ContentsEditorial.......................................................................................................................................................... 1Public inquiries – fairness and privilege.........................................................................................................2Pleural plaques – anxious times ahead..........................................................................................................5Stress: rising pressure, rising claims..............................................................................................................8Education – stale claims and lost opportunity..............................................................................................11Council cleared of corporate manslaughter..................................................................................................13To catch a thief.............................................................................................................................................15The CA responds to dishonest claimant.......................................................................................................17Interpreting product liability insurance..........................................................................................................19Data protection and freedom of information.................................................................................................21Disciplinary Law...........................................................................................................................................24

Editorial

The general election, and more importantly, its result, may have a big impact on the legal and insurance world. As government is ready and willing to ‘interfere’ with our world, one can look on a new government with trepidation – often reform is well intended, but somehow, change often doesn’t proceed as smoothly as it might.

The Labour victory will probably mean that the Clementi proposals for the reform of the legal profession will be implemented in some form or other. (The main opposition parties would have ‘junked’ Clementi). This will provide interesting possibilities for insurers, brokers and others involved in the claims world because, subject to safeguards, any organisation will be able to provide a legal service to third parties,provided they adhere to certain rules designed to prevent conflict of interest (and the potential abuse of the service provider’s position) and ensure that such persons are fit in the ethical sense to own or run a legal service provider.

The obvious possibility will be that insurers will be able to own a law firm or allow an in house team to offer services to others than their policyholders – they can already do their own legal work.

Will they want to? Potentially providing a service to anyone other than their own policyholders will expose them to a conflict of interest in markets where a small number of participants dominate ie if an insurerwants to pursue a claim via a firm it owns it may find it insures the third party. On the other hand insurers may feel that they will be able to give other service providers a ‘run for their money’ especially if theywish to take on the claimants’ market and offer their own services. In the meantime, brokers and loss adjusters may try to add a legal service to their overall service.

These are interesting times, and we will have to see how different insurance participants decide to act. We are not afraid of the competition. In fact, we are looking forward to some interesting possibilities.

Catherine HawkinsPartner, BLM London

Public inquiries – fairness and privilege

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Month year – edition x

Latter-day public flogging, New Labour spin or navel gazing waste of money? Love them or loathe them, public inquiries are in fashion. But when you get caught up in one, who can you turn to? When the involvement of lawyers is frowned upon, who will protect your interests in this quasi-judicial free-for-all? After spending a year working on the Morris Inquiry (into professional standards and employment matters in the Metropolitan Police) the issues have been brought into sharp focus.

Parliament has recognised the perils and public concern surrounding ‘government by inquiry’ and has introduced new rules of engagement for those inquiries set up by ministers. While the stated aim is to improve public confidence in the process, inquiries will continue to exert immense pressure and demands on the organisation and individuals under investigation.

Preparing evidence which will assist an inquiry panel in reaching a fully informed conclusion, while at thesame time safeguarding confidential information and protecting the reputation of individuals, is a delicateoperation. The marshalling of evidence and witnesses may raise the possibility of inadvertent admissions of failings and disclosure of sensitive documents. Issues of legal professional privilege and public interestimmunity must be addressed swiftly, not least in an age where transcripts and documents appear daily on inquiry websites. Statutory and common law liabilities, from data protection to confidentiality, not to mention the implications of the Freedom of Information Act 2000, require continuous consideration.

Balancing the public interest in full co-operation with protecting an organisation and its individuals, whilstalso juggling possible insurance obligations, makes legal advice on formulating a response to an inquiry anecessity. In Three Rivers DC v Bank of England (No.6) (11 November 2004) the House of Lords considered the extent to which communications with lawyers in such circumstances should be immune from subsequent disclosure. Before considering the implications of that decision, this article will briefly review the current regime for inquiries, both statutory and ad hoc.

Statutory inquiries

Inquiry procedure and the potential liabilities of those involved have been comprehensively reviewed over the past year. The government's agenda has been driven by the need to address public outcry following high profile inquiries and resulted in a review of the inquiries culture within government and the introduction of the Inquiries Act, passed on 7 April 2005. The Act, which followed a period of consultation by the Department of Constitutional Affairs, is intended to provide a statutory framework for inquiries instigated by ministers into events which have caused, or have the potential to cause, public concern.

It is not intended that every future inquiry will be conducted under the Act – the vast number of inquirieswhich operate on a non-statutory basis (for example in the local authority or health fields) will be unaffected – see below. The purpose of the Act is to draw together and replace existing legislation on inquiries, including the Tribunals of Inquiry (Evidence) Act 1921 and the large number of more recent subject-specific legislation which in practice has been used more frequently than the 1921 Act. For example, this includes legislation that gave rise to the Victoria Climbie Inquiry, the Stephen Lawrence Inquiry and the Bristol Royal Infirmary Inquiry.

While the legislation aims to protect procedural flexibility, a degree of certainty will be welcome. The demands and stress imposed on individuals can be exacerbated by unpredictable and sometimes capricious inquiry teams and may not be assisted by the apparent informality of the inquiry process operating in a politically charged and emotive environment. Perceptions rather than empirical evidence may hold sway. The need for access to legal advice becomes critical.

For example, inquiry procedure has previously been underpinned by the so called Salmon principles, taken from the Report of the Royal Commission on Tribunals of Inquiry 1966 (Cmnd.3121) chaired by Lord Justice Salmon, which provide guidance as to how those involved should receive fair treatment. It is agreed the time has come to review those principles and to reevaluate how to ensure fairness within the inquisitorial process whilst minimising the adversarial, legalistic element of inquiries. Principles of good inquiry practice will be set out in a statutory instrument and are intended to provide clear criteria for assessing (and, if necessary, challenging) practice adopted by an inquiry.

The new regime addresses the need for consultation in appointing the inquiry panel and setting the terms of reference, often critical issues in setting the ground rules and tone for an inquiry. There will be a presumption in favour of public access to proceedings while inquiry chairmen will be able to require witnesses to attend and to produce documents under their control – it will be a criminal offence not to comply. The inquiry panel will be immune from any civil action for anything done or said in the course of

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carrying out their duty to the inquiry, while the Act requires a report to be published and laid before parliament.

Ad hoc inquiries

While those involved in non-statutory or ad hoc inquiries will no doubt refer to the new legislation for guidance, not least in respect of the revised principles governing fairness in procedure, they will not be bound by it. As before, local authorities may also rely on guidance on procedure published by the Society of Local Authority Chief Executives and Senior Managers. Operating within an informal procedural framework will continue to present the legal pitfalls highlighted by last year’s Law Commission Report In the Public Interest: Publication of Local Authority Inquiry Reports (2004) LawCom No. 289. The report considered the balance to be achieved between investigating and publicising issues of concern in the public interest while at the same time addressing the rights of individuals and an authority's insurance obligations.

Such ad hoc inquiries tend to address issues arising from the delivery of local services whether health, social services or education. Inevitably while the investigation may seek to avoid laying blame or identifying failings, a proper scrutiny of the facts may expose liabilities. Alternatively an authority may justifiably seek to address public concern by acknowledging errors, thus potentially exposing its insurers to claims. The publication of the inquiry report itself may result in claims in defamation, as in Lillie and Another v Newcastle City Council [2002] EWHC 1600 (QB). The Law Commission Report recommends that statutory qualified privilege should attach to local authority inquiry reports, subject to the report (and inquiry) satisfying requirements of procedural fairness. Whether such a test could realistically be applied is highly debatable and insurers’ concerns must remain.

Insurers may find themselves open to the perception that they act unreasonably in reminding a local authority of its potential legal vulnerabilities – the suggestion being that an authority is gagged and prevented from fulfilling its duty to the public. While this issue has been the subject of discussion between representatives of insurers, including the ABI, and local government bodies (and draft guidelines are in place), the failure of the Inquiries Act to address the issue appears an opportunity missed. The Law Commission report currently sits on a desk in the office of the Deputy Prime Minister.

Three Rivers

In an atmosphere of continuing uncertainty, the need for an organisation to seek legal advice in confidence is paramount. This was addressed by the House of Lords in Three Rivers, a piece of satellite litigation emanating from the attempt by the liquidators of BCCI to prove that the Bank of England was guilty of misfeasance in public office in the exercise of its regulatory powers prior to the collapse of BCCI in 1991. Shortly after the collapse, the government ordered an investigation into the bank’s supervision of BCCI – the Bingham Inquiry.

The bank set up its own internal unit, the Bingham Inquiry Unit (BIU) to deal with communications between the bank and the inquiry. In turn, the BIU engaged external solicitors and counsel to advise on all dealings with the inquiry generally, and in particular upon the preparation and presentation to the inquiry of evidence and submissions on the bank’s behalf (presentational advice).

In due course the claimants in the BCCI litigation sought disclosure of all the documents generated by this process, which the bank resisted, arguing that the material was protected not by ‘litigation privilege’ (because the inquiry was not adversarial in nature) but by ‘legal advice privilege’ – the wider privilege which attaches to dealings between solicitors and their clients regardless of whether litigation is contemplated.

The Court of Appeal was unimpressed by the very concept of ‘legal advice privilege’ and so sought torestrict it to advice about a client's actual legal rights and liabilities. On that basis ‘presentational advice’ did not qualify and so the material was not privileged. This ruling caused much consternation among lawyers and clients alike as it was possible that communications between lawyers and their clients in relation to the inquiries would become disclosable.

On appeal, the House of Lords held that the Court of Appeal's approach was far too restrictive and reversed the decision. Their Lordships robustly argued that, in any society based upon belief in the rule of law, clients need to be able to turn to their lawyers for help and advice on a totally confidential basis, without fear of subsequent scrutiny by the executive or the police or anybody else, and that this principle extended to anything done by a solicitor in the performance of his professional duty as adviser, provided that it was done ‘in a legal context’.

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This plainly included ‘presentational advice’ in the context of any inquiry (statutory or ad hoc) involving a public body whose reputation was at stake or which might be criticised. While their Lordships were not asked to clarify the basis of the client relationship, the judgment was greeted with a collective sigh of relief by the legal profession. It also meant that when drafting the Inquiries Act, there was no need to consider the issue of shielding legal advice.

In the current climate of ‘the public has a right to know’ it is interesting to note that the law lords clearly thought that confidentiality should not be too readily sacrificed on the altar of ‘getting at the truth’. Lord Carswell quoted a 19th century judge who wrote:

Truth, like all other good things, may be loved unwisely - may be pursued too keenly – may cost too much.

Jim Sherwood was instructed to act for the Commissioner of Police of the Metropolis in the Morris Inquiry into professional standards and employment matters in the Metropolitan Police Service.

Mike Brown at BLM Liverpool is instructed by the Medical Protection Society to act on behalf of a doctor involved in the ongoing inquiry into the death of Zahid Mubarek in Feltham Young Offenders’ Institution and also acted for a doctor at the Ashworth Inquiry.

Jim SherwoodPartner, BLM London

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Pleural plaques – anxious times ahead

John Grieves & Others v F T Everard & Sons and British Uralite Plc [2005] EWHC 88 [QB]. There will have been a mixed reaction to the long-awaited judgment of Mr Justice Holland in the so-called test litigation which he handed down on 15 February 2005.

The background

Pleural plaques consist of fibrous tissue on the pleura. They very rarely give rise to symptoms and do not in themselves lead to development of other asbestos-induced conditions namely asbestosis, pleural thickening, mesothelioma and lung cancer.

Plaques are a benign marker of past exposure to asbestos and are in the main symptomless, divisible and (in financial terms) costly to insurers with many claimants preferring to settle their claims on a full and final basis at around £15,000.

Historically insurers and self-insureds alike have been powerless to prevent a steady rise in the number of claims involving full and final settlements against a background of a ‘compensation culture’ fuelled by claims farmers and scan vans. Insurers have had no real say in a claimant’s decision to elect for a full and final award rather than a provisional damages settlement. Some commentators have gone so far as to blame insurers for influencing the upward trend for full and final settlement by buying off the future risks at a premium in order to gain closure.

Within the last few years there has been a realisation on the part of the insurers that in reality few pleural plaques claimants do go on to develop a more serious condition as of course, by their nature, plaques do not develop into a more sinister condition.

Having managed to resolve the problem of reserving for provisional damages claims and facing more claims, insurers have increasingly preferred claimants to settle on a provisional basis.

The full and final award carries with it the dual risks of under-compensation to the claimant who is unfortunate enough to develop a more serious condition and over-compensation by the insurer to the majority who never go on to fulfil the predicated risks.

The issues

Holland J heard ten cases. Liability had been admitted in one and in the other nine negligent exposure to asbestos dust was admitted. In the nine cases the defendants argued that no claimant had suffered an injury sufficient to found a claim in negligence and in all ten cases the argument was that the present level of damages was far too high.

Both sides accepted that pleural plaques per se could not amount to sufficient ‘damage’ along with breach of duty to found the claim in negligence.

The claimants argued that pleural plaques should not be considered in isolation but together with the risks of the future development of a more serious asbestos-related condition (due to exposure to asbestos fibres) and a significant level of past and continuing anxiety caused by knowledge of these risks.

The defendant’s case was that damage is only established as and when there are symptoms and that the future risks are not based on the presence of pleural plaques but earlier asbestos exposure and anxiety brought about by fear of future risks. Therefore the case cannot (as a matter of law) be compensable and cannot contribute to damage so as to found an action. The argument was put that nought + nought + nought is still nought.

Findings

Mr Justice Holland made several key findings in relation to the central liability issue:

The mere permanent penetration of the body by asbestos was not sufficient to give rise to a cause of action.

That pleural plaques could not be forensically classified as a disease, nor in isolation be regarded as an injury such as to found a cause of action.

The combination of the physical presence of the plaques coupled with the anxiety generated by the potential future risks of more serious harm was sufficient to complete the cause of action.

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Being more than de minimis, he was bound by Cartledge v E Jopling (1963) AC758 to find liability.

The judge also commented that it would probably be against public policy now to refuse damages for pleural plaques when such damages have been routinely paid, unchallenged, for about 20 years (since Church, Sykes and Patterson).

Quantum

There was some solace for the defendants in quantum.

Having reviewed the authorities and the JSB Guidelines, Mr Justice Holland accepted the thrust of the defendants’ submissions as to quantum – namely that awards had crept up unjustifiably over the years.

In contrast to the perceived current bracket for provisional awards of £5,000 – £7,000 the judge awarded claimants seeking a provisional award £4,000. It is unclear whether he sought to lay down a guideline bracket of £3,500 – £4,000. The judge felt he could justify an increase to £3,500 without hesitation (from a figure of £2,500 based on Patterson) respecting submissions and raising awareness of the possible long-term onset of asbestosrelated conditions during the period which has elapsed since 1986. With hesitation he felt able to go to £4,000 but not higher.

To the extent that there is such a bracket, the judge fixed all the provisional awards at the upper end ‘in the particular circumstances of this litigation’.

The bracket for general damages for a final award was £6,000 – £7,000 on the basis of future risk levels in the cases before him.

Further, in relation to future financial loss pursuant to the future onset of an asbestos-related condition, the judge found this to be an area where moderation is at a premium. Any calculation has to reflect speculation as to what might result in financial terms and is in turn based on speculation as to what condition may occur and when – given that the probabilities are that no such condition will occur. A 5% riskof mesothelioma occurring comes with it a 95% risk of it not occurring.

Mr Justice Holland felt that any increase over the provisional award would prove to be excessive in mostcases and commented that the less the increase the more the pressure on claimants to heed responsible legal advice and to opt for a provisional award.

In rejecting the claims for prospective financial loss, Holland J felt that the carefully crafted schedules of loss were based upon no more than speculation of what the financial result may be and, which in turn, was predicated upon speculation of what physical condition may occur. Speculation was insufficient to justify a claim which ought properly to be based upon a substantial or real risk. The judge did not give an indication of what percentage risk would be considered real or substantial. Clearly the risks need to be significantly higher than the present claimants’ risks and in those cases the risks relating to Mr Hindson were the greatest:

2% risk of diffuse pleural thickening sufficient to cause disablement through breathlessness. A similar risk of asbestosis. 5% risk of mesothelioma. An enhanced risk (from 10% to 25%) of the future development of lung cancer.

Mr Hindson was seeking just over £25,000 in addition to general damages of £17,500. He was awarded £7,000 in total.

Interestingly, the judge was not prepared to undertake what he described as the essentially undesirable task of measuring anxiety. For example, in the case of the claimant David Mears in which a high level of anxiety was contended for (as opposed to a depressive illness) he was not prepared to depart from his provisional figure of £4,000.

Comment

It is understood that Mr Hindson has appealed on quantum and that some of the defendants are appealing on liability. Those defendants are also seeking leave to appeal on quantum and if granted the claimant’s will cross-appeal.

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At face value the judgment holds an attraction for all; the preservation of a valid cause of action for claimants and lower damages for the insurers.

The reduction in the differential between the brackets for provisional and full and final awards will most probably result in fewer full and final settlements so minimising the effect of the over/under compensation debate. Arguably Mr Justice Holland’s judgment has resulted in the status quo being maintained albeit at a much reduced cost to the insurance industry.

It was probably always going to be difficult for the defendants to avoid liability in view of the policy considerations for the following reasons:

20 years of defendants accepting the right for claimants to claim compensation in such cases. The view of the man in the street that pleural plaques is a significant injury.

At least the judge has reined in the damages which, particularly in relation to traditional awards, wereescalating out of all proportion to the seriousness of the so-called injury and has tried to almost force claimants to opt for provisional awards.

John HarlandPartner, BLM Stockton-on-Tees

Stress: rising pressure, rising claims

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The most recent TUC statistics (November 2004) suggest that 58% of employees feel stressed at work, 63% in companies with over 1000 employees. The HSE indicate that some 500,000 people in the UK are suffering work-related stress at a level which they consider is making them ill. Up to five million people say that they feel very or extremely stressed by their work. Stress claims remain an area of growth in spite of the obstacles placed in claimants’ way by the courts.

There have been a number of significant developments over the last 12 months in relation to stress litigation.

We have seen further comment from the House of Lords in the Eastwood & Williams v Magnox Electric plc (2004), McCabe v Cornwall County Council (2004) and Barber v Somerset County Council (2004) decisions and from the Court of Appeal (CA) in the Hartman v South Essex Mental Health and Community Care NHS Trust (2005) cases.

We have also had the introduction of management standards by the HSE aimed at controlling the incidence of stress in the workplace.

The latest word from the higher courts, however, is unlikely to be the last. Notwithstanding the guidancefrom the CA in Hatton v Sutherland (2002), it is still evident from Hartman that judges are getting it wrong and that the CA agree.

Hartman v South Essex Mental Health and Community Care NHS Trust

The CA gave its judgment on 19 January 2005 on six appeals involving claims for damages for psychiatricinjury arising out of stress at work. There were other cases in the pipeline.

The six appeals illustrate the ranges of cases coming before the courts: overwork, specific incidents, bullying, apportionment of damages. This is consistent with recent statistics from the TUC, which suggest that the main reasons for stress at work are increased workload, change, staff cuts, long hours and bullying.

In Hartman the CA reiterated the general principles that stress at work claims are no different to other claims for injury at work. It is a foreseeable injury flowing from the employer’s breach of duty that gives rise to liability. The fact that an employee is stressed at work and the employer is in breach of duty in some respect does not necessarily mean that a case is established in negligence. The court did not see any inconsistency of approach between the principles laid down by Hale LJ in Hatton and the judgment of Stanwick J, in Stokes v Guest, Keen and Nettlefold (Bolts and Nuts) Ltd (1968) which had been endorsed by the House of Lords in Barber v Somerset County Council (2004). In their view, Hale LJ was applyingestablished principles to a new problem not creating new principles although they did accept the need totake care in applying Hatton to the many varied factual circumstances that may occur.

The judgment also expresses concern over the disproportionate costs being incurred on these cases andencourages parties to identify the real issues and ensure that expenditure on costs is truly proportionate to what is at stake. This is a particular feature of stress claims; parties can become bogged down in minutiae and sidetracked by what ultimately proves to be irrelevant detail or a dispute over minor matters. However, given the difficulties to date of this type of claim and the fact that the courts have not been consistent in the application of Hatton, it is likely to be some time before the confidence exists to abandon lines of enquiry or assume facts to be trivial or irrelevant.

One of the cases in Hartman, Moore v Welwyn Components Ltd concerned apportionment. This remains an issue for the defendants to raise. In that case the judge at first instance had taken account in assessing the general damage award that there were other contributing causes but did not reduce the special damages, which were almost £150,000. The CA agreed with his decision. There was no medical evidence to support an argument that the claimant would have lost earnings in the relevant period due to other causes. Whilst this claimant had had problems in the past he had always managed to return to work. This emphasises the need to ensure that these issues are dealt with in the written expert evidence and at trial.

It is also interesting to note that of the claimants in this group of cases who were successful, Wheeldon, was a part time worker.

Eastwood and Williams v Magnox Electric plc (2004); McCabe v Cornwall County Council (2004)

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Up until the Eastwood case there had been controversy about the impact of the Johnson v Unysis case which prevented any claim for damages in the civil courts where the claimant had also been unfairly dismissed and that the ill health was due to this. This was on the basis that the proper venue for such claims was the Employment Tribunal (ET). This was not withstanding the fact that damages for personal injuries cannot be awarded by the ET in such circumstances. The Eastwood decision in the CA arguably widened the scope of Johnson with the effect that more claimants would potentially find their only opportunity to claim being the ET. The decision of the House of Lords has resolved some of the uncertainty for claimants but not all the controversy about this area.

These two appeals concerned an alleged breach of the implied term of mutual trust and confidence and the decision of the House of Lords in Johnson v Unisys (2001) stated it did not apply to the manner of a dismissal. The main reason why the Lords had declined to extend the law was that issues relating to dismissal were covered by the employment legislation and were to be dealt with in the ET.

Both cases concerned the boundary between what would be caught by Johnson and what would not.The House of Lords held that, where the losses flow from conduct which precedes the dismissal, the cause of action is independent of any claim to the ET for unfair dismissal. The courts will need to draw a distinction between losses that flow from the dismissal and losses that flow from antecedent conduct. Lord Nicholls recognised that the practical consequences of this boundary may not be straightforward.

The House of Lords effectively confined the effects of Johnson to the actual act of dismissal itself. It is surprising, however, that given that in Eastwood the main issue for the parties was essentially what is meant by the phrase ‘manner of dismissal’ in Johnson, there is no discussion of this and we are left to infer that this must mean the act of dismissal itself.

Inevitably, in many cases the dividing line between the causative effect of the events leading up to a dismissal and the effects of the actual dismissal itself will not be easy to discern.

Whilst Eastwood and McCabe have provided some certainty on jurisdiction issues in what was becomingan ever increasingly difficult area, the practical effects for insurers, employers and those advising them remain difficult and jurisdiction still needs to be considered. Proceedings in the ET remain relevant to stress cases and insurers should be involved in the claims at that stage rather than await the outcome and notification of any civil claim. Issues of estoppel in relation to evidence may arise, depending upon the circumstances.

The unsatisfactory state of the law in this area was a source of concern for the Lords. They urged thegovernment to act. It is difficult to see how intervention by the government to, for example, increase the limit for cases in the ET would ease matters. Damages for personal injury are excluded from claims in the ET. Steyn LJ, who remained of the view that Johnson was incorrectly decided, went so far as to set out in some detail the areas where Johnson could be attacked almost inviting the matter to be brought back before the courts.

Management standards for work-related stress

In November 2004 the HSE published its management standards and guidelines on work-related stress and the HSE’s message in relation to stress is that it is a serious problem but that tackling it can have significant benefits for companies. The management standards reflect the risk factors that the HSE have identified as being significant in relation to stress: demands; control; relationships; change; role; support. A detailed review of these standards is beyond the scope of this article and the standards will take time for employers to digest and implement. There appears to be a great emphasis on the subjective views of employees. Employers will need to take care in their information gathering to see that it is recorded objectively and that a balanced picture is obtained rather than the views of a minority who may be exerting influence. The onus on employers to seek out information arguably goes beyond what is envisaged in the guidelines laid out in Hatton by Hale LJ. The employer’s performance in the implementation of these standards will inevitably form part of evidence considered in future stress cases. These, together with the changes to the Management of Health and Safety at Work Regulations (which mean that a failure to carry out a risk assessment) can lead to civil liability, open up avenues for claimants to pursue.

Conclusion

Stress claims will remain an area of developing law. A distinction needs to be drawn between the effects ofstress in its widest sense, which the HSE aims to combat, and a psychiatric injury in respect of which a claim can be brought. It should not be assumed that simply because the activity of the HSE has raised

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awareness of stress in the workplace that the foreseeability hurdle for employees should be easier, or assumed to have been established, if the employer has failed in implementing the managementstandards. The 16 guidelines set out in Hatton will remain the correct approach. It is inevitable that there will be some conflict between the expectation of the HSE of how an employer should act and how he may act and not attract liability according to Hatton. Whilst agreeing with the encouragement of the CA in Hartman to try and bring some proportionality to these cases in terms of the costs being incurred, employers and their insurers should remember that stress claims will remain an area where it is easier for an employee, deliberately or otherwise, to incorrectly attribute ill health to work. These claims still require careful investigation.

The future

A writer in The Times (November 2004) had an interesting comment – that one person’s stimulation isanother person’s pressure and how one person may be off work sick blaming it on pressure whilst anotherperson thrives on the challenge. The writer suggested that perhaps employers should be able to counterclaim for the employee lacking joie de vivre or simply failing to take enough interest.

Vivienne WilliamsPartner, BLM Manchester

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Education – stale claims and lost opportunity

Despite the landmark House of Lords decision in Phelps v London Borough of Hillingdon (HL 27 July 2000), so called ‘failure to educate’ claims have remained difficult to prove and win. Two recent court decisions highlight the difficulties for prospective claimants.

In David Adams v Bracknell Forest Borough Council (HL 17 June 2004), the House of Lords was concerned with the thorny issue of limitation. The claimant was educated by the defendant between 1977 and 1988. He issued proceedings when he was aged 30 in June 2002. The claimant suffered from dyslexia. The distinctive features of this condition are a combination of average to good general mental ability with severe and long term difficulties in reading, writing and spelling. It is not curable but in some cases suitable teaching can ameliorate its effects.

Mr Adams’ dyslexia was not formally diagnosed until November 1999. Prior to that he had known that he had suffered from some psychological affect linked to his poor reading and writing skills.

The claimant argued that for the purpose of limitation his date of knowledge was November 1999. He relied on the decision in Phelps that a failure to ameliorate a congenital condition can constitute a personal injury and that a three year limitation period applied subject, of course, to the provisions of Section 11, Section 14 and Section 33 of the Limitation Act 1980.

Their Lordships agreed that the earlier Court of Appeal (CA) decision in Robinson v St Helens Metropolitan BC (2003) PIQR P128 had been rightly decided. A negligent failure to ameliorate the consequences of dyslexia by appropriate teaching may be said to constitute an injury. They believed that it was too fine a distinction to say that the neglect had caused no injury because nothing could be done to repair the congenital damage in the brain, or to argue that the other parts of the brain which would have to be trained to compensate had never been injured.

The majority of their Lordships also concluded that whilst his dyslexia might have inhibited the claimant from seeking advice, he ought reasonably to have sought expert advice years ago. In the absence of evidence that his injury prevented him from seeking expert opinion about its cause, it could not be assumed that any such difficulty existed. Their Lordships therefore concluded that the relevant date of knowledge for the purposes of considering limitation accrued well before the three years prior to the issue of the summons. The defendant’s appeal was allowed and the action dismissed. This case is of particular interest to insurers and local education authorities because of the strong policy stance taken against stale claims – a particular feature of these education claims. It also reaffirms the personal injury classification for this type of claim.

In DN (by his father and litigation friend RN) v London Borough of Greenwich (CA 8 December 2004), theCA was concerned with a first instance decision of Judge Overend concerning an adverse finding on liability and causation against the defendant local education authority. The claimant was assessed and found to have special educational needs at the age of 5. At 10 the defendant’s educational psychologist prepared a report and in consequence the claimant was educated at a school for children with educational behavioural difficulties. It was not until the age of 12 that he was diagnosed as suffering from Asperger’s Syndrome (this syndrome is characterised by the kind of abnormalities of reciprocal social interaction that typify autism coupled with a restricted, stereotyped, repetitive reservoir of interests and activities. Its primary difference from autism is that there is no general retardation in language or cognitive development).

In puberty the claimant developed a preoccupation with young girls and fire setting. He was convicted of arson and was made the subject of a restriction order under the Mental Health Act 1983.

The trial was unusual in that the defendant education authority did not call any independent expert educational psychology evidence and instead relied on the evidence of the two educational psychologists involved in the claimant’s original assessment.

The trial judge found that the educational psychologist (Mr Moreland) had been negligent in failing to identify the claimant’s complex social and communication needs – such needs not being appropriately catered for at the school to which he was sent. On causation the judge held that the failure to send the claimant to an appropriate school resulted in a loss of opportunity for the defendant to learn how to improve his social and communication skills, to manage his behavioural difficulties and to gain an endqualification. He ordered damages to be assessed on that basis. The local educational authority appealed.

In the CA, the appeal on liability was dismissed. The appeal on causation was allowed and the case was

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remitted for the judge to assess damages on the basis of their findings on causation. The key findings were:

1 The evidence of the defendant’s psychologist was admissible. The fact that such an expert might lack the objectivity of an independent expert went to the issue of cogency not admissibility. Whilst critical of the judge’s approach, the court believed that he had balanced the testimony of the claimant’s expert against the defendant’s educational psychologist (despite not expressly doing so in his judgment) and that it would be wrong to order a re-trial on this basis.

2 On causation, the trial judge had overstated the effect of the expert psychiatric evidence and had been wrong to find that the defendant’s negligence had caused the claimant to lose the opportunity to learn how to improve his social skills etc. The judge should have approached the question by considering, on the balance of probabilities, what would have been the likely outcome if the claimant had gone to an appropriate school. The claimant had at all material times been severely damaged (independent of his Asperger’s Syndrome) and all the experts could say on the balance of probabilities was that the outcome would have been better or different if his education had been different. The court held that the claimant could only justify a small award for the loss of earnings component of his damages. Some reference was made to the Phelps decision and the award for loss of earnings in that case. The CA suggested a figure nearer £15,000 would be appropriate in this case.

3 The claimant was unable to recover the damages for the consequences of his convictions for arson. Clunis v Camden & Islington (1998) QB978 applied.

4 The court was especially critical of the case management of this case which had led to the joint statement of the psychiatrists being produced on day one of the trial and the defendant’s educational psychologist not being given the opportunity to counter late served expert material from the claimant. In particular the court said that in future education negligence claims any order for expert evidence should require the expert to identify the learned articles, text book entries and research studies relied on (as is commonly done in clinical negligence claims). The senior procedure master was to consider standard directions in these cases. The court also emphasised that expert witnesses must not be permitted to depart substantially from their written report unless the trial judge was satisfied that there would be no injustice to the parties. Furthermore, the trial judge should not (without good reason) adopt a differential approach towards evidence from different categories of witness (ie expert and lay witnesses) as was done by the trial judge in this case.

Undoubtedly, the defendants were hindered at trial by the decision not to call their own, fresh expert evidence. The case does still demonstrate the considerable evidential hurdles which claimants need to overcome where they are suffering from a complex behavioural emotional and learning problem (a common feature in these claims). The defendants must always focus on what would have been the outcome but for the alleged professional negligence or alternative teaching options, which it is maintained should have been provided in the first place. Often the teaching regime suggested by the claimant would have made no material difference to the outcome in any event.

It is also encouraging to see the courts starting to treat these claims with the specific procedural interest that they deserve and which has until now been reserved to other specialised claims.

Jeff WalePartner, BLM Southampton

DISCLOSURE 12

Council cleared of corporate manslaughter

Legionella case doubts whether local authorities can ever be liable

Barrow Borough Council has been acquitted of seven counts of manslaughter following the deaths of users of its leisure facilities. In dismissing the charges, Poole J, sitting at Preston Crown Court agreed that there was no case for the council to answer. Although seven people contracted legionella, the ruling brings into question whether Barrow Council or any other public body constituted in that way could ever be convicted of this offence as the law stands.

For a company or local authority to be guilty of corporate manslaughter, the court first needs to identifysomeone as a ‘controlling mind’ and that such a person was himself guilty of gross negligence manslaughter. This ‘identification principle’ can often be difficult to achieve and has lead to the dismissal of several high profile prosecutions even where the level of negligence within a company has been substantial. The court alleged that a Ms Beckingham, employed as the design services manager, was so high up in the council’s structure that she was effectively, for these purposes, the council itself. It said she was guilty and that her acts were so closely identifiable with those of the council that she effectively ran what it did and the way in which it did so. The court disagreed.

Mark Turner QC, defending the council, looked at the way in which a local authority is created, its functionsand the purposes for which it exists. Firstly, the elected members of council and its various committees by law have the statutory authority to make decisions on its behalf. The council alone through its local councilors and committees had the power to tell employees what to do and how to do it, or to overrule heads of department such as Ms Beckingham.

Due to the wide ranging nature of a local authority’s powers and responsibilities, the council argued that noone person, even its chief executive or council leader, could ever be said to ‘run’ the council. It was able todischarge its functions by delegating tasks to employees but this did not transfer the final say to such people. Even with a high level of discretion being given to such employees, the staff did not personally become the council’s ‘controlling mind’.

The decision brings into question whether a local authority constituted in this way could ever face the stigma of being convicted of corporate manslaughter under the law as it currently stands. While this may seem like a good thing, in reality the consequences to the council itself are of little difference whether their conviction is for manslaughter or for existing health and safety offences under the Health and Safety at Work Act 1974.

In practical terms most fatal accident cases will be referred to the Crown Court where a corporate body may be fined an unlimited amount anyway. A council cannot be imprisoned nor can its senior members or employees just for holding an office when things go wrong. Many local authorities are fined less than companies would be because the effect of any penalty is felt ultimately only by members of the public who pay their council tax and who use council facilities and services, rather than by individual officers orpoliticians whose conduct may have been negligent in any given case. Barrow Council will be sentenced for health and safety offences after the case against its employee, the design services manager, is concluded.

This is different to large corporate entities where the fine should be large enough to send out a message not only to the board but also the directors that health and safety breaches will not be tolerated.

At the time of writing, the Hatfield rail crash prosecution against a number of senior officers of Railtrack and Balfour Beatty is ongoing. If these manslaughter prosecutions are successful, the definition of the ‘controlling mind’ might be held to vary depending on the individual circumstances and the facts of a particular case. This will mean that the prosecution might soon be able to widen its search to identify a ‘controlling mind’ beyond directors and down the corporate chain to senior managers in a company if they are personally suspected of manslaughter.

Local authorities need to be aware that they could be held liable under proposed changes to corporate killing laws which are currently undergoing consultation. If enacted as drafted, the need to identify one ‘controlling mind’ who is guilty would be removed. Chief executives might be personally liable although it will be more difficult to convict elected members under the new reforms. The final wording of the legislation may be modified from that proposed and stakeholders comments on the draft are sought.

Chris GreenPartner, BLM Manchester

DISCLOSURE 13

To catch a thief

Fraud is a word that we see all too frequently these days and an activity which we hear is on the rise. But although we use the word so readily, do we really understand what constitutes the offence of fraud? What of the government’s proposals to reform the law of fraud – are these proposals going to help us to understand this area of law? More importantly, are they going to help prosecutors to secure more convictions and reduce the number of failed trials?

Current position

Perhaps the root of the problem is the dual existence of:

Statutory offences of deception under the Theft Acts. Offence of conspiracy to defraud under common law.

Statutory offences

In addition to the general offence of theft, there are eight statutory offences of deception which fraudsters can be charged with.

The statutory offences are very specific. For example: obtaining a money transfer by deception; or obtaining an exemption from a liability to make a payment.

The specific nature of the statutory offences creates difficulties for prosecutors because they can be a breeding ground for technical arguments by clever defence lawyers; usually following the lines that the facts of the case do not fall within the strictly defined boundaries of the offence.

To guard against this, prosecutors often choose to take a ‘belt and braces’ approach by charging the fraudster with a number of offences. This is the reason we hear of those lengthy and complex fraud cases which are so vulnerable to collapse.

A further problem caused by the precise nature of the statutory offences is their inflexibility. This means that the law can struggle to keep pace with the ingenuity of the fraudster and the pace of technology – making the prosecutor’s job even harder. This was a problem identified as early as 1759, when Lord Hardwicke recognised that the fertility of man’s invention will always find ways to escape a tightly drawn law.

Common law offence (conspiracy to defraud)

In contrast to the statutory offences, the offence of conspiracy to defraud is defined very widely. A ‘conspiracy’ occurs when two or more people agree a plan of action. If they conspire to defraud then they are guilty of the common law offence.

A dishonest agreement to make a gain at another’s expense could amount to a conspiracy to defraud. An honest agreement on the other hand is simply sharp business practice. At what point does a legitimate moneymaking plan become a dishonest plot to defraud?

This is a question for the jury to determine. Firstly they must decide whether the conspirators knew that their plan was dishonest according to the ordinary standard of reasonable and honest people. Secondly the jury must be satisfied that the conspirators knew that the plan was dishonest according to those standards.

This places a huge burden on jury members who have to decide what conduct is to be regarded as fraudulent and it makes it difficult for the CPS to predict the jury’s verdict with any confidence.

Home Office proposal: a single offence of fraud In May 2004 the Home Office published a consultationpaper in which it recognised the shortcomings in the current state of the criminal law of fraud. Rather thancontinue to ‘plug the gaps’ and develop the law in a piecemeal way, the Home Office announced that it would overhaul the entire law by introducing a single offence of fraud to replace the statutory offences of deception and the conspiracy offence.

It is proposed that the new single offence will be committed in three ways by:

1 Making a false representation.

DISCLOSURE 14

2 Failing to disclose information.3 Secretly abusing a position of trust.

In each of the cases in point above, the relevant behaviour must be:

Dishonest. Intended to secure either a gain for the fraudster or a loss, or risk of a loss, to another (although,

the intended gain or loss does not actually have to occur).

1 Fraud by false representationA person will be guilty of this offence if he makes an assertion by words or conduct:

Knowing that it is wrong. Being aware that it might be.

It will not be necessary for the victim of the representation to actually believe the misrepresentation as is currently required under the statutory dishonesty offences, nor will it be necessary for the victim to have relied upon the false representation.

Comment

Where a fraudster uses a stolen credit card to make a purchase, he is implying to the shop assistant that he has authority to use it, when this is not the case. The shop assistant may not necessarily be interested in whether the defendant has authority to use the card, only that the payment clears, so it would be incorrect to say the assistant had been deceived as they may not even have considered the issue. This is an example where fraud by false representation would be more appropriate than an offence of deception.

2 Fraud by wrongfully failing to disclose informationThe question of whether an omission causes a deception is one which the Home Office considered carefully. It concluded that dishonest non-disclosure should fall within the parameters of fraud.

The proposed legislation will establish two cases of dishonest non-disclosure where there is:

a) A legal duty to disclose (eg where there is a statutory or fiduciary duty).b) No legal duty to disclose information, but there is a ‘moral’ duty to do so. This type of duty would

arise where:

The victim trusts the defendant to disclose information to him. The defendant knows the other person is trusting him to disclose information or is aware that he

might be. Any reasonable person would expect the defendant to disclose the information.

Comment

The failure to disclose information to a third party where there is no legal duty to do so contradicts the maxim: caveat emptor (or ‘buyer beware’) and is likely to be a source of further debate in the courts. For example, as it stands, an unscrupulous antiques dealer could be caught by this offence if he fails to advise the uninformed vendor that a particular item is far from worthless.

3 Fraud by abuse of positionThis offence will be committed where a fraudster is put into a privileged position in which he is expected to safeguard the victim’s interest and when the fraudster:

Dishonestly abuses that position without the knowledge of the victim. Believed that the victim was unaware of the fraud.

Comment

The employee who secretly fails to pitch for a contract to enable an associate to secure the work would becaught by this offence. Other examples of relationships which could give rise to a fraudulent abuse of position are: professional and client; director and company; and between partners in a partnership.

Conclusion

DISCLOSURE 15

There has been widespread publicity of the collapse of serious fraud trials. It is hoped that the introduction of the general offence of fraud will make the prosecution process increasingly effective by defining fraud more clearly.

If the law can be simplified and made user-friendly, this should give prosecuting authorities greater confidence in their ability to apply the law, which in turn should produce a higher conviction rate.

The law reform should also help to raise awareness that fraud is a criminal offence. However, it is widely accepted that in order to combat fraud effectively, this law reform needs to go hand in hand with an increase in resources allocated to the prosecution of fraud and particularly insurance fraud.

Julian SmartPartner, BLM Birmingham

DISCLOSURE 16

The CA responds to dishonest claimant

Yvonne Painting v University of Oxford

Mrs Painting was employed by the University of Oxford as an administrator. On 1 June 1999 she fell from a stepladder whilst fetching a file from a shelf and sustained a back injury. It was her responsibility to ensure that work equipment was in good order. At the time of the accident she was heavily pregnant. The University conceded primary liability for the accident and the claimant accepted a reduction of 20% in respect of contributory negligence.

The claimant commenced proceedings relying upon evidence from an orthopaedic surgeon who recommended that the claimant should be examined by a spinal surgeon. On the day that the claimant was seen by the spinal surgeon, she was filmed by a covert surveillance team instructed by the defendant.

The spinal surgeon considered that the claimant was genuine in her presentation and that her symptoms were attributable to the accident. However, when he saw the surveillance video, his opinion changed. He said that the surveillance footage demonstrated that the claimant had exaggerated her claim and had misled him at examination.

The defendant having paid into court the sum of £200,000 gross of benefits, applied to the court to reducethe monies in court to £10,000. The court granted the application.

The claimant valued her claim in the region of £500,000 – £400,000 after contributory negligence. However, at no time did she accept or apply to take out of court either the £200,000 or the £10,000. Neither did she make an offer to settle.

At the disposal hearing, the judge (having heard oral evidence from both the orthopaedic surgeon and thespinal surgeon and having reviewed the surveillance evidence) concluded that to all intents and purposes, the claimant had reached a full recovery by the end of the year 2002. Thereafter, her behaviour amounted to an exaggeration of symptoms. The judge further found that the claimant had misled the spinal surgeon. He assessed her damages at £25,331.78, net of the deduction of 20% for contributory negligence.

The defendant applied for an order that the claimant pay the defendant’s costs, on the basis that the defendant had ‘won’ the case, albeit that the claimant had beaten the payment into court. The trial judge refused and the defendant appealed to the Court of Appeal (CA).

On appeal, the defendant argued that:

The claimant had exaggerated her claim. Whilst the claimant had beaten the payment into court she had only done so by £15,000 – a small

amount in the context of the overall claim. The claimant had fallen far short of her claim – she had only recovered 6%. The defendant had succeeded on the issue of exaggeration. The claimant had persisted in exaggerating the claim and had she not done so the case would

have settled at an early stage. It was impossible to settle the claim because of the claimant’s exaggeration and failure to make

counteroffers. The order for costs at trial resulted in the defendant having to pay for medical examinations and

reports where the claimant had been found to have misled the expert.

Part 44.3 determines that the award of costs is at the discretion of the court. Part 44.3(4) requires the court to have regard to all the circumstances including:

1 The conduct of the parties.2 Whether a party has succeeded on part of his case, even if he has not been wholly successful.3 Any payment into court or admissible offer to settle made by a party which is drawn to the court’s

attention (whether or not made in accordance with Part 36).

Part 44.3(5) defines the conduct of the parties as including:

1 Conduct before, as well as during the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol.

2 Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue.3 The manner in which a party has pursued or defended his case or a particular allegation or issue.

DISCLOSURE 17

4 Whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

The CA held that in exercising its discretion it must have regard to ‘all the circumstances of the case’ and a Part 36 payment is merely one of the circumstances to take into account. There are other factors which should also be taken into account, primarily the conduct of the parties. The CA agreed that the disposal hearing had been about one issue: whether or not the claimant had exaggerated her claim. The defendant was therefore the real winner of the trial and would be awarded the costs of the action from the date ofthe payment into court.

Lord Justice Longmore stated that:

The fact that the exaggeration is intended and fraudulent is, to my mind, a very important element which needs to be addressed in any assessment of costs.

He also criticised the claimant for failing to try and settle the case:

It is relevant that Mrs Painting herself made no attempt to negotiate, made no offer of her own and made no response to the offers of the University… Negotiation is supposed to be a two-way street, and a claimant who makes no attempt to negotiate can expect, and should expect, the courts to take that into account when making the appropriate order as to costs.

This decision follows Islam v Ali [2003] EWCA Civ 612 and Malloy v Shell UK Ltd [2001] EWCA Civ 1272. In both of these cases, the court carried out an analysis of what the real issue was between the parties and awarded costs to the winner of that issue.

The decision in Painting is to be welcomed and provides strong evidence to suggest that the courts will increasingly penalise dishonest claimants.

David BrownPartner, BLM London

DISCLOSURE 18

Interpreting product liability insurance

Case study:

A company manufactures salt which is sold to a cheese company. Some of the salt is used to make 85 tonnes of cheese. However, the cheese has to be placed in quarantine when it is discovered that the salt is contaminated by metal flakes. The cheese maker is looking to sue the salt company for €300,000(the commercial value of the cheese and the estimated cost of its disposal). The salt company tells its product liability insurers and BLM are asked to advise whether the claim is covered by the insurance.

The policy

The insurance policy defines the scope of cover as:

Accidental physical damage to PROPERTY… caused by any GOODS.

The issue

The policy will therefore only cover the claim if physical loss or damage had been caused to the cheese by the supplied salt.

At first sight this may seem a simple question to answer yet the legal authorities demonstrate a complex and conflicting set of arguments.

Discussion

Obviously the ingredients within the cheese had not been physically lost although, due to actual or potential contamination by the metal flakes, the cheese was completely valueless. The question was whether there had been physical damage to the ingredients within the cheese. If not, then technically the claim was a financial one for the loss in value of the cheese. In this case there would be no reason for the policy to respond.

The legal meaning of physical damage

The legal argument in Bacardi-Martini Beverages Limited v Thomas Hardy Packaging Limited (2002) upon the meaning of physical damage is similarly complex. The case concerned Bacardi Breezers, which had been manufactured with benzene contaminated carbon dioxide. The supplier of the carbon dioxide denied liability as its supply contract limited liability to ‘direct physical damage to property’. Clearly the Breezers could not be sold and the court had to determine whether the inclusion of a contaminated ingredient constituted direct physical damage to the drink.

According to the judgment there was no evidence that the introduction of the benzene into the mixture altered the characteristics of, or effected a physical change in, either the concentrate or the water. Since the Breezers did not exist prior to the alleged infliction of damage it could not be said that there had been direct physical damage to the property; rather that there had been production of a defective product by Bacardi. It was found that the loss had been suffered because the finished product was useless, not because the ingredients of the Breezer had been damaged.

According to the judgment of Mance LJ:

Although… it might be possible to speak of the mix of Bacardi’s concentrate and Thomas Hardy’s own water as having been ‘damaged’ by being admixed with benzene contaminated carbon dioxide, the more natural view is that the mix of concentrate and water itself ceased (as always intended) to exist and the finished product came into existence at the moment of such admixture. What resulted was not damaged concentrate and water, but a defective new product.

Boundaries on physical damage

In the case of Pilkington UK v CGU Insurance (2004), Pilkington had made and supplied glass panels for the roof of the Eurostar terminal at Waterloo. Out of 3,000 panels, 13 failed – but there was no personal injury or damage to the fabric of the terminal. Eurostar carried out a technical investigation and installed safety netting beneath the panels to guard against future failures. Pilkington settled the claim and sought to recover under its global liability policy.

DISCLOSURE 19

The Court of Appeal (CA) considered the particular insurance clause which required:

Loss of or physical damage to physical property not belonging to the insured.

It was held that taking precautions to avert future damage or personal injury cannot amount to ‘damage’contemplated by the policy. This required some ‘changed physical state’ to have occurred in the property in relation to which the defective product has been introduced or juxtaposed – ie there must be ‘physical damage’ and it must be to property other than the supplied product.

The CA held that:

… generally speaking, damage requires some altered state… This plainly covers a situation where there is a poisoning or contaminating effect upon the property of a third party as a result of the introduction or intermixture of the product supplied.

Back to the metal contaminated salt: was there physical damage to the cheese?

There is considered to be tension between the reasoning in Bacardi-Martini and of that in Pilkington. A real challenge occurs when attempting to reconcile the judgments given in these cases. One of the difficulties is that the Bacardi- Martini decision appears to have escaped (at least express) consideration by the CA in the Pilkington case.

If the passage quoted from Pilkington constitutes a correct statement of law, then undoubtedly physical damage had occurred to the cheese. The analysis in Bacardi produces a less certain result. In this case there was no identifiable ‘product’ until after ‘admixture’ of the contaminated component. The result was not damaged concentrate and water, but a defective new product. Applying that approach to our case study, it could be argued that the cheese constituted an identifiable product prior to the addition of the metal contaminated salt. It could therefore be maintained that the cheese had been physically damaged as a consequence of its contamination. However, the tests given in the authorities are not easily reconciled and as a result it is not possible to guarantee the outcome of the question of ‘damage’. On balance, BLM expects that a court would conclude that the cheese had been damaged.

One further important point is the extent of insurers’ liability. In our view the indemnity would be the cost ofunadulterated cheese (ie the cheese without the salt) and not the market value of the cheese, had it been fit to sell.

Conclusion

When a claim is made against an insured where defective goods have been supplied, the insurance cover will only usually respond where those defective goods have caused physical damage to the buyer’s property. In light of the case law, the facts must be analysed and indeed it may be necessary to obtain expert evidence to determine whether physical damage had occurred. Even if the buyer’s product is useless because of the insured’s defective product, this does not necessarily mean that it is physically damaged. Whilst the seller may have a contractual liability to the buyer, this does not necessarily mean that the seller’s product liability insurance will respond. Generally, cover will only arise when some ‘changed physical state’ has occurred in the buyer’s property as a result of the introduction of the defective product.

Perhaps the logic behind this analysis lies in the fact that product liability insurance is intended to cover purely the insured’s legal liability for causing physical loss or damage to property. It is not intended to extend to legal liability for economic loss eg loss of profits, without that being a consequence of actual injury or physical damage caused by the insured’s goods.

Julie-Anne LuckPartner, BLM Manchester

DISCLOSURE 20

Data protection and freedom of information

The Data Protection Act (DPA) continues to cause difficulties for insurers and their clients. Many readers will be familiar with the Court of Appeal’s decision in 2003 in Durant v Financial Services Authority.

As a reminder, Mr Durant was a customer of Barclays Bank Plc against whom he had unsuccessfully brought proceedings. He lodged a complaint with the FSA which was rejected and subsequently sought disclosure under Section 7 of the DPA of records in connection with the dispute which he believed might assist him to re-open his claim. The Court of Appeal considered two fundamental issues.

1 What made data ‘personal’ within the meaning of ‘personal data’.2 What was meant by ‘relevant filing system’ in the definition of ‘data’ in the Act.

Considering the first issue, the court indicated that the mention of somebody in a document did not necessarily mean it would amount to their personal data. The court identified these considerations:

1 That the information was biographical.2 That the information should have the person as its focus rather than some other person or event.

The court took the view that references to Mr Durant in the documentation were passing (ie non biographical and Mr Durant was not the focus) and that they largely concerned the conduct of Barclays.

Importantly, the second issue concerned the section of the DPA which determines what paper files (as opposed to computer records) fall within the DPA regime. The decision is fundamental in determining what paper files will fall within the terms of the Act. The court considered that the DPA could only sensibly be applied to filing systems that enabled identification of information with the minimum of time and cost. Files or systems without a clear indexing system would not fall within the definition.

Following Durant the Information Commissioner revised his guidance and indicated that the following file types would not fall within the terms of the Act:

Manual files without detailed subdivisions or indices. Documents purely in chronological order.

Durant has subsequently been followed in a number of cases.

In Johnson v Medical Defence Union litigation was commenced following the decision of the MDU not to renew Mr Johnson’s membership.

Mr Johnson made a request for documents which was refused. He argued that documentation which had not been disclosed to him was his personal data and should be provided to him under the DPA. The judge had held that the documents did not contain ‘personal data’ of Mr Johnson and did not fall within the DPA because (following Durant) they:

were in manual form. did not have sophisticated indexing (so were not recorded as a ‘relevant filing system’ or ‘data’). did not contain ‘personal’ information which would constitute ‘personal data’.

In addition, as Mr Johnson was not the subject of the documents they were not ‘personal’ in the sensenecessary to constitute ‘personal data’. Mr Johnson was refused permission to appeal on this point.

The court has also considered the application of the DPA to medical records where those records are relevant to litigation.

In Matthew Mensah v Dr Robert Jones (19 November 2004) Mr Mensah alleged that the defendant (who had been represented by the Medical Defence Union) had improperly passed a printout of his medical records to the solicitor at the MDU having conduct of his case. The means had been provided so that Mr Jones could take advice as to whether or not the records needed to be disclosed in proceedings that Mr Mensah was bringing against Dr Jones alleging physical and verbal assault.

Mr Mensah alleged that his medical records were confidential and that by disclosing them Dr Jones hadbreached the DPA, the Access to Health Records Act 1990 and the law of confidentiality.

DISCLOSURE 21

The judge noted the provisions of section 35(2) of the DPA which provides that personal data is exempt from the non-disclosure provisions where the disclosure is necessary for the purpose of, or in any connection with, any legal proceedings. The judge said that the disclosure by Dr Roberts in this case was plainly for the purpose of (and in connection with) legal proceedings.

The judge felt that the Access to Health Records Act 1990 had no application and could not impose on Dr Jones an obligation to obtain a court order before sending the print-out of the medical records to his solicitor.

Finally, in relation to confidentiality, the judge noted that the obligation of disclosure could override the obligation of confidentiality. He stated that the law and common sense required that a doctor disclose any confidential material which may be relevant to his solicitor for advice as to the proper course to be taken.

Finally, a further case has recently come before Mr Justice Laddie. In Terrence Smith v Lloyd’s TSB Bank Plc Mr Smith had been the managing director and controlling shareholder of a company that had gone into liquidation, causing him to lose his home. There had been a number of pieces of litigation between Mr Smith and Lloyd’s and against this background he made a subject access request for material that he said had been withheld from him and which he thought would assist his litigation. On the basis that the material held by Lloyd’s was held on paper in unstructured bundles, the judge (following Durant) found that the material did not constitute ‘data’ for the purposes of the DPA. The claim failed on this basis. In addition thejudge found that the documents held by Lloyd’s and the information contained within them was not ‘personal’ to Mr Smith in the relevant sense as although Mr Smith was mentioned, this was only because he had acted for and on behalf of the company and was closely associated with it. The documents were not biographical about Mr Smith to a significant extent and therefore the judge indicated that he would also dismiss the claim on that ground.

Conclusion

Durant provided welcome clarification of the application of the DPA which will assist many organisations in dealing with oppressive or vexatious requests under the DPA. The cases that have followed have demonstrated that the courts are applying Durant in a sensible and pragmatic way which will undoubtedly be comforting for those on the receiving end of DPA requests.

Freedom of information

Finally, as many of you will be aware, the Freedom of Information Act 2000 (FOIA) came into force on 1 January 2005. There is no authority yet in the form of decisions from the Information Commissioner or from the courts and it is worth noting that it took three years for substantive data protection caselaw to emerge after the DPA came into effect.

The FOIA gives wide ranging powers to individuals and organisations to seek information and whilst there are a large number of exemptions (which potentially confuse the situation) these will apply only in limited instances. The FOIA also makes important changes to the DPA in relation to public authorities. In particular, the FOIA has amended the definition of data in the DPA so that the definition will apply to unstructured paper files held by public authorities (so removing the benefit of the decision in Durant for public authorities). We are already seeing large numbers of contentious requests being made underthe Act (the first ones, naturally, being made on 1 January 2005!) and will continue to keep you updated in this developing field.

Tim SmithPartner, BLM London

DISCLOSURE 22

Disciplinary Law

Self regulation v regulation by the State

This article examines the principles of self regulation of the professions and the impact of the state (through mechanisms such as review of the tribunals system and legislation) upon disciplinary bodies. It will consider the extent to which disciplinary committees can consider themselves independent and what impact this might have on the future of the professions generally.

Self regulation

The ability/power to self regulate is seen as a defining characteristic of a professional group. In return for membership a review system is established to be sure that only fit and proper members remain in that group. It is also seen as an alternative to heavy handed state regulation which is associated with out of date statutes and high costs.

A significant number of professions in the UK have an underlying statutory framework for regulation, but the disciplinary role is actually carried out by the profession itself eg The Medical Act (1983) is the basis for the General Medical Council’s powers.

The effectiveness of self regulation is, however, coming under ever greater scrutiny, not least as a result of media interest in professional standards. Scandals in the medical arena involving Harold Shipman, Bristol Royal Infirmary and Alder Hay Hospital have all contributed to the undertaking of a review of the effectiveness of the current regulations in place and increased intervention by the state. The legal profession are also entering a new era following the Clementi Review.

Governmental guidance

The state has its own regulation responsibilities through the Tribunal Service. This includes the Criminal Injuries Compensation Panel, Competition Commission and Employment Appeals Tribunal. In 2001 Sir Andrew Leggatt reported (at the request of the Lord Chancellor) that there was a need to codify the systems in place. This has resulted in the establishment of model rules and standards underpinned by an overriding objective of fair and just management. This template cannot afford to be ignored by other bodies carrying out non court functions, such as disciplinary committees.

The impact of the Human Rights Act

The Human Rights Act 1998 came into force on 2 October 2000. The key provision in the context of professional regulation is Article 6 – known as the right of an individual to a fair hearing. The Act applies to public authorities and, bodies such as the General Medical Council (GMC) fall within it.

The result is another external pressure upon disciplinary committees to review their procedures and ensure that they proceed with fairness and openness. To date, the case law has been limited and no doubt the GMC took heart from the decision of the Privy Council in Gupta v GMC (2001). In that case, which involved an appeal from the Professional Conduct Committee, the council considered that there was no general duty for the committee to give reasons for their decision. The transcript of evidence was clear, the account provided by the doctor was found to be untruthful.

The Council for Health Care Regulatory Excellence (CHRE)

This organisation was established by the NHS and Health Care Professions Act 2002. It is funded by the Department of Health and its purpose is to stimulate good practice. It oversees the regulatory work carried out by nine organisations including GMC, General Dental Council and the Nursing and Midwifery Council. It was initially titled The Council for the Regulation of Health Care Professionals (CRHP).

One key statutory provision (in place since April 2003) is for the council to have the power to refer decisions made by disciplinary committees to the courts for review. The basis for referral is that the decision made is considered too lenient either in terms of the findings or penalty imposed.

As a result of this provision disciplinary committees are subject to another layer of review and potential challenge. Such powers have already been demonstrated in three reported cases: Ruscillo (which involved the GMC and the powers of CRHP to refer), Truscott (which involved The Nursing and Midwifery Council and undue leniency) and Jellett (which involved the Health Professions Council and restoration of a physiotherapist to the register).

DISCLOSURE 23

Conclusion

Self regulation of the professions is increasingly being squeezed and influenced by statutory regulation. This is a response to the increased scrutiny of decision makers, associated with ever increasing public demands and the spotlight of the media.

The future of self regulation therefore appears uncertain. What is clear is that demands for compliance will increase the level of regulation and rules that professionals will be expected to abide by. This will in turn result in an escalation of the costs of membership and is likely to increase the time frame for the scheduling of disciplinary hearings and announcement of decisions. All of the above may produce a reluctance within such groups to be nominated as committee members and, if this problem becomes too pronounced, full state regulation may be the only alternative. With judicial recognition that committees which include professional members have a unique expertise and responsibility for regulation such an event would be a backward step.

Vicki SwantonPartner, BLM London

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DISCLOSURE 24