Dixon v Clement Jones Solicitors (a firm)

LORD JUSTICE RIX: This appeal arises out of the acknowledged negligence of a firm of solicitors, Clement Jones Solicitors, in allowing a claim to be lost through its being struck out for failure to serve a statement of claim. The underlying claim was for professional negligence against a firm of accountants known as The Dyer Partnership for failing to advise the claimant, Mrs Patricia Dixon, properly on a business transaction.

The question which the judge at trial had to determine was whether Mrs Dixon had lost anything of value in being deprived of the chance to take that underlying claim forward to judgment or settlement. The judge found that the struck out claim was of some value. He found that Mrs Dixon had a potentially valuable claim against the firm of accountants, which he assessed at 30 per cent. It is at any rate now common ground that the accountants were negligent in failing to warn Mrs Dixon explicitly of the dangers inherent in the viability of the projected figures for her business venture and of risking her home as security for the borrowings necessary to start up that venture. Nevertheless, the judge assessed the value of the lost claim at only 30 per cent because he felt that Mrs Dixon was, on balance, likely to have pressed ahead despite receiving the warnings which she should have got, but did not in fact receive.

In those circumstances the solicitors, now appellants, say that the judge below, Penry-Davey J, was obliged to have dismissed Mrs Dixon's claim against the solicitors or should have assessed its value as negligible and certainly at less than 30 per cent.

The essential facts of the claim were that Mrs Dixon had for a long time been contemplating that a position which was subsequently developed and became known as Moggy's at 12 Crundles, Moggs Head, Herne Farm Estate, Petersfield in Hampshire would make a good convenience store. She pursued this idea in partnership with a friend, Mr Mooney.

The prospect of development became a live one in 1990 and she obtained an option of first refusal from the developers. Armed with this Mr Mooney approached his bank, Barclays, for a loan. On 20th November 1990 Barclays wrote to Mr Mooney. In a reply full of kindness and sound advice, but on the instant request negative, the bank declined the loan and concluded as follows:

As a result of receiving that letter on 21st November 1990 Mrs Dixon wrote to Mrs Dyer of The Dyer Partnership asking for her advice as to the best place to approach for funds, but also adding:

Passing over his detailed findings of fact, about which I shall say a little further below, I go straightway to the judge's essential conclusions towards the end of his judgment. At paragraph 41 he said this:

The judge then considered the three ways in which a case of negligence was put against the accountants. He said that the first way of putting Mrs Dixon's case regarding her lost claim alleged a failure by the accountants properly to advise regarding all aspects of the business transaction, including advising on whether it was sensible to proceed with the purchase and business proposition. On that limb the judge essentially found that there was a realistic claim in negligence against the accountants. He put it in this way at the end of paragraph 43:

The judge next considered two other ways in which the claim of negligence would have been put against the accountants, but rejected both of them as wholly unsubstantiated. The first of those two further cases was to the effect that Mrs Dixon had been positively persuaded to mortgage her unencumbered home by the accountants on the basis that the business proposition was viable and that the house would not be at risk. The third way in which she would have put her case alleged that the accountants had given positive advice to take out the National Home Loans loan secured on Mrs Dixon's home. As I said the judge rejected both those second and third limbs of the claim as entirely unsubstantiated. He then concluded in these paragraphs:

In the light of those findings, on this appeal Mr Simon Monty QC, on behalf of the solicitors, has raised three issues. They are essentially as follows: (1) whether Mrs Dixon fails on the simple ground that, in the light of the judge's findings, she would, on the balance of probabilities, have been unable in the underlying litigation against the accountants to prove the causation of her loss because on those findings she was likely to have pressed on with her decision to buy the shop and secure her borrowings on her home despite any warnings that Mrs Dyer would have given, in other words even in the absence of any negligence on the part of the accountants; (2) whether even if it is a matter of assessing Mrs Dixon's overall chances in the underlying litigation, including the chances of her succeeding on that causation issue, like any other issue that would arise in that litigation, nevertheless the correct view of the judge's findings should have led him to assess those chances as negligible and therefore zero; and (3) whether on the same basis the correct view of the judge's findings should have led him to assess those chances at no more than five to ten per cent.

I need now to set out in a little further detail the underlying facts and findings regarding this litigation. Mrs Dixon's enthusiasm for a convenience store at 12 Crundles went back as long as 1981 or 1982, but at any rate by 1990, as I have mentioned, with the development of the location, Mrs Dixon got her chance to proceed. She was then some 59 or 60 years old.

On 12th November 1990 she and her partner, Mr Mooney, met Mrs Dyer for the first time. On the next day, 13th November, she faxed Mrs Dyer asking her firm to accept them as clients in the transaction. I have already mentioned the Barclays' letter of 20th November and the terms in which the proposition was declined. Similarly, I have mentioned the important letter of 21st November which Mrs Dixon wrote on the very next day to Mrs Dyer asking her to look at the projected figures more deeply since they were "a little unsure of ourselves without professional advice".

There was a meeting on the following day, 22nd November, between Mrs Dixon and Mrs Dyer and a mortgage broker called Mr Chrimes. On 27th November there was, Mrs Dixon said, a second and, on her account, critical meeting with Mrs Dyer at which Mrs Dixon said that Mrs Dyer had persuaded her to use her home as security for the venture under the assurance that the business was viable and she would never be in any risk of losing her home and that she should "go for it". But the judge ultimately found that the evidence regarding that meeting was so unsatisfactory that he was not even able to conclude that there was any sufficient evidence to substantiate Mrs Dixon's account that Mrs Dyer was present at that meeting at all, or indeed at any other meeting at which she had used the alleged persuasion and assurances.

On 5th January 1991 Mrs Dixon and Mr Mooney received a mortgage offer from National Home Loans which was the proposal which they ultimately took up. On 7th January there was a file note on Mrs Dyer's files to the effect that the business would not be viable if it had to meet an extra £900 per month in the way of costs. At that time the £900 per month figure there in question was the possibility that insurance on the joint lives of both Mrs Dixon and Mr Mooney would cost not £900 per month, which was a figure within the equations, but a further £900.

On 9th January Mrs Dyer produced her first cash flow forecast which she faxed that day to the partners and which she followed up on 14th January 1991 with a letter regarding that cash flow forecast. Those figures were based on figures prepared by Mr Mooney and which were made available at the parties' original meeting.

In her letter Mrs Dyer explained that, on the basis of those figures, the venture ought to move into positive cash flow in the fifth month and also in that month would show a small profit dependant on a certain level of turnover. However, those figures took account of a sum of only £466 per month by way of salaries, took no account of the prospect that as turnover might rise that figure was too low, and allowed nothing for depreciation, VAT or withdrawals by the partners.

On 25th January contracts were exchanged and, so far as Mrs Dixon and her partner were concerned, the die was cast. Just over a month later on 28th February Mrs Dyer wrote to the two partners again with a revised cash flow forecast, this time showing no profit within the first year at all. The essential difference, as I understand it, was that she was now working on a revised salary figure. Again no allowance was made for VAT, depreciation or withdrawals by the partners. Those figures showed, in effect, that the business was not viable, but not even on that occasion, let alone on the previous occasion before contracts had been exchanged for the purchase of the shop, had any warning been given as to the risks involved.

Some time in 1992 the partners' relationship with the accountants collapsed, possibly over a fee dispute. In the meantime the business was not going well. In early 1994 National Home Loans started possession proceedings to obtain possession of Mrs Dixon's home and in August 1995 her home was repossessed. Some time after that, and certainly by 17th January 1996, the partners had approached the solicitors in this litigation to assist them in presenting a claim against the accountants. I say that that approach had been made by 17th January 1996 because on that date the solicitors made an application for legal aid, albeit without stating any assessment of the chances of success on the standard application form. However, in successive applications of 12th March and 16th August 1996 the solicitors assessed the prospects of success as 50 to 60 per cent and 60 to 80 per cent, respectively. In the meantime, however, on 28th February 1996 Mr Mooney had unfortunately died and Mrs Dixon shut up shop as a direct consequence of losing her partner.

The proceedings against the accountants were commenced by the solicitors on behalf of Mrs Dixon in September 1996 and her claim was struck out for failure to serve a statement of claim on 10th October 1997. It was on 30th January 2002 that Mrs Dixon issued her claim form against the solicitors in these proceedings.

The judge made detailed findings about Mrs Dixon's evidence. Mrs Dixon was in fact the only witness at the trial. At paragraph 40 of his judgment he said this:

He then gave detailed examples of the respects in which he could not accept Mrs Dixon's evidence, perhaps the most significant part of which is as follows, also taken from paragraph 40:

Perhaps it was very much because of the cloud thereby cast over Mrs Dixon's credibility as a whole that the judge later went on in a passage which I have already read to conclude that despite her evidence to the contrary she would have pressed on in purchasing the shop and setting up the business even if she had been warned by Mrs Dyer, as she should have been, about the risks of doing so.

In the light of those findings Mr Monty has submitted that the judge, in concluding that Mrs Dixon's credibility was shot to pieces and in finding that she would, on the balance of probabilities, have pressed on, regardless of any advice that she might have received from the accountants, that the vital aspect of proving causation of loss against the accountants could not have been proved by Mrs Dixon and that, therefore, the judge ought to have concluded that the claim against the accountants must have failed and could, as a consequence, only be assessed as of negligible, that is to say zero value. In any event, Mr Monty submits that on the same basis the judge's assessment of a 30 per cent chance of success against the accountants was to put the matter far too high.

The law regarding the evaluation of the loss of a chance when a solicitor by his negligence has lost for his client a claim being litigated against some third party is set out in what are by now some well-known cases. I will, as briefly as I can, make reference to them. The leading case in modern times is usually said to be Kitchen v Royal Air Force Association [1958] 1 WLR 563. In his judgment in that case Lord Evershed MR analysed the matter in a much cited passage at 574/5 as follows:

The peculiarly difficult position of a solicitor sued for the negligence of losing litigation for his client by reason of having his client's claim struck out is referred to in a passage of Lord Diplock's judgment in Allen v Sir Alfred MacAlpine and Sons [1968] 2 QB 229 at 256/257 as follows:

Building upon those two authorities in more recent years in Mount v Barker Austin (a firm) (1998) PNLR 493 at 510/511, Simon Brown LJ formulated the following principles as being applicable to a solicitor sued for negligence in allowing his client's underlying litigation to be struck out:

The only comment which I would make about that most helpful restatement of the relevant principles relates to the passage where in principle 4 Simon Brown LJ referred to the plaintiff's prospects of success 'had the original litigation been fought out'. I am inclined to think that what Simon Brown LJ was referring to there was simply to the underlying litigation. There is no requirement in such a loss of a chance case to fight out a trial within a trial, indeed the authorities show as a whole that that is what should be avoided. It is the prospects and not the hypothetical decision in the lost trial that have to be investigated. Moreover, one of the possibilities, as the cases repeatedly mentioned, of the loss of a valid and non-negligible claim is that whatever might have been the result if it had been fought out, the claim may well have been settled. That again emphasises that the test is not to find what the original decision of the underlying litigation would have been as if that litigation had been fought out, but to assess what the prospects were.

Simon Brown LJ's restatement of the principles has since been applied in other cases, for instance Sharif v Garret & Co (a firm) (2001) EWCA Civ 1269; [2002] 1 WLR 3118.

That the essence of this jurisprudence is not to fight out a trial within a trial was emphasised in Hanif v Middleweeks (a firm) [2000] Lloyd's Rep PN 920. Mance LJ there said:

Finally I would refer briefly to Hatswell v Goldbergs (a firm) [2002] Lloyd's Rep PN 359, which is an example of the albeit rare case in this context where a judge finds that the loss of the underlying litigation was worthless. That was a case where an underlying claim in medical negligence was, in the opinion of both the trial judge and this court, made simply impossible by a complete and determinative line of medical notes the effect of which meant that the claim was bound to fail and therefore had no value at all. That, however, in my judgment, throws no light on the present case where the judge found that Mrs Dixon's claim did have a real value, albeit only 30 per cent, and was not bound inevitably to fail.

Now all the cases which I have mentioned so far are cases of solicitors' negligence in the conduct of a claim against a third party where that negligence has led to the dismissal of the underlying claim. That situation can be contrasted with a claim in negligence against solicitors, or it may well be members of a different profession, which arises not out of the loss of litigation of an underlying claim against third parties, but out of a transaction in which the solicitors or other professionals have acted and/or advised the claimant. A leading example of such a transaction-based claim for professional negligence in recent years is the case of Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602. In that case two critical issues, amongst others, arose. One was whether the plaintiffs there would, if they had received the right advice from their solicitors, have sought to renegotiate a contract with their sellers and, if so, secondly, whether they would have succeeded in that renegotiation. The first question depended only on the claimants themselves: would they have sought to renegotiate? The second question, however, depended on the actions of a third party, the sellers. All three members of this court held that an important distinction lay between those two questions. Thus at 1609/1610 Stuart-Smith LJ analysed the matter as follows:

At 1618 Hobhouse LJ agreed with that judgment and the reasons given in it, and at page 1623 in a judgment in which Millett LJ dissented on the factual conclusion, he nevertheless agreed with Stuart-Smith LJ's analysis of the distinction that arises between the two questions, in the following passage:

The question is whether that analysis from Allied Maples, which I would emphasise arose in a transaction situation and not in a struck-out litigation situation, applies to the present case which is of the latter variety. Mr Monty submits that it does and that therefore once the judge found, as he did, on the balance of probabilities that Mrs Dixon would have been likely to have continued, despite any warnings she had received from the accountants, her claim was lost as a matter of the issue of causation and had become a worthless claim.

The question raised by that submission has never, so far as I am aware, been definitively decided, but a case that comes very close to it is Hanif v Middleweeks, to which I have previously referred on another point. That was a claim against solicitors for the loss of underlying struck-out litigation. The underlying litigation was a claim against insurance brokers for the loss of a valid insurance policy. The claimant had suffered loss because the property which he had wished to insure was burnt to the ground. However one of the issues raised in the underlying litigation before it was struck out was that the claimant, or his associate, had himself set fire to the property in question, that it was a case of sell-inflicted arson and not accident or misfortune at all.

It might have been thought, therefore, if Mr Monty were correct in his submission, that the issue of arson or not was an issue rather like the causation issue which arose in Allied Maples, and so it is interesting to see how that matter was dealt with in Hanif. Indeed the submission now made by Mr Monty was made on behalf of the solicitors in that case, see Mance LJ's judgment at page 921:

However, Mance LJ rejected that submission. Thus at paragraph 17 and following he said:

In a later passage Mance LJ went on to advert to the significance of the possibility of a settlement:

Mance LJ then went on to cite from passages of the trial judge's judgment where the latter expressed the view on balance that the claimant and his partner in that case had set light to the premises, while accepting that a defence to that charge of fraudulent conduct was not entirely doomed to failure. The trial judge valued that chance at 25 per cent, not very far from the judge's figure in the present case. Mance LJ commented:

Roch LJ, who agreed, perhaps put the point even more clearly in the following passage:

Roch LJ continued to say that he had no doubt that that was the exercise that the trial judge was performing. He cited passages from the judgment below, some of them similar to those already cited by Mance LJ.

I would understand that judgment as affirming, in the context of a submission that on the arson issue the question should be treated as falling within Stuart-Smith's second rather than his third category, a decision that in a solicitor negligence case arising out of the dismissal of underlying litigation the true analysis is that, like any other issue in the underlying litigation, it falls under the third category of Stuart-Smith LJ's analysis.

Is that the correct analysis in such a case of a claim against solicitors arising out of the loss through strike-out of underlying litigation? No case has been cited to the court that suggests that it is not. The discussions in Jackson and Powell on Professional Negligence, 5th edition, 2002, and McGregor on Damages, 17th edition, 2003, which I have consulted, do not suggest that the transaction situation analysis concerning the issue of causation, as far as that depends on the claimant's own actions, applies to the loss of underlying litigation situation. None of the loss of struck-out litigation cases which I have considered in this judgment, including cases which are subsequent to and cite Allied Maples, suggest that any causation issue in the underlying litigation is dealt with as a matter of a finding on the balance of probabilities, rather than as merely another issue within the generality of issues in the underlying litigation which have to be assessed for their prospects only; nor should the position, in my judgment, be otherwise. The causation issue is, in truth, just one among a number of issues which, in the underlying litigation, would have had to have been litigated or settled. Provided the underlying claim is of some real value, then the separate causation issue which arises in the instant claim out of the loss of underlying litigation answers itself. In other words, unless the underlying claim is at one or other end of the Kitchen spectrum, it is not possible to say on the findings of fact in this case that every judge would have regarded the issue in the same way. Ultimately, the value of the underlying litigation did not lie in Mrs Dixon's own hands, but in the hands of the court (or, in the case of settlement, in the hands of bilateral negotiation).

In this connection I would express my own personal scepticism that I would have decided as the judge below found that Mrs Dixon was likely to have continued regardless. Such a finding is after all against the inherent probabilities of the matter, even when full account is taken of the fact that she was very keen on the venture and determined to proceed if she possibly could. Nevertheless, that she was not oblivious to the promptings or dictates of prudence is made clear by the fact that in the light of the Barclays' letter she expressly asked the accountants to advise her, expressing herself and her partner to be in need of professional advice. In the critical finding from paragraph 41 of his judgment, which I cited at paragraph 7 above, the judge merely referred to Mrs Dixon's willingness to proceed despite the warnings clearly spelt out in the Barclays' letter as being proof of her overriding determination. He expressed that by saying that in the light of that determination she had put the Barclays warning "to the back of her mind".

I bear in mind that it was the judge who heard Mrs Dixon's evidence. But in truth that was not, in my judgment, a fair or complete assessment. She had not put that warning to the back of her mind. She had, on the basis of that warning, immediately and expressly asked the accountants to give her their own advice on the figures. The judge did not at this point of his judgment refer back to that important letter from Mrs Dixon to the accountants of 21st November in which she sought that advice. I do not see what is in any way unlikely about the possibility or probability that, if she had been warned that the cash flow forecasts did not stand up to a viable business proposition and that she should not, in those circumstances, risk her capital, let alone her home, she would not in those circumstances have been determined to proceed. If it had been spelt out to her that the salary figure was unrealistic and that no allowance had been made for depreciation or any withdrawals of any kind from the business, why would she have been absolutely determined to proceed? In such a case her own accountants would have added their own warnings to that of Barclays, and as a result of her own specific request for advice in the light of Barclays' warning.

I make these remarks not because there is on this appeal any question of reversing the judge's finding about this matter. There is, in any event, no cross-appeal against that finding. Nevertheless, I put forward my own personal views as an illustration of the possibility that although one judge may look upon the matter in one way, another judge may well look upon it in another way. This is the sort of situation where, if this issue arose on appeal, an appeal court would be likely to say that whatever might be the personal feelings of the appeal court judge it was not possible to say that the trial judge, who had heard the witnesses, was wrong in his conclusion. But that is not the issue in this case. The issue here is whether the trial judge's findings are to be read as findings that not only was Mrs Dixon unlikely to accept good professional advice from accountants, in his judgment, but that her claim against the accountants was bound to fail: in other words that no judge could reasonably have come to any other conclusion. It is for that reason that I have made these remarks about my own personal way of looking at the matter.

Moreover, quite apart from the possibility that the trial judge back in 1997, or thereabouts, would have had a different view of the matter, it is also not possible to say that at the underlying trial, if the litigation had survived, more witnesses or documents might not have been available which might have thrown a different light on the matter (and see the opening sentences of the judge's para 40, cited above). In this respect I do not, however, take into account the possibility that Mrs Dixon's evidence might have been supported by Mr Mooney because he, unfortunately, had died very early on in February 1996. But it is at any event impossible to be categoric about what effect the cross-examination of Mrs Dyer herself would have had on the litigation.

Moreover, although there was no positive evidence regarding the possibility of settlement in the underlying litigation, it is impossible not to have regard to the fact that in a case where, in effect, as Mr Monty accepts, there was negligence on the part of the accountants, some settlement of real value would have been arrived at.

For these reasons, in my judgment, the judge approached the matter in a perfectly logical manner. He had to assess the prospects. On one way of putting the claim against the accountants he was, in effect, satisfied that there was a good claim for negligence. It is not now disputed that the accountants were negligent. He did not assess the value of that claim by itself, but there was a good claim that the accountants were negligent. Nevertheless he marked Mrs Dixon's lost claim down in value on the basis of his view about her determination to proceed in any event. In doing so, however, he emphasised two or three times that he was not saying that her claim was doomed to failure. He expressly accepted at one point the possibility that she might have accepted the advice. He expressly said (at para 48) that there was a prospect of Mrs Dixon proving that if the accountants had complied with their duty of care she would not have proceeded. He expressly accepted that the lost claim had some real value, albeit he assessed it as low at 30 per cent.

For these reasons it ought to be clear, as I hope it is, that each of Mr Monty's three grounds of appeal must fail. In my judgment this kind of litigation against a solicitor for negligence arising out of the dismissal of his client's lost litigation is different from the transaction class of claim discussed in Allied Maples. Therefore there was no requirement as a matter of law for Mrs Dixon to prove on the balance of probabilities or else lose her case entirely that she would not have proceeded if she had received the right advice. It follows that Mr Monty's first ground of appeal must fail.

It also follows from what I have said that the judge was clearly of the opinion that despite the strictures that he had to make about Mrs Dixon's credibility in general, and her determination to proceed in particular, he was unable to assess the value of her claim at zero; it had a real value. Therefore I am unable to accede to Mr Monty's submission that the judge should have assessed the value of Mrs Dixon's claim as negligible or at zero.

Finally, the question arises as to whether this court should interfere with his assessment of 30 per cent. That assessment is essentially a matter for the trial judge. It is inherently akin to an assessment, for instance, of contributory negligence, a context where this court has repeatedly said that an assessment will not be interfered with on appeal unless the judge has gone fundamentally wrong. For myself, for reasons I have explained, I would have thought that 30 per cent was putting the matter even perhaps too low. In any event I am wholly unable to say that it is put too high.

For these reasons I would dismiss this appeal.

LORD JUSTICE CARNWATH: I agree. The law in these cases is reasonably clear, as I think in the end Mr Monty accepted. Mrs Dixon lost the opportunity to pursue her claim as a result of the negligence of her solicitors. The court has to decide whether she lost something of value, in the sense that the prospects were better than negligible. If the answer to that is 'yes', then it has to put a figure on what she has lost. That, as Simon Brown LJ said in Mount v Barker Austin, depends on a realistic assessment of the prospects of a successful outcome. As my Lord has said, that may include successful outcome due to a settlement. I agree with him that the reference in Simon Brown LJ's judgment to the litigation being "fought out" does not imply that one has to assume a full trial of the action.

The complaint here seems to be a suggested conflict between paragraphs 43 and 47. In the first, the judge found that she would have gone ahead with the project in any event even if proper advice had been given; in the second, he found that she had a 30 per cent prospect of success, in an action which depended on her establishing the contrary. I see no necessary inconsistency. The judge was not trying the action against the accountants. The opportunity for a trial of that had been lost. His view as to what the outcome would have been was strictly irrelevant, except as one stage in the process of deciding the value of the loss opportunity. The terms in which he expressed his findings as to the likelihood of her going ahead, in paragraph 43, make quite clear that he was dealing with the point on the balance of probabilities. It was a finding that she was more likely than not to have gone ahead. That may mean no more than that. Viewed at the time the opportunity was lost, her prospects were less than 50 per cent. Accordingly, I see no inconsistency with the judge's assessment of the lost opportunity as representing a prospect of 30 per cent.

LORD SLYNN: For the reasons given by my Lord I too would dismiss this appeal. Understandably, great emphasis has been put by Mr Monty on the final sentence of paragraph 43 of the judgment in which, as has already been stated, the judge felt that he could not conclude that Mrs Dixon would necessarily have accepted the advice, and although he did not exclude the possibility that she might have done so, the judge thought in his judgment that it was more likely, having regard to her determination to go through with the project, that she would have rejected the warning and would have gone ahead. I do not read that as saying that she was bound to go ahead or that she was bound to fail. It seems to me that the passage which comes later in the judgment really undermines Mr Monty's emphasis on this point. My Lord has referred to it, but I think it is worth reading it in full:

That shows conclusively what was really in the judge's mind and with that brief supplementary point, I agree that the appeal be dismissed.