Professional negligence – Legal advice – Loss of chance – Claimant reaching settlement in negligence claim against accountant – Claimant seeking damages from solicitor for professional negligence resulting in loss of chance of securing higher damages in settlement — Whether defendant negligent in relying on counsel’s advice as to likely outcome of claim – Whether defendant entitled to counterclaim for fees — Claim and counterclaim dismissed
The claimant, who had a hotel business, commenced proceedings for damages against his former accountant. He alleged professional negligence in that the accountant had failed to advise him that he was entitled to be treated as having non-UK domicile tax status and should seek confirmation from HM Revenue and Customs (the HY proceedings). The claimant alleged that if he had received such advice, he could have obtained that confirmation and put in place an equity release arrangement (ERA) whereby a bank would lend money to the business partnership and the claimant could withdraw his equity and invest the funds off-shore to obtain a tax benefit.
That action was settled before trial with a payment to the claimant of £1m. The claimant subsequently sought damages for professional negligence against the defendant’s firm of solicitors that had acted for him in the HY proceedings. He contended, inter alia, that he had been given incorrect and insufficient advice as to the amount of damages that he might recover had he gone to trial and that the defendant had negligently failed to disagree with counsel’s pessimistic advice as to the amount he was likely to recover. The claimant contended that had the defendant not been negligent, he would have recovered £3m in the HY proceedings either at trial or by way of enhanced settlement.
The defendant had acted for the claimant throughout most of the HY proceedings under a conditional fee arrangement (CFA) that capped the amount of the defendant’s basic charges. That agreement was replaced by a second without such a cap. The defendant counterclaimed for its outstanding fees in the sum of £214,000 plus interest, which it asserted was owing under the second CFA. The claimant submitted that he was not liable to pay those fees because the second CFA was unenforceable.
Held: The claim and counterclaim were dismissed.
(1) A solicitor, as with any other professional, would not be liable for an error of judgment on a matter on which the opinions of reasonably well-informed and competent members of the profession might differ. He would be liable only for advice, acts or omissions that no reasonably informed and competent solicitor would have given, done or omitted. A solicitor’s reliance on counsel did not provide it with a blanket defence irrespective of what error counsel might commit. A solicitor did not abdicate his professional responsibility when he sought the advice of counsel but had to apply his mind to the advice received.
In the instant case, the defendant accepted that it held itself out as having special expertise and experience in professional negligence litigation. The only difference that made was that it had to bring that experience to bear on the matter. After leading counsel had provided considered advice to the client, it was a solicitor’s duty to differ from such advice and to provide separate advice or to record reservations separately to the client only if it considered that counsel’s advice on an important point was in doubt: Ridehalgh v Horsefield [1994] Ch 205 followed.
The independent judgment that a solicitor should apply when considering whether counsel advice was obviously wrong was a judgment informed by its specialist expertise. However, subject to that test, where advice was provided by specialist counsel who had been properly instructed, even an experienced and specialised solicitor was entitled to be guided by counsel’s advice.
In the instant case, counsel’s advice had not been negligent, although he had adopted a conservative approach to the headline figure for the claim. There were many hypothetical aspects to the case, such as whether: (i) the claimant would have proceeded with an ERA; (ii) he was in fact a non-domicile; and (iii) he would be a good witness. What was necessary was that the client was given a sufficient explanation to enable him to make an informed choice whether or not to accept the sum being offered. The claimant was keen to settle the case but the advice he received also made it clear that he could possibly recover considerably more if he were prepared to go to trial: Moy v Pettman Smith (a firm) [2005] UKHL7; [2005] 1 WLR 581 followed.
(2) The claimant, who was already party to a CFA, had to be given an explanation of the changes introduced by the second agreement. The fact that there was no longer a cap on the defendant’s basic charges had not been explained. That was a potentially material change. Thus, the second agreement had not been properly explained in a material respect and it was unenforceable pursuant to section 58(3)(c) of the Courts and Legal Services Act 1990. Accordingly, the defendant was not entitled to enforce that agreement by virtue of any election or estoppel nor could it claim a quantum meruit. The operation of section 58 would be significantly undermined if a solicitor that was unable to claim its fees for the legal services provided because of material non-compliance with the statutory requirements could none the less recover payment from the client on the basis of a quantum meruit claim: Myatt v National Coal Board; Garret v Halton Borough Council [2007] EWCA Civ 278; [2007] 1 WLR 554 and Yeoman’s Row Management Ltd v Cobbe [2008] UKHL 55; [2008] 3EGLR 31; [2008] 35EG 142; [2008] 36EG 142 considered.
John Wardell QC and Rupert Reed (instructed by Davies Arnold Cooper LLP) appeared for the claimant; Stephen Moriarty QC and Derrick Dale QC (instructed by Reynolds Porter Chamberlain LLP) appeared for the defendant.
Eileen O’Grady, barrister
