PROVING THINGS 209: SOLICITORS NEGLIGENCE ACTION DISMISSED BECAUSE THERE WAS NO LOSS: THE CLAIMED JEWEL WAS BIGGER THAN THE SOCKET

In Kingsley Napley LLP v Harris & Anor [2021] EWHC 901 (QB) Margaret Obi, sitting as a high court judge dismissed a claim for professional negligence on the basis that there had not been any loss.  There are important lessons here:  (i) in relation to drafting “standstill” agreements and making sure the appropriate parties are included; (ii) in establishing a “loss” where it is alleged there had been negligence when a lawyer has settled a claim.

“Mr Harris’s claim is for a jewel that is bigger than the socket. There was no chance of a better settlement. Therefore, the claim must fail.”

THE CASE

The claimant solicitors represented the defendant in a professional negligence action against another firm of solicitors.  That action settled. The claimant sued for their fees. The defendant counterclaimed alleging negligence in the conduct of the professional negligence action.  The claimant had failed to put the appropriate parties on a “standstill” agreement and there were issues of limitation.  The defendant alleged that if it were not for these “added risks” the claim would have settled on a much more advantageous basis.

THE JUDGMENT

The judge reviewed the facts of the case. It was admitted that there had been negligence.  The judge found that the settlement would have been the same regardless of that negligence.

Mr Harris’s Pleaded Case

1. 1. The allegation of breach of duty is that KN failed to ensure that the Standstill Agreement was entered into with the correct party. The essence of the claim is encapsulated in the following particulars:

i. The Standstill Agreement was made with IWG LLP.

ii. IWG LLP was formed on 2 July 2013. Before that date IWG had been an unlimited partnership and therefore the Standstill Agreement should have been made with or included the partners of IWG as parties.

iii. KN failed to take any or adequate steps to identify the correct persons or entities with whom the Standstill Agreement should be made to ensure that the Standstill Agreement was effective to prevent time running in respect of the whole period covered by the IWG claim.

1. 1. Mr Harris alleged that the breach of duty caused him to suffer loss and damage because it weakened his negotiating position and deprived him of the opportunity to settle the IWG claim on better terms.

Causation

1. 1. KN admitted that it was a breach of duty for the agreement to name IWG LLP as the counterparty without further enquiry but denied that any loss was caused as a result of that breach.

1. 1. The issues to be determined are as follows:

i. Would Mr Harris have issued a claim against TPB in time if he had been advised of the limitation period?

ii. Who is the appropriate third party and what would that third party have done?

iii. Has KN demonstrated that the lost litigation was of no value?

iv. Did Mr Harris lose something of value which had a real and substantial rather than a merely negligible prospect of success?

v. What were the realistic prospects of success?

Would Mr Harris have issued a claim against TPB in time if he had been advised of the limitation period?

1. 1. Despite initial reservations IWG advised Mr Harris in May 2007 that he had a “good claim worth pursuing”. Although this preliminary assessment was made before the draft expert report had been obtained it is a strong indicator that Mr Harris had a worthwhile claim; it certainly was not assessed to be a claim of no (or little) value. In 2013 Mr Johnson also advised Mr Harris that the claim had “good prospects of success” and identified the heads of claim with the greatest prospects. He also identified a number of difficulties and advised further preparatory work would be required. He made it clear that there would almost certainly be a reduction to any claim on a loss of a chance basis, but he remained of the view that the claim had merit. Mr Johnson was much less optimistic in 2018. This was primarily because he was concerned that Mr Harris may have had difficulty persuading a court that he would have sued TPB and in addition there was the unusual double loss of a chance (IWG and TPB) feature which he felt complicated matters. Nonetheless, he assisted Mr Harris in drafting a counter-offer and expressed a willingness to assist him in commencing proceedings, if necessary. Therefore, the claim had value and was worth pursuing.

1. 1. The pre-issue stage proceeded at a pedestrian pace. Only part of the delay related to Mr Harris’s health; the remaining periods of inactivity appear to be because Mr Harris’s attention was focussed on other things, not least running his business and the matrimonial proceedings. However, I am satisfied Mr Harris, having been advised that his claim was worth pursuing, would have pursued it. In an email, to Howard Kennedy sent on 4 July 2013, Mr Harris stated, “I don’t capitulate on any case I believe I have realistic chance of success on and usually will punt and don’t have my bluff called.” Further, Mr Foss described Mr Harris as litigious. These are both accurate descriptions of Mr Harris’s attitude to litigation. It is apparent from the documentary evidence that Mr Harris is someone who frequently seeks advice on issues outside his competence. However, by his own admission, he is not someone who necessarily follows advice before he has understood it for himself or made his own assessment of the merits of a particular course of action. There are several examples of Mr Harris refusing to follow the advice he had been given. During the relevant period, Mr Harris demonstrated a determination to negotiate a settlement; he did not want the matter to go to court and I am satisfied that the matter would not have gone to trial. However, if during IWG’s retainer he was faced with a stark choice between abandoning the claim and issuing proceedings before the limitation period expired in 2011 (in the event that that TPB (or their insurers) could not be persuaded to enter into a standstill agreement), he would have opted for the latter, in order to prolong the opportunity to negotiate a settlement.

1. 1. Mr Harris also had the means to pursue a claim. Periodically, he had cash flow problems, but I accept his evidence that he would have found the money to pursue the claim rather than abandon it.

Who is the appropriate third party and what would that third party have done?

1. 1. In a case such as this, where the defendant’s negligence has deprived the claimant of the opportunity to bring litigation, there are two possible third parties: (i) the court that would have decided the case; or (ii) the counterparty to the litigation, who is likely to have been willing to settle the claim at an appropriate figure. If the third party is treated as being the court hearing the ‘lost litigation’, the court in the current negligence proceedings will have to consider what the court might have decided in proceedings against IWG. Had that claim proceeded to trial, the court in that case would have considered what the court would have done in proceedings against TPB, if the claim against TPB had been issued before it became statute-barred. Theoretically this could lead to a double discount, which would have to be avoided to prevent any injustice to Mr Harris. The alternative way of assessing damages is to treat IWG (and its insurer) and TPB (and its insurer) as the relevant third parties and to assess the lost chance by reference to the prospects and amount of settlement of the hypothetical claim. In adopting this approach, a further discount should not be made for the risk of not reaching a settlement, as the settlement value already reflects the risks of litigation and the parties’ view of the prospects of success at trial: see Hanbury v. Hugh James Solicitors [2019] PNLR 25 at [19-22] and [60-62].

1. 1. I accept the submission of Mr Halpern QC that in the present case IWG and TPB should be treated as the relevant third parties. I am satisfied that this would be fair because IWG’s own advice to Mr Harris was that he had a good claim and therefore it would have been very difficult for IWG to have asserted that his claim against TPB would fail. As mentioned above, IWG recognised that there were difficulties in proving quantum, but that does not mean that quantum had no (or little) value.

1. 1. Most professional negligence actions settle before trial. Insurers and the insured individual will take a commercial view and will not wish to risk the costs of litigation. In this case, IWG had the added incentive to settle because of an ongoing business relationship with Mr Harris. In these circumstances, I am satisfied that this case would have settled.

Has KN demonstrated that the ‘lost litigation’ was of no value?

1. 1. It was not submitted on behalf of KN that the ‘lost litigation’ had no value. It was submitted that Mr Harris would not have issued a claim against IWG, but even if he had, he would not have achieved a result, either by settlement or by going to trial, that was better than the settlement he managed to achieve.

Did Mr Harris lose something of value which had a real and substantial rather than a merely negligible prospect of success?

1. 1. Appropriate allowances should be made in Mr Harris’s favour in assessing the realistic prospects of success. The underlying events took place more than 15 years ago. Therefore, it was unsurprising that Mr Harris’s grasp of some of the detail was less than it may otherwise have been. That said, he was assisted by the contemporaneous documents which provided a good picture of the key events that occurred between 2006 and 2018. However, as acknowledged by Mr Halpern QC the court cannot presume evidence in favour of Mr Harris which is inconsistent with the contemporaneous documentation.

1. 1. Mr Halpern QC submitted that the real “game-changer” occurred when Clyde noticed that the Standstill Agreement was in the wrong name and sought the advice of counsel. Had it not been for KN’s negligence, Mr Harris would have been in a strong a position to settle the case for £110,000.

1. 1. I do not accept Mr Halpern QC’s submission. Mr Harris appears to have convinced himself otherwise, but the ‘game’ was already up by the time the parties to the Standstill Agreement became an issue. The advice to make a Part 36 offer of £110,000 was just that – an offer and crucially it was before expert evidence had been obtained. Following receipt of the draft expert report doubts were raised about the delay claim in respect of the lien. This was the only significant delay claim that the expert had said might be sustainable and by 2013 Mr Harris had been given advice that this part of the claim would not succeed. In reality the delay claim had no realistic prospect of success. Mr Harris did not move into Clifton Hill because the development was never completed. Therefore, it would have been impossible to show that any period in which he did not live there was caused by TPB. This was a significant part of the claim and without it the value of the claim was significantly less than it might otherwise have been. Further, Mr Harris instructed alternative architects when the relationship with TPB broke down. The development started again for a while, but in a much more ambitious form; the build cost doubled from £500,000 to £1m under the new scheme. There was no easy way of assessing how much of the additional professional costs of £50,000 duplicated TPB’s work. However, making all due allowance in Mr Harris’s favour, even if the entirety of the £50,000 professional fees claim was recoverable, in addition to the £14,000 of fees in respect of the adjudication which IWG accepted were recoverable, the total claim was worth £64,000 before any loss of a chance reduction was applied. Mr Harris stated that the problems would have been resolved. In my judgment that is, at best, wishful thinking and is not based on the reality of the situation. Mr Harris was well aware of the difficulties with the delay claim and that is one of the reasons why this case would never have gone to trial; the best that could be achieved was a reasonable offer which Mr Harris hoped to accomplish by leveraging his relationship with Mr Ingram. Clyde was also well aware of the difficulties with the delay claim and there was no prospect of an increase to what was already, a generous offer.

1. 1. Mr Harris had been advised in clear terms by his own solicitor, and by his own counsel before the issue with the Standstill Agreement had been raised that he should settle the case by reference to the offers that had already been made. I do not accept that the advice from his solicitor had nothing to do with the merits of the underlying claim; it was a reasonable and rational assessment of Mr Harris’s prospects of obtaining a better result. It was apparent beyond any reasonable doubt that IWG was not prepared to offer any larger sum to Mr Harris, and it was not in his best interests to pursue the matter any further. In the circumstances, Mr Harris had negotiated the best deal that was available. This was the situation before the anomaly in the Standstill Agreement was raised in May 2018.

1. 1. In accepting the costs inclusive offer rather than the costs exclusive offer Mr Harris relied on advice from counsel. That advice was reasonable and rational based on the legal costs that were identified at that time.

1. 1. On the basis of the contemporaneous evidence, no loss was caused to Mr Harris by reason of any ambiguity in the drafting of the Standstill Agreement. The claim was worth pursuing, but to borrow an analogy based on the Armory v Delamirie case, Mr Harris’s claim is for a jewel that is bigger than the socket. There was no chance of a better settlement. Therefore, the claim must fail.

What were the realistic prospects of success?

1. For the reasons stated above, there was no realistic prospect of Mr Harris achieving a better result than the result he achieved.