Plaintiff obtaining judgment against firm of solicitors – Solicitors claiming to be entitled to be indemnified by defendant for amount of judgment – Defendant claiming benefit to solicitors to be taken into account and refusing to indemnify the firm – Whether defendant liable to indemnify solicitors – Whether defendant liable to indemnify solicitors for plaintiff’s costs – Defendant liable
In 1990 B and C practised in partnership as a firm of solicitors, Barnes & Co, which was later called Barnes Coulter (the firm). C and his wife owned a cottage which was charged to the Co-operative Bank plc (the Co-op). C and his wife remortgaged the cottage to the plaintiff. The application for a loan of £120,000 stated that of the moneys owed to the Co-op, £95,000 represented a loan which had been to purchase the cottage, and £15,000 represented further advances. A note at the foot of the application stated that the proceeds of the remortgage were to be used for consolidation of existing borrowing, including capitalisation of the business. The firm acted for the plaintiff and failed to register the plaintiff’s charge as a first legal charge and accordingly the plaintiff’s charge was subject to the Co-op’s charge. Of the advance made by the plaintiff, £95,000 was paid to the Co-op and the Co-op’s charge remained as security for the firm’s overdraft. Subsequently C and his wife defaulted on their interest repayments to the plaintiff. In 1992 the plaintiff sold the cottage for £170,000. £100,000 was paid to the Co-op, of which £79,000 was applied to discharge the firm’s overdraft and £21,000 was in payment of debts owed by C. The remaining £66,000 was paid to the plaintiff. The plaintiff commenced proceedings against the firm for negligence and obtained judgment for £73,000. B and C claimed that under the Third Party (Right against Insurers) Act 1930 they were entitled to be indemnified for their liability under the judgment since they were bankrupt. The defendant claimed that it was not liable because the firm had suffered no “loss arising directly from a claim” as required by r 26 of the Solicitors’ Indemnity (Enactment) Rules 1992 since, as a result of the negligent transaction, the firm had had its overdraft of £79,000 paid off and the liability of £73,000 it had incurred was to be balanced against that benefit. It was further contended that in any event the defendant was not liable to pay £10,000 of the £73,000 which were the plaintiff’s costs.
Held Judgment was given for the plaintiff.
Under the Solicitors’ Indemnity (Enactment) Rules 1992 the indemnity extended to any loss incurred arising directly from any claim against a firm and the amount was the amount of the claim. The ultimate consequence to the firm was not to be taken into account since it would have severely limited the protection of the defendant to members of the public who had resorted to solicitors for advice if there was a doubt as to the extent of the indemnity to which they might be entitled. The principle of section 37 of the Solicitors Act 1974 had been to protect layman not practitioners. Therefore the claim should be met in full by the defendant.
Michael Discoll QC and Timothy Harry (instructed by Berensons) appeared for the plaintiff; Alistair Norris (instructed by Reynolds Porter Chamberlain) appeared for the defendant.