Axa Insurance Ltd v Akther & Darby Solicitors
| Jurisdiction | England & Wales |
| Judge | Arden,Longmore,Lloyd L JJ |
| Judgment Date | 12 November 2009 |
| Date | 12 November 2009 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Arden, Longmore and Lloyd L JJ.
Charles Hollander QC, Tim Lord QC and Colin West (instructed by Reed Smith LLP) for the appellant.
Sue Carr QC, Philip Jones QC, Ben Hubble QC, Helen Evans and Ruth Holtham (instructed by Kennedys, Bond Pearce LLP and Reynolds Colman Bradley LLP) for the respondents.
The Following Cases Were Referred to in the judgment:
Bell v Peter Browne & CoELR [1990] 2 QB 495.
Companhia de Seguros Imperio v Heath (REBX) Ltd [1999] CLC 997.
Davys Burton v Thom [2008] 1 NZLR 437.
First National Commercial Bank plc v HumbertsUNK [1995] 2 All ER 673.
Forster v Outred & CoWLR [1982] 1 WLR 86.
Jobbins v Capel Court CorpUNK (1989) 25 FCR 226.
Law Society v KPMG Peat MarwickWLR [2000] 1 WLR 1921.
Law Society v Sephton & CoUNK [2006] UKHL 22; [2006] 2 AC 543.
McCarroll v Statham Gill Davies [2003] PNLR 25.
Moore (DW) & Co Ltd v FerrierWLR [1988] 1 WLR 267.
Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No. 2) [1998] CLC 116; [1997] 1 WLR 1627.
Pegasus Management Holdings SCA v Ernst & Young [2009] PNLR 11.
Poole v HM TreasuryUNK [2006] EWHC 2371 (Comm); [2006] 2 CLC 865.
Post Office v Norwich Union Fire Insurance Society LtdELR [1967] 2 QB 363.
Shore v Sedgwick Financial Services LtdUNK [2008] EWCA Civ 863; [2008] PNLR 37.
South Australia Asset Management Corp v York Montagu Ltd [1996] CLC 1179; [1997] 1 AC 191.
Wardley Australia Ltd v State of Western AustraliaUNK (1992) 175 CLR 514.
Watkins v Jones Maidment WilsonUNK [2008] EWCA Civ 134; [2008] I EGLR 149.
Tort — Limitation — Accrual of cause of action — Contingent liability Damage — Legal expenses insurance — Solicitors — After the event insurance — ATE insurer claimed against panel solicitors for failure properly to vet claims and failure to conduct claims properly — Whether claims statute-barred — Time started to run for vetting claims at inception of policies and for conduct claims when prospect of success fell below 50% — Time did not begin to run only when claim could have been made under policy — Mere contingent liability under policy did not constitute damage — Insurer entered into flawed transaction — Relevant measurable loss at inception of policy because valuation would have to take account of assumed lack of proper vetting —Damage occurred when conduct breach took place since insurer thereby exposed to larger liabilities.
This was an appeal by an insurer (Axa) against a decision of Flaux J on preliminary issues ([2009] EWHC 635 (Comm)) holding that claims against panel solicitors under a legal expenses insurance scheme were statute-barred.
Axa was the assignee of National Insurance and Guarantee Corp (NIG) which issued policies of after the event (ATE) insurance under a legal expenses insurance scheme. Part of the role performed by the solicitors, under a Funded Solicitors Agreement (FSA), was the vetting of claims which members of the public wished to pursue. Claims accepted under the scheme had to have prospects of success of at least 51% and be for a minimum amount of £1,000. The allegations made by Axa which were relevant to the preliminary issues were that, pursuant to the FSA and/or at common law, panel solicitors owed duties to NIG, as insurer, to vet and only take on scheme claims that had greater than a 50% prospect of success and a likelihood of damages of £1,000, and to conduct cases with reasonable care and skill thereafter and to notify to NIG scheme claims for withdrawal of indemnity where the prospects of success fell below 50% and/or it became clear that damages would not exceed £1,000. Axa alleged that the solicitors had been negligent in vetting claims and in the conduct of the litigation on the client's behalf or in failing to notify NIG when the prospects of success fell below 50%. Axa was pursuing vetting and conduct claims against some 89 firms of solicitors.
The solicitors contended that time started to run for the vetting claims at the inception of the policies, and, for the conduct claims, when the failure to notify resulted in the prospects for success being reduced to below 50% or, where the breach consisted of the failure to take some step in the management of the claim, when the claim became liable to be struck out. Axa, relying on Law Society v Sephton & CoUNK [2006] UKHL 22; [2006] 2 AC 543, contended that time only began to run in the case of both the vetting breaches and the conduct breaches at the time when the claim could have been made under the policy, since NIG's liability under the ATE insurance was no more than an unsecured contingent liability of NIG until that occurred.
The judge held in favour of the panel solicitors. He held that, in the case of vetting breaches, damage occurred when each ATE policy incepted and not when each insured claim ultimately failed. He held that there was nothing in the House of Lords' decision in Sephton that precluded the conclusion that damage occurred when the policy incepted. He therefore rejected Axa's argument that this was a case of “purely contingent liabilities standing alone”, as had been the case in Sephton. The panel solicitors were under a tortious duty to bring about a transaction with a particular feature. That feature was that the prospects of success in a particular claim were assessed by a competent lawyer as being greater than 50%. As such, the case fell within the line of Court of Appeal decisions running from Forster v Outred & CoWLR [1982] 1 WLR 86 to Shore v Sedgwick Financial Services[2008] PNLR 37. When the professional's duty was to procure that a transaction had a particular characteristic or feature and the professional breached that duty, the cause of action accrued on entering the flawed transaction.
Axa appealed, arguing that the issue of the ATE policies at most placed Axa under a contingent liability, and that accordingly Axa was in the same position as the Law Society in Sephton. When the ATE policies were issued NIG acquired rights, the principal right being to the payment of premium, but there was no damage to that asset. The premium was an asset which NIG could assign for full value and the vetting breaches therefore did not result in an immediate loss to NI. The solicitors contended that the argument that the premium was unaffected ignored the fact that the insurer was exposed to a greater risk as a result of the vetting breaches. Axa's response was that this was a “no transaction” case with respect to the vetting breaches: if those breaches had not occurred, NI would not have entered into contracts of ATE insurance at all.
Held, Dismissing The Appeal (by A Majority):
(Per Arden and Longmore L JJ) Law Society v Sephton made it clear that “damage” for the purpose of the accrual of a cause of action in the tort of negligence would not be constituted by a mere contingent liability. There had to be something more. The fact that a flawed transaction had been entered into would usually be damage from the claimant's point of view. The fact that the recipient of negligent advice might have hoped for a better transaction or might have hoped to avoid any transaction made no difference to the fact that he had entered into a flawed transaction which he would not have done if he had been competently advised. If such a flawed transaction had come into existence, that would usually be the damage which the recipient of the advice had suffered and that was more than the existence of a mere contingent liability. In this case the claimant had acquired an insurance policy which would in due course generate claims which would exceed the premium. It was therefore a flawed transaction case not an imposition of a purely personal and wholly contingent liability. It could be said that the loss suffered by the claimant insurer was contingent upon the claim, which was ex hypothesi likely to fail, actually failing. But that did not make the case a case of a “mere contingent liability” because the claimant had entered into a flawed transaction which it ought not to have entered into. That was the damage which the claimant had suffered and that occurred at the time of the inception of the policies. It was true that the insurers were not immediately worse off as a result of entering into the ATE policies because they received the premiums up front and it would be some time before they were worse off, but that would be well before the underlying claim had failed. There was measurable relevant loss on the inception of the policies in that any valuation of the policies at that time would have to take into account the assumed fact that there had been no proper vetting. It followed that damage occurred at the time when the conduct breach took place if and in so far as NIG was thereby exposed to larger liabilities than it would have been but for the conduct breaches consisting of a failure to notify. (Sephton distinguished; NykreditMortgage Bank plc v Edward Erdman Group Ltd (No. 2) [1998] CLC 116; [1997] 1 WLR 1627 applied.)
(Per Lloyd LJ dissenting) Until a claim arose under each policy, NIG's liability was contingent, and nothing but contingent. NIG's position was, of course, worse as soon as the policy was entered into than it should have been. But it was worse because, and only because, of the contingent liability which it incurred, being one which it ought not to have incurred, and which it only incurred as a result of the solicitors' negligence. (Sephton, Forster and Wardley Australia Ltd v State of Western AustraliaUNK (1992) 175 CLR 514 considered.)
Arden LJ:
1. Under section 2 of the Limitation Act 1980 (“the 1980 Act”) claims in tort are time-barred six years after the cause of action accrued. Where the claims are in negligence, damage is an essential ingredient of the tort and so damage must be suffered before the six-year period starts to run.
2. The question on this appeal is: when...
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