Percy v White – solicitors’ negligence and contribution claims

The recent High Court case of Percy v White¹ considers contribution proceedings brought by a firm of solicitors against a barrister instructed to act in relation to a commercial dispute. It provides interesting confirmation of the basis on which a party can bring a contribution claim and offers guidance as to the apportionment of liability in such cases.

The facts

In 2018 Mr Percy instructed solicitors Merriman White (“the Solicitors”) and barrister David Mayall to act on his behalf in relation to a derivative claim against his former joint venture partner, whom he claimed had stolen assets that belonged to the JV company.  In mediation Mr Percy was offered £500,000 by way of settlement of his claim.

Mr Mayall advised Mr Percy shortly after the mediation but did not advise on whether to revisit and accept the offer. The court subsequently denied Mr Percy permission to pursue his derivative claim as it did not meet the relevant threshold test. Instead, the court suggested the JV should be wound up.

Mr Percy brought a negligence claim against the Solicitors and Mr Mayall. The claim against the Solicitors was settled before trial and Mr Percy agreed to not pursue Mr Mayall on the basis that each side pay their own costs. This left only the contribution proceedings by the Solicitors against Mr Mayall under the Civil Liability (Contribution) Act 1978 (“the Act”), on the grounds that he was responsible for the “same damage”.

The judgment

Mr Mayall argued that he was not liable to the Solicitors as they would have had a complete defence to Mr Percy’s claim using the principle of reflective loss (Marex v Sevilleja [2020)²), whereby a shareholder of a company (in this case the JV) cannot bring a claim for losses suffered by the company itself.

The Court held that the Solicitors did not have to prove that they would in fact have been liable to Mr Percy in order to bring a claim against Mr Mayall under the Act. Following the case of WH Newson Holding Limited v IMI Plc³, the Solicitors needed to show only that Mr Percy had a reasonable cause of action against them. This was subject to a proviso that the settlement was made bona fide – there was no suggestion that the settlement between Mr Percy and the Solicitors was not.

As such, no actual assumptions could be made in respect of the merits of the defence based on reflective loss and it could not be raised as a collateral defence. The Court relied again on the decision in Newson, in which the Court of Appeal held that if D1 (the Solicitors in this case) can establish the claimant had a reasonable cause of action against it “ … that is the end of the inquiry: and D2 (Mr Mayall in this case) is not entitled to raise any other matters that might have defeated C’s liability claim, including any collateral defences that D1 had pleaded against C (and regardless of where the burden of proof in relation to any such defence may lie).” 

The Court concluded that, even if Mr Mayall could use such a defence, it would have failed in any event.  Mr Percy was a shareholder-creditor and so was unaffected by the “no reflective loss” principle in Marex v Sevilleja. Secondly, Mr Percy’s loss – arising out of the engagement of the Solicitors and Mr Mayall (in his own name) to “protect his interests” – was distinct from the loss suffered by the JV company.

The argument that Mr Mayall was not responsible for the “same damage” was unsuccessful. The damage suffered by Mr Percy arose from the failure of both the Solicitors and Mr Mayall to protect his personal interests and was unrelated to any claim that the company might have.

Contribution

The Court concluded that Mr Mayall’s responsibility was less than that of the Solicitors because:

• There had been an offer prior to Mr Mayall’s instruction on which the Solicitors had failed to advise of the merits of acceptance.
• Mr Mayall was not present at the mediation when the offer of £500,000 was made, nor was his advice sought prior to rejection if it.
• The Solicitors should have warned that the court might refuse permission to continue the proceedings, in which case Mr Percy would be in no position to negotiate a deal.

The Court nevertheless felt that Mr Mayall must bear some of the responsibility because:

• He failed to analyse the options available to Mr Percy, including winding up. In particular, he should have warned that the application for permission to bring a derivative claim was by no means a formality and that there was a possibility that court would order winding up the JV.
• He failed to advise Mr Percy that the offer of £500,000 should be reconsidered prior to the final permission hearing. As he was instructed to advise whether to continue with the proceedings and generally, the offer made at mediation should not have been left out of account.

The Court held that the Solicitors were entitled to a contribution of 40% of the settlement sum because Mr Mayall was liable for the “same damage”.

Comment

The case reinforces the point that, in contribution claims, it is not necessary to show that the original claim against the claimant would have been successful. Rather, a claimant must show a reasonable cause of action and a bona fide settlement between the parties to the original, underlying, claim.

The judgment also provides a useful indication of factors that may impact the apportionment of liability between solicitors and barristers, as well as other professionals in a similar position. It demonstrates the considerations that a court might take into account when apportioning blame between professional advisors and deciding the level of contribution to be applied in the case.

[1] Percy v (1) Merriman White (2) Raymond John Murphy (3) David Mayall [2021] EWHC 22 (Ch)
[2] Marex v Sevilleja [2020] 3 WLR 255
[3] WH Newson Holding limited v IMI Plc & Delta Limited [2016] EWCA Civ 773