Percy v White & Anor

The claimant, Mr Percy, instructed Merriman White (MW) who in turn instructed counsel, Mr Mayall, in relation to a dispute arising from a commercial joint venture. After the derivative claim brought on behalf of the company failed at the permission stage, Mr Percy sued MW and Mayall in negligence; MW later settled the negligence claim and sought contribution from Mayall under the Civil Liability (Contribution) Act 1978. The court held that (i) the burden at a permission hearing for a derivative claim lies on the claimant to show a prima facie case (CPR 19.9; Companies Act 2006 ss.260–263); (ii) section 1(4) of the 1978 Act permits a defendant who has made a bona fide settlement to seek contribution without an inquiry into whether the settling party was actually liable, subject to the proviso in s.1(4); and (iii) on the assumed facts MW had a reasonable cause of action and was therefore entitled to contribution from Mayall. The judge found failures by Mayall to warn adequately about the risk of refusal of permission, to consider the company’s interests and the likely effect of a just and equitable winding up, and to revisit a substantial mediation offer; those failures causally contributed to the loss. Apportionment of responsibility was fixed at 40% against Mayall.

Background and procedural posture.

Mr Percy and Mr Trevor entered a joint venture using a corporate structure (Seven Holdings Limited and two vehicle companies). Mr Percy instructed Merriman White (MW) about suspected misapplication of company resources by Mr Trevor. MW instructed Mr Mayall QC (in private practice) to advise, draft pleadings and conduct the derivative claim on behalf of the company. The derivative claim seeking permission to continue was refused by Deputy Judge Donaldson QC ([2011] EWHC 1893 (Ch)). Mr Percy then sued MW and Mayall in negligence; the claim against Mayall was discontinued by Mr Percy (each side to bear own costs) and MW later settled with Mr Percy by Tomlin order dated 7 January 2019. MW sought contribution from Mayall under the Civil Liability (Contribution) Act 1978.

Nature of the application.

• MW applied for contribution from Mayall pursuant to the 1978 Act in respect of the bona fide settlement with Mr Percy of the negligence claim.
• The court was asked to determine entitlement to contribution, whether collateral defences (including the no reflective loss principle) could be relied on in contribution proceedings, causation and the appropriate apportionment of responsibility.

Issues framed by the court.

• Which party bears the burden at a permission hearing for a derivative claim.
• Whether, under s.1(4) of the 1978 Act, MW’s bona fide settlement permitted a contribution claim without inquiry into whether MW was actually liable, and the extent to which a defendant may plead collateral defences (including reflective loss) in response.
• Whether Mayall was negligent in advising strategy, failing to warn of the real risks (including the prospect of winding up) and failing to advise reconsideration of a substantial mediation offer, and whether those failures caused loss.
• If contribution is available, what apportionment is just and equitable under s.2(1) of the 1978 Act.

Court’s reasoning and conclusions.

• The court confirmed that the burden to establish a prima facie case at the permission stage of a derivative claim lies with the claimant under CPR 19.9 and Companies Act 2006 ss.260–263.
• Applying WH Newson v IMI (and following the Court of Appeal reasoning), the court held that s.1(4) of the 1978 Act allows a party who has made a bona fide settlement to seek contribution without the tribunal inquiring into whether the settling party was in fact liable, subject to the proviso that the settlement would have been liable "assuming the factual basis could be established". Accordingly collateral defences which require inquiry into actual liability are not admissible to defeat the contribution claim.
• The court rejected Mayall’s invitation to re-open or re-assess the Permission Judgment and declined to permit a contribution defendant to deploy a reflective loss/other collateral defence to avoid contribution under s.1(4).
• On the assumed facts the negligence claim disclosed a reasonable cause of action against MW. The court found that Mayall had not adequately warned Mr Percy (and MW) of the realistic risk that permission would be refused, had not properly considered the company’s best interests (including the likelihood of just and equitable winding up) and failed to advise revisiting a substantial mediation offer; those failures were causative of loss.
• Applying s.2(1) of the 1978 Act, the court apportioned responsibility and ordered contribution from Mayall at 40% of the settlement sum, MW bearing the remainder.

Witnesses: evidence was heard from Mr Jeremiah O'Sullivan (MW) and Mr Mayall. The judgment adopts findings of the earlier permission hearing as final and declines to re-open them.

At first instance the court allowed MW's claim for contribution under the Civil Liability (Contribution) Act 1978. The judge held that s.1(4) permits a contribution claim following a bona fide settlement without inquiry into whether the settling party was actually liable (subject to the proviso), that MW had a reasonable cause of action so as to satisfy s.1(4), that Mayall had been negligent in failing to warn and advise on key risks and settlement, and that causation was established. Apportionment of responsibility was fixed at 40% against Mayall and 60% against MW.