Cayman Islands: Malicious Prosecution Divides The Privy Council

Last Updated: 4 December 2013
Article by Christopher Russell

It is a frequent and necessary function of the law to create a balance between competing and conflicting desirable aims. Three such are (1) no wrong should go without remedy; (2) there should be an end to litigation and (3) there should be no deterrence from bringing justified proceedings. These, in some respects conflicting, policies lie at the heart of the recent decision of the Judicial Committee of the Privy Council, on appeal from the Cayman Islands Court of Appeal Crawford Adjusters v Sagicor General Insurance (Cayman) Ltd [2013] UKPC.

The appeal was decided by the narrowest of margins - 3:2 - and led to a sharp and, in judicial terms, at times acrimonious, difference of views between the judges. In short, the majority, led by Lord Wilson, with Lady Hale and Lord Kerr, held that the tort of malicious prosecution is not, as had been the law of England (and Cayman) for centuries, confined to the prosecution of criminal offences (and a small disparate collection of civil claims) but is available as a tort generally, and extends to all civil claims.

All three principles arose starkly in the Sagicor case, of which the facts were as follows: hurricane damage was insured against by the proprietors of a Cayman residential complex with the Respondent to the appeal (Sagicor). Hurricane Ivan, in 2004, caused extensive damage to the complex, and the proprietors claimed on the insurance. Sagicor appointed a local loss adjustor (Mr Paterson); on his advice, CI$2.9m advance payments were made by Sagicor to Hurlstone, the construction company engaged to carry out the repair work. A newly appointed Senior Vice President of Sagicor (Mr Delessio) became concerned about the amount of the payments to Hurlstone, and what he saw as the lack of supporting documentation. Sagicor retained a different loss adjustor, from England, who valued the work done by Hurlstone at CI$0.8m of which CI$0.7m was the responsibility of Sagicor.

Destroy Professionally

Mr Delessio dismissed Hurlstone, and expressed the intention to drive Mr Paterson out of business and to destroy him professionally. Sagicor launched proceedings in the Cayman Islands Grand Court against Mr Paterson and Hurlstone, claiming not only repayment of the alleged overpayment to Hurlstone, but also damages for conspiracy and deceit against Hurlstone and Mr Paterson. Sagicor also obtained an asset-freezing injunction against Hurlstone. Mr Paterson counterclaimed against Sagicor for his unpaid fees. Three months before the trial was due to start, Hurlstone produced paperwork proving extensive payments to its sub-contractors and suppliers; in consequence, Sagicor, shortly before the trial was due to start, abandoned its proceedings.

The Court ordered Sagicor to pay Hurlstone's and Mr Paterson's costs of the proceedings on the indemnity basis and allowed Mr Paterson to amend his existing counterclaim for fees, to include a claim for damages for the tort of abuse of process. The Judge regarded this as including a claim for the tort of malicious prosecution, even though the torts are materially different.

At the trial of Mr Paterson's counterclaim, the judge found there had been no abuse of process, as the proceedings had been brought for the purpose for which they were designed. However, he found that Mr Paterson had proved all but one of the elements required for malicious prosecution: (1) malice; (2) lack of reasonable or probable cause for the Sagicor claim; (3) the Sagicor claim had been concluded in Mr Paterson's favour, as it had been abandoned: (4) financial loss. The judge quantified Mr Paterson's recoverable loss at CI$1.335m (CI$1.3m for economic loss, and $0.35m for general damages for distress, hurt and humiliation). The judge found, however, that he was unable to hold Sagicor liable for the tort of malicious prosecution, in the light of the 2000 UK House of Lords decision in Gregory v Portsmouth City Council [2000] 1 AC 419; the current state of the law at the time confined the tort of malicious prosecution primarily to criminal proceedings.

Criminal Proceedings

The Cayman Islands Court of Appeal dismissed Mr Paterson's appeal. On further appeal to Judicial Committee of the Privy Council, it was held unanimously that Sagicor was not liable for the tort of abuse of process, but, by a 3:2 majority, that Sagicor was liable for the tort of malicious prosecution. Underlying the majority decision, is the fact that, absent the availability of the tort of malicious prosecution to civil cases generally, Mr Paterson would have been without remedy, save for his costs of the litigation. The tort of defamation was unavailable to him, because of the rules of privilege relating to court proceedings.

It is now clear that, in principle, the tort extends generally to the institution of all civil proceedings, as well as criminal cases. But there are serious uncertainties, as recognised by the majority in Sagicor themselves. These uncertainties over the ambit of the revived (or extended) tort are unhelpful and add weight to the view of the minority that the extension of the tort to all civil cases is far too uncertain to be permitted. The uncertainties are not satisfactorily addressed by the answer preferred by the majority, that because the extension of the tort is judge-made, judges can adjust the scope of the tort, if it is itself used as a means of abuse. To bring civil proceedings of any kind now carries with it the risk of being sued, if unsuccessful, for malicious prosecution. The majority in the Sagicor case sought to diminish that risk by pointing out that the hurdles of proving malice and lack of reasonable and probable cause are high; but as Lord Sumption observed:

"It is no answer to say that the bar can be set so high that few will succeed. Malice is far more often alleged than proved. The vice of secondary litigation is in the attempt. Litigation generates obsession and provokes resentment. It sharpens men's natural conviction of their own rightness and their suspicion of other men's motives. It turns indifference into antagonism and contempt. Whatever principles may be formulated for allowing secondary litigation in some circumstances, for every case in which an injustice is successfully corrected in subsequent proceedings, there will be many more which fail only after prolonged, disruptive, wasteful and ultimately unsuccessful attempts".

Endless Secondary Litigation

The path for endless secondary litigation is wide open; a claim properly brought, but which fails, may spawn a malicious claim for malicious prosecution, which in turn may give rise to a claim for malicious prosecution of the failed malicious prosecution claim - and on it goes. The Sagicor decision provides a recipe for further litigation and deterrence of honest claims. Whether it has this effect in practice, only time will tell.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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