It wasn’t my fault! Contributory negligence through the actions of others

An unresolved issue that has received little attention is whether a solicitor’s conduct could be attributed to his client as contributory negligence by that client in a claim brought against a different professional.  If a claimant sues professional A for losses to which professional B also contributed, the normal course of events is for professional A to make a contribution claim against professional B. Professional A does not usually seek to attribute professional B’s conduct to the claimant in order to raise the defence of contributory negligence against the claimant. But it is easy to imagine circumstances in which the latter course would be attractive to professional A if available, for example if professional B is a man of straw whose insurers repudiate liability.

In Jackson and Powell on Professional Negligence (7th Ed.), it is stated that the argument for such a course “is unattractive in this context. Proportionate liability is not part of English law and has been rejected by the Law Commission.  It should not be introduced by this circuitous means.”  However, as the editors of Jackson and Powell note in a footnote, in a fairly recent case the New Zealand Court of Appeal was prepared to treat a house-buyer as guilty of contributory negligence on account of her solicitor’s failure to carry out a search: O'Hagan v Body Corporate 189855 [2010] NZCA 65; [2010] 3 NZLR 445.

Negligent solicitors and other agents

A rule labelled “the both ways test” and said to derive from the decision of the House of Lords in The Bernina (1888) 13 App Cas 1 can be stated as follows: X’s conduct should be attributed to Y for the purposes of holding  Y guilty of contributory negligence only if X’s conduct could give rise to vicarious liability if Y were sued as a defendant. On that test, there would not usually be any attribution of a professional’s negligence to establish contributory negligence against his client where (as is usual) the professional is an independent contractor and not an employee – because there is generally no vicarious liability for the actions of an independent contractor.

However, a solicitor is for some purposes his client’s agent, and a principal may be vicariously liable for his agent’s conduct. So does that expose a client to a finding of contributory negligence on account of his solicitor’s negligent (or fraudulent) conduct?

In O’Hagan the members of the New Zealand Court of Appeal each acknowledged the both ways test and that clients are not generally vicariously liable for their solicitor’s actions. Nonetheless they were prepared to reduce damages otherwise payable to the claimant on account of her solicitor’s failure to conduct a search which, if carried out, would have avoided the loss. They justified their decision on different grounds, all of which came down to policy in the particular context of the case.

In England there are no authorities which provide especially useful guidance.  In Henderson v Merrett Syndicates Ltd (No 2) [1996] PNLR 32, Cresswell J declined to hold Lloyd’s names guilty of contributory negligence on account of the negligence of members’ agents acting for them.  Unfortunately, Cresswell J did not set out any principled reason for his decision but based it on “the unusual and complex structure of Lloyd’s”. 

In a different but related context, Lightman J held that the indemnity payable by the Land Registry following rectification of the register to correct a mistake ought to be reduced on account of the fault of the claimant’s solicitor notwithstanding that the statute permitted a reduction only on account of the claimant’s own lack of care (cf “own fault” in the Law Reform (Contributory Negligence) Act 1945): Prestige Properties v Scottish Provident Institution [2003] Ch 1.  However, he gave no helpful explanation for his conclusion that a claimant’s own lack of care included the lack of care of his solicitors save that they were to be treated as the claimant’s agents.

So, the question whether in England and Wales a solicitor’s client might have his damages reduced for contributory negligence in an action against, say, a surveyor on account of the solicitor’s negligent conduct seems to remain an open one.

The effect of fraud

Further complexity is added if the solicitor is not merely negligent but rather engaged in a fraud against his client. It would seem peculiarly unfair to attribute the solicitor’s actions to the client in those circumstances. 

Two contrasting streams of authority are relevant in cases involving fraud.  First, there are the cases discussing “the Hampshire Land principle”. That principle is derived from Re Hampshire Land Co (No 2) [1896] 2 Ch 743.  In its purest form it is concerned with the rule that knowledge of an agent is normally attributed to his principal. The Hampshire Land principle provides for an exception to that rule where the agent is engaged in a fraud against his principal. A principal is not deemed to have the knowledge held by an agent engaged in a fraud against him. The existence of the Hampshire Land principle is recognised in many cases, not least by the House of Lords in Stone & Rolls Ltd v Moore Stephens [2009] 1 AC 1391. 

However, the Hampshire Land principle as described above may not assist if it is the solicitor’s actions, not his knowledge, which are claimed to be attributable to his client.  The Hampshire Land principle only assists a claimant in that case if it prevents a fraudulent agent’s conduct being imputed to his principal.

In Safeway Stores v Twigger [2011] Bus LR 1629, [2010] EWCA Civ 1472, Longmore LJ ( with whose judgment Lloyd LJ agreed) described the Hampshire Land principle, as follows:

“28. There is undoubtedly a principle of English law that acts of an agent are not to be regarded as attributable to his principal if the acts of the agent were deliberately intended to be in fraud of, and cause loss to, his principal. It is arguably wider than this and may extend to acts of an agent which are in breach of his duty to his principal and which have in fact resulted in harm to his principal.” [Emphasis added]

There is some support for that view in other cases, for example PCW Certificates Syndicates v PCW Reinsurers [1996] 1 WLR 1136 per Staughton LJ at p. 1145.

However, in Stone & Rolls Ltd v Moore Stephens [2009] 1 AC 1391 (a case in which the House divided and in which the majority differed amongst themselves in their reasoning), Lord Phillips said that,

“The important point to note is that Hampshire Land [1896] 2 Ch 743 is an exception to the normal rules for the attribution of an agent’s knowledge to his principal. It is not a rule about the attribution of conduct.”

He went on to observe that there was, at least in the United States, a separate rule known as the “adverse interest” rule, and that the proposition advanced by counsel that the actions of a fraudulent agent should not be imputed to his principal was reflective of that rule, not the Hampshire Land rule.  He recognised that in some contexts the adverse interest rule applied under English common law:

“46 The adverse interest rule would, so it seems to me, operate at least in some circumstances as a normal rule of attribution under established principles of the English law of agency, rather than as an exception to the norm. Under it an English court would not attribute to a company the act of its managing director in dishonestly transferring the company's funds into his own account.”

Lord Walker, on the other hand, did not draw the same distinction between the Hampshire Land principle (dealing with notice/knowledge) and an adverse interest rule dealing with conduct.  He describes the adverse interest rule as an American term for the Hampshire Land rule.

In summary, while it seems that there are circumstances when the actions of a fraudulent agent will not be attributed to his principal (so long as the fraud is on the principal), as either an aspect of or an extension of the Hampshire Land rule, or the adverse interest rule if it exists separately, it is not possible to say exactly what those circumstances are.

Operating in the opposite direction is the line of cases commencing with Lloyd v Grace, Smith & Co [1912] AC 716 in which an employer or principal has been held liable for his employee’s or agent’s fraud.  In that case, a solicitor’s clerk defrauded one of the solicitor’s clients for his own benefit while pretending to act for her.  The solicitor was held liable to compensate the client although personally innocent of the fraud. Lord Macnaghten (at pp. 735-736) said that the true principle was:

“…that an innocent principal was civilly responsible for the fraud of his authorised agent, acting within his authority, to the same extent as if it was his own fraud.”

It may be that the distinction between the Hampshire Land/adverse interest cases and Lloyd v Grace Smith is that in the former the fraud is on the principal, in the latter it is on third parties. Or it may be that an agent acting to defraud his own principal will not be acting within his actual or ostensible authority.  In any event, it seems unlikely that the actions of a solicitor engaged in a fraud on his client could be utilised against the client in an action the latter brings against another professional as the client's contributory fault.