Professional negligence update

Scope of duty

In recent years the scope of a solicitor’s duty to his client has been extended and given practitioners and their insurers much cause for concern. However, in 2012 the courts have rejected claims against solicitors on the basis that the standard expected of the solicitor was too high and therefore a duty could not be imposed.

In Shepherd v Pinsent & Co [2012] EWHC 43 (TCC), the claimant construction company had instructed the predecessor firm to make amendments to JSB sub-contracts. Some years after, the payment arrangements under the sub-contracts failed and the claimant sought damages from Pinsents on the basis that there was an ongoing retainer, and that Pinsents should have readdressed and taken responsibility for the enforceability of the JSB sub-contracts.

Dismissing the position that the claimant’s relationship with Pinsents constituted an ongoing retainer, Akenhead J said that it would be “commercially and professionally worrying if professional people are to be held responsible for reviewing all previous advice or indeed services provided”. The decision is a relief for practitioners especially in the current climate where the legal market is consolidating.

Akenhead J did not rule out the possibility of an ongoing retainer and a duty to keep earlier advice or services under review. However, such a relationship would only arise in circumstances where evidence of an implied or express agreement of a continuing relationship existed; for example, regular payments and/or contact with clients. While this decision is pleasing for the legal profession, firms are best placed to ensure that the scope of its retainer is clearly defined in its terms and conditions.

As you will be aware, outcomes-focused regulation is the new regime governing how solicitors operate. With this, an element of uncertainty arises about the regulation of the profession, which in turn is likely to result in more professional indemnity disputes ending up in court and potentially the scope of solicitors’ duties considered further.

Termination of retainer

Practitioners should be aware of the problems that may arise when a solicitor attempts to terminate his retainer. In the last year, there have been two notable cases which consider the practicalities of terminating a retainer. In Minkin v Cawdery Kaye Fireman & Taylor [2011] EWHC 177 (QB), a husband instructed his solicitors three days before a final hearing in respect of an occupation and non-molestation order.

Upon receiving their instructions, the solicitors provide an estimate of £3,500 plus VAT and the husband paid £2,000 on account. The hearing proved to be complicated, required more work than was anticipated and the solicitors rendered an invoice in excess of £5,000 plus VAT. A second bill in excess of £1,000 was then rendered for additional work and the solicitors refused to continue to work until their bills had been paid.

On detailed assessment, the costs judge held that the solicitors were in repudiatory breach of their standard terms and conditions because there was no entitlement for them to cease work for non-payment. Further, the solicitors were aware at all times that the husband had limited funds. The breach had been accepted by the husband and the solicitors were not entitled to any further fees in excess of the £2,000 already paid. This is a surprisingly robust approach by the court given that the solicitors were not even allowed to recover the additional £1,500 which they had quoted for.

Practically, solicitors should ensure that their terms and conditions enable them to terminate in the event of non-payment and that fees can depart from estimates if the level of work becomes more complicated. This is even more important given that the Legal Ombudsman has indicated that approximately a quarter of all complaints received since its launch are in respect of fees.

In French v Carter Lemon [2011] EWHC 3252 (QB), Mrs French accused her solicitor of bullying. Consequently, having investigated the complaint, Carter Lemon purported to terminate the retainer on the basis that the relationship of trust and confidence had broken down. However, given that this occurred a few days before a case management conference (CMC), Carter Lemon agreed to attend the CMC on behalf of Mrs French.

During the CMC, Mrs French made allegations of negligence against Carter Lemon. After the CMC, Carter Lemon delivered a bill of costs which Mrs French declined to pay on the basis that the retainer was improperly terminated. Mrs French asserted that her complaint was in respect of an individual and that the correct recourse was for Carter Lemon to appoint an alternative solicitor to deal with her matter. It was held both at first instance and on appeal that Carter Lemon was correct in terminating the retainer on the basis that there had been a complete break down of trust and therefore they were entitled to their fees.

The cases above demonstrate that solicitors must ensure that they have justification and an adequate paper trail when terminating retainers.

Breach of trust

In the past the courts have been reluctant to infer breach of trust by a solicitor in circumstances where the relationship between solicitor and lender was defined by a contract (Target Holdings Ltd v Redferns [1996] AC 421; Bristol and West Building Society v Mothew [1998] Ch 1). However, the recent Court of Appeal decision in Lloyds TSB Bank plc v Markandan & Uddin [2012] EWCA Civ 65 indicates a change in attitude.

Markandan & Uddin was instructed on behalf of the purchaser and lender in relation to a property conveyance. At all times the solicitors corresponded with a firm of solicitors purporting to act on behalf of the seller and paid completion monies without first obtaining the required title documents. In fact, it transpired that the purported seller and its solicitors were fraudsters.

At first instance it was held that the solicitors had acted in breach of trust for paying out completion monies to a fraudulent firm without obtaining the necessary documentation. On appeal, the Court of Appeal upheld the decision and went further to say that the payment out of completion monies in fraudulent circumstances would always amount to a breach of trust, subject to the statutory relief under section 61 of the Trustee Act 1925.

This decision is worrying and it follows that even if a solicitor acts ‘innocently’ and is compliant with his duties and the contract, he may be held liable for breach of trust unless he can demonstrate that he acted ‘reasonably and honestly’ under section 61. It will be interesting to see how the courts now interpret section 61 in these circumstances.

Managing claims

The courts have recently provided some useful guidance about the management of a professional negligence claim. In the case of ACD (Landscape Architects) Ltd v Overall and another [2012] EWHC 100 (TCC) the court considered the decision in Pantelli Associates Ltd v Corporate City Developments Number Two Ltd [2010] EWHC 3189 (TCC) whereby it was held that, in advancing a case in professional negligence, expert evidence was required.

However, in ACD, Akenhead J noted that expert evidence is not required in some cases of professional negligence, including solicitors’ negligence. It may be disproportionate for expert evidence to be obtained at a very early stage in the case, particularly for a low value.

In spite of this, the appropriate course must, save for solicitors and small-value claims, be to obtain expert evidence at an early stage. This will undoubtedly pay off in the long run as it will allow parties to identify and narrow the issues in dispute and may result in early settlement.

In December last year, the Law Society issued guidance to practitioners about how to deal with a disclosure request for a conveyancing file from a lender. The practice note clarifies that a lender is only entitled to a ledger card if there is evidence of fraud and can only obtain a copy of the file in circumstance where the borrower’s permission has been granted or the borrower has waived its right to privilege in the mortgage documents.

Finally, solicitors should be aware of the ongoing litigation in Godiva Mortgage Ltd v Travelers Insurance, which is due to be heard in the summer of 2013. The claim arose out of the activities of one conveyancing partner resulting in multiple claims with a value of approximately £50m. Travelers asserts that the claims should be aggregated as one claim under a policy which provides cover of up to £2m per claim.

Both the Law Society and the SRA have now successfully intervened in support of the lender. Should Travelers succeeds, the Compensation Fund is likely to meet the shortfall. However, if Travelers loses, the claim may result in the hardening of the market and a change to the minimum terms.