The defendant firm of solicitors was retained by a subcontractor of Mowlem in connection with an arbitration commenced by the subcontractor against Mowlem. The subcontractor sought to recover £150,000, which they claimed was owing to them. Mowlem brought a counterclaim for a much larger sum, and the arbitrator ultimately awarded Mowlem damages and costs of over £1m.
The subcontractor's professional indemnity insurance had expired after they became aware of the potential counterclaim against them, and when they applied to renew it, they had stated that they were not aware of circumstances which might give rise to a claim. As a result, the insurers were able to avoid liability on the grounds that the policy had been obtained as a result of non-disclosure/misrepresentation.
The subcontractor then went into liquidation and Mowlem were unable to obtain payment of the arbitrator's award. Mowlem took over the subcontractor's claim in professional negligence against the defendant for failing to advise it to notify its insurers of Mowlem's counterclaim at the right moment. In the proceedings that followed, the judge in the Technology and Construction Court found in favour of the defendant. Mowlem appealed to the Court of Appeal.
Mowlem argued that the defendant owed the subcontractor a duty to advise it to notify the counterclaim to its insurers, and that had they done so, the subcontractor would have notified the counterclaim to them and would have had insurance in place to meet it.
The Court of Appeal agreed with the judge that the defendant's duty to the subcontractor did not extend to advising them on dealings with their insurers, and that in any event, if advice to notify the insurers had been given, the subcontractor would not necessarily have notified them of the counterclaim.
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John Mowlem Construction plc vs Neil F Jones & Co, 30 June 2004, Court of Appeal, Civil Division, Judgment of Lord Justice Tuckey
"The test is what the reasonably competent practitioner would do, having regard to the standards normally adopted in his profession […] the duty is directly related to the confines of the retainer."
This was the test for negligence agreed by the parties and adopted by the court. The defendant escaped liability because they were not retained to advise about insurance, and the solicitors acting for Mowlem had not enquired about the insurance position for some time, thus giving an indication of the "standards normally adopted" by solicitors in this area.
The risk of insurers avoiding a claim of which they were not notified at the right time is the kind of risk that a solicitor should warn his client about if he becomes aware of it. In this case, however, because the solicitors were instructed to bring a claim initially, and only later to defend a counterclaim, they did not become aware of the risk at the right time to advise notification of the counterclaim.
The court was inclined to view a commercial client as competent to deal with his own insurance. There was evidence in this case that the subcontractor had calculated that the non-existence of professional indemnity insurance would strengthen his bargaining position against Mowlem. For this reason, the court also found insufficient evidence that had advice to notify insurers been given, the subcontractor would have followed it.