Malicious prosecution divides Privy Council

By Christopher Russell From Appleby Global

It is a frequent and necessary function of the law to create a balance between competing and conflicting desirable aims. Three such are: (1) no wrong should go without remedy; (2) there should be an end to litigation; and (3) there should be no deterrence from bringing justified proceedings. These, in some respects conflicting, policies lie at the heart of the recent decision of the Judicial Committee of the Privy Council, on appeal from the Cayman Islands Court of Appeal, in Crawford Adjusters v Sagicor General Insurance (Cayman) Ltd [2013] UKPC.

The appeal was decided by the narrowest of margins — 3:2 — and led to a sharp and, in judicial terms, at times acrimonious difference of views between the judges. In short, the majority, led by Lord Wilson, with Lady Hale and Lord Kerr, held that the tort of malicious prosecution is not, as had been the law of England (and Cayman) for centuries, confined to the prosecution of criminal offences (and a small disparate collection of civil claims) but is available as a tort generally and extends to all civil claims.

All three principles arose starkly in the Sagicor case, of which the facts were as follows: hurricane damage was insured against by the proprietors of a Cayman residential complex with the respondent to the appeal (Sagicor). Hurricane Ivan, in 2004, caused extensive damage to the complex, and the proprietors claimed on the insurance. Sagicor appointed a local loss adjustor (Mr Paterson); on his advice, CI$2.9m (£2.15m) advance payments were made by Sagicor to Hurlstone, the construction company engaged to carry out the repair work. A newly appointed senior vice-president of Sagicor (Mr Delessio) became concerned about the amount of the payments to Hurlstone, and what he saw as the lack of supporting documentation. Sagicor retained a different loss adjustor, from England, who valued the work done by Hurlstone at CI$0.8m of which CI$0.7m was the responsibility of Sagicor.

Destroy Professionally

Mr Delessio dismissed Hurlstone, and expressed the intention to drive Mr Paterson out of business and to destroy him professionally. Sagicor launched proceedings in the Cayman Islands Grand Court against Mr Paterson and Hurlstone, claiming not only repayment of the alleged overpayment to Hurlstone, but also damages for conspiracy and deceit against Hurlstone and Mr Paterson.  Sagicor also obtained

an asset-freezing injunction against Hurlstone.   Mr Paterson counter claimed against Sagicor for his unpaid fees. Three months before the trial was due to start, Hurlstone produced paperwork proving extensive payments to its sub-contractors and suppliers; in consequence, Sagicor, shortly before the trial was due to start abandoned its proceedings.

At the trial of Mr Paterson’s counterclaim, the judge found there had been no abuse of process, as the proceedings had been brought for the purpose for which they were designed.   However, he found that Mr Paterson had proved all but one of the elements required for malicious prosecution: (l) malice; (2) lack of reasonable or probable cause for the Sagicor claim; (3) the Sagicor claim had been concluded in

Mr Paterson’s favour, as it had been abandoned: (4) financial loss. The judge quantified Mr Paterson’s loss at 1.35m (CI $1.3m for economic loss, and S0.3Sm for general damages for distress, hurt and humiliation). The judge found, however, that he was unable to hold Sagicor liable for the tort of malicious prosecution primarily to criminal proceedings.

Criminal Proceedings

The Cayman Islands Court of Appeal dismissed Mr Paterson’s appeal.  On further appeal to Judicial Committee of the Privy Council, it was held unanimously that Sagicor was not liable for the tort of abuse of process, but by a 3:2 majority, that Sagicor was liable for the tort of malicious prosecution. Underlying the majority decision is the fact that, absent the availability of the tort of malicious prosecution to civil cases generally, Mr Paterson would have been without remedy, save for his costs of the litigation.  The tort of defamation was unavailable to him, because of the  rules of privilege relating to court proceedings.

It i s now clear that, in principle, the tort extends generally to the institution of all civil proceedings, as well as criminal cases.  But there are serious uncertainties, as recognised by the majority in Sagicor themselves.  These uncertainties are not satisfactorily addressed by the answer preferred by the majority, that because the extension of the tort is Judge-made, judges can adjust the scope of the tort, if it is itself used as a means of abuse. To bring civil proceedings of any kind now carries with it the risk of being sued, If unsuccessful, for malicious prosecution. The majority in the Sagicor case sought to diminish that risk by pointing out that the hurdles of proving malice and lack of reasonable and probable cause are high; but as Lord Sumption observed:

“It is no answer to say that the bar can be set so high that few will succeed. Malice is far more often alleged than proved.  The vice of secondary litigation is in the attempt. Litigation generates obsession and provokes resentment. It sharpens men’s natural conviction of their own rightness and their suspicion of other men’s motives. It turns indifference into antagonism and contempt.  Whatever principles may be formulated for allowing secondary litigation in some circumstances, for every case in which an injustice is successfully corrected in subsequent proceedings, there will be many more which fail only after prolonged, disruptive, wasteful and ultimately unsuccessful attempts”.

Endless Secondary Litigation

The path or endless secondary litigation is wide open; a claim properly brought, but which fails, may  spawn a malicious claim for malicious prosecution, which in turn may give rise to a claim for malicious prosecution of the failed malicious prosecution claim – and on it goes. The Sagicor decision provides a recipe for further litigation and deterrence of honest claims. Whether it has this effect in practice, only  time will tell.

See iNews Cayman story published June 14 2013 ” Cayman Islands surveyor awarded CI$1.3M in malicious damages” at: http://www.ieyenews.com/wordpress/cayman-islands-surveyor-awarded-ci1-3m-in-malicious-damages/

Related story:

Play Fair or Beware: Tort of Malicious Prosecution Extends to Civil Cases

By Colin McKie QC, Caroline Moran Maples

17 October 2013

The Privy Council recently delivered its judgment in Crawford Adjusters and others v Sagicor General Insurance (Cayman) Ltd1 and confirmed that the tort of malicious prosecution extends to civil proceedings generally. The decision, which was on appeal from the Court of Appeal of the Cayman Islands, reverses a long line of authorities to the effect that the tort of malicious prosecution was limited to criminal proceedings and a discrete category of civil cases.

One of the appellants, Mr Paterson, was a chartered surveyor who had been engaged by the respondent insurer, Sagicor, as a loss adjuster. The other two appellants were companies controlled by Mr Paterson. The appellants were responsible for calculating the value of certain insurance claims made in respect of damage caused to a residential property development in the Cayman Islands by Hurricane Ivan in September 2004. Hurlstone, an independent building contractor, was engaged to complete the reconstructions works. Mr Paterson subsequently assessed Sagicor’s liability for the costs of the completed reconstruction works at approximately $3 million.

Subsequently, a new loss adjuster, Mr Delessio, was employed by Sagicor. Mr Delessio and Mr Paterson had known each other for a number of years and relations were extremely strained between them, so much so that witnesses considered Mr Delessio to have a personal vendetta against Mr Paterson. Perhaps unsurprisingly, Mr Delessio did not agree with the appellants’ assessment of liability and obtained a report from another chartered surveyor, Mr Purbrick, who calculated Sagicor’s liability for the same work at less than $1 million. On the basis of Mr Purbrick’s report, Sagicor issued proceedings against the appellants and Hurlstone in the Grand Court of the Cayman Islands, alleging fraudulent misrepresentation, deceit and conspiracy. The appellants counterclaimed for unpaid fees.

Immediately before the trial was due to commence, Hurlstone produced invoices which verified the costs of the reconstruction works in the amount assessed by the appellants. Sagicor discontinued the proceedings against both parties and subsequently settled with Hurlstone. The appellants continued with their counterclaim and included a claim for abuse of process and malicious prosecution. During the course of the counterclaim proceedings, it emerged that Mr Delessio had intentionally misrepresented certain relevant information to Mr Purbrick, which would be relied upon in the preparation of his reports. The Grand Court found that Mr Delessio therefore knew that Mr Purbrick’s reports were not a proper basis for the allegations of fraud and conspiracy, that he deliberately concealed this from Sagicor’s attorneys and that Sagicor had never been in possession of evidence capable of establishing fraud and conspiracy.

The Grand Court held that the appellants had established all four elements of the tort of malicious prosecution, namely:

(a) the prior proceedings had been determined in their favour;

(b) the allegations of fraud and conspiracy made against them by Sagicor had been made without reasonable cause;

(c) the allegations had been made against them maliciously; and

(d) as a result of the allegations, they had suffered substantial financial loss and damage.

However, the Grand Court considered that it could not grant the appellants relief because, following the established line of authorities commencing with Quartz Hill Consol. Gold Mining Co. v Eyre2, the law did not permit the extension of the tort of malicious prosecution to civil proceedings. The Grand Court also held that the claim for abuse of process could not succeed because Sagicor had not used the legal process improperly. On the contrary, Sagicor had genuinely wanted to have the claim determined at trial, and the mere fact that the dominant motive in making the allegations against the appellants was improper did not convert Sagicor’s use of the legal process into an abuse.

On appeal, the Court of Appeal upheld the Grand Court’s decision on both counts. The Privy Council also unanimously rejected the claim for abuse of process. However, by a majority of three to two, the Privy Council found that the appellants could succeed in their claim for malicious prosecution.

The majority of the Privy Council considered that the common law had always recognised that the tort of malicious prosecution extended to civil, as well as criminal, proceedings and that the purported limitation on the scope of the tort by the Quartz Hill case was based on reasoning that was no longer valid. The reasoning in Quartz Hill had been based on the fact that at that time, in the late nineteenth century, allegations made in civil proceedings did not generally come into the public domain until trial. At trial, the defendant was given the opportunity to refute the allegations, such that if successful, his reputation would be protected and no damages could be suffered. As such, there was no need for a tort of malicious prosecution in civil proceedings. The Privy Council acknowledged that in the present day, this was no longer the case because pleadings were now generally publicly available for inspection and widely reported upon by the media prior to trial. In these circumstances, it was considered that the law needed to provide a remedy for defendants who had been the subject of a malicious prosecution in civil cases. The Privy Council also found that economic loss caused by malicious prosecution was recoverable provided it was foreseeable.

The dissenting minority considered that there were compelling public policy reasons not to extend the tort, namely: (i) the need to ensure litigants would not be deterred from bringing proceedings due to the fear of being sued if they fail; and (ii) the need to ensure that the Court would not be troubled by further claims once proceedings were determined. However, the majority considered that there were significant hurdles to establishing the tort of malicious prosecution – where a plaintiff needs to establish both lack of reasonable cause and malice – and these were sufficiently formidable hurdles to discourage frivolous claims.

This is a significant decision which reverses the generally understood position for over a century. Whether this decision will open the floodgates to multiple claims for malicious prosecution in civil litigation remains to be seen. Properly advised plaintiffs will no doubt be made aware of the difficulties in establishing the elements of the tort and baseless claims are likely to be rare. Rather, it is hoped that the decision will act as an appropriate detriment to malicious or opportunistic litigants while protecting the rights of defendants.

1 [2013] UKPC 17

2 (1883) 11 QBD 674