaging the FOS.  Even more importantly, it is unclear whether the FOS are going to be altering their website and media publications to make it clear that once the complainant signs on the dotted line, there is no secondary recourse for compensation.

In short, whilst the FOS is a useful vehicle for smaller claims to be considered, for larger claims, you should always take independent legal advice to ensure the best procedure is adopted in your case.

If you require guidance on bringing a claim for compensation contact our FREE professional negligence HELPLINE on 0333 888 0403 or drop us an email.

We look at allegations of fraud in court proceedings.

The word ‘fraud’ – like ‘negligence’ – tends to be easily thrown into a conversation when discussing the actions of a potential defendant, but it has a different and more onerous definition in law than it does in everyday language.

Indeed, it can strike fear into the very heart of a lawyer as not only can it be difficult to prove but get it wrong and there can be significant cost consequences for the claimant as well as potential disciplinary proceedings for the hapless legal team.

In reality, there is no such single thing as ‘civil fraud’.  Instead, it covers a vast array of different types of actions including such things as bribery, breach of fiduciary duty, and conspiracy.  To keep matters simple, I am only going to deal with the most common type of civil fraud in this article, that of fraudulent misrepresentation or deceit.

According to the textbooks, a fraudulent misrepresentation is

“where a defendant makes a false representation, knowing it to be untrue or being reckless as to whether it is true, and intends that the claimant should act in reliance on it, then in so far as the latter does so and suffers loss, the defendant is liable for that loss”

There are therefore five aspects to establishing fraudulent misrepresentation:

(1) There must be a false representation as to fact to the claimant (C)

(2) When making the statement, the Defendant (D) must have a dishonest state of mind

(3) There must be an intention that C will rely on that representation

(4) C does actually rely on that statement

(5) C suffers a financial loss

A false representation as to fact

This is not as easy to prove as it suggests because how do you show that D actually believes what he says is a fact as opposed to his opinion?  Importantly, what if D does not actually make the statement but allows C to draw his own conclusion from innuendo or conduct by D?  The courts are happy to draw conclusions from half truths and statements but the more ambiguous the statement, the more careful the courts will be in imputing fraud.

D must have a dishonest state of mind

It is probably worth citing the leading case on this – Derry –v- Peek 1889 – and the judgement of Lord Herchell:

“Fraud is proved when it is shown that a false representation has been made (i) knowingly (ii) without belief in its truth or (iii) recklessly, careless whether it is true or false… to prevent a false statement from being fraudulent, there must, I think, always be an honest belief in the truth”.

Again, this is not easy to demonstrate as D is hardly likely to put his hand up and admit that he had ‘knowingly’ made a false statement to C.  C can again ask the Court to draw inferences but to establish the state of mind of D, the Court has to be careful.  Lord Nicholls in Re H (Child Abuse) 1996 said that:

“fraud is less likely than negligence” so “the more serious the allegation the less likely it is the event occurred and hence the stronger should be the evidence.”

Ultimately though, if D can show that he had an honest belief in the ‘fact’, he will have a defence although this belief may be set up against the yardstick of the “ordinary standards of reasonable and honest people”2

An intention that C relies on the misrepresentation

Interestingly, D does not have to make the statement directly to C.  He can make it to a third party if he knows that the third party will tell C.  All that is needed to be shown is that D had an actual intention to deceive C.

There was reliance by C on the misrepresentation

If C can show that the ‘fact’ induced him to enter into the transaction or even that it was one of a number of factors, then this aspect of the ‘fraudulent misrepresentation’ will be established.  He does not need to show that it was reasonable to rely on the fact although of course, the more unreasonable it was to rely on an obscure and outlandish fact, the more difficult it would be for the Court to accept reliance.  Of course, if D can show that C would have acted in the same way if he knew of the true facts behind the statement, he would have a total defence.

C suffers a financial loss

If C can demonstrate that he has suffered a loss which directly flows from reliance on D’s statement, then he will be entitled to damages.  Unlike a claim for negligence though where damages are limited to those which could have been reasonably foreseen as being incurred as a result of the negligence, when it comes to claims for fraudulent misrepresentation, C is entitled to be put back into the position he was as if the fraudulent misrepresentation had not occurred – which can include some unforeseen losses.  C still has an obligation to mitigate the losses.

A properly pleaded and supported claim for fraudulent misrepresentation does have a number of benefits for a claimant.

(1) The limitation period in negligence is six years from the date of the act of negligence or three years from date of knowledge subject to a fifteen year longstop date.  However, under s32 Limitation Act 1980, claims for fraud do not have a longstop date.  The limitation period for fraudulent misrepresentation claims is six years from the date C first became aware that a fraud had been perpetrated so extending the time to bring a claim

(2) The measure of damages is much greater than in negligence or in contract claims as it is not limited by foreseeability

(3) A defendant cannot argue that the claimant has contributed to the loss by his own negligence (contributory negligence)

(4) Limitation and exclusion clauses in a contract cannot be relied upon in claims of fraud

It would seem therefore to be advantageous to bring a claim for fraud but it largely because of those advantages (which could potentially open the floodgates on unlimited litigation and damages) and the fact that the term ‘fraud’ carries with it such connotations as well as leading to hostile and antagonistic litigation, that the Courts are reluctant to impute fraud.  Fraud requires a positive act by a Defendant – an intention to commit fraud – that smacks of deceitfulness whereas a claim for negligence tends to arise from mere carelessness and so is less confrontational.  Although the standard of proof in fraud cases is the same as in all civil cases – on the balance of probabilities – the reality is that the Courts prefer a greater standard of evidence to support such a claim.

Added to this is that which I hinted to at the beginning of this article – the professional regulation.  In both the Solicitors Code of Conduct and the Bar Code of Conduct will be found similar strictures which, paraphrasing, require that a solicitor or barrister cannot pursue an allegation of fraud unless they have “clear instructions to make such an allegation” by the client and they have good quality material before them to support the allegation.  If they do not, as I have said, professional disciplinary proceedings may be commenced.  The Court may also make a substantial costs order against the Claimant themselves.

It is for the combination of these reasons – difficulty in establishing fraud as well as the Courts’ reluctance to impute fraud as well as the professional strictures – that when a layperson claims a defendant has been “fraudulent”, a lawyer is reluctant to jump on the bandwagon.  Great care needs to be taken before these allegations are made and, although there are advantages in pleading fraud, sometimes it is tactically and financially better to take a step back and simply plead negligence.

Emma Slade is a solicitor specialising in professional negligence claims. For a FREE initial assessment of your case call us now on 0808 1391595.