UK: Insurance And Reinsurance Weekly Update - 9th October 2012

Last Updated: 16 October 2012
Article by Nigel Brook

Welcome to the thirty-fifth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2012.

These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice.

This week's caselaw


The Rylands v Fletcher principle and whether a special rule exists in fire cases - of possible interest to liability insurers

The case of Rylands v Fletcher established the principle that where a person, for his own purposes, brings onto his land something likely to do mischief if it escapes, he will be strictly liable for the natural consequences of its escape, if it does escape. The issue in this case was how the principle applies to cases where damage is caused by the "escape" of fire. In this case, a fire on the defendant's premises was fed by the ignition of a stack of tyres on his land and then spread to the neighbouring claimant's premises. At first instance, it was held that the requirements of Rylands v Fletcher were satisfied and the defendant appealed. The Court of Appeal has now unanimously allowed that appeal.

Ward LJ concluded that in an appropriate case, damage caused by fire emanating from an adjoining property can fall within the Rylands v Fletcher rule. However, the appropriate case is likely to be very rare, because the rule requires a "thing" (and not the fire itself) to be brought onto property and starting a fire on one's land may well be an ordinary use of the land: "While fire may be a dangerous thing, the occasions when fire as such is brought onto the land may be limited to cases where the fire has been deliberately or negligently started by the occupier". In this case, tyres are not exceptionally dangerous in themselves and they did not escape - the recorder at first instance had been wrong to conclude that it was the escape of fire which brought this case within Rylands v Fletcher. Accordingly, the claim failed and Ward LJ cautioned: The moral of the story is ... make sure you have insurance cover for losses occasioned by fire on your premises".

Lewison LJ went even further in holding that strict liability would only arise if a fire is started deliberately: "A fire that starts accidentally and which damages the place where it begins can hardly be said to have brought on to the land by the occupier "for his own purposes". Nor in my judgment can he be said without straining language to have brought the fire onto the land at all". An occupier of land will only be liable to his neighbour if a fire begins accidentally but he negligently fails to prevent its spread.


Whether court should make non-party costs order against solicitor acting under a CFA

Following a strike out of its claim, a claimant was ordered to pay the other side's costs. The claimant went into insolvent liquidation and the defendants therefore sought a non-party costs order against the claimant's solicitor. That solicitor had acted for the claimant under a conditional fee arrangement ("CFA") and no after the event ("ATE") insurance policy had been put in place. The defendants sought to rely on the case of Flatman v Germany & Ors (see Weekly Update 40/11) in which Eady J ordered disclosure of the losing claimant's funding arrangements (in order to help the defendants bring a non-party costs order against the claimant's solicitors). Davies HHJ held as follows:

  1. A non-party costs order would be made against a solicitor only if he/she acted beyond his/her role as a solicitor. The fact that he/she is acting under a CFA is not sufficient in itself to justify the order. The position is no different where the solicitor knows that the client is impecunious and no ATE policy is in place.
  2. In the majority of cases where a costs order would be appropriate there must be either: (a) some financial benefit to the solicitor over and above the benefit from the CFA; and/or (b) some exercise of control of the litigation over and above that which would be expected from a solicitor acting on behalf of a client.
  3. An example where an order would be justified would be where the damages being claimed are modest compared to the costs already incurred "so that the client had for all practical purposes lost any real interest in the pursuit of the proceedings but the solicitor was wedded to pursuing them to recover his costs". Where ATE cover is not taken out it may be possible to conclude that the solicitor knew that the case was obviously weak and so was pursuing it for his/her own financial benefit. However, each case is fact-specific.
  4. It will be impermissible to seek to justify an order on the basis that the solicitor has acted improperly, unreasonably or negligently - instead, a wasted costs order should be sought.

The judge concluded that a non-party costs order against the solicitor would not be justified in this case. There was no evidence that the solicitor knew that an ATE policy could not be obtained because the case was so weak. Furthermore, there was contemporaneous evidence to support the view that the solicitor was not motivated solely by financial self-interest in taking on the case, "but with the laudable aim of providing access to justice" (eg there was a file note recording that the claimant had been "crippled by the defendant tortfeasors and needs assistance").

Finally, the judge noted that even if an order had been justified, he would have limited the solicitor's liability to the amount which he had expended on disbursements (in part because the solicitor had never been warned that this application might be made against him).


Application for non-party disclosure/balancing act of the court

The claimant sought an order for disclosure against a non-party to the proceedings. Norris J noted that such orders "are not routinely made; they are exceptional". In this case, the following orders were sought:

  1. Additional documents and metadata relating to a particular document (metadata is the unseen information contained within an electronic document, such as the time and date of creation and what amendments have been made. Parties generally only seek disclosure of metadata where fraud is suspected). The judge noted that the consequences of ordering the disclosure of the metadata would involve little work for the non-party. However, disclosure of the other documents would require him to "down tools" and attend to the order (as opposed to dealing with his clients). He would have to undertake "some burdensome work". The judge held that the consequences of ordering disclosure were more serious than the consequences of not ordering disclosure. In particular, the application had been made very late and the defendant to the claim faced the risk of imprisonment.
  2. Disclosure from solicitors who had acted for the defendant in separate litigation. Again, the key question was what was involved in meeting the claimant's request. Here, the judge thought that little would be involved because the documents had already been identified and were readily available (and privileged content could be redacted). The judge therefore granted the order for this disclosure and ordered the claimant to lodge £250 with his solicitor as security for the costs of the solicitors complying with the order (the claimant having previously disobeyed costs orders).


Date for assessment of damages in a solicitors' negligence case

Clyde & Co for respondent

The general rule is that damages are assessed at the date of the breach of a duty, unless justice requires some other date to be taken. In this case, the Court of Appeal decided that another date was more appropriate. The defendant solicitors were negligent in failing to include in an agreement which they drafted a clause to the effect that the claimant would be entitled to the proceeds from the sale of a development. At first instance, the judge assessed damages not at the date of the agreement (2005) but after the date when the claimant became aware of the omission of the clause (autumn 2008, by which time there had been a marked deterioration in the property market - thus the claimant's right to the proceeds of sale was worth far less). The claimant appealed, arguing that the value of his right should have been assessed as at 2005.

The Court of Appeal held that the purpose of an award of damages is to "compensate the loser, not to provide him with a windfall on hypothetical facts". On the facts, the claimant would not have sought to realise the value of his asset before he actually did (in 2008). The judge was not therefore wrong to adopt that date and only nominal damages should be awarded.


Duty of solicitor when counsel are instructed

The claimant brought a professional negligence claim against his solicitors for allegedly giving excessively cautious advice on the settlement of his claim against a third party. The solicitors argued that they had followed advice from leading counsel. The judge at first instance found that a solicitor does not abdicate his responsibility when instructing counsel - he/ she can either advise jointly with counsel or he/she must carry on a "whistleblower role". The solicitor will be liable if counsel's advice is obviously and glaringly wrong (and the solicitor's judgment must be informed by his or her specialist expertise). On appeal, the claimant sought to raise the following arguments:

  1. A solicitor remains under a positive duty to give advice once leading counsel has been instructed. The Court of Appeal held that this was not a case where the solicitor was using leading counsel to "frank his own advice". As a matter of fact, this was not a case of joint advice. Furthermore, "the fact that a solicitor gives advice consistent with the advice previously given by leading counsel when leading counsel is not present does not mean that he has accepted an independent duty and that the relationship has changed from what it was when leading counsel gave his advice".
  2. A solicitor owes a duty to indicate the spectrum of the loss he might recover, not simply put a figure at the bottom end of the bracket. The Court of Appeal rejected that submission too. This would be an "over-prescriptive approach". A solicitor's advice is not negligent just because it does not give a more optimistic view of what might be recovered at trial.

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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Nigel Brook
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