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Industry Updates

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

18 Oct 2013

The Privy Council recently delivered its judgment in Crawford Adjusters and others v Sagicor General Insurance (Cayman) Ltd 1 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

(1883) 11 QBD 674

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