Percy v White & Anor

Under section 1(4) of the Civil Liability (Contribution) Act 1978, a party who has made a bona fide settlement need not prove actual liability to the claimant when seeking contribution. The court asks only whether, assuming the factual basis of the settled claim, it disclosed a reasonable cause of action in law. Collateral defences, including no reflective loss, cannot ordinarily be used to reopen actual liability.

Where concurrent professional advisers caused the same loss, contribution is apportioned under section 2(1) on a just and equitable basis, having regard to each person’s responsibility. A solicitor and barrister advising on a derivative claim must consider the company’s interests, the statutory permission test and realistic alternatives, including winding up.

Mr Percy instructed Merriman White solicitors and David Mayall barrister in a dispute concerning a joint venture company, Seven Holdings Ltd. They advised and pursued a derivative claim concerning alleged misuse of company resources. Permission to continue was refused by the Deputy High Court Judge, and the claim was not allowed to proceed.

Mr Percy subsequently brought negligence proceedings against the solicitors and barrister. He discontinued the claim against Mr Mayall, and Merriman White settled with Mr Percy. Merriman White then sought a contribution from Mr Mayall under the Civil Liability (Contribution) Act 1978.

The principal issues were the extent of the inquiry permitted under section 1(4), whether no reflective loss or other collateral defences could be raised, whether the parties were liable for the same damage, and the appropriate apportionment.

1. Contribution entitlement. Merriman White’s settlement with Mr Percy was bona fide. Under section 1(4) of the Civil Liability (Contribution) Act 1978, it was unnecessary to determine whether Merriman White was actually liable. The court had to assume the factual basis of the settled claim and decide whether it disclosed a reasonable cause of action in law.
2. Collateral defences. The reasoning in WH Newson Holding Ltd v IMI Plc & Delta Ltd [2016] EWCA Civ 773; [2017] Ch 27 was applied. The court rejected an inquiry into actual liability through collateral defences. The reflective loss argument was therefore unavailable. It would reproduce the approach in Arab Monetary Fund v Hashim (No 8) The Times, 17 June 1993, which the Court of Appeal in Newson had rejected.
3. Reasonable cause of action and same damage. On the assumed facts, Mr Percy’s negligence claim disclosed a reasonable cause of action against Merriman White. The engagement documents, admissions and surrounding circumstances established a direct duty of care to Mr Percy. The no reflective loss principle did not bar the claim because Mr Percy was also a creditor of LWL and because the loss relied upon arose from the failure to protect his own interests. Merriman White and Mr Mayall were liable in respect of the same damage.
4. Permission judgment. The court declined to reconsider whether the earlier refusal of permission was correct. The order had not been appealed and remained effective. Reassessing the merits would undermine the rule of law and the administration of justice: Secretary of State for Trade and Industry v Bairstow [2003] EWCA Civ 321.
5. Responsibility and apportionment. The advice had to be assessed from the company’s perspective as well as the shareholder’s, because the permission court had to consider the company’s interests and the statutory duties in section 172 of the Companies Act 2006. Merriman White and Mr Mayall were both responsible for continuing without adequately warning Mr Percy of the risks. Merriman White bore the greater responsibility for the initial handling and failure to analyse settlement and alternative remedies. Mr Mayall bore predominant responsibility for taking the case to the permission hearing.
6. Applying section 2(1) of the 1978 Act, a contribution of 40% of the settlement sum was just and equitable. Merriman White was not entitled to an indemnity. The parties were invited to agree an order.

First-instance contribution proceedings. The judgment records that the earlier permission order in the derivative claim was not appealed and remained in force.