What must be proven in contribution claims? Percy v Merriman White discussed

The recent Court of Appeal judgment in Percy v Merriman White[1] considers contribution proceedings brought by a firm of solicitors against a barrister instructed to act in relation to a commercial dispute. The decision provides important clarification on the application of section 1(4) of the Civil Liability (Contribution) Act 1978 (“the Act”).

The facts

In 2018 Mr Percy (“the Client”) instructed solicitors Merriman White (“the Solicitors”) and barrister David Mayall (“the Barrister”) to act on his behalf in relation to a claim against his former joint venture partner, whom he claimed had stolen assets that belonged to the joint venture company.  There were a number of options open to the Client in terms of how to bring this action and it was agreed with his Solicitors that he would bring it as a derivative claim (“the Underlying Claim”). In mediation the Client was offered £500,000 by way of settlement of the Underlying Claim. The Barrister advised the Client shortly after the mediation but did not advise on whether to revisit and accept the offer.

When permission to bring a derivative claim was sought from the court, the court was of the view that the joint venture company should be wound up and subsequently denied the Client permission to pursue his derivative action and awarded costs against him. The Client subsequently settled the dispute for £65,000.

The Client brought a negligence claim against the Solicitors and the Barrister. The claim against the Solicitors was settled before trial and the Client agreed not to pursue the Barrister on the basis that each side pay their own costs. This left only the contribution proceedings by the Solicitors against the Barrister under the Act on the grounds that he was responsible for the “same damage”.

The key dispute between the parties related to the extent of protection afforded to a contribution claimant (in this case, the Solicitors) under section 1(4) of the Act which states:

“A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established.”

In instances where one defendant (D1) has settled with the claimant, and the other (D2), has not, the above clause operates as a “deeming provision” which prevents D2 from arguing that the claim against D1 would have ultimately failed if it had gone to trial (i.e. an argument that D1 was not liable to the claimant and should have never settled).  That was accepted by both parties, but the Solicitors, relying on the Court of Appeal case in WH Newson Holding Limited v IMI Plc v Delta Limited [2017] Ch 27, went further to argue that section 1(4) also operates to prevent D2 from disputing its own liability to the underlying claimant. This was disputed by the Barrister.

The first instance decision

We discuss the judgment of first instance in our related article here. In short, the Court agreed with the Solicitors’ interpretation of section 1(4) of the Act and held that where a bona fide settlement had been agreed between a claimant and D1, section 1(4) of the Act operated so that D1 did not need to prove liability against D2. In the alternative, the Court held that the Barrister’s defences would have failed in any event. In this respect the Deputy Judge held that the Barrister could not argue that his advice was not negligent because this would amount to an abusive collateral attack on the findings of the Judge in the Underlying Claim, who had refused to grant permission for the Client’s derivative action. As such, the Court held that the Barrister should make a 40% contribution to the Solicitors. The Barrister appealed the decision on the basis that liability had not been established against him.

The Court of Appeal

The main/most relevant issues on appeal were:

• Whether the Judge of first instance had misconstrued section 1(4) of the Act in holding that if it operated, the Solicitors did not need to prove liability against the Barrister.
• Whether the Judge erred in holding that the decision in the Client’s Underlying Claim was determinative of the Barrister’s negligence and as such the Barrister was not entitled to invite the court in the contribution proceedings to review the court’s decision in the Underlying Claim.

In relation to the interpretation of section 1(4), the Court of Appeal clarified that if there is a settlement involving payment by D1 to the Claimant, then a claim by D1 for contribution from D2 will be one to which section 1(4) of the Act applies. In such circumstances, there is “no question, and therefore no inquiry, as to whether or not D1 was in fact liable to the [Claimant]”. The mischief which the section was enacted to avoid was D1 having to prove their own liability to the Claimant before they could recover contribution from D2. However, the Law Commission’s recommendation in respect of section 1(4) was clear that D1 nevertheless still had to demonstrate that D2 was liable to the Claimant.

Lewison LJ used an example of a traffic accident between 3 vehicles in which an injured claimant sued and settled with one of the drivers who then seeks contribution from the owner of the third car. Lewison LJ stated that it must be open to the owner of the third car to defend himself, for example, on the basis that he was not in fact the driver of the car or that the contribution claimant was driving on the wrong side of the road. Were it otherwise, and if the section could result in D2 being deemed liable to the Claimant merely by virtue of D1 having reached a settlement, that would be incompatible with D2’s rights under Article 6 of the European Convention on Human Rights and Fundamental Freedoms to have their liability determined by an independent and impartial tribunal.

The Court of Appeal clarified that where the Deputy Judge had fallen into error was in wrongly construing the decision of WH Newson Holding Limited as being authority for the proposition that D1’s settlement with the Claimant gives rise to a deemed liability on the part of D2 (whereas in fact in WH Newson Holding Limited, the court did not need to enquire as to D2’s liability as the liability of both defendants for operating an unlawful price-fixing cartel had already been established by the European Commission).

The Court of Appeal further held that the Deputy Judge was wrong to state that the Barrister’s argument that he was not negligent would amount to an abusive collateral attack on the findings of the Judge in the Underlying Claim, who had refused to grant permission for the Client’s derivative action. The Barrister was not a party to those proceedings and not bound by them and in such circumstances there had to be some additional unfairness to the Solicitors in allowing the Barrister to challenge those earlier findings for it to be abusive (which in this case there was not, as it had likewise been open to the Solicitors to raise such a challenge). In any event there was no need to attack the Judge’s decision in the Underlying Claim to decide whether the Barrister was negligent. Instead, the court needed to consider the range of likely outcomes in the Underlying Claim and whether the Barrister’s advice was within the range of actions of a reasonably competent barrister. Such consideration did not constitute an abuse of process. The Court of Appeal held that as no court had found that the Barrister had been negligent, the Judge was wrong to side-step this question.

“Just because a barrister gives advice which turns out to be wrong, it does not follow that the advice was negligent…[The barrister] was entitled to a judgment, not on whether his advice was right or wrong, but on whether it was negligent.”

In addressing this “critical” question, the Court of Appeal stated that neither the Client or the Solicitors had pleaded the Barrister’s negligence. As such, it was not possible to establish what advice he should or should not have given and what the Client would have done had that advice been given (i.e. the counter-factual). Since the Solicitors failed to call any evidence on what the Client would have done had he been given different advice on the risks of pursuing a derivative claim, there was a “fatal lacuna” in the Solicitors’ case. As the Court of Appeal observed, in cases where a lawyer negligently advises a client to pursue a particular course, it may well be inferred that the advice caused the claimant so to act. However, in a case such as the present where the alleged negligence consisted of a failure to advise of a particular risk, the burden will be on the claimant to establish what course they would have adopted had they been so advised. Therefore, just as the burden would have been on the Claimant to prove causation as against D1, so the same burden was on D1 to prove causation as against D2 which it could not discharge in this case without evidence from the Claimant (which could have been achieved by D1 making it a term of their settlement with the Claimant that the claimant would provide evidence in support of D1’s contribution claim). As such the Judge at first instance should have concluded that the contribution claim failed. The appeal was allowed, and the claim was dismissed.

Comment

Where all the parties are before the court, then liability between the defendants usually does not cause too much difficulty. However, as this case demonstrates, it does get more complicated when one party settles. The point of section 1(4) of the Act is to ensure that those defendants who are not parties to the settlement, cannot unpick that agreement. However, as this case has now made abundantly clear, that is the extent of the protection under section 1(4). When bringing a contribution claim, the contribution claimant must show that the contribution defendant is liable. In summary, to be successful, the contribution claimant must prove:

• That the contribution claimant is itself liable to the original claimant in respect of the damage (taking into account the provisions in the Act which give protection to the contribution claimant on this issue – principally section 1(4));
• The contribution defendant is liable to the original claimant in respect of the damage because (i) it was negligent and (ii) it’s negligence was causative of the loss suffered by the original claimant;
• The damage for which the contribution defendant is liable is the “same damage” which the contribution claimant is liable for; and
• How the liability should be apportioned between the contribution claimant and the contribution defendant.

Therefore, parties looking to bring separate contribution proceedings must ensure before settling with a claimant that they will have available to them all the evidence reasonably necessary to satisfy the evidential burden on them in the later contribution claim.

[1] Percy v (1) Merriman White (2) Raymond John Murphy (3) David Mayall [2022] EWCA Civ 493