Professional Liability case law update: April 2013

R (Prudential plc) v Special Commissioner of Income Tax

A seven-judge panel of the Supreme Court has held by a majority that legal advice privilege should not extend to advice given by professional people other than lawyers (in this case, accountants). This is so even where the advice is legal advice which the professional is qualified to give. The Court felt that it would generate too much uncertainty to alter what is a well-understood rule. It was for Parliament, not the courts, to legislate on such questions of pure policy.

In a powerful dissent Lord Sumption said that on a proper analysis the availability of the privilege depends not on the status of the adviser, but on the character of the advice sought and the circumstances in which it was given.

AIB Group (UK) plc v Mark Redler & Co

This is another important decision of the Court of Appeal on the scope of a solicitor’s duties when retained by a lender on a property transaction. The solicitors paid £1.2m of AIB’s advance to a charge-holder, whose charge secured indebtedness of £1.5m. The balance of £0.3m was paid to the borrower. Accordingly, the other charge was not redeemed and AIB obtained only a second charge on the borrower’s property. The judge at first instance held Mark Redler to have acted in breach of trust to the extent of releasing the £0.3m shortfall required to redeem the first charge to the borrower, rather than the charge-holder, and awarded equitable compensation in that amount to AIB.

AIB appealed contending that the solicitor had acted in breach of trust with respect to the whole of the £1.5m advance. The Court of Appeal upheld this contention, on the basis that the judge below had misunderstood the interplay of completion and the trust created by s 10.3 of the CML Handbook terms.

Section 10.3 provided that there was no authority for the solicitor to release an advance prior to completion. However, completion required the solicitors to be in receipt of a solicitors' undertaking, or unconditional confirmation from the charge-holder that the advance monies would be applied to redemption of its charge, before releasing the advance: see Lloyds TSB Bank Plc v Markandan & Uddin (A Firm) [2012] EWCA Civ 65, [2012] 2 All E.R. 884 and Nationwide Building Society v Davisons Solicitors [2012] EWCA Civ 1626, [2013] 10 EG 148. This was not the case, and so the solicitors had been in breach of trust in relation to the whole advance when the paid it away, as the lacked authority to do so. Conversely, if completion had occurred, a subsequent failure by the solicitors to pay sufficient monies to the charge-holder to discharge the existing mortgage would not have been a breach of trust.

Whilst the judge had therefore erred regarding the breach of trust issue, his calculation of the lender’s losses was correct. AIB had obtained a valid mortgage from the borrower which they were able to register as a second charge and use to recover part of the loan. The breach of trust comprised the unauthorised release, pre-completion, of the mortgage advance; not the failure by the solicitors to obtain a first charge. In calculating what loss had resulted from that breach, the court was required to take account of the beneficial effect of the security AIB was eventually able to obtain, following Target Holdings Limited v Redferns.

Basma Al Sulaiman v Credit Suisse Securities (Europe) Limited and Plurimi Capital LLP

Credit Suisse and Plurimi Capital have both succeeded in defending a high value financial mis-selling claim by a wealthy Saudi investor. The Claimant alleged that the complex structured products she was advised to purchase were unsuitable, and claimed damages for breach of statutory duty under section 150 of FSMA and negligence.

The Judge rejected the claim on the basis that (i) the claimant was both wealthier and possessed a greater level of sophistication than she maintained, and (ii) the advice given to her was suitable in all the circumstances. The Judge reaffirmed the point made by the Court of Appeal in Zaki v Credit Suisse (UK) Ltd, that so long as the investment is suitable, “it does not ultimately matter if there have been failings in the process” (i.e. the technical requirements of the FSA Handbook).

John Grimes Partnership Ltd v Gubbins

Mr Gubbins was a farmer who engaged John Grimes Partnership to design a road and drainage within a residential property development on his land. In breach of contract, John Grimes was very late providing its designs. As a result Mr Gubbins sold the development for less than he would have done had the work been done when promised. The issue on appeal was whether John Grimes was liable for this diminution in value, or whether the loss was too remote.

The Court of Appeal held that it was liable. Rejecting John Grimes’ argument that it had not, to apply Lord Hoffmann’s approach in The Achilleas, assumed responsibility for a fall in the property market, Sir David Keene (who gave the leading judgment) held that, as found by the trial judge, it knew about the volatility of the property market. There was no reason why a consulting engineer such as John Grimes should not be said to have assumed responsibility for this.

Clack v Wrigleys Solicitors LLP

The Claimant agreed in principle to lend £600,000 to an acquaintance on the security of 30 shares (out of 100 issued shares) in a company. The defendant solicitors were retained to draft the loan and security documents, but by the date of completion, had not procured from the acquaintance either a share certificate in his name, nor a copy of the register of members of the company showing that the acquaintance was in fact a shareholder. It transpired he did not own the shares, and thus when part of the loan moneys was not repaid, C was left without an enforceable security against the acquaintance.

The Court held that Wrigleys had been negligent in failing to advise that without a copy of the register of members showing that B was a shareholder in X and without a share certificate, the security over the shares was ineffective or at least seriously defective, in that the acquaintance did not own the shares which he was purporting to charge. Had the proper advice been given, the claimant would not have proceeded. However because the shares over which a charge should have been given were worthless in any event, the loss flowing from the ineffectiveness of his security was limited to certain fees that the claimant could have earned pursuant to a deed of undertaking entered into at the time of the loan. Otherwise, his losses arising from non-repayment would have arisen even if the security had been effective, and were therefore attributable to risks inherent in the transaction which the Claimant took on himself.

Miller v Sutton

The Claimant alleged professional negligence against his former litigation solicitors. The case concerned a CD of two live performances by Jimi Hendrix in Stockholm in 1969, which Miller had issued through his record company. Hendrix’s estate sued him for infringement of copyright and Sutton acted for him in those proceedings. The estate obtained summary judgment against Miller.

The issue in that underlying claim was whether the estate could show that Hendrix had been working under an exclusive recording contract at the time of the performances; Miller said this was not the case and relied (against the estate’s claim) on an agreement from 1966. However in the professional negligence action, Miller asserted that Sutton had misunderstood his instructions and that he had in fact been referring to a different agreement from 1965.

The claim was struck out at first instance; the claimant appealed, and failed. Most crucially, Miller had signed a witness statement in 2005 that was wholly inconsistent with the arguments he now advanced. His further allegation, that his 2005 witness statement was concocted by Sutton, was wholly lacking in credibility: contemporary documents made it plain that the witness statement was prepared on the basis of Miller’s detailed instructions.