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The Key
March 2009
Health, safety and going to prison
The new health and safety legislation has become law.
Inside this issue:
There was a considerable fanfare following the
introduction of the new Corporate Manslaughter Act in
April 2008 – a piece of legislation that introduced no
new offences against individuals and did not include
imprisonment as a sentencing option. In contrast, little
attention has been given to the Health and Safety
(Offences) Act (the Offences Act), which received the
Royal Assent last October. This is surprising since it
gives courts the power to impose prison sentences for
breaches of the Health and Safety at Work Act.
The purpose of the new Offences Act is to raise the maximum
penalties available to the courts for certain health and safety
offences. The explanatory notes to the Act (published in
November 2008) say that the objective of the changes is to
ensure that sentences for health and safety offences are
“sufficient to deter those tempted to break the law, and
sufficient to deal appropriately with those who do commit
offences”.
Major changes
The Offences Act makes the following key changes to the
existing legislation:
(1) Imprisonment will be a possible penalty for most health
and safety offences in both the magistrates’ court and
the crown court. It will also be a possible penalty for
directors and senior managers implicated in an offence
committed by a body corporate.
Page 3
When is a lie a fraudulent device?
A look at the Agapitos judgment and its impact.
Page 5
Product liability
The X-Factor finalists for 2008.
Page 7
Claimants behaving badly
Does the illegality doctrine apply to tort claims?
Page 9
Got it covered
Solicitors’ PI insurance will cover awards for
service-level complaints.
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(2) The maximum fine available in the
magistrates’ court for regulatory breaches,
instead of or in addition to imprisonment, has
been increased from £5,000 to £20,000.
(3) Certain offences currently triable only in the
magistrates’ court will be triable in either
the magistrates’ court or the crown court.
Currently, employees can be prosecuted for a
breach of section 7 of the Health and Safety at
Work Act. This statutory provision places a duty
on employees to take reasonable care for
themselves and others affected by their acts or
omissions. In addition, senior managers and
directors can be convicted under section 37
where it can be proved that an offence by the
company was committed with their consent,
connivance or attributable to some neglect on
their part. In future, individuals convicted of such
offences face the risk of going to jail.
This is not the first time that such legislation has
been proposed. There have been three previous
attempts to introduce almost identically worded
private members’ bills since 1999, when the
government introduced its Revitalising Health
and Safety strategy, which recommended new
penalties for offences. However, these earlier
attempts failed because the government did not
provide sufficient parliamentary support or,
crucially, time. There were also objections to the
principle of the legislation. The difference this
time was that the government gave time for the
offences bill, which enjoyed all-party support.
Need for reform
In a letter accompanying the offences bill, the
government explained that the law needed to
be reformed so as to bring health and safety
offences into line with regulatory offences in
other areas. It was strange, the letter concluded,
that people could go to prison for breaches of
environmental, trading standards, planning,
water resources and food safety rules but not for
health and safety offences.
This is something the courts have long recognised.
For example, as long ago as 1994, in the case of
R v Baldwin Industrial Services Ltd, Judge Bathurst
Norman (sitting at Isleworth Crown Court) said of
Mr Baldwin, a company director: “I make no secret
of the fact that were prison an option that was
open to me today, you would be going to prison...
I hope that one day [parliament] will look again
at this legislation and will amend it so that the
sentencing judge has available to him the
option of a custodial sentence”.
Perhaps the biggest surprise is that it has taken
14 years for the judge’s aspiration to be realised.
In the letter accompanying the offences bill, the
government cited (as examples of health and
safety breaches possibly meriting custodial
sentences) cases where an employer illegally
employed children for the removal of asbestos,
or where there was deliberate fabrication of test
certificates for cranes and other machinery.
Most reasonable observers would agree that this
type of conduct should carry the possibility of
imprisonment on conviction. However, it is vitally
important to get the details right, so that the
Offences Act can be fairly and equitably
enforced. Imprisonment should therefore be
reserved for the most serious of cases where
there is evidence either of wilful conduct or a
flagrant or reckless disregard for safety.
Reverse burden of proof
There is also one significant difficulty with the
Offences Act that had not until recently been
addressed. The offence for senior managers and
directors under section 37 is based on the
prosecution being able to prove that a defendant
consented to, connived in or (by neglect) caused
the commission of the offence by their company.
The main offences usually prosecuted against
companies are for breaches of sections 2 and 3
of the HSWA. Both of these provisions contain a
reverse burden – set out at section 40 –
meaning that, once a risk has been established, a
company effectively has to prove its innocence
by showing that it took all reasonably practicable
steps to ensure safety.
According to the explanatory notes to the offences
bill, the Department for Work and Pensions
considers that making imprisonment available for
an offence to which the reverse burden of proof
applies is compatible with article 6 of the European
Convention on Human Rights (i.e. the right to be
treated as innocent until proven guilty).
This was a little difficult to understand. The
difference in evidential burden creates a
presumption of guilt rather than one of
innocence. In this context, the use of
imprisonment as a penalty appears at first glance
to be both contrary to the principles of justice
under the British legal system as well as against
the European Convention on Human Rights.
In R v Davies [2002] EWCA Crim 2949, the
Court of Appeal considered the compatibility of
the section 40 reverse burden with the ECHR. The
defendant in that case argued that, unless the
reverse burden was an evidential burden alone, it
would not be compatible with the presumption of
innocence in article 6.2 of the ECHR. The Court of
Appeal rejected this argument, concluding that
the burden was a legal or persuasive burden and
justified, necessary or proportionate in the
context of the Convention. However, the court
reached this view on the basis that the health and
safety legislation was regulatory rather than “truly
criminal”, in part because breach of the relevant
sections of the HSWA did not carry a risk of
imprisonment.
By making the HSWA breach “truly criminal”,
the new Offences Act had therefore partially
undermined the rationale of the Court of
Appeal’s decision that section 40 was
compatible with the ECHR. This could easily have
been corrected by imposing a specific duty on a
director to take reasonable care for people who
may be affected by his or her work, similar to the
duty on employees under section 7. The entirety
of the offence could then have been subject to
proof to the usual criminal standard of beyond all
reasonable doubt.
A decision of the House of Lords in December
2008, however, in the case of R v Chargot Ltd
[2008] UKHL 73, is likely to mean that senior
managers and directors charged with
involvement in offences committed by their
companies may now struggle to challenge the
section 40 reverse burden. In the leading
judgment in that case, Lord Hope revisited the
Court of Appeal’s rationale in R v Davies and
confirmed that it had reached the right decision.
Further, he went on:
“The penalties that may be imposed on an
individual have now been increased… But I do not
think that, when account is taken of the purposes
that this legislation is intended to serve, this
alteration to the law renders what was previously
proportionate disproportionate… On the contrary,
it emphasises the importance that is attached, in
the public interest, to the performance of the duty
that section 37 imposes on the officer”.
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So the House of Lords has now given a steer on
the point. Whether or not that steer is clear and
unambiguous is perhaps open to argument.
Conclusion
From January 2009, the Offences Act will have a
significant impact on the liability of directors and
officers in the UK, as well as on employees. Up to
now, most health and safety offences under the
HSWA could only be punished with a fine. Now
directors and other company officers (along
with all employees) face the possibility of
imprisonment for such a breach of duty. This
threat to their liberty is likely to make them seek
to fight allegations of failure even more fiercely
than previously, notwithstanding the fact that
one potential “legal” argument may no longer be
entirely open to them. It is also now important
more than ever for directors and company
officers to have proper insurance provision for
their health and safety liability.
Finally, while the principle behind the Offences
Act can generally be supported, the withdrawal
of an individual’s right of liberty is such a serious
penalty that there should, at the very least, be
clear sentencing guidance stressing that
imprisonment must be imposed only in the very
worst cases.
The Health and Safety (Offences) Act covers
offences committed after 16 January 2009.
Daniel McShee
London
d.mcshee@kennedys-law.com
David Wright
London
d.wright@kennedys-law.com
When is a lie a fraudulent device?
A look at the Agapitos judgment and its impact.
There are many grounds on which
an insurer can avoid having to meet
a claim under a policy: nondisclosure;
misrepresentation;
breach of warranty or condition
precedent; or fraud by the insured.
What constitutes a fraudulent claim
is well understood: a claim for a
loss that did not occur, or which
was caused or procured by the
insured, or alternatively, a genuine
claim that has been exaggerated.
There are ways in which an insurer can avoid a
genuine-looking claim where it has considerable
concerns about the insured’s story, even though
it is unable to prove the kinds of wrongdoing
outlined above. An insured’s lies to an
investigator – told, perhaps, to conceal
wrongdoing or a defence that might be available
to an insurer, or to embellish an account about
which the insured has anxieties – may, in
themselves, defeat the insurance claim. This
issue was explored by the Court of Appeal in
Agapitos v Agnew [2003] QB 556. In giving
the leading judgment (with which Lord Justice
Brooke and Mr Justice Park agreed), Lord Justice
Mance noted that ‘such devices’ are a not
unfamiliar response to insurers’ probing of the
merits of a claim.
Fraudulent devices
Strictly speaking, Lord Justice Mance’s
observations in Agapitos on “fraudulent means
and devices” (meaning a fraud where an insured
gives a false statement to embellish or improve
the surrounding facts of a genuine claim) were
expressed to be a tentative view and that they
have been followed and approved by both the
judiciary and commentators.
If a claim is found to be fraudulent, the insurer
can avoid liability for that claim and any
subsequent claim made under the same policy,
even if the subsequent claim is genuine. Should
the same remedy be available when it comes to
otherwise genuine claims where the policyholder
tells lies to the insurer?
It is not any lie, though, that will give an insurer a
remedy. Lord Justice Mance contemplated “the
possibility of an obviously irrelevant lie”. The fraud,
he said, must be “directly related to and intended
to promote the claim”. In such a case, the usual
reason for the use of a fraudulent device “will have
been concern by the insured about [the]
prospects of success and desire to improve them
by presenting the claim on a false factual basis”.
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Lord Justice Mance then turned to the question
of the appropriate legal response to a fraudulent
device used to promote a claim “which may…
prove at trial to be otherwise good, but in
relation to which the insured feels it expedient
to tell lies to improve his prospects of settlement
or at trial”.
Giving a tentative answer to the question, Lord
Justice Mance said that the law should treat the
use of a fraudulent device “as a subspecies of
making a fraudulent claim – at least as regards
forfeiture of the claim itself in relation to which
the fraudulent device or means is used”. For this
purpose, the law should treat as relevant any lie:
• directly related to the claim to which the
fraudulent device relates; and
• which is intended to improve the insured’s
prospects of obtaining a settlement or
winning the case; and
• which would, if believed, tend “to yield a
not insignificant improvement in the
insured’s prospects… for obtaining a
settlement, or a better settlement, or of
winning at trial”.
In Wisenthal v World Auxiliary Insurance
Corporation (1930) 38 Ll L Rep 54, Mr Justice
Roche told the jury: “Fraud… was not merely
lying. It was seeking to obtain an advantage,
generally monetary, or to put someone else at
a disadvantage by lies and deceit. It would be
sufficient, within the definition of fraud, if the
jury thought that, in the investigation, deceit
had been used to secure payment or quicker
payment of the money that would have been
obtained if the truth had been told”.
So a lie to an investigator that is intended to
improve the likelihood of the claim being paid,
the amount of the payment or the speed of the
payment is likely to constitute a “fraudulent
device”. Any such false statement will give the
insurer a strong weapon to defeat the claim.
An insurer does not have to show that:
• it was persuaded by the lie into taking
action; or
• that the lie was an attempt by the insured
to conceal grounds on which the insurer
could decline or limit the claim (although
that would still be one reason to categorise
a lie as a fraudulent device).
The insurer can rely on lies told by the insured’s
agents or representatives. However, it cannot
rely on lies told after the start of legal
proceedings, as the rules relating to contempt of
court take over at that point.
What’s happened since Agapitos?
How have the courts dealt with lies to insurers
since the Agapitos case? The short answer is
that there have been very few reported cases on
this point. This is surprising, given Lord Justice
Mance’s observation that deceitful statements
to insurers’ investigators “are a not unfamiliar
response” to investigations.
In Eagle Star Insurance v The Games Video
Company (GVC) SA [2004] EWHC 15, which
concerned the destruction of a ship, the insurer
avoided having to indemnify the owner of the
vessel. During the course of the insurer’s
investigation into the cause of the loss, the
vessel owners presented fabricated documents
about the supposed nature and value of the
ship. The court concluded that these documents
had been created and presented to try and
bolster what the vessel owners had said about
the ship’s value: “They were asked for
documents”, said Mr Justice Simon, “and they
handed over the documents whose contents
were deceitful. They used fraudulent devices in
order to advance the claim, with the intention
and expectation that the insurer would accept
the documents at face value, be reassured and
promptly pay the assureds”.
The Commercial Court in Marc Rich Agriculture
Trading SA v Fortes Corporate Insurance NV
[2004] EWHC 2632 (QB) responded
favourably to the insured’s argument: an alleged
failure by the insured to disclose information to
an insurer did not constitute a fraudulent device.
In recognising that Lord Justice Mance’s
comments in Agapitos were incidental rather
than central to the decision – and given the
developing nature of the relevant law –
Mr Justice Cooke in Marc Rich dismissed the
insured’s application for summary judgment on
certain aspects of the insurer’s defence.
However, the judge went on to say that “were
the matter to come before me at trial, my
inclination would be to say that Lord Justice
Mance is right in the approach that he has
adopted”. Mr Justice Cooke would prefer the
insured’s arguments on non-disclosure during
the insurer’s investigations.
In Stemson v AMP General Insurance (NZ) Ltd
[2006] UKPC 30, the Privy Council allowed the
insurer to rely on a fraudulent device defence.
Following a fire at the insured property, the
insured lied to the investigator about his
intention to sell the property. That was a
fraudulent device and remained so even though
the insured admitted his true intention before
the insurer’s rejection of the claims.
Handling and assessing lies
As has been shown in both the law courts and in
numerous surveys, many people are willing to lie
to insurers. The Agapitos case provides a
powerful response to people who tell lies to
insurers during investigation.
At a practical level, it is important for
investigators to keep thorough and detailed
records of their communications with insureds.
Audio recordings are often useful. Wherever
possible, verbal statements should be confirmed
in written statements, signed if possible, or in
confirmatory letters to the insured. Investigators’
notes of conversations should be accurate,
legible, timed and dated, and stored securely. As
was shown in the Eagle Star case, fraudulent
devices can take the form of fabricated
documents; all documents received from the
insureds or their representatives must be kept
securely and with a record of when they were
received.
In addition to the storing and recording of
communications, it is vitally important that such
communications are reviewed in the light of
material received subsequently.
However, as Lord Justice Mance stressed in
Agapitos, it is not every lie that will constitute a
fraudulent device. Consequently, where lies are
detected, their purpose and intended effect
must be considered carefully.
Robert Welfare
Birmingham
r.welfare@kennedys-law.com
4

Product liability
The X-Factor finalists for 2008.
Credit-crunched 2008 saw a
further rise in product recalls – as
well as interesting regulatory
changes in the product liability
field. This article highlights the
most significant developments in
England and examines their impact
on their audience of consumers,
manufacturers and insurers in order
to find the X-Factor winner.
X-Factor finalist 1: the Statement
The first finalist is a solo act statement
released by the Financial Services Agency (the
FSA) on 25 July 2008. The statement warns
that clauses in general insurance contracts,
which use the phrase “consequential loss” may
be unfair and in breach of the Unfair Terms in
Consumer Contract Regulations 1999 (the
UTC regulations).
Under the UTC regulations, firms must ensure
that all terms of a standard-form consumer
contract are in plain and intelligible language.
The FSA’s view is that a term excluding
consequential loss is “unclear” and “ambiguous”
because it refers to a legal expression that a
consumer would not understand. The FSA
believes that this can lead to “a significant
imbalance in the parties’ rights and obligations
arising under the contract, to the detriment of the
consumer” since it leaves the consumer not
knowing what the policy covers.
As a result, any consequential loss exclusions
that are not written in plain and intelligible
language will now be considered unfair. Insurers
may therefore have to make payments in respect
of the loss they have tried to exclude.
The FSA gave the following example of a term
that excludes consequential loss without using
that particular phrase: “We will only pay costs
which are incurred as a direct consequence of
the event which led to the claim you are making
under the policy”.
Insurance firms should therefore review their
consequential loss exclusions to ensure that
they are plain and intelligible. They should also
regularly assess their terms and conditions to
ensure that they meet the standards of fairness
set out in the UTC regulations, and take any
necessary steps to ensure compliance.
X-Factor finalist 2: the Regulations
The second finalist is a double act known as
the Consumer Protection from Unfair Trading
Regulations 2008 (the CPUT regulations)
and the Business Protection from Misleading
Marketing Regulations 2008 (the BPMM
regulations).
Both sets of regulations came into force on
26 May 2008 implementing the EU’s Unfair
Commercial Practices Directive and criminalising
misleading marketing and sales practices.
The CPUT regulations primarily aim to protect
consumers from unfair trading. For example, if
an advertisement claims that a beauty product
can clear a consumer’s acne when it doesn’t, that
would be a breach of the CPUT regulations.
The BPMM regulations, on the other hand, are
mainly concerned with protecting other traders.
Advertising that is likely to deceive the trader
whom it reaches would be an offence. The
regulations also set out the conditions that must
be fulfilled before an advertisement comparing
one particular product with that of an identified
competitor will be regarded as acceptable.
5

Investigations will be carried out by the Office of
Fair Trading, as well as local authorities, and
offenders face a fine of up to £5,000 or two
years’ imprisonment. Companies should
therefore reassess their marketing and
advertising practices in the light of these
regulations before they get caught.
X-Factor finalist 3: the Rules
The third finalist is a group of rules known as the
Coroners (Amendment) Rules 2008, which
came into force on 17 July last year.
Under rule 43 of the Coroners Rules 1984, in order
to prevent a similar death to the one in question, a
coroner has a discretion to submit a written report
(a rule 43 report) to an authority or individual who
may have the power to take appropriate action.
If any company finds itself potentially involved in
a coroner’s hearing, it should obtain suitable
advice on how to participate and protect its
interests, given the importance of these new
powers of coroners.
X-Factor finalist 4: the Recalls
The fourth finalist is a further group entry known
simply as PR – but it is made up of the three
sexiest UK product recalls of 2008:
(1) Sofas. In June 2008, Nottingham Crown
Court made a group litigation order in respect
of consumers that allegedly suffered from
extensive skin reactions as a result of sitting
on imported Chinese sofas contaminated with
fungicide.
The sofa burns were caused by dimethyl
fumarate, a chemical known to cause skin
irritation. This is a fungicide contained in a
sachet placed inside sofas in order to protect
against mould during transportation and
delivery.
Over 2,000 claimants have started proceedings
but as many as 50,000 households could be
affected. This is likely to be the biggest ever
defective product group litigation order, with
estimated claims in excess of £6m.
(2) Biscuits. In October 2008, following an alert
from the Food Standards Agency, thousands of
packets of household-name biscuits were
recalled because they contained a small amount
of melamine. The biscuits had been distributed
to retailers across the UK.
Melamine is an industrial chemical used in plastics.
Under the Coroners (Amendment) Rules 2008,
the person who receives a rule 43 report now
has to respond in writing within 56 days. They
must indicate what action will be taken to
prevent future deaths, or provide an explanation
as to why no action will be taken.
A coroner can share the rule 43 report and any
responses with the bereaved families. The
coroner can also make this information centrally
available so as to allow others to learn lessons
from the information shared.
Although the coroner cannot force someone to
take any proposed remedial action, a failure to
heed such a warning would probably count
heavily against a defendant facing a criminal
prosecution. If, for example, a death is linked to a
drug, the pharmaceutical company making that
drug might be wise to respond appropriately to
the coroner within the set time limit.
The alert marked the first case of melaminecontaminated
food to arrive in the UK since the
health scare in China, which killed four babies
and left 53,0000 babies ill after drinking
formula milk containing the chemical. The
melamine had been used to make the milk
appear higher in protein.
It was said that the biscuits could cause stomach
pain and kidney stones. The FSA stressed that
the biscuits were being withdrawn as a
“precaution” and were unlikely to pose a
significant health risk.
(3) Pork. In November 2008, Ireland's
Department of Agriculture found that a number
of slaughtered pigs had high levels of potentially
dangerous dioxins and polychlorinated biphenols
(PCBs). As a result, all pork products made in the
Republic of Ireland since 1 September 2008
were recalled.
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According to the UK Food Standards Agency, the
health risk only results from eating food with
high levels of dioxins and PCBs “over a long
period”. The effects include cancer, damage to
the immune and reproductive systems, as well
as skin disease.
Claimants behaving badly
Does the illegality doctrine apply to tort claims?
The FSA confirmed that any products containing
less than 20% Irish pork do not have to be tested
or withdrawn from sale. However, Irish pork
products in the UK will now have to carry special
labels confirming that they are safe to eat and
have no link to potentially contaminated feed.
Who will be crowned the winner?
The final vote, as usual, comes down to members
of the public – in particular, those that are
directly affected by the product recalls and
regulatory changes as they emerge. However,
the real winners will be the consumers,
manufacturers and/or insurers who take on
board these developments and protect
themselves in future.
When might a defence based on
the ex turpi or illegality principle be
successful in a tort case? The ex
turpi rule (or ex turpi causa non
oritor actio, to give the principle its
full name) is that no legal action
based on illegality can succeed.
For many years, the courts adopted a flexible
approach to the principle in tort cases, as the
seriousness of the illegality could vary. A public
conscience test was developed. In Tinsley v
Milligan (1993), the House of Lords applied a
test based on reliance: did the claimant have to
rely on their own illegality in order to pursue
their claim? If so, the claim would fail. Tinsley
was a property rights case, though. Two recent
decisions have examined how far the Tinsley
principle applies to tort claims.
completely out of keeping with his previous
character. Mr Gray pleaded guilty to
manslaughter on the grounds of diminished
responsibility and was detained under the
Mental Health Act 1983. He later claimed
damages from the defendant train companies,
including loss of earnings arising from the
rail crash.
The defendants accepted they were liable for
losses up to 19 August 2001. However, they
denied liability for losses after that date on the
grounds of the claimant’s illegal action. At trial,
Mr Justice Flaux rejected Mr Gray’s claim. He
ruled that a claimant breaches the ex turpi
principle if their claim is closely connected to –
or is inextricably bound up with – their own
criminal or illegal conduct. This was the position
in Mr Gray’s case.
Karishma Jasani
London
k.jasani@kennedys-law.com
Shane Sayers
London
s.sayers@kennedys-law.com
Gray v Thames Trains Ltd
The first case is the Court of Appeal decision in
Gray v Thames Trains Ltd (2008). Mr Gray was
a victim of the Ladbroke Grove rail crash in
October 1999. Although he suffered fairly minor
physical injuries, the accident had a significant
psychological effect upon him – post-traumatic
stress disorder (PTSD) with a marked depressive
component. The defendants admitted liability.
Subsequently, on 19 August 2001, Mr Gray
stabbed a stranger to death – an act which was
7

The Court of Appeal reversed Mr Justice Flaux’s
decision. It said that if Mr Gray had been
convicted of an offence unconnected to the
PTSD, the chain of causation would have been
broken and the defendants would have had a
defence. The key question was whether a
claimant’s loss was so closely connected to – or
inextricably bound up with – their criminal or
illegal conduct that the court could not allow
them to recover damages without appearing to
condone their behaviour. If the manslaughter did
not break the chain of causation between the
tort and the loss of earnings, then any loss of
earnings after 19 August 2001 was not
inextricably bound up with Mr Gray’s illegal
killing of the stranger.
The court accepted that Mr Gray would not have
committed manslaughter if he had not suffered
the PTSD caused by the tort. Consequently, the
illegal act did not break the chain and Mr Gray was
entitled to recover loss of earnings. The test in
Tinsley was too narrow to apply to a case in tort:
the Court of Appeal preferred a broader principle.
The Court of Appeal distinguished two earlier
Court of Appeal cases – Clunis and Worrall – on
the grounds that the losses suffered in those
cases were a direct result of crime, rather than a
foreseeable result of a breach of duty of care
owed by the defendant. Clunis and Worrall
would certainly stop a claimant recovering losses
caused by compulsory detention in prison or
hospital. But neither decision had looked at the
question of whether the loss of earnings was
caused by a defendant’s negligence rather than a
claimant’s commission of a criminal offence and
subsequent imprisonment.
Corr v IBC Vehicles Ltd
After arguments had been heard in the Gray
case, the House of Lords gave judgment in Corr v
IBC Vehicles Ltd (2008). Although this was a
suicide case, it raised questions that could be
important in Gray. The Court of Appeal therefore
invited the parties to make written submissions
about the issues in the House of Lords’ decision.
In the Corr case, it was decided that the
claimant’s widow was entitled to damages for
loss of dependency, as her husband’s suicide did
not break the chain of causation. The claimant
had suffered serious injury at work and became
severely depressed before committing suicide.
The House of Lords unanimously decided that
the claimant’s depression was a reasonably
foreseeable consequence of IBC Vehicles’
breach of duty. The claimant did not have to
show that the suicide itself was foreseeable.
There was no break in the chain of causation,
as the claimant’s decision to commit suicide
was caused by the depression resulting from
the breach of duty.
Contributory negligence
In Corr, the House of Lords unanimously held
that suicide was “fault” within the meaning of
section 1(1) of the Law Reform Miscellaneous
Act 1945 (the Act) and therefore a finding of
contributory negligence could be made.
Although the law lords did not reduce the
compensation payable in this particular instance,
they agreed that it might sometimes be
appropriate to cut down the damages payable in
similar cases.
Following Corr, the Court of Appeal in Gray also
considered the possibility of contributory
negligence on the basis that the manslaughter was
“fault” within the meaning of the Act. The loss of
earnings was caused partly by the tort and partly
by the claimant’s deliberate act of stabbing a
stranger. Therefore, both parties were
blameworthy. Rather than condoning the
manslaughter, the court considered that
apportionment would ensure the claimant only
recovered losses for which the defendants were
truly responsible. As the issues of foreseeability,
causation and contributory negligence had not
been pleaded or argued (only having been
considered in the light of Corr), the Court of Appeal
felt that the case ought to be remitted back to the
High Court for consideration of these issues.
Comment
The Gray case did not involve a break in the
chain of causation. On the evidence, the claimant
would not have committed manslaughter
without suffering from the PTSD caused by the
defendant’s negligence.
Both sides agreed that if the claimant had
committed a crime that was unrelated to the
PTSD and unconnected to the defendant’s
negligence, there would have been a complete
defence to the claim for loss of earnings.
However, as a matter of principle, if it is right
to stop a claimant from recovering damages,
the court should not decide that there was a
break in the chain of causation. Instead, the
court should say in clear terms that public
policy requires that the claim should fail.
It is debatable whether the simple “but for” test
of causation – tempered by apportionment of
liability through contributory fault – is a good
way of dealing with such extreme cases.
This point was considered by the New South
Wales Court of Appeal in State Rail Authority of
NSW v Wiegold (1991). This case decided that,
where a claimant has been convicted of a crime,
they should bear both the direct and indirect
consequences. Consequently, damages could not
possibly be recovered for a period of
incarceration. The Australian court rightly
pointed out the potential harm to the justice
system if the law of negligence said that an
offender:
• should not be held responsible for their
actions; and
• (just to add injury to insult) should also be
compensated by the defendant.
This would lead to a conflict between the civil
and criminal law and bring the law into
disrepute.
There is one other factor that the Court of
Appeal appears to have ignored. There is a wellestablished
principle (hallowed by previous
House of Lords’ decisions) that where the
claimant experiences a change in circumstances
since the cause of action arose – or the original
act of negligence happened – the court will look
at the actual position as known. It will not
speculate about what might have happened if
that change of circumstance had not taken
place. In Gray, the Court of Appeal tackled the
claim for continuing loss on the basis that the
claimant would have been in employment both
before and after commission of the offence and
was therefore entitled to recover the whole of
that loss. However, this approach looks little
8

more than a way of ignoring the commission of a
serious criminal offence when assessing
damages.
Leave to appeal to the House of Lords has been
granted to Thames Trains and their fellow
defendants Network Rail Infrastructure Ltd
(better known under their former name of
Railtrack). Leave to cross-appeal has also been
given to Mr Gray. It remains to be seen whether
the House of Lords will choose to reassert the ex
turpi principle, thereby limiting the loss that can
be recovered in a personal injury action where
the claimant has committed a serious criminal
act for which he can fairly be held responsible.
Mark Dickson
Manchester
m.dickson@kennedys-law.com
Got it covered
Solicitors’ PI insurance will cover awards for service-level complaints.
Many solicitors seem to be unaware
that their professional indemnity
cover includes “any amount paid or
payable in accordance with the
recommendation of the Legal
Services Ombudsman or any other
regulatory authority to the same
extent as it indemnifies the insured
against civil liability”. This is set out
in clause 1.8 of the Minimum Terms
and Conditions of Professional
Indemnity Insurance for Solicitors
Registered in England and Wales
2007 (the MTCs), issued by the
Solicitors Regulation Authority
(SRA).
As a result, any compensatory award made by
the Legal Complaints Service (the LCS) following
a complaint about the level of service provided
by a solicitor is covered under the policy. What
are the practical implications of this for an
insured?
Notifying a service-level complaint
Should a service-level complaint be reported as a
matter of course, on the basis that it is a
potential circumstance under the MTCs (i.e. “an
incident, occurrence, fact, matter, act or
omission which may give rise to a [civil liability]
claim”)? There can be a considerable overlap
between complaints about the standard of work
provided and allegations of negligence. Indeed,
often what a disgruntled client describes as a
service-level complaint turns out to be a claim,
for the purposes of the policy.
Under the MTCs, a claim “means a demand for,
or an assertion of a right to, civil compensation
or civil damages or an intimation of an intention
to seek such compensation or damages” (clause
8.2). There is no requirement that the demand
must be meritorious – an assumption which is
often made by an insured when choosing not to
notify a complaint at the time that it is originally
made. Failure to notify at this stage can lead to
unwelcome correspondence with insurers/their
representatives on coverage issues if the matter
9

escalates, prompting what the insurer will
consider to be a late notification.
As a general rule, therefore, it is preferable to
make a precautionary notification, rather than
risk a subsequent policy dispute.
Informal settlement
A further consideration is whether an insured
may set off against their aggregate excess a
payment made to resolve a service-level
complaint without the matter being subject to
an LCS recommendation or formal adjudication.
The MTCs suggest there must be some
involvement by a regulatory body. However, it
would seem odd to discourage the informal
resolution of complaints and it is certainly not
something of which the SRA would approve. It
is unlikely, though, that insurers will agree in
principle that such payments should always be
covered. They will instead prefer to consider
each case on its own facts, as they do now.
Other implications for insurers
So what are the other implications for insurers?
Where a matter has been referred to the LCS but
has not been notified by the insured to their
current insurer as a potential circumstance, the
LCS may, if the insured fails to pay an award,
approach the insurer directly, requesting
payment on the basis of clause 1.8. This
approach is growing in popularity and it raises
significant concerns for insurers.
First, the LCS in its position statement dated
21 January 2008 treats the date of the original
complaint as the date at which a claim is made.
While a service-level complaint can amount to a
claim for the purposes of the policy, it does not
always do so. The LCS seeks to justify its
standpoint on the basis that, because inadequate
professional service affords a broad range of
remedies for redress, there is “a significant
prospect of an award being made in response to
any complaint”. Accordingly, it does not think
there is a specific need to articulate a claim for
compensation.
Arguably, however, in the absence of a “claim”
for the purposes of the policy – or the actual
notification of a potential circumstance by the
insured – the event giving rise to the obligation
to provide an indemnity is the decision of the
regulatory body making an award. That decision
may well fall into a different policy period from
the date of the complaint, by which time cover
may be provided by a different insurer. In the
ordinary course of events, one would expect the
current insurer to provide an indemnity in
respect of the award. However, the effect of the
LCS’s approach is that a prior insurer with no
notice of a potential liability will be left with the
obligation to discharge the award. This hardly
seems fair when adequate cover is in place
elsewhere.
Extent of LCS recovery
A more worrying trend is the fact that the LCS
will try to recover not only the compensatory
element of any award, but also any sum
referable to a reduction in an insured’s
professional fees.
The indemnity in respect of awards made by the
Legal Services Ombudsman (or other regulatory
body) is expressed to be to “the same extent” as
that applying to a civil liability (see clause 1.8).
An award requiring the repayment of money
received from the client amounts to a finding
that an insured has taken fees to which they
are not entitled. But it is a restitutionary remedy
(i.e. a remedy designed to force the insured to
disgorge a benefit which would otherwise
amount to unjust enrichment) rather than a right
to civil compensation or damages as defined by
the MTCs. Moreover, a reduction of costs or a
claim for them can be characterised as a trade
loss or liability, which is specifically excluded
from cover under the MTCs (see clause 6.6).
All in all, therefore, it is difficult to see how such
awards can properly be recovered from the
insurer, as they are outside the scope of cover
required by the MTCs.
Conclusion
In conclusion, the practical implementation of
clause 1.8 of the MTCs raises issues for the
insured and insurers alike. From an insured’s
perspective, the most prudent approach would
be to report service-level complaints as a
potential circumstance in the majority of cases.
The implications for insurers are far broader.
The current economic downturn will almost
inevitably lead to smaller practices encountering
liquidity problems. Given that the level of awards
for inadequate professional services will continue
to increase, it is unlikely that the LCS’s present
approach will be allowed to continue
unchallenged for much longer.
Alison Taggart
London
a.taggart@kennedys-law.com
Rob Wotherspoon
London
r.wotherspoon@kennedys-law.com
10

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