Lessons in liability risks

Avoided loss has been considered in two Court of Appeal decisions this year. Both decisions are helpful for lawyers in demonstrating a willingness by the court to take subsequent events into account.

In Bacciottini v Gotelee and Goldsmith (a firm) [2016] EWCA Civ 170, the solicitors admitted failing to advise on a planning restriction. Two years after the acquisition the claimant obtained the removal of a planning restriction for £250. The claimant sued the solicitors for £100,000, being the diminution of the value at the date of breach. The Court of Appeal found that the likelihood of lifting the restriction in 2007 was very high and awarded the claimant damages of £250 rather than the full £100,000.

In LSREF III Wight Ltd v Gateley LLP [2016] EWCA Civ 359, the solicitors failed to notify their lender client of an insolvency forfeiture clause in a lease. At first instance they argued that the claimant ought to have paid the counterparty £150,000 to remove the offending clause and then sell the lease for a profit, but the judge awarded the claimant £240,000, representing the diminution in value of the lease at the date of the breach. The claimant did then procure the removal of the clause and duly sold the lease for a profit. The defendant appealed and the Court of Appeal reversed the judge’s decision on mitigation and made an award of £157,000, being the costs to vary the lease.

Caliendo v Mishcon de Reya [2016] EWHC 150 (Ch) was a claim in which Mr Justice Arnold was asked to consider whether there was an implied retainer or alternatively an assumption of responsibility to third parties in a corporate transaction. The solicitors acted for QPR Holdings on a share sale. Certain shareholders later asserted that the solicitors had also acted for them and had failed to advise them properly. The court rejected the alleged implied retainer and found that the solicitors had assumed a limited duty of care, but only insofar as the shareholders’ interests were aligned with the company’s and only in relation to matters where they were not separately advised.

Agouman v Leigh Day [2016] EWHC 1324 (QB) is an unusual case in which Mr Justice Andrew Smith held that solicitors had been negligent in receiving settlement funds into an Ivorian bank account pending distribution to a class of claimants in the Trafigura litigation. The solicitors should have recognised that the political and economic risks and corruption prevalent in Ivory Coast meant that they would not be able to protect the fund from a dishonest claim without a robust judicial system.

In Barker v Baxendale Walker [2016] EWHC 664 (Ch), the court considered whether there was a duty on the solicitors to give a general health warning to a client in the context of a tax mitigation scheme. It found that the solicitor was not negligent in failing to give a specific warning that the revenue might favour an adverse interpretation of the relevant legislation. Such an interpretation was not likely. But the solicitor should have given a general warning about the possibility of the revenue challenging the scheme. An appeal in relation to the specific warning finding is fixed for October 2017.

The fly hovering over the ointment for 2017 is the awaited decision of the Supreme Court in Gabriel v Little [2013] EWCA 1513. This is the first time in 20 years that the Supreme Court has considered the application of SAAMCo to claims against professionals. A lot has changed since 1997 and the Supreme Court could use the opportunity for a re-fashioning of the law on remoteness.

We could also see a challenge to the application of the helpful Bolam test in claims against lawyers. In Montgomery v Lanarkshire Health Board [2015] UKSC 11, the Supreme Court held that the test did not apply in a clinical negligence context when explaining risk to a patient. This was subsequently applied in a claim against an investment advisor (O’Hare v Coutts & Co [2016] EWHC 2224 (QB)). If this is applied in claims against lawyers, it could enlarge the extent of the duty of care in relation to advice on legal risk.

Nick Bird is a partner at RPC

@RPCLaw

www.rpc.co.uk