Solicitors Negligence – Undersettlement Claims

John McAuley, CMO & Head of Talent

Estimated read time: 5 Minutes

In this article, Litigation Partner David Turner looks at the law regarding settlement of claims at an under value, and some of the practical issues involved.  

Introduction

In the recent High Court case of the Duke of Sussex (and others) against Mirror Group Newspapers, whilst addressing costs issues, Mr Justice Fancourt made the following statement:

“By definition, settlement negotiations are not a valuation exercise done with the accuracy that might result from a full trial… I understand the additional difficulty of settling claims when MGN was in default of its disclosure obligations, but that issue does not justify a claimant in sitting tight, and not cooperating or negotiating at all”.

The above case and statement was reported widely, including the Law Society Gazette where the following anonymous comment was left:

“Lawyers regularly get sued for settlement of claims at an under value. Whole firm’s business models work in this area! So according to Fancourt, it’s ok to be negligent”.

This article looks at the law regarding settlement of claims at an under value and at some of the practical issues involved.

The Background

There is a potential conflict of interest where a solicitor is acting for a claimant client on a no win no fee basis.  The solicitor only gets paid on a trial success or on a settlement.  Accordingly, when and if a defendant gets around to making an offer of settlement, plus costs, the solicitor may well be very anxious to settle. Indeed, it may well be in the solicitor’s interests to settle, and therefore get its costs.  It might not however, be in the client’s best interests to settle, because the figure offered might well be on the low side.  And the defendant (or more likely its insurers) will know this very well and will seek to divide the parties.  This is the background to so many under settlement claims.  Later, the claimant feels that he/she settled too quickly, perhaps has a chat with a different solicitor and the cycle of litigation continues with a negligence action against the original solicitor.

The Law

What is the law when it comes to determining a claim based on the settlement of an earlier claim at an alleged under value? These cases are what are known as “loss of a chance” cases; namely that the claimant has lost the chance of achieving a potentially better result, either in a different settlement scenario or at the trial of the matter. But how can a court possibly assess such a case?  Does a court have a full re-run of the original litigation?  And how does the court approach breach of duty issues?  Sometimes, breach of duty issues can be straight forward – for example a solicitor may have missed the limitation period for issuing legal proceedings.

The first thing the court therefore has to assess is whether the solicitor has acted in breach of duty.  Evidence of a solicitor putting undue pressure on a client would, I submit, be clear breach of duty.  But even after a breach of duty can be established, how does a court assess loss?  On this issue the court has adopted a process which is certainly not overly forensic.  The law on the matter is set out in the Court of Appeal authority of Allied Maples -v- Simmons & Simmons [1995].

Although some thirty years old, this Court of Appeal case remains the leading authority on the topic.  It has been regularly approved and cited and indeed received approval from the Supreme Court in Perry -v- Raleys [2019].

Allied Maples sets out a two-stage test for a Claimant in a loss of a chance action.  The first stage is that the Claimant has to show – on a balance of probabilities – that but for the Defendant’s negligence, he would have (in this case) proceeded to trial.

If a Claimant passes the first test, then he has to overcome the second test.  In the second test he has to persuade a court that he had a substantial chance, as opposed to a speculative chance of (in this case) receiving a damages award of more than what he/she originally settled for.

The actual words of the judge in the Allied Maples case are helpful.  Lord Justice Stuart Smith stated: “… in my judgement the Plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one.  If he succeeds in doing so, the evaluation of the chance is part of the assessment of the quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other. I do not think that it is helpful to seek to lay down in percentage terms what the lower and upper ends of the bracket should be.”

It is also important to note that when assessing the strength of the “chance”, a court will not carry out a trial within a trial.  All the authorities accept that there will be a certain amount of “broad brush” calculations in valuing the chance.

In calculating a Claimant’s loss, a court will assess what the Claimant might have been awarded in damages, and then apply a percentage figure to that finding.

The burden of proof on whether something constitutes a real and substantial chance is not as high as it being based on a balance of probabilities test.  The chance has to be substantial but it does not have to be as high as probable. As we have seen on the allied Maples case, the court deliberately did not put percentages on what might constitute a substantial chance.  However, if they did, (and I must emphasise that they did not) it would appear to have to reach the region of between a 25% to 33% chance of success.  Accordingly, once a claimant can overcome this test, then he/she is likely to be awarded some damages albeit discounted.  The test has been criticised on the grounds that original underlying weak cases, (ie 33% chance of success) have a better chance of success when being re-litigated as a loss of a chance case.  As someone once said: “nothing improves a weak underlying claim than it being struck out as a result of the solicitor’s negligence”.

Conclusion

Going back to the quote of Mr Justice Fancourt about the desirability of early settlements, or rather the desirability of taking part in early settlement negotiations, in truth, despite the anonymous comment in the Law Society Gazette, there is nothing controversial (or new) about such a statement.  What he is not saying, is that by entering settlement negotiations, a solicitor has a blanket defence when it comes to settlement of claims at an under value.

Litigation Partner David Turner specialises in commercial dispute resolution. To contact David, call +44 (0)20 7504 7071 ext 2252 or email david.turner@nexa.law