March 2006 – edition 7
Contents
Looking forward: a new legal landscape ....................................................................................................... 1
Editorial ......................................................................................................................................................... 4
Freezing orders: the cold light of day ............................................................................................................ 5
Mediate, don’t litigate! ................................................................................................................................... 7
Who’s stressed now? .................................................................................................................................... 9
‘England’s pleasant pastures…’: a new directive gives a helping hand ...................................................... 11
Human rights (or wrongs) ........................................................................................................................... 13
Legal risk management............................................................................................................................... 15
Breach of duty in clinical negligence cases: that’s not even the half of it .................................................... 16
Closing the net on fraudsters ...................................................................................................................... 18
Conditional Fee Agreements and estimates of costs .................................................................................. 20
Warning: smoking can seriously damage your wealth ................................................................................ 22
Late notification and the consequences ...................................................................................................... 23
Nobody’s perfect in motor cases ................................................................................................................. 25
Product liability: the duty to warn ................................................................................................................ 27
Give it to me one more time ........................................................................................................................ 29
Corporate manslaughter update ................................................................................................................. 31
Social services liability: the next test case .................................................................................................. 33
Limitation period in contribution claims clarified .......................................................................................... 35
Looking forward: a new legal landscape
But seriously…
This isn’t your typical Disclosure article. It doesn’t deal with the law in theory, practice or turmoil. It
attempts to tell you, if you are interested, about BLM, about our past and, as far as they can be defined,
about our traditions and character. Why? So you can understand better how we, as a partnership,
approach our job as lawyers. Apologies if this sounds self-centred or even self-important; it isn’t, but there
are moments when we need to define what we are and how we have become what we are. And this is one
of them – I am retiring after 15 years as senior partner (first of Berrymans, then of BLM) and Terry Renouf
is taking over. A real watershed.
So, what are our traditions? We are an amalgam of three firms. All three live on in BLM.
Berrymans, described by a competitor as a ‘chunky super-niche insurance practice’ was created in the
1900s by father and son Frederic John and Frederic Donald Berryman. They focused wholly on the
London insurance market (FJB’s funeral was attended by literally scores of claims managers). The
Berrymans were skilful, honourable and shrewd; they created a tradition of honesty and integrity – we
know because this is what clients have consistently said in various independent surveys we have
commissioned over the years. Clients also described Berrymans as ‘affable’, we weren’t pompous and we
didn’t take ourselves too seriously.
Laces was founded in the late 18th Century by a truly remarkable man, Joshua Lace. The Lace family,
central to the thriving city of Liverpool, were seamen and merchant adventurers. Joshua became their
lawyer and then built the dominant Liverpool legal practice of the 18 th and 19th Century. But he worked on
a broader canvas – he was not only a key figure in founding the Liverpool Law Society, but was politically
active (he bravely opposed the slave trade) and supported the Arts and Sciences. We know little of him
personally but his firm was professional, respected and tough. It still is.
Arthur Mawer, who set up his firm in the late 1930s, combined a concentration on the insurance market
with local politics (he was Mayor of Sale in Cheshire) and a reputation for probity and sound judgment. The
firm developed a reputation for being lively, sparky and dependable. Again, it still is.
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Partners (and indeed senior partners) come and go. Times change and the firm changes with them. But
we partners remain the proud custodians of the traditions of these four distinguished lawyers. And that is
what we must always try to hold onto – our reputation as professional, honest, competent, creative and
courteous. The firm has, in a real sense, a life and character of its own. Clients who recognise and
appreciate this instruct us. We do not change simply for change’s sake, but we do change to try to improve
ourselves, our service to our clients and our professional standing.
There have been huge changes since 1991; the firm is about ten times the size it was then, has a much
wider client base and a young, energetic and broad-based partnership (we have, for example, more
women partners than any other of the Top 100 firms in London).
Our founders and their various successors knew (without the modern science of Management) that a
practice must develop with careful planning, but changes cannot simply be planned. We are all,
consciously or sub-consciously, aware of the traditions of the firm and as a constituency will react with
empathy to changes which will keep the character of the firm alive, even while management is systemised,
organisation reconstructed, law revolutionized and clients merged.
You can expect us to serve you with propriety, probity and honesty. If we fail, we will try to put it right.
When we succeed, we will not boast. We know that difficulties solved are opportunities created and that it
is a fine thing to be honest but it is also very important to be right. And above all, though we don’t take
ourselves too seriously, we take our professional duties very seriously indeed.
Paul Taylor
Broader legal minds
Evolution or revolution? This has been the thought lurking behind the question that I have often been
asked since the announcement of the change of senior partner at BLM.
The answer is easy: there will be change because change happens. A business that does not evolve will
ossify and cease to offer the services that its clients need. There is much change presently circulating in
the legal environment offering challenges to this practice and our clients; change both to the Law and the
delivery of legal services. Those changes offer opportunities (the flipside of challenge!) which this firm will
embrace where it enables us to continue to offer the breadth and quality of advice that we know our clients
value1. The change will be evolutionary but should you be re-reading this edition of Disclosure in 2008 I
believe you will find a marked contrast between BLM 2006 and BLM 2008: change that reflects what our
clients have told us, change that reflects new legal needs, change that reflects our desire to extend our
lead over our competitors in those areas where we are ahead and to surpass them in those areas where
we lag.
And indeed we have started that process of change. The service demanded by our clients today is not just
to deal with cases efficiently and effectively (our research confirms that we do that – but so do our best
competitors) but to advise and influence prospective change in the Law. Many BLM partners play an active
role in the broader legal environment as members of Civil Justice Council, Judicial Studies Board, ‘Ogden’,
Law Society, Court of Appeal and FOIL committees, user- and work-groups. We believe that good law, the
part that it plays in society, influencing and regulating behaviour, and in enabling our clients to assess and
balance risk in a commercial context is of value because it enables that commerce to take place and the
economy to flourish. Playing a broader part in the legal process is an important part of what this firm does
and will do.
However, our research tells us that what we have not been so good at is telling you about this work. To
bring greater focus to this area we have appointed Alistair Kinley, formerly a policy advisor at the ABI, as
Head of Policy Development at BLM to co-ordinate the work that we do. We are altering the focus of our
extensive (and market leading) seminar and workshop programmes to reflect that new influence.
We also recognise that the role of the client partner is changing. He or she is not just responsible for the
quality of the work but is also the client ‘champion’ within the firm. This is an evolving role for both BLM
and the client which recognises that a genuine partnership yields real benefits for both. We have formally
recognised within our budgeting process that client time spent ‘off the clock’ adds to the client/lawyer
understanding, improves service and the commercial relationship.
We have also recognised that the relationship with our clients is improved if it is multi-layered – senior
managers and partners are not the only ones who contribute to the success of a relationship but also
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those at different technical and operational levels. (It is not just lawyers who contribute to the provision of a
legal service in the 21st Century!)
Both of these latter issues are recognised in the development within our client relationship programme of
‘client days’ where claims handlers, lawyers and managers discuss not just technical issues but the
processes behind the resolution of claims – business process re-engineering.
Thus, evolution or revolution? We know from talking to our clients that we are building on firm foundations
and so the answer is more evolution than revolution: perceptible change rather than imperceptible change
but at every stage client-focused and marking out the firm as different from its competitors. But amidst the
change there will be some values that do not. In our earliest publicity following the merger of Berrymans
and Lace Mawer we indicated that we offered ‘honesty, integrity, in the proper pursuit of the resolution of
client problems’. Amidst all of the challenges of a highly competitive market I am pleased to confirm that
the client feedback indicates that this remains a core value of this practice.
I am proud to have been asked to lead this practice and relish the challenges and opportunities that this
brings. I have tried to outline some of those challenges and the changes that might ensue. As to the pace
of the change this will only be judged in time, perhaps when you remind me of this article in 2008 – unless
of course we have asked you first!
Terry Renouf
1 How do we know this? We have asked you! The firm has commissioned market research from Nisus Consulting in
which external researchers have undertaken extensive interviews with many of our clients. I am happy to discuss the
challenges / opportunities that face legal firms operating in our sector of the legal market that are revealed by this
research.
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Editorial
One of the greatest challenges the legal profession will ever face, is the impact of the Clementi proposals
for reform in the provision of legal services.
As our new senior partner indicates, change also provides great opportunity. The opportunity to innovate in
the provision of legal services and in the way these are costed and charged. For our part, fixed fees,
capped fees, risk sharing and cross-subsidy models already form part of our relationships with clients. This
will continue. If these arrangements can work for defendants there is no reason why they cannot work for
claimants.
In the last edition of Disclosure our guest editor, Jonathan Clay, questioned whether the apparent
willingness of this government to ‘interfere’ would translate into a contentious topic, such as the
disproportionate level of third party costs compared with damages.
We have already reported the welcome developments in costs controls such as The Select Committee for
Constitutional Affairs report on ‘Compensation Culture’ published on the 1 March which:


recommended the further use of costs capping to ensure proportionality of costs and
recognised the courts need to ensure appropriate case management took account of the
proportionality of costs preferably before they are incurred.
In addition the new practice direction for costs estimates and recent trends in case law concerning the
control of costs.
However, there remains a strong case for more widespread reform of both the process and the associated
costs of resolving civil claims, as discussed at the recent Civil Justice Costs Forum.
Our national catastrophic injury group coordinated by Neil Preston (Leeds) and Andrew Hibbert
(Southampton) is holding a roundtable symposium on the issue of costs in large loss claims in May which
will consider how we might best engage with you to influence and create further urgency in such reform.
While the government is acting quickly to ease it’s own claims and associated costs burden for example
via the NHS Redress Bill and proposed changes to criminal injuries compensation, it would seem to be
showing a marked reluctance to ‘interfere’ with any haste to reform the mainstream civil justice process
where others are funding the system.
Jenny Moates
Partner, BLM London
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Freezing orders: the cold light of day
When a business discovers that it has been defrauded, whether by an employee, an agent, or by a service
provider, it is usually pessimistic about recovering the money. Generally, the main focus of attention will be
how much money has been lost, how the fraud was able to occur and what steps can be taken to prevent
it from happening again.
Businesses may not be alert to the fact that there are immediate steps which can be taken to significantly
improve the chances of recovering some, if not all its money.
Freezing orders
Victims of fraud should avail themselves of the robust powers of the High Court in England and Wales –
powers which are the envy of some of our European neighbours. In particular, the ability to freeze a
defendant’s assets without their knowledge is extremely effective and has been described as the ‘nuclear
weapon’ in the High Court’s arsenal.
It can be an extremely disappointing to obtain judgment against a fraudster, only to find your success
rendered worthless because the fraudster has put his assets beyond the reach of the court or because the
money has been squandered. A pyrrhic victory is not a satisfactory result.
A freezing order can prevent a defendant from dissipating his assets prior to judgment. From a tactical
point of view, it can also put immense pressure on the defendant which can help to promote an early
settlement. To maximise the effectiveness of this order, it should be applied for with minimum delay and
without notice to the fraudster.
In one example in which BLM was involved there was evidence that a firm of insurance brokers had
defrauded insurers by artificially reducing the correct premium payable on motor policies. Freezing orders
were served on the partners of the firm and their bankers. This led to a negotiated recovery of £475,000
from the brokers within a short time period.
When applying for the order it is necessary to show a ‘good arguable case’ against the defendant and also
that there is a real risk that the fraudster will dissipate his assets if he is given notice of the recovery.
Usually, if there is prima facie evidence of dishonesty by the defendant, that will be enough to satisfy the
judge that there is a risk of dissipation of assets; the logic being that a dishonest defendant will try to
frustrate the recovery by putting his assets beyond the reach of the claimant.
It should be noted that the usual freezing order does not give the claimant any proprietary rights over the
fraudster’s assets. This means that the defendant will still be able to pay the following:



reasonable legal costs
reasonable living expenses (usually in the region of £500 to £1,000 per week)
ordinary business payments.
It is possible to ring fence an asset if you can show that the asset is in fact the property of the claimant.
This enables the claimant to establish a proprietary right over the asset and freeze the asset completely.
This type of freezing order is invaluable because it preserves the asset by preventing erosion of that asset
by the defendant’s legal, living and/or business costs.
Freezing orders can also be used to excellent effect in recovery cases for fidelity insurers. In an example
where insurers were obliged to settle a claim in respect of an employee who had perpetrated an invoice
fraud amounting to £319,000, having been assigned the rights of the employer, insurers were able to
freeze the assets of the employee and his conspirators and to negotiate a recovery of £325,000.
Conditions
The freezing order is a relatively draconian order and for this reason, there are certain safeguards in place
to protect against its abuse:

It is one of the few orders which require evidence in support of the application to be lodged in the
form of a sworn affidavit. However, the court is sympathetic to the need to avoid delay in these
situations and it will usually allow the applicant to lodge an unsworn affidavit, providing an
undertaking is given to swear the document as soon as reasonably practicable.
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
The applicant is also required to give full and frank disclosure to the court. This imposes an
obligation to disclose anything which might harm the applicant’s case or which the defendant
would say if present.

The order will usually be made in the absence of the defendant. For this reason, the applicant will
be required to give an undertaking to compensate the defendant for losses caused by the order,
in the event that it is subsequently discharged.
Service of the order
Having obtained the order, it should be served by fax on the defendant’s bankers, before it is served on
the defendant, so that the accounts can be frozen. It should also be served on the Land Registry so that a
restriction can be registered against the title of any properties which are known to be owned by the
defendant. This will restrict the fraudster’s ability to deal with or dispose of his properties. A process server
should also be on stand-by to collect the order and serve it on the fraudster in person – usually at his
home address or place of business.
The force of the freezing injunction is contained within the Penal Notice on the front page of the order
which warns the defendant that he will be in contempt of court if he breaches the order, which is
punishable by a fine and/or imprisonment. The process server should ensure that this is clearly explained
to the defendant.
Disclosure orders
Frequently it will be the case that the victim of fraud will not have information about the fraudster’s assets
or bank accounts except, for example, where the fraudster is an employee. Without that knowledge a
freezing order can have limited value because the claimant is unable to police the order. Under the
Norwich Pharmacal jurisdiction, the court has power to order a third party (usually a bank) who has been
innocently embroiled in a fraud, to disclose information which will lead to the identification of assets. In
Motorola Credit Corporation v Uzan and Others, Lord Woolf described the disclosure order as ‘giving the
teeth which are critical to the freezing injunction’. A disclosure order is therefore frequently used in
conjunction with a freezing order to give maximum protection.
Other ancillary orders
Where it is feared that the defendant is about to leave the jurisdiction in order to frustrate the enforcement
of a court order, it may be appropriate to obtain an order requiring the defendant to surrender his passport.
It is also possible to ask the High Court to issue a bench warrant for the arrest of the defendant, where the
defendant has failed to comply with court order. It is under the court’s inherent power to secure compliance
with its orders.
Summary
In appropriate cases, the freezing injunction and other ancillary orders can be used to deliver a devastating
tactical blow to a fraudster, from which he may not recover. This can have a very persuasive effect in
bringing the defendant to the negotiating table. In addition it can help to ensure that when judgment is
finally obtained it can actually be enforced against assets which have been preserved, thereby maximising
the probability of a successful recovery.
Julian Smart
Partner, BLM Birmingham
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Mediate, don’t litigate!
The court’s approach to mediation in 2006
‘A good and tough mediator can bring about a sense of commercial reality to both sides which their own
lawyers, however good, may not be able to convey.’ Jacobs LJ, commenting in the case of Reed
Executive plc v Reed Business Information Ltd [2004] EWCA (Civ) 887, neatly pinpoints the reason why
mediation has an increasingly high profile in dispute resolution: it is a process which can work where other
techniques have failed. Mediation providers quote success rates of 75%-80% of mediated cases settling
on the day, with more settling within a short time of mediation.
The comments of Jacobs LJ signal an increasing maturity in the court’s attitude to mediation. Recent years
have seen the imposition of costs penalties on parties who have unreasonably refused to mediate. Within
the last 12 months this trend has continued, with cases such as NF Burchell v Mr & Mrs Bullard & others
[2005] EWCA Civ 358 where the successful claimant’s refusal to mediate was one factor leading to an
order that he should recover only 60% of his costs. Lacking any power to order a party to mediate, costs
orders like these are the main tool available to the court to encourage mediation.
What recent months have also shown is an increased subtlety in the judiciary’s understanding of the
benefits, and disadvantages, of mediation. One strength of mediation is the opportunity it affords for
confidential, no-holds-barred, face-to-face dialogue between parties. There have been a number of
attempts in recent months to go behind this confidentiality, and to use issues arising during the conduct of
a mediation in costs arguments on later conclusion of the action. There have also been attempts to argue
that refusal to mediate of itself must be unreasonable and should lead automatically to costs penalties.
The court’s decisions in the following cases show an understanding of the complex nature of the
negotiation process, and of the absolute necessity of confidentiality to mediation.

In Maurice Joseph Hickman v (1) Blake Lapthorn (2) David Fisher (2006) the claimant was
awarded damages against both defendants. The 2nd defendant had refused to mediate because
he felt there was a strong chance that the claimant would fail to establish liability altogether and
because the claimant’s valuation was too high. The court took the view that it could not be right
that to avoid being vulnerable on costs a defendant should always be prepared to pay more than
a claim was worth and accordingly imposed a no cost penalty on the 2nd defendant.

The Court of Appeal was invited in the Reed case, above, to look at the content of (without
prejudice) correspondence when making the costs order, as the defendant said its attitude to
mediation could not be understood without doing so. The argument was dismissed, quoting the
1889 decision in Walker v Wilsher (1889) 23 QBD 335: ‘Letters or conversations written or
declared to be “without prejudice” cannot be taken into consideration in determining whether
there is good cause for depriving a successful litigant of costs.’

A similar point on confidentiality was raised in The Wethered Estate Limited v Michael Davis &
Others [2005] EWHC 1903 (Ch). The defendant sought to persuade the court to examine, or
guess at, what had happened during the mediation process, and to award costs on the basis that
the mediation had failed because of the claimant’s unreasonable attitude. Mr Clive Freedman QC
sitting as Deputy Judge clearly rejected this, saying ‘First, mediation is entirely a without prejudice
process. Second, the privilege of the mediation process must be maintained unless in certain
circumstances the parties agree to waive the mediation.’ He also found that on the particular facts
of this case, it was reasonable to insist that mediation should not take place until after the case
was fully pleaded.

Perhaps the most significant of recent cases is Allen & Allen v Jones & Jones [2004] EWHC 1189
(QB). The defendants were successful at trial, but had always refused to mediate. The suggestion
that the defendants should be deprived of some part of their costs was rejected by the Deputy
Judge saying ‘Why should (a party) be compelled to enter into mediation, which implicitly will
require them to make a concession of some part of their rights and entitlement, under the threat
from this court that, if they do not do so, they would penalised in costs?’. The judge also
recognized the tactics which can be relevant to mediation, and that it can be used (unfairly?) as a
way of obtaining direct access to a party, behind the lawyers, and thus placing pressure on a
vulnerable party to make concessions. The case at least makes clear that a refusal to mediate
does not of itself entail any costs penalty.
The march towards mediation looks set to continue. The National Mediation Helpline has been in place
since October 2004 and handled 59 mediations in its first 12 months. In October 2005, 67 county courts
across England and Wales took part in Mediation Awareness Week, during which events were held to
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raise the awareness of the judiciary, the profession and the publicity of mediation as a useful process.
Planning is already in progress for a similar event in October 2006. There have been a number of courtbased mediation pilot schemes, which are now at the evaluation stage. All of this has culminated in the
publication of the Court Service Strategy on Court Mediation. This envisages a national network of fixed
(low) cost mediators, providing a mediation service via National Mediation Helpline and where possible,
using court facilities.
The biggest blocks to mediation in modest value claims to date have been an ignorance of the process
amongst potential users and the judiciary, and its expense. The trend of caselaw suggests that
understanding of the mediation process is now improving. The planned new court schemes would provide
a cost-effective mediation service for modest claims, and thus meet the expense objection. It has been
said repeatedly before, but may perhaps be said accurately now, that mediation is about to take off.
Ailsa Adamson
Partner, BLM Stockton-on-Tees
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Who’s stressed now?
When the Disability Discrimination Act 1996 (the 1996 Act) came into force it was seen by most of the
groups supporting disabled workers as a major advance in their protection in employment.
However, one of the areas of concern both for the disability groups and employers related to a definition
of mental impairment. The original definition of disability had a qualification contained in Schedule 1 of the
1996 Act which stated that:
Mental impairment includes an impairment resulting from or consisting of a mental illness only if
the illness is a clinically well recognised illness.
It generally became the case that for the purposes of satisfying the statutory definition a claimant had to
show that he or she was suffering from a condition which was identified within the World Health
Organisation’s International Classification of Diseases. This tended to mean that those claimants who
were simply suffering from depression or anxiety as diagnosed by their doctors did not fall within the
definition. This was perceived by many representing claimants alleging they were disabled to be a serious
reduction in the protection. The people concerned were often employees who had been bullied at work
and had suffered ‘stress’ as a consequence of that.
The problems experienced by claimants was identified in Morgan v Staffordshire University (2002) where
the claimant was able to satisfy the tribunal that her condition was one which satisfied other elements of
the definition disability by virtue of having a substantial and long term effect on the claimant’s ability to
carry out day-to-day activities. However, the claimant was unable to adduce evidence to identify her
condition as being one that fell within the WHO classification and the tribunal concluded that she could not
therefore satisfy the 1996 Act definition of disability. This decision seemed to confirm that the qualification
contained in Schedule 1 placed an unfair hurdle before claimants, resulting in substantial disparities
between claimants with mental conditions and those with physical conditions.
The Disability Discrimination Act 2005 (the 2005 Act) has removed the Schedule 1 qualification.
The perceived risk for employers with this changed requirement is that the threshold for being able to
satisfy the definition of mental impairment will be reduced to an extent that the imprecise term ‘workplace
stress’ will now be sufficient to satisfy a tribunal that the employee has a mental impairment. Given the
pressures on modern employees and the frequency with which employers see sick notes containing the
words ‘stress’ or ‘anxiety’ there must be a concern that employees who do not in fact suffer a real medical
condition but have a temporary change to their state of mind will have the protection of the 2005 Act.
One of the significant features of discrimination legislation is to afford protection to employees immediately
they commence employment as opposed, for example, to unfair dismissal protection where a 12 month
qualifying period must be served before protection is granted. This means that an employer runs a risk that
a new employee who is absent because of conditions identified by their GP as stress or anxiety may well
fall within the new definition of disability. In reality employers ought to treat such employees as though they
were disabled and ensure that they are not discriminated against, and that steps are taken to consider
making reasonable adjustments to allow them to continue to work with an assumed mental impairment.
This does create a burden on employers and whilst fairness suggests that the apparent inequities
identified in Morgan v Staffordshire University are properly removed by the amendment in the 2005 Act,
there is a great risk that unscrupulous employees will seek to gain an advantage by not having to prove
that their mental impairment is one that is a clinically recognised one.
Inevitably employers are faced with difficulties where employees claim that they are suffering from stress.
Many commentators view the decisions contained within what can be described as the Hatton Court of
Appeal litigation to have made it more difficult for employees to pursue employers’ liability claims in the
civil courts. That necessarily means that their advisors will be looking to the Employment Tribunal (ET) as
an alternative forum. The lowering of the threshold for mental impairment arising from the 2005 Act will
enable those employees disappointed by judicial movement in Hatton to find some redress in the ET if
they have been discriminated against. The interesting twist for ET proceedings is that there is no concept
of causation when assessing whether the employee is disabled for the purposes of the 2005 Act. An
employee can be disabled by virtue of non work-related stress with the benefit of employment protection
against discrimination and harassment together with the positive obligation on the employer to make
reasonable adjustments.
Stress claims from employees have seen a dramatic turn in Majrowski v Guy’s & Saint Thomas’s NHS
Trust (2005) where the Court of Appeal was prepared to allow an employee to rely upon the Protection
from Harassment Act 1997 in what was essentially a bullying claim.
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By increasing the number of employees who are disabled through mental impairment there will inevitably
be more claims for harassment where employees claim they have been bullied. Although evidentially they
must link the harassment with the disability, it does present an opportunity for claims that before the 2005
Act could not have been pursued.
Added to the HR problems associated with managing sickness absence of stressed employees is the real
likelihood of more stress claims in the ET. Typically, the employer will not have insurance cover for these
claims. So who’s stressed now?
Michael Parr
Partner, BLM Manchester
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‘England’s pleasant pastures…’: a new directive gives a helping hand
The new Environmental Liability Directive is likely to place greater environmental liability than ever before
on businesses in the UK. The Directive aims to ensure that businesses concentrate on their environmental
liabilities by encouraging them to avoid causing damage to the environment. Like most environmental
legislation in this country, it is based on the ‘polluter pays’ principal thereby making polluters strictly liable
for certain types of environmental damage. However, the Directive does not impose liability for personal
injury, damage to property or economic loss and does not apply retrospectively or to simple acts of God or
acts of War. As it currently stands, member states will have until 30 April 2007 to implement the Directive
and in the UK, DEFRA (Department for Environment, Food and Rural Affairs) aims to hold at least two
public consultations by the end of 2006 to enable the smooth transposition and implementation of the
Directive in the UK.
Environmental damage is usefully defined in the Directive as:
a
b
c
Damage to species and natural habitat protected under the 1992 Habitats Directive and the 1979
Wild Birds Directive.
Water damage covered by the 2000 Water Framework Directive.
Land contamination which creates a significant risk of harm to human health.
Damages is further determined by reference to the effect that the damage will have on human health, the
number or size of the habitats effected by that damage, the rarity of the species or habitat and its
regenerative capability.
The Directive does not apply to emissions, events or incidents that occur before 30 April 2007 or
environmental damage after that date if the damage is derived from an activity that commenced before
that date.
The Directive imposes liability (which is strict) on companies or other persons who are the operators of any
occupational activity which poses a risk to human health or the environment. Activities covered in the
Directive are extremely broad and include:
1
2
3
4
All installations that hold a pollution prevention and control (PPC) permit.
Waste management facilities.
Operations that discharge into controlled waters.
Companies that manufacture, use, store or transport dangerous substances.
The Directive will require all operators to take remedial measures in the event of causing environmental
damage and inform the relevant authorities without delay. It also provides for necessary remedial steps
which includes the following:
1
2
3
Primary remediation: the restoration of the damage natural resource and services rendered by
the resource to its ‘base line’ condition.
Compensatory remediation: an operator must take steps to compensate for the interim loss of
damaged natural resources or services between the date of damage and the date of remediation
(by making additional improvements to the site, not financial compensation to members of the
public).
Complementary remediation: where the natural resource cannot be restored to its ‘base line’
condition, he operator should take action at an alternative site to compensate for the fact that
primary remediation does not fully restore the damaged natural resourceor services.
The Directive provides that member states may allow the operator to avoid bearing the cost for remedial
actions in certain circumstances, ie if the operator is able to demonstrate that it was not at fault or
negligent because the environmental damage occurred as a result of an omission that was authorised
under national law, or because scientific or technical knowledge at the time of the damage held that the
omission, activity or operator was not considered likely to cause environmental damage.
Potentially the Directive allows member states to determine particular defences, so it may mean that
companies operating in multiple jurisdictions can be held to different environmental standards for the same
operations which may well lead to certain business decisions in respect of where companies carry out
certain activities.
Perhaps the most controversial aspect of the Directive is the implementation of compensatory remediation
for environmental liability. The ethos behind the decision is that businesses responsible for environmental
damage should be liable not only for the costs of primary restoration of the protected habitants or species,
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but also for the interim or permanent loss of use at either the damaged site or an alternative site. This
presents obvious difficulties, as the legislation will determine that liability for compensation of loss will not
be limited to compensation for the remediation of the damage caused by the operator, but may mean an
operator will be obliged to remediate a site, possibly in a completely different part of the country.
In addition, this could also lead to widely different results for the calculation of loss in the various European
member states results.
Another controversial aspect of the Directive is the proposed obtaining of financial security in relation to
the assets of an operator if they are required to remediate any environmental damage. This issue has
been left to the discretion of member states and again it could lead to difficulties in different jurisdictions. It
was originally thought that this provision could be met in the UK by the use of insurance products but to
date the insurance industry does not appear especially keen! Additionally, where an operator that caused
the environmental damage is unable to be found, or is insolvent, at present member states will be able to
determine whether or not the relevant state should be responsible for the remediation or whether those
areas remain untouched. The latter may well occur in the poorer member states of the EU.
As mentioned above, DEFRA is continuing its consultation with the various interested parties, and it is
important that all stakeholders participate in the consultation. At present, it seems extremely likely that the
new environmental liabilities quoted by the Directive may not be satisfactorily covered by insurance. As an
insured, I would advise that advice is taken from brokers or insurers, to ensure that you are able to obtain
as much cover as possible in relation to the Directive, and presently this may well mean that you will
require specific environmental liability cover as opposed to reliance on a public liability policy. However, it
may well be that sufficient cover is not available in any event, because certainly the obligations for
compensatory remediation will create particular problems for insurers, where they may well be required to
pay out monies to compensate for remediation which has no relation to the location that has actually
suffered the environmental damage. Additionally, it may well be that compensation is required in a number
of locations before the relevant authority considers that the polluter’s responsibilities have been adequately
fulfilled.
The implementation of complementary and compensatory remediation is likely to be extremely complicated
and it has been said that the government is likely to favour an assessment approach for determining
remediation. In any event, this is likely to be an area where environmental consultants and contractors will
be in demand for developing, determining and implementing the necessary remediation measures.
‘It is an ill wind that…’ And as such whilst the Directive may ultimately place a greater burden on a
business as a whole, there are likely to be new opportunities for insurers, consultants and contractors
involved in the environment industry.
Michael Salau
Partner, BLM London
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Human rights (or wrongs)
Many commentators agree that The Human Rights Act (HRA) has not had the impact on litigation as had
been expected when it was enshrined into English Law. Langley v Liverpool City Council and Merseyside
Police is an example of its effect in allowing recovery against the police where other common law or
statutory claims did not succeed.
The family had come to the attention of the Social Services for a number of reasons and particularly
because Mr Langley, who had been registered blind since 2000, had persisted in driving his family about in
the car. Despite assurances to Social Services that he would stop doing so he continued to drive and took
his sons to Derby from their native Liverpool. In September 2001 the Social Services were informed about
this and given the background the council applied for and obtained an Emergency Protection Order (EPO)
from the Magistrates’ Court without notice in connection to the three children at risk.
By the time the order was obtained the family had driven back to Liverpool and efforts by the social
workers to enforce the order had been thwarted because the family were again out in the car for the day to
Southport and relatives were unhelpful. Late in the day, the duty social worker, who was at the end of her
shift, contacted the police to request their assistance in locating the family to put the order into effect.
PS Jones found out that the family had returned and attended at the home address with two uniformed
officers. The situation was probably not helped because the family (with the exception of a young child)
were deaf. The officer showed the order to the parents and tried to communicate with them as best he
could with the help of Mrs Langley’s sister’s boyfriend.
PS Jones noted that the bonnet of the car was warm and concluded quite correctly that the children had
again (as well as other road users) been put in danger. The parents did not want the children to be taken
away though after speaking to the Social Services duty team, who said that is what should be done and
that foster carers were lined up, the officer decided to use his Police Protection Order (PPO) powers to do
just that. His evidence that he feared that Mr Langley now knew about the order might try to drive the
children away was accepted.
The parents’ allegations of trespass were rejected to the effect that the officers burst into the house without
permission and treated the child roughly. Also, the claims for negligence and misfeasance in public office
against the police did not succeed.
In a judgment handed down in October 2005 the Court of Appeal found a breach of Article 8 (Right to
Family Life) in that the actions of PS Jones were not lawful. Dyson LJ in the lead judgment found that the
officer should have used his PPO powers only if there were ‘compelling reasons’ to do so. Such a test
does not appear in the Children Act though his reasoning that it is always better for trained social workers
to carry out such work rather than police officers is difficult to fault in normal circumstances. He suggested
that rather than ringing the emergency duty social workers to ask for their view on what he should do
and if foster carers were available he should have told them to come out to deal with the situation and
have been prepared to wait for them to arrive.
In my view, such an approach is impractical in the extreme. In fact Thorpe LJ praised the multi-disciplinary
approach adopted and the officer was praised for dealing with the situation with tact and sensitivity. The
Court of Appeal implicitly accepted that if social workers had taken the child on the five minute journey to
the foster carers this would have been lawful. It is, therefore, difficult to imagine on the facts of this case
why liability should have been found against the police for putting the interests of the child first, which is
the vision of the Children Act. This decision encourages a ‘jobsworth’ approach by public servants and
does little to dignify the law.
Without the HRA regime it is unlikely that this claim would have succeeded against the police and many
would suggest rightly so given the appalling behaviour of the parents. The Court of Appeal suggested that
they doubted damages would be significant without being asked to look into that aspect. In fact, an award
of merely ‘just satisfaction’ has been accepted by the parents with only 75% of their costs in the County
Court to reflect that they lost most of their claims in the court below. However, damages for the successful
infant claimant are likely to be more than nominal. The artificial nature of the decision is perhaps
highlighted to award damages for the psychological hurt of a police officer rather than a social worker
placing the child in a car and driving it for five minutes to foster carers. One can imagine that a young
child would have been upset by what happened though surely he should be looking to his parents to
explain what went on rather than the public servants who were trying to ensure that he was protected from
significant harm.
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Although many suggest that the ‘compensation culture’ is a myth this case is a salutary reminder that this
may not be the case. Public bodies are continually criticised for an ‘over the top approach’ to risk-banning
youngsters playing conkers in the playground and cancelling school trips. This case shows that the police
in future may be better off telling Social Services that they should sort out their own problems, possibly
saving themselves from liability. However, of course, should that approach have been taken and the father
later that evening drove the car into a wall with the child in it, a claim against the police is sure to have
followed and the officer would have faced a criminal and disciplinary investigation. Here, it is suggested
that the officer acted entirely appropriately and should be commended rather than by implication be
condemned on liability (or damned with faint praise for his tact and sensitivity).
It is difficult not to conclude that this case represents a victory of statutory interpretation over common
sense with the help of the HRA.
David Hill
Partner, BLM Liverpool
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Legal risk management
Risk management is now recognised as a key driver for business efficiency. The benefits of governance,
compliance and loss prevention have never been more important to management at both strategic and
operational levels. What was deemed to be a luxury 10 years ago is now so entrenched within our
business structures that it is hard to imagine a world without risk management.
The threat of financial instability is only the tip of the iceberg. The risks posed by a damaged brand or
reputation can far outweigh the immediate loss of profit or productivity. An environmental disaster, a
product recall or an investigation by regulatory bodies can leave long lasting and ugly scars on any
business. Organisations can be vulnerable to liabilities exposed in dated or inadequate contracts or be
unaware that their policies of insurance do not provide sufficient coverage for all the risks presented by
their contracts.
The impact of injury claims can also be significant, with absence management and human capital costs
hitting hard at both the morale and financial fibres of the company. Effective health and safety
management is perceived as being good for a business, with benefits ranging from increased profitability
to playing a role in the winning of contracts or retention of business alliances. Boards recognise that
effective governance is not simply a requirement but an absolute necessity to remain competitive and
commercial within a regulated society. Understanding these risks can help them implement and achieve
good techniques for risk prevention and control.
An example is the important role that lawyers can play in supporting the board in understanding the impact
of safety risks. BLM has created a specialist training and consultancy session aimed at board level to
engage directors in understanding and responding to health and safety compliance. This training delivers
both technical and practical advice to directors to enable them to address the safety issues affecting their
business. Compliance with legislation is a key motivator but the fear of loss of reputation, prosecution and
bad publicity are closely related to this compliance. On a wider scale, the majority of health, safety and
environmental laws in EU member states have, as we know, been determined at EU level. The EU
Commission has recently adopted a commnunique to the European Parliament and Council on the mutual
recognition of judicial decisions in criminal matters between member states. Understanding these legal
implications is very important for the board with responsibilities in a European market. The training
provides a legal overview of the board’s responsibility to over see systems designed to ensure that the
company obeys applicable laws, including tax, competition, labour, environmental, equal opportunity and
health and safety.
Moral responsibility for protecting workers is another reason cited for director leadership of health and
safety. This is particularly the case in the SME market where directors are more likely to know their
workforce and interact with them on a more regular basis.
Health and safety law and management training is required at board level and the legal training aims to
improve understanding on current best practice on providing leadership for health and safety.
From the strategic level down, legal consulting can support risk management in a multitude of other ways.
An example being the review and revision of accident investigation and reporting systems. The lawyer
usually only sees the aftermath of the investigation, when the claim is submitted and when decisions in
relation to liability and quantum must be made. Investigation processes can have a significant bearing on
the outcome of the claim. Training first line managers and communicating to the hierarchy of management
the importance of effective investigation techniques impacts on the outcome of claims and informs risk
assessment. Simply raising awareness of liability issues and demonstrating best practice means that the
business is better prepared to face the challenges of occupational injury or illness claims. The far reaching
effect is that improvements in risk management can be shared with the broker and underwriter so that they
understand how the customer is controlling risk. This may have direct benefits in premium reduction, which
is an obvious attraction to the financial director or company secretary engaged in pre renewal negotiations.
There are endless possibilities for legal risk management. Contract risk management, reduction and
review of product liability exposures, reviews of employment policies and procedures and business risk
audits are just a few of the projects the legal team can undertake. The solicitor-client relationship now
extends beyond the conventional. Lawyers have a ring side seat in witnessing what works for businesses
and what doesn’t in avoiding legal exposure. By working with the business at the pre and post loss stages,
legal risk consultancy provides useful skills and experience to the improvement of risk management in the
modern business forum.
Helen Devery Partner, BLM Manchester
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Breach of duty in clinical negligence cases: that’s not even the half of it
A patient who has been harmed by medical intervention understandably focuses on the alleged breach of
duty by the healthcare practitioner. However, the areas of causation, forseeability and quantification of
damages are the real minefield in clinical negligence litigation, both for claimants and defendants.
The uncertainties and apparent inconsistencies in the law are perhaps best illustrated by brief scenarios.
Readers are invited to decide whether or not a reasonable member of the public would consider the
patient entitled to civil damages.
Scenario 1 Patient A undergoes spinal surgery which is competently performed. However, such surgery
holds an inherent 1%-2% risk of neurological injury and that risk is negligently omitted from the consent
procedure by the surgeon. The patient’s evidence is that she may have delayed the surgery and obtained
a second opinion before proceeding with the surgery. Any subsequent surgery would have carried the
same 1%-2% risk of neurological injury and, in so doing, any delay by the patient would have resulted in
the same chance of developing the neurological injury.
Scenario 2 Patient B was advised of all appropriate risks including the 1%-2% chance of neurological
injury following spinal surgery. However, the surgeon was negligent in deciding that the spinal surgery was
necessary at that time instead of a year or two later. There is therefore no deficiency in the consenting
process but the surgery was performed a year or two earlier than it ought to have been and the 1%- 2%
chance of neurological injury has occurred.
Scenario 3 Patient C developed paralytic polio following a standard polio vaccine. The GP appropriately
advised the parents to proceed with the vaccine; the GP was negligent in failing to advise the parents that
due to a peri-anal abscess the child was likely to require surgical lancing of the abscess and may suffer
further discomfort within a short time of the polio vaccine. Is the claimant entitled to damages for
contracting paralytic polio when, had the parents decided to postpone the surgery and the polio vaccine
been administered a few weeks later, the one in one million risk of contracting paralytic polio would have
remained the same?
Scenario 4 Patient D’s GP negligently failed to refer him for an oncology opinion which resulted in a
reduction of his chances of survival from a malignant tumour falling from 45% to 10%.
Scenario 5 Patient E who cannot financially afford to and has chosen not to have any more children,
undergoes sterilisation surgery which is negligently carried out and following which a child is born. Should
patient E be entitled to claim for the financial costs of raising the child given the negligent surgery?
Scenario 6 Patient F was born with dystonic cerebral palsy following a negligent omission to carry out an
ultrasound check. On a statistical basis the chance of an undamaged child being born was 60%
(ultrasound scan) x 80% (finding of IUGR) x 80% (delivery of undamaged child) = 38.4%, meaning that
there was a less than 50% chance of the claimant being born undamaged in any event.
Scenario 7 Patient G is provided with inadequate advice regarding the risks of medical products such as
drugs or contact lenses. There is therefore a deficiency in consent between the doctor providing the
products and the patient. The action is brought as a product liability claim as injury flowed from the product
itself.
Court decisions
Scenario 1 The House of Lords (3:2 majority) in Chester v Afshar held that as a patient’s right to be
advised of the risks of medical intervention was so important, the need to prove causation should be
dispensed with and patient A was entitled to full damages flowing from the neurological injury. One aspect
though of consent cases may remain open to challenge – if all the evidence indicates that the claimant
would in fact have had the same surgery on the same day by the same surgeon in any event, should a
court award any damages to the claimant?
Scenario 2 On a conventional analysis, patient B’s circumstances would not fall within Chester and as the
medical error related to a misdiagnosis and not breach of consent, patient B would not be entitled to full
damages for the neurological compromise. Should patient A be entitled to full damages whereas patient B,
who has suffered the same injury, not be entitled to such damages?
Scenario 3 The Court of Appeal in Thompson v Bradford held that as the breach of duty in the consenting
process by the GP was not relevant to the development of paralytic polio by means of the control
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mechanism of forseeability, the claim failed. Only a breach of duty which forseeably could result in the
injury was relevant.
Scenario 4 The House of Lords in Gregg v Scott (again by a 3:2 majority, involving some of the same
law lords who decided the Chester case) decided that the traditional principles of causation should be
retained and as the claimant had a less than 50% chance of survival in the absence of any negligent
delay, any further reduction in chances of survival would attract no damages. Is it equitable that a patient
who had a 4.5 out of 10 chance of survival reduced to a 1 out of 10 chance should be awarded no
damages whereas patient A who had only a 1%-2% chance of injury should be entitled to full damages?
Scenario 5 The Appeal Court in McFarlane v Tayside reversed the law on unwanted pregnancies and
stripped the right of parents in such circumstances to claim damages for raising an unplanned child, on the
basis that the financial cost of raising a healthy child is not a loss. Claimants in these cases are now
awarded a nominal sum to represent the inconvenience of pregnancy and child birth. Is it proper that
patient A recovers damages in full whereas patient E recovers nominal damages and patient D recovers
no damages?
Scenario 6 The court in Bright v Barnsley DH NHS Trust held that for purposes of establishing causation
in civil claims, each step (over 50% in this case) of factual and medical causation must be decided in its
own right. Why should such a claimant be entitled to recover in full when there are many children born
each year with cerebral palsy because the chance of being born unharmed is not a stepped process and
the true statistical figure, in the circumstances of this case, of 38.4% reflects reality.
Scenario 7 The judgments of the majority in Chester and subsequent decisions state that strict liability
arising from Chester is confined to consent to medical treatment. The consent process relating to the
administration of drugs or the prescribing of contact lenses is a form of medical treatment. If claimants are
automatically entitled to damages following a lack of consent, should patients who have suffered a
personal injury as a result of another form of product injury be entitled to similar protection?
Conclusion
If you were correct in half of the scenarios you are in good company – about half (depending on the
reasoning adopted by each judge) of the judges and law lords disagreed with the current law in the cases
discussed. A closer reading of each judgment in these cases reveals just how far apart not only the
conclusions are but more importantly the reasoning and bases of analysis of each of the judges and law
lords. These differences of perception and analysis make the comment by Lord Steyn in Chester that the
decision of the majority ‘reflects the reasonable expectations of the public in contemporary society’ difficult
to accept at face value. It may be interesting in this regard to follow the development of the Redress Bill
and related statutory modifications to healthcare litigation. Perhaps a conclusion that we can draw from
these developments is that, with so many unresolved conflicts and perceived inequities, we are likely to
see significant statutory and judicial developments in the not-too-distant future.
Gary Allison
Partner, BLM London
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Closing the net on fraudsters
As the cost of insurance fraud claims reaches an all time high – according to the ABI in excess of £1 billion
per annum on personal lines alone – the government and insurance industry are fighting back with tough
new initiatives and proposals for law reform which, combined, will produce a pro-active system of
investigating and tackling organised claim fraud rings.
The scale of the problem
Insurance fraud rings are not a new phenomena in the UK. As insurance companies become increasingly
better at detecting and investigating insurance fraud, what has resulted is a realisation that organised
crime gangs have been orchestrating rings of insurance scams for some time. Key individuals within the
rings have been securing large sums of money for fictitious accident claims with multiple claimants. These
funds are then frequently used for other crimes such as drug trafficking, money laundering and, in more
recently, terrorism.
Tackling these organised fraud rings has been a hard task for the insurance industry for a number of
reasons. Limited data and intelligence sharing throughout the insurance industry, an inconsistency in
approach and data capturing intelligence systems together with loopholes in the legal framework has
made it easy for organised crime gangs to exploit the claims procedure. Even if an insurance company is
able to identify and secure, through investigative techniques, sufficient evidence of fraud to repudiate the
claim, few fraudsters are prosecuted for insurance fraud due to the ineffective and complicated statutory
framework in place in the UK.
Fighting back
Post September 11, the government has concentrated its efforts on implementing legislation which tackles
financial crime at its roots. Fraud has become a hot topic as the Financial Service Authority (FSA) was
given a statutory objective of reducing financial crime, fraud and dishonesty falling within the definition of
financial crime.
The FSA is committed to ensuring financial institutions take appropriate measures to detect, prevent and
monitor financial crime.
So how will proposed changes in legislation assist the battle?
The Fraud Bill was introduced in the House of Lords on 25 May 2005. The aim of the bill is to create a
general offence of fraud (there currently being no criminal definition of fraud. The legislation will simplify
the current patchwork of statutes making it easier for fraud prosecutions to be brought and convictions
secured.
Historically, when police have investigated insurance fraud rings, the Crown Prosecution Service has been
unable to move forward with prosecutions of key individuals within the rings because of the complicated
nature of the fraud scams and a lack of supportive legislation.
The introduction of a new fraud law combined with the abolition of juries for certain complex fraud trials
(implemented in January 2006) will hopefully pave the way for prosecutions of key individuals within
insurance fraud gangs and send out the message that there are serious repercussions for insurance fraud
scams and that insurance fraud is not a victimless crime.
Controlling the organizers
The Compensation Bill was introduced in the House of Lords on 2 November 2005. Part 2 of the bill
provides the framework for regulation of claims accident management services. Frequently the large fraud
rings are controlled by individuals within certain accident management companies.
The aim of the bill will be to regulate the activities of those companies which provide accident management
services by requiring the companies to become authorised. The main benefits are:

Accident management companies will have to apply for authorisation by meeting certain criteria.
The criteria may include accident management companies acting in the best interests of their
clients and not knowingly misleading a court. They may also have to be fit and competent to
provide a claims management service. If an accident management company is not authorised
(subject to exemptions) then they will be committing a criminal offence under the bill which may
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be the subject of a fine or imprisonment of those individuals carrying out the services (maximum
of two years imprisonment).

The authorised claims management companies will have to comply with rules and Codes of
Practice, breach of which could be used by the regulator to impose conditions on the company
and/or suspend or cancel authorisations.

The regulator will be also be given powers to search and enter any premises where he suspects
an individual or organisation is committing an offence by carrying on regulated claims
management services.
If the legislation is properly regulated and resourced, insurance companies may consider using the
legislation as a weapon by reporting issues of conduct and inappropriate activities of accident
management companies which are intrinsically linked with fraud rings to the regulator. This may then result
in interventions in the accident management companies and subsequent closure.
New industry initiatives
In September 2005 the ABI announced that the insurance industry is committed to launching a crime
tackling anti fraud database by Spring 2006 which, according to the recent publications, will result in
annual savings of £200 million. A team of top level fraud specialists are set to be appointed to run the
Insurance Fraud Bureau (IFB). The purpose of the bureau will be to investigate and tackle organised fraud
gangs. The IFB will pull shared data from insurers in personal lines claims (initially) and use further
investigative techniques in an attempt to capture those fraudsters within organised rings that readily move
across insurance companies and products to claim a number of times.
The industry is awaiting an announcement as to the software supplier to be used by the IFB and for a roll
out date. If successful, the IFB through collective action will crack down on the organised fraud rings and
will act as both a detection and deterrent mechanism.
Conclusion
There is little doubt that the industry and the government are moving in the right direction in the war on
organized fraud rings. With proposed new legislation and data sharing products and initiatives throughout
the industry, best practice counter fraud techniques can be established to help capture and defeat the
organised fraud rings. At long last the net is closing in.
Sarah Hill
Solicitor, BLM Birmingham
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Conditional Fee Agreements and estimates of costs
The Conditional Fee Agreement Regulations have vanished. The Conditional Fee Agreement Regulations
2000 (CFA Regulations) and the Collective Conditional Fee Agreement Regulations 2000 (CCFA
Regulations) have been revoked leaving behind The Access to Justice Act 1999. Requirements for a CFA
after 1 November 2005 are that it is in writing and for any success fee claimed, the percentage increase
cannot exceed 100%.
Does this result in no more satellite litigation, weekly updates to ever-expanding library of costs cases,
quicker settlement of costs or fewer Detailed Assessment Hearings? No. There will still be the challenge of
years of old style CFAs. Further questions arise: What, if anything, will replace the CFA Regulations;
where is the reference to CCFAs in The Access to Justice Act; and have we lost the chance to reduce
costs to nil with the same frequency?
Old style CFAs
The large volume of case law and a couple of interesting cases waiting to be heard in the Court of Appeal
(CA) should mean that the remaining costs cases under old style CFAs will be easier to decide.
A recent judgment in the CA held that where the risk assessment (properly completed in respect of a
CCFA) produced a percentage increase of 120% and no mention was made of capping the success fee to
100%, the CCFA was wholly unenforceable despite assurances that it was an error ie costs were
disallowed in full. It was also stated by Laws LJ that ‘the concept of materially adverse effect must not be
allowed to undermine the force of the Act’.
This important CA decision, Jones v Caradon Catnic [2005] EWCA Civ 1821, has potentially huge
ramifications for the next two big costs cases in the CA: Garrett v Halton Borough Council and Myatt
v The National Coal Board [2005] EWHC 90012 (Costs), both of which are due to be heard on 19 June
2006.
The appeal in Garrett, in particular, is impacted by this December decision since the appeal rests on the
materially adverse effect of an admitted breach of the CFA Regulations (in this instance the breach was in
respect of disclosure of an indirect financial interest in the ATE insurance recommended). Those of us
more usually acting for the paying party await the next steps with interest.
Collective Conditional Fee Agreements
The only place that CCFAs were introduced was through the CCFA Regulations so the danger is that,
with their revocation, the ability to enter into a valid CCFA is called into question. Any existing CCFAs are
not in doubt as they are covered by the CCFA Regulations, but those entered into after 1 November 2005
may be in doubt. I don’t accept that. CCFAs were introduced because they filled a gap and saved time and
expense compared to individual CFAs. The Trade Unions have relied on CCFAs since their inception and
it isn’t likely this will change anytime soon. The Access to Justice Act 1999 makes no mention of an
individual case; the CFA is not required to be dated (or even signed), and there is no restriction on who
may enter into a CFA. Accordingly, there is nothing to prevent a CFA being in respect of multiple claims
with numerous claimants and/or defendants.
If a post 1 November 2005 CCFA is largely in the format of a pre-31 October 2005 CCFA (or comfortably
complies with the Collective Conditional Fee Agreement Regulations 2000) then I can see no reason why
that CCFA will not be upheld by the courts.
Replacing the CFA and CCFA Regulations
The Law Society Practice Rules are now the relevant rules to apply. Rule 15, which relates to advising the
client as to costs matters (and which has been in place since 1993) will provide the guidance (and
regulations since Law Society Practice Rules are considered subordinate legislation (Swain v The Law
Society [1982] 2 All ER 827) for all solicitors when advising their clients on costs. The rule is currently
being re-written and is in the draft stage. When finally agreed it is due to contain almost all of those
requirements of the CFA Regulations that have caused so many claimant firms to despair as yet another
bill of costs as assessed at nil. In Garbutt v Edwards [2005] EWCA Civ 206 the paying party could not
seek to go behind the solicitor and client relationship where no estimate of costs had been provided to the
client (a requirement under Rule 15) and rely on that to show that there was no liability for costs for the
receiving party, and thus none for them. The CA also found that Wong v Vizards [1997] 2 Costs LR 46
QBD is still good law and confirmed that estimates of costs were to be relied upon by clients.
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Since 1 October 2005, under Section 6 of the Costs Practice Direction, requirements in respect of
estimates of costs have been revised. One of the existing requirements (now given more weight) is that
either party serving an estimate of costs on the other side must also serve a copy on their client.
Accordingly, there is a possible argument to say that the estimate having been provided to the receiving
party by their solicitors and the estimate having been exceeded, the indemnity principle applies and costs
should be automatically capped at between 10% and 15% more than the estimate provided. Of course the
Costs Practice Direction itself now provides substantial arguments where there is any variation of more
than 20% from the estimate as long as the paying party can show reliance on the estimate.
The future
Costs capping, budgeting and estimates of costs are the next areas to be tested by satellite litigation with
more parties using the estimates provided to oppose recovery of costs and an increasing awareness of the
court’s powers to cap costs even in simple low value cases. These will test the court’s position as to
whether the client has been properly advised on alternative funding, and whether the paying party has any
right to bring this to the attention of the court when the requirements are strictly solicitor and client (despite
Wong still being good law). The retention of the indemnity principle is seen as the root cause of the
flourishing branches of these challenges, and many argue for its abolition. The future of CFAs are
simplified documents looking more like pre-CFA Regulations client care letters, but for protection any
solicitor entering into a CFA after 1 November 2005 should beware of ignoring Solicitors’ Practice Rule 15
and should always remember to prepare an estimate of costs.
Susan Kendry
Costs drafts department, BLM Manchester
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Warning: smoking can seriously damage your wealth
Smoking is an expensive habit. The average price of a packet of 20 cigarettes at my local newsagents is
£4.50. In the case of McTear v Imperial Tobacco Limited (31 May 2005), Lord Nimmo Smith found that the
late Mr McTear smoked 635,100 cigarettes during his lifetime. On the basis of current prices, this quantity
of cigarettes would have cost Mr McTear just under £143,000.
In the more recent case of Beryl Badger v The Ministry of Defence (16 December 2005) heard by Mr
Justice Stanley Burnton in the High Court in London, the court was again concerned with the quantity of
tobacco smoked by an individual during his lifetime, in this case the number of cigarettes and cigars
consumed by Mrs Badger’s late husband. The judge felt he did not need to reach a specific finding on this
issue but the joint report of the medical experts was prepared on the basis that Mr Badger had smoked the
equivalent of 20 cigarettes a day from the age of 18 until within a year or so of his death, a total of 44
years. The cost of this many cigarettes is £72,270 at today’s prices, but Mr Badger’s smoking habit proved
to be even more expensive following his death.
Mr Badger was employed by the MOD for 33 years as a boiler maker, during which time he had been
exposed to asbestos dust. He died of lung cancer on 6 May 2002. The medical experts agreed that Mr
Badger’s lung cancer was attributable to both asbestos and tobacco.
The MOD admitted liability in respect of Mrs Badger’s claim arising from her late husband’s death and
agreement was reached that the value of the claim was £149,144.08 on a full liability basis. Contributory
negligence was alleged on the basis of Mr Badger continuing to smoke when he knew or should have
known that doing so was liable to damage his health. The level of contributory negligence, if any, was the
only issue that the court was required to consider.
The judge expressed surprise in his judgment that there was no other reported case in the UK dealing with
the issue as to whether or not tobacco smoking constitutes contributory negligence. He also made it clear
that he was aware that his decision might have an impact in relation to other claims. As a result, he
prepared a detailed judgment which contained a thorough review of the principles applying to contributory
negligence.
The judge found that whilst the late Mr Badger was not at fault for starting to smoke, his continued
smoking constituted contributory negligence. He did not find it necessary to make a finding as to a specific
date when Mr Badger should have given up smoking, but concluded in the light of medical advice that Mr
Badger had received in 1968 about the damaging effects of smoking on his health and the introduction of a
government health warning on all cigarette packets in 1971 that a reasonably prudent man in Mr Badger’s
position would have stopped smoking by the mid 1970s.
An argument made on behalf of Mrs Badger that no fault could be attributed to her late husband for his
failure to give up smoking because he was addicted was rejected. The judge said that there was no
medical evidence put before the court on which he could find that Mr Badger had been so addicted to
tobacco or nicotine that he could not reasonably have been expected to stop smoking. Mrs Badger’s
evidence had in fact indicated that Mr Badger was not a chain smoker from at least the early 1990s.
When it came to deciding the appropriate reduction in the damages on account of the late Mr Badger’s
contributory negligence, the MOD conceded that greater blame was to be attributed to them than Mr
Badger, principally because there were breaches of statutory duty on its part. Furthermore, not all of the
period of Mr Badger’s smoking was blameworthy. Because of these matters, the judge concluded that the
appropriate reduction in damages for contributory negligence was 20%. This meant that Mr Badger’s
smoking during his lifetime effectively cost a further £29,828 after his death.
Mr Justice Stanley Burnton’s decision is of importance in relation to any claims made by smokers or exsmokers for lung cancer or any other conditions caused or contributed to by smoking. However, the judge
was careful not to reach a firm conclusion regarding a date by which smokers should have known that their
habit was harmful. It is clear that the judge felt that it was reasonably foreseeable that there was a risk
from smoking by 1971 but he also recognised that there could be an earlier date of knowledge in relevant
circumstances, for instance where a smoker had been specifically advised by a doctor about the damaging
effects of tobacco on his health before 1971. He also did not decide whether or not a smoker could avoid
contributory negligence if he could show that he was incapable of giving up tobacco. These are issues that
remain to be argued over on another day.
Simon Morrow
Partner, BLM Manchester
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22
Late notification and the consequences
The consequences of a breach of a claims condition, that is not expressed to be a condition precedent,
has recently been the subject of developing and significant change in case law.
Following the Court of Appeal’s decision in Friends Provident v Sirius International Insurance [2005]
EWCA Civ 601 insurers can no longer rely on Alfred McAlpine plc v BAI (Run-Off) Ltd [2000] 1 Ll.R. 437
(‘BAI’) to argue that a serious breach of a condition entitles them to reject the claim. As a result insurers
can now only reject claims that are notified late where compliance with their claims condition is stated to
be a condition precedent to their liability.
McAlpine v BAI
In BAI the Court of Appeal stated that a claims notification provision did not have to be a condition
precedent to entitle insurers to reject a claim. It would be sufficient that the delay in notification had ‘very
serious consequences’ for the insurer, or ‘demonstrated an intention not to continue to make a claim’.
While the notification clause on which insurers relied on in BAI was not a condition precedent it was held to
be an ‘innominate’ term. The concept of the ‘innominate’ (unclassified or unnamed) term was borrowed
from general contract law. Until BAI it had rarely featured in the law of insurance. BAI suggested that a
sufficiently serious breach of such a clause entitled insurers to reject the claim, though insurers failed to
establish this on the facts.
The difficulty with this approach is that in contract law a serious breach of an innominate term entitles the
injured party to treat the contract as at an end, whereas in BAI the court held that the breach permitted
insurers to reject individual claims rather than terminate the policy. The decision was nevertheless followed
in several subsequent cases.
Friends Provident v Sirius
In this case the court considered a claim by Friends Provident for indemnity under policies which had been
written by the professional indemnity insurers of London & Manchester Assurance (‘LMA’). Friends
Provident was the successor to LMA which had been forced to settle a considerable number of claims
arising from alleged pensions mis-selling.
In issue was whether one of the excess layer insurers could rely on a notification provision to decline the
claim or whether their remedy was a counterclaim for damages. Having held that the notification
requirement was not a condition precedent, the court went on to consider whether it was an innominate
term and if so whether insurers were entitled to reject the claim in event of a serious breach.
Giving the majority judgment Mance LJ held that he was not bound by BAI because the innominate term
issue had not decided the outcome in that case (this part of BAI was therefore ‘obiter’).
He went on to criticise the suggestion in BAI that breach of an innominate term could relieve insurers of
their liability to deal with an individual claim, but not others. Either the breach was so serious that insurers
were entitled to treat the whole policy as at an end or the policy instead remained intact and insurers’ only
remedy was a claim for damages. Lord Justice Mance doubted that breach of a notification condition could
ever be sufficiently serious to justify termination of the policy, he felt that if insurers have the right to reject
a claim as a result of breach of claims condition this could have some drastic and unfair consequences.
The court was influenced by the fact that the policy wording was an industry standard and both parties had
been in a position to obtain professional advice. If the clause had been intended to be a condition
precedent it could easily have been drafted to say so.
Lord Justice Waller, who gave the court’s judgment in BAI, delivered a dissenting judgment defending the
legal basis of his approach in BAI. He considered the remedy of damages would frequently be ‘illusory’.
How can one quantify the effect in damages of losing the opportunity to investigate whether there might
have been a defence to the claim?
The courts’ attitude towards conditions precedent underlies Friends Provident. In Pilkington v CGU [2004]
EWCA Civ 23 and George Hunt Cranes v Scottish Boiler [2001] EWCA Civ 1964 the Court of Appeal
emphasized that policy terms will only be treated as conditions precedent if clearly identified as such. BAI
ran contrary to this by suggesting that innominate terms – the very terms the policy left unnamed and
unclassified – could have the same effect as conditions precedent.
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Practical implications
Although BAI received some support for increasing the flexibility of the remedy available to the courts for
breach of condition, this was achieved at the expense of uncertainty. In any given case it would be difficult
to judge whether the insured’s breach was sufficiently serious to entitle insurers to decline the claim. The
solution is clear drafting. In the words of Mance LJ in Friends Provident:
If insurers consider that they want or need such protection, they can and should try to express it
in their insurance contracts and see if the broking market will accept it.
In light of the current emphasis on contract certainty and clarity of terms – matters which will be considered
as part of the Law Commission’s forthcoming review of insurance law – Friends Provident is a welcome
development.
The practical impact of Friends Provident may, however be less significant than it would appear for two
reasons. First, most policies expressly provide that claims notification provisions are conditions precedent.
Second, BAI and the cases which followed it only gave rise to one example of a breach which actually
entitled insurers to reject the claim (Bankers Insurance Co Ltd v South [2003] EWHC 380).
Friends Provident has already been followed at first instance in Ronson International Ltd v Patrick [2005]
EWHC 1767 which is subject to appeal on other grounds.
Anthony Mangham
Solicitor, BLM Manchester
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24
Nobody’s perfect in motor cases
Over 48% of insurance claims handled annually originate from road traffic accidents. In 2003, the total cost
of motor personal injury claims to the insurance industry was £4.5 billion
The majority of these cases are settled by insurers and lawyers who make assessments on the basis of
the available evidence to determine which of the parties have been negligent. The annual cost of motor
personal industry claims to the insurance industry is in excess of £4.5 billion.
Inevitably, many road accident cases have similar features and circumstances and as a result there has
been a tendency for certain presumptions to develop for particular types of case. For example, it is often
said that a narrow country lane collision usually results in a finding of equal blame. Or, if a pedestrian has
been injured, invariably the driver involved must be at fault to some degree.
In John Lunt v Bekhia Khelifa (Court of Appeal, 22 May 2002) Latham LJ said:
This court has consistently imposed on the drivers of cars a high burden to reflect the fact that a
car is potentially a dangerous weapon.
Practitioners seek to impose high standards of driving in the light of this approach. Accepting that many
road traffic accident cases are fact sensitive and that very few of them reach the Court of Appeal (CA), it is
perhaps not surprising that the apparent truisms set out above have emerged. However, it is important not
to lose sight of the facts of individual cases.
The following decisions of the CA and High Court in the past four months illustrate that courts are not
looking for an unattainable counsel of perfection from drivers but recognise that split second decisions
have to be taken, which, whilst they may lead to the unwelcome consequence of an injured person, do not
necessarily have to lead to the conclusion that a party is to blame.
In Sam v Atkins (Court of Appeal, 9 November 2005) the defendant driver was found not to be negligent
when a pedestrian had walked into the path of her oncoming vehicle. The pedestrian had walked out from
in front of a parked van, leaving the defendant no opportunity to avoid a collision. At first instance the judge
found that the defendant did owe a duty to the pedestrian and that there had been negligence in that the
defendant was driving too fast (20-25mph in a 30mph zone) and should have anticipated the pedestrian’s
presence.
Saying that, the judge went on to find that negligence had not caused the claimant’s injury which would
have occurred in any event. The CA criticised the lower court’s approach and the original finding of
negligence saying that a composite approach should be taken. Essentially if causation is not made out
then it follows there should not be a finding of negligence.
In another pedestrian case, Goundry v Hepworth (Court of Appeal 30 November 2005) a driver, Mrs
Hepworth, encountered a group of adults and children who had stopped in the middle of the road waiting
to cross. A vehicle ahead had driven past the group, Mrs Hepworth took the decision to do the same. A
four year old child suddenly ran out in front of her vehicle, leading inevitably to serious injuries.
The child was successful at first instance, although the court accepted that the degree of the motorist’s
negligence was ‘very small indeed’.
Counsel for Goundry in the CA argued that there was a duty on Mrs Hepworth to stop, having seen the
group and let them cross. The CA accepted that this was not an uncommon scenario and dismissed this
suggestion.
Lady Justice Hallett said:
To place on Mrs Hepworth a duty to stop and wave the group across, is, on the facts of this case,
a counsel of perfection. It is imposing too high a duty even for a motorist driving a potentially
lethal weapon.
So what of the many thousands of narrow country lane collisions which occur on Britain’s roads? Here also
the courts are not necessarily looking for perfect driving.
The claimant in Barry v Pugh (RCJ, 18 November 2005) sustained a spinal fracture leading to paraplegia
during an accident on a narrow country lane in Wales, when his motorcycle clipped the rear mudguard of a
horse trailer being towed by the defendant’s Isuzu Trooper.
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From the outset, the claimant approached the case on the basis that an equal finding of negligence would
be the worst case scenario for him.
The court looked very closely at Mrs Pugh’s actions. She realistically had very little time to react. On first
sight of the motorcyclist, realising he was travelling too fast to stop, she drove her vehicle on to the verge,
came to a halt (or was in the process of stopping) when the accident occurred. Mrs Pugh’s actions actually
avoided what would have been a head on collision.
Mr Justice Walker said:
It being accepted that a split second decision has to be made… it would be quite wrong to judge
the defendant’s conduct against the range of options that might be considered if one had far
longer to think about the matter. It suffices that the defendant made one of a number of
apparently reasonable choices.
There was no finding of negligence against the defendant.
These cases highlight a pragmatic and sensible approach to the assessment of what constitutes negligent
driving. Accidents by their very nature occur quickly requiring immediate action. Whilst there may be
options open to drivers in such circumstances it would not be realistic to make a finding of negligence
based on artificial suppositions, but to ensure that findings are made on the basis of actual evidence.
Jason Maley
Partner, BLM London
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Product liability: the duty to warn
Manufacturers are permitted to produce dangerous products. We are surrounded by products which are
dangerous but which benefit society.
If a product is capable of causing harm a manufacturer must make it as safe as possible and give proper
instructions for its safe use. An inadequate warning of a product’s inherent dangers gives rise to a cause of
action irrespective as to whether that product has been defectively designed or manufactured.
The duty to warn arises where:




the product is inherently hazardous.
the hazard is or should be known by the manufacturer.
the user cannot be expected to be aware of the hazard.
it is reasonably possible for the manufacturer to provide a warning.
Where a duty to warn arises the manufacturer must give accurate information about the way in which his
product should be used and the risks associated with all of its reasonably foreseeable uses. The
manufacturer must act reasonably in all the circumstances.
If the warning is adequate and is ignored or if a consumer realises the product is unsafe and carries on
using it the manufacturer will not be liable.
No amount of warning will absolve a manufacturer if he fails to make his product safe when it would be
reasonable for him to have done so.
A manufacturer has no duty to warn of obvious dangers associated with his product.

Gourlain v Seita SA [2004]ECC41, a claim against a cigarette manufacturer was rejected on the
basis that the deceased smoker must have been aware of the health risks caused by smoking
cigarettes.
The degree of explicitness of the warning required depends on the danger likely to be presented to the
ordinary user of the product. The greater the potential danger, the more explicit the required warning.

Matthews v Tretol Ltd and J D Wallin Ltd, QBD 28 June 1979, a paint manufacturer warned of the
need for ventilation whilst applying the product to minimise the potential adverse affects of
inhaling its vapour. They were liable for failing to warn that if the vapour built up to a sufficient
concentration and if a source of ignition was introduced that an explosive fire could occur.

Vacwell Engineering Co Ltd v BDH Chemicals Ltd [1969] 3All ER 1681, the manufacturer of a
chemical provided the warning ‘harmful vapour’. They were liable for failing to warn that their
product exploded when it came into contact with water. They subsequently amended their
warning to add the words ‘reacts violently with water and explodes’.
The warning must be clearly stated and fairly reflect the nature and extent of the hazard warned against.

Defective Room Dividers [2004] ECC 20, the manufacturer of room dividers was found to have a
duty to issue warnings capable of protecting the least informed of a group of average users. They
should have put a clear warning on their dividers explaining that they were top heavy and could
fall over if pulled over from the front.
The warning must also cover potential dangers caused by misuse of the product.

LeBouef v The Goodyear Tire & Rubber Company, United States Court of Appeals 1980, the
driver of a Ford vehicle was killed when the tread separated from a tyre whilst he was travelling at
over 100 mph. The tyre had been designed and tested for a maximum safe speed of 85mph. Ford
were liable for failing to warn of the hazard when they should have expected that their vehicle
would be driven at its top speed.
The duty is a continuing one. If a manufacturer becomes aware of a hazard after his product leaves his
control he must take reasonable steps to advise those at risk.

Walton v British Leyland, Case 1976 W No.2896, the manufacturers failure to initiate a product
recall lead to a finding of liability against them. The judge stated:
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‘... The duty of care owed… was to make a clean breast of the problem and recall all cars which
they could… manufacturers have to steer a course between alarming the public unnecessarily
and damaging the reputation of their products, and observing their duty of care towards those
whom they are in a position to protect from dangers of which they… alone are aware… They
seriously considered recall and made an estimate of the cost at a figure which seems to me to
have been in no way out of proportion to the risks involved. It was decided not to follow this
course for commercial reasons…’
The provision of product information, including warnings, is an activity which manufacturers must properly
undertake during the design stage. The content of the information, its location, design and wording must
be considered. To effectively manage the risk of liability for defective products manufacturers must clearly
understand how the public will use their products.
The General Product Safety Regulations 2005 require producers to supply products which are safe. The
regulations apply to all products which are intended for consumers or where it is reasonably foreseeable
that the product will be used by a consumer. Under the regulations if a potentially dangerous product
enters the market place the producer or distributor must take appropriate action which may include
depending on the nature of the risk.




Adequately warning consumers.
Tracing or sample testing of products.
Notifying the relevant authorities.
Recalling products.
The regulations also provide significant powers to the authorities to prohibit the product being placed on
the market, to require the producer to give stipulated warnings about the product’s risks and to issue recall
notices.
European Commission statistics show that 706 product recalls occurred during the year 2005, a rise of
126% on the previous year. The increasing incidences of product recalls is leading to an increased
demand for product recall insurance cover.
Christopher Downey
Partner, BLM Manchester
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Give it to me one more time
brokers duties in relation to documents and the insurers right to (re)inspect documents held by
them
The question as to the entitlement of underwriters to see documents on a placing brokers file has always
been a vexed one. On the one hand, it would be argued by underwriters that the documents which are
placed before them, prior to a risk being rated and written, invariably form the basis of the contract. On the
other, brokers are, quite rightly, protective of the interests of their insured client and do not wish to disclose
documents which might either prejudice an insured’s position or expose themselves to criticism from an
insured for breach of confidentiality.
In it’s judgement in Goshawk Dedicated Limited v Tyser & Co, 6 February 2005, the Court of Appeal held
that there is a duty implicit in insurance contracts obliging the parties to provide each other with access to
certain documents necessary to enable the execution of that contract. Thus the Court of Appeal effectively
overturned the decision of Mr Justice Christopher Clarke in the same case at first instance handed down
May 2005, bringing to an end a short period of confusion in relation to the rights of underwriters to access
documents retained by brokers and not retained by them.
In his judgment at first instance, in the face of arguments from Goshawk’s counsel, Mr Justice Clarke had
held that, in the absence of an express contractual obligation to do so (where documents had been
presented by placing brokers to Lloyds Underwriters and where those underwriters did not retain copies of
those documents) there was no custom of the market permitting underwriters to have access to those
documents. In such circumstances, underwriters were only entitled to see such documentation if the
placing brokers’ client, the insured, provided specific authority for the provision thereof.
The facts of the case were that ‘viatical’ companies insured themselves with Goshawk against the risk of
lives assured being longer than anticipated. The business was unprofitable and was put into run-off. The
Goshawk syndicates made requests of the placing brokers, Tyser & Co, for access to documentation
presented prior to risk being written and claims documentation. There was also a request for accounting
documents which would assist underwriters in assessing the potential exposure, although the
documentation sought had not been seen previously by the underwriters. Requests for consent to release
were made by the placing brokers of the viatical companies, some of which provided their authority for the
delivery up of documents some of which either refused to grant such authority or failed to respond.
In the latter cases, the brokers refused to deliver up the documents sought thus triggering the action by the
Goshawk syndicates.
At first instance the judge heard arguments that there was a ‘pending market custom at Lloyds’ which
entitled underwriters to obtain such documents but the judge declined to find such a custom. It had been
accepted during the action heard in the Commercial Court that the Terms of Business Agreement (TOBA)
which had been entered into pursuant to paragraph 5(4) of the Lloyds Broker By-Law 17/2000 (which all
Lloyd’s brokers were required to enter into with managing agents as from 1 January 2002) effective from
20 December 2001 that from that date the brokers were obliged to deliver up such documents. The judge
accepted that there was a contractual obligation post 20 December 2001 that the brokers had to provide
access to the documents but not before. However, he held that the brokers owed a duty to disclose
accounting documents as there were ‘no genuine grounds for fear that production would be against their
client’s interest.’
Thus, Mr Justice Clarke’s judgment had the effect of precluding underwriters from seeing documents that
had formed the basis of the contract but permitting access to those which did not. It is perhaps not
surprising that, bearing in mind the implications of that decision, an appeal was lodged.
During the course of the appeal, counsel on behalf of Goshawk presented a new argument that there is an
implied term in contracts between insured and insurer for the production of the documents requested as a
matter of necessity to ensure and to assist the execution by the parties of their contractual obligations. It
was stressed that two classes of documents sought had been seen by underwriters, therefore, no element
of confidentiality could be breached by their provision and it was difficult to conceive of how the production
of the same documents could be against the insureds’ interest. Lord Justice Rix found sympathy with this
argument and he stated that:
It is both reasonable and necessary for documents retained by brokers but not by underwriters to
be available through brokers to the underwriters. Otherwise the contract could not effectively or
safely be operated.
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The judge further held that parties to an insurance contract should not be expected to operate their
contract in the dark and that ‘information in fact provided as part of the placing is an essential and mutual,
part of the formation of the contract.’
Thus, the brokers were obliged to give access to the placing, claims and accounting documentation
without specific client consent. Providing further clarity Rix, LJ stated that whilst the motivation for the
request did not have to be clearly stated, in the absence of bad faith, the entitlement was automatic.
This decision does not alter the status of other documents which might be confidential as between an
insured and it’s broker and which do not form the basis of the contract and which would not to be produced
upon request by the underwriters. However, this sensitive area was complicated unnecessarily by the
decision of Mr Justice Clarke and it would appear that sense has now prevailed to clarify the position and
to allow both parties to understand their obligations and to provide protection to brokers from their own
clients from criticism.
I am informed that, at the date of writing, no such appeal has been launched to the House of Lords, leave
to appeal having been refused by the Court of Appeal.
Simon Hilditch
Partner, BLM London
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Corporate manslaughter update
The government has published its reply to the first joint report from the Home Affairs and Work and
Pensions Committees into the draft Corporate Manslaughter Bill. The document was presented to
Parliament in March 2006 and is available at
http://www.publications.parliament.uk/pa/cm/cmhaff.htm-reports
The initial comments on the draft Corporate Manslaughter Bill had made two main criticisms. Firstly the bill
fails to introduce automatic personal liability for directors and chief executive officers where their
companies have been convicted of corporate manslaughter. This, it was said, was a requirement which
could have made such people more accountable for safety breaches committed by their own company.
The government has rejected this contention saying that there are already provisions in place which allow
for personal liability for safety offences, that individuals at all levels in companies can still be prosecuted
for a personal manslaughter allegation and that it is wrong to attach liability for such a serious offence
when the level of an individual’s negligence may not reach the standard of ‘gross’ which is required for a
manslaughter conviction to be recorded. Instead the government appears to favour the increased use of
powers to disqualify directors where they preside over companies where systemic management failure
leads to breaches of safety and fatal accidents.
The draft bill had also been criticised for the proposed test it set out to overcome the current ‘identification’
problems faced when a prosecutor cannot find a ‘controlling mind’ of a company who is personally guilty of
gross negligence. The Home Office had proposed that where certain conduct of a company’s ‘senior
managers’ amounted to a gross breach of the duty the company owed, then all such conduct could be
aggregated and so a company could be convicted based on the total level of negligence across the
structure of its senior management, even if there was no single individual who was grossly negligent.
Criticism focussed on how that would impact on companies who discharge health and safety
responsibilities at a lower level than senior management and on why it was wrong to exclude from
examination the negligent acts of those company employees who hold management (but not at a senior
level) positions. Additional difficulties would have been posed by the definition of the ‘whole’ or a
‘substantial part’ of a company’s undertaking and it was felt that the offence would have lead to uncertainty
in knowing what obligations they would need to meet.
Instead, the government appears now to favour the original Law Commission proposal namely that a
company can be convicted of corporate manslaughter where its management failure (collectively) has lead
to the death of an employee or member of the public. This would entitle an investigator to look at any
systemic failures within an organisation and to examine failings and negligence of varying seriousness
from a variety of different sources at different levels within the organisation.
Another of the suggestions arising from the consultation phase was that parent companies should be liable
for breaches of health and safety duties committed by their subsidiary companies. The government
appears to have rejected this idea although parent companies who do play a roll in the activities of their
subsidiaries may need to review whether they inadvertently create a duty of care for which they can be
liable in the event of a breach. Investigations under the new proposals might focus on which corporate
entity was responsible for breaching duties it owed to these persons.
Another suggestion that injuries (but not death) caused by gross negligence should be dealt with in the
same way by the criminal law was rejected on the ground that public policy demands accountability and a
serious offence to reflect the unnecessary public disquiet at the loss of life.
Interestingly, the government believes that the new legislation will and should be wide enough to
encompass death resulting from occupational health causes but it is recognised that for exposures of
dangerous substances and the like, the more appropriate remedy would appear to be prosecutions under
various substance or sector specific regulations.
The Home Office proposals had suggested that a failure to comply with health and safety which fell far
short of the standards expected could be used to determine whether a breach of duty was gross. The
government has suggested that for manslaughter purposes it will not simply adopt the duties owed under
health and safety legislation but that wherever a company fails to comply with those provisions this will be
a relevant factor in considering the extent of that company’s negligence.
The original proposal had also indicated that where safety was compromised in order to minimise costs,
this would be an additional factor which could lead a jury to think that the negligence was gross. That
provision will not be adopted going forward although clearly any companies convicted where safety has
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been breached for reasons of cost will face an increased penalty due to the presence of such a serious
aggravating feature.
A suggestion that where more than one party is involved in a safety accident leading to the death of an
individual then they should all be held collectively responsible has not won favour. Due to the seriousness
of a conviction for corporate manslaughter and the stigma that will attach, the government has reiterated
that all parties’ negligence must be considered individually even in respect of one and the same incident.
Finally, the government acknowledges that ten years after the proposals to change corporate
manslaughter were first suggested, there is still no law of corporate manslaughter. Their commitment is
made plain and this legislation will be put in as soon as parliamentary time allows.
It will be interesting to view the final version of the draft bill although the change in the relevant tests to
apply may realistically delay the implementation of this act still further.
Chris Green
Partner, BLM Manchester
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Social services liability: the next test case
Since the House of Lords confirmed the position in Barrett v Enfield LBC [1999] 3 All ER 193 it has been
established that once a child is taken into care, the local authority owes him a legal duty of care. The next
question is whether a duty of care may also exist in dealings between social services and families with
whom they have a professional involvement. Sooner or later another test case is likely to shed some light
on the problem.
A recent decision of the Court of Appeal (CA) in AD and OH v Bury Metropolitan Borough Council
confirmed that the council owed no duty to the mother of a child suspected of having non-accidental
injuries. The child was taken into care before it was discovered that an underlying medical condition was in
fact the cause of the injuries. This decision offers some comfort to social services faced with making
difficult decisions. If they err on the side of caution and erroneously take a child into care, acting upon
proper reasons at the time, they will not face a legal liability to the parent. However, the opposite side of
the coin may be that in circumstances where they fail to take a child into care when they could have done,
a legal liability could be imposed for the consequences of the inaction.
In order to better understand the trends in this developing area of law, it is important to look back at the
important legal changes of the last ten years.
In 1995 the House of Lords held in the case of X (Minors) v Bedfordshire CC that it would be contrary to
public policy if social services could be held liable for decisions interfering in family life, such as a failure to
take children into care or an erroneous decision to place a child in care. The decision left open the
possibility of legal liability if the actions of a local authority were so unreasonable as to be outside the
ambit of their discretion. There was considerable concern at the time that the actions of social services
would be hindered by the threat of litigation.
Since then the law has moved on, led by cases before European Court of Human Rights: Osman v United
Kingdom 2000 and Z v United Kingdom 2001. A series of strike out applications following X v Bedfordshire
led to a challenge that this breached article 6, the right to a fair trial. The decision of the ECHR in Z was
based upon articles 3 and 13 of the Convention (freedom from inhuman or degrading treatment and right
to an effective remedy). The ECHR was critical of the English courts’ approach.
However, the position was already changing in the UK with the House of Lords’ decision in Barrett v
Enfield BC in 1999. In this case, the claimant who had been in care from the age of 10 months to 17 years,
alleged negligence against his local authority for failing to look after him properly. The law lords held that
decisions taken after the claimant had been taken into care where justifiable before the courts. Once a
child was in care, the local authority did owe him a legal duty of care.
This was confirmed in S v Gloucestershire CC the following year when the CA held that a child abused
after being placed with a foster parent had an arguable claim against the local authority which placed him
there.
The latest nail in the coffin of X v Bedfordshire was the case of JD v East Berkshire Community Health
NHS Trust [2003] where appeal judges reasoned that the decision in Bedfordshire could not survive. They
stated that:
It will no longer be legitimate to rule that, as a matter of law, no common law duty of care is owed
to a child in relation to the investigation of the suspected child abuse and the initiation and pursuit
of care proceedings. It is possible that there will be factual situations where it is not fair, just or
reasonable to impose a duty of care, but each case will fall to be determined on its individual
facts.
But the appeal judges refrained from finding that a duty was owed to the parents, apart from the duty of
acting in good faith, and did not make a formal finding on the issue of failure to take children in care. The
House of Lords (Lord Bingham dissenting) agreed and found in JD v East Berkshire Community Health
NHS Trust [2005] 2 AC 373 that to create a duty to the parents beyond the duty of acting in good faith
would fundamentally alter the relationship and working practices of social services. Ultimately this would
be to the detriment of children who were thought to be possible victims of abuse and for whom child
protection procedures were set up. As Lord Nicholls stated:
The seriousness of child abuse as a social problem demands that health professionals, acting in
good faith in what they believe are the best interests of the child, should not be subject to
potentially conflicting duties.
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A recent attempt to distinguish from JD v East Berkshire has now been squarely rejected by the CA. In AD
& OH v Bury Metropolitan Borough Council (January 2006), the CA confirmed that the council owed no
duty to the mother of a child suspected of having non-accidental injuries. It was artificial to seek to
distinguish between events arising before and after the interim care order, or to suggest that a duty to the
parent could arise once a community of interest with the child was established. As stated by Lord Justice
Wall:
In the context of child abuse investigation, a duty cannot exist at one moment and then cease to
exist the next because of a shift in the factual matrix. It either exists throughout the investigation
or it does not.
Although the Human Rights Act 1998 has had a tremendous impact in promoting the justiciability of
decisions taken by social services, it is ironic to note that it may have a reverse impact on future cases. As
claims under the HRA 1998 increasingly filter through the courts, there will not be the same pressure on
the courts to find that a duty of care is owed because of the availability of a remedy under the Act.
There are though a number of possible next test cases on the prevention of whether social services owe a
duty of care to children who were not taken into care, but perhaps should have been. There are in the
wings claims on behalf of children who were not taken into care, but were known to social services and
who did suffer significant neglect or abuse. The more harrowing the facts, the more tempting the courts
may find it to impose a legal duty.
Local authorities and their insurers will need to be alert to the prospect that one of their claims could be the
next important legal challenge on behalf of a claimant.
Charlotte Capstick
Partner, BLM London
Geneviève Rich
Solicitor, BLM London
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Limitation period in contribution claims clarified
The time limit for bringing a claim for contribution is two years from a judgment or agreement to settle the
original claim. This is provided for by Section 10 of the Limitation Act 1980. From a practical perspective it
is important to note when an agreement to settle with a claimant is reached so that the two year period can
be calculated. Of less concern has been the date of a court judgment as that is always clear from the
document sealed by the court.
But what is a judgment? Is a ruling on liability sufficient to trigger the limitation period or does the issue of
quantum have to be dealt with as well?
This was the issue which the Court of Appeal had to decide in Aer Lingus v Glidacroft on, as it happens,
almost the eighth anniversary of the original accident in which Aer Lingus’ employee William Smyth was
injured at Heathrow Airport.
As with any decision involving limitation it is necessary to consider the dates of the events in question. In
this case they were as follows:
27 January 1998
November 2000
9 May 2001
3 October 2003
4 February 2004
William Smyth injured.
Proceedings by Smyth issued.
Judgment by consent against Aer Lingus with damages to be assessed.
Quantum judgment – £490,000 plus costs.
Aer Lingus issued proceedings against Gildacroft.
It can be seen therefore that Aer Lingus’ contribution claim was issued more than two years after the
liability judgment in Mr Smyth’s favour but less than two years after the judgment dealing with quantum.
Lord Justice Rix, giving the judgment of the Court of Appeal found that, on balance, he preferred Aer
Lingus’ submissions and held that the judgment in s10(3) ‘is a judgment which ascertains the quantum,
and not merely the existence, of the tortfeasor’s liability’ ie the two years runs from when the quantum of
the original claim is determined by the court (or by agreement) and that a judgment on liability alone is not
sufficient to start the limitation period.
It has always been clear that if a claim is settled by agreement the two year limitation period runs from the
date of agreement on both liability and quantum but the position was never clear in relation to judgments.
This decision clears up that confusion and introduces a welcome consistency to the point. Liability insurers
need to be aware that claims (both for and against them) that they thought had become time barred may
not now be. A review of such files may be appropriate to ensure reserves are accurately set and possible
recoveries are not missed.
Peter Fitzpatrick
Partner, BLM London
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