As the festive season rolls in and the year draws to a close, we have been reflecting on some of the interesting professional negligence cases of 2022. There are many to choose from but one underlying theme stands out – decisions centred on professionals successfully limiting their duty of care to clients. Scope of duty defences are powerful weapons in a professional's armoury – after all, if there is no duty of care, the claim fails at the first hurdle. So in this article we review four such cases and offer some takeaway points for those defending professional negligence claims.
But first a recap on general principles
The general principle is that, where there is a retainer in place, a professional's duty of care is limited to carrying out work agreed with the client, in addition to matters which are reasonably incidental to tasks undertaken. A retainer may be express or implied. A retainer will only be implied where the parties' conduct is wholly consistent with a retainer being in place.
Where there is no retainer but a professional undertakes responsibility for a task, the general principle is that the professional is taken to have voluntarily assumed a legal duty in tort. This is determined by asking, without the benefit of hindsight, whether responsibility should be held to have been assumed by the professional in the context of the actual exchanges between the professional and the claimant.
Informal queries post-retainer: look at the context and actual communications
In Spire Property Development LLP & Anor v Withers LLP [2022] EWCA Civ 970 the issue before the Court of Appeal concerned the extent of the solicitor's duty to advise when responding to informal queries fourteen months after the retainer had ended.
The facts and a detailed analysis can be found here. To summarise, Spire retained Withers for the £41.8m purchase of two grade II listed properties. Fourteen months post-acquisition, Spire contacted Withers requesting certain information. Withers answered the questions asked but did not proffer further advice on Spire's rights and remedies, Spire claimed that had Withers done so, they would have avoided unnecessary expenditure and losses.
The retainer having come to an end fourteen months earlier, the key issue was did the solicitors assume a duty of care in tort to advise on the wider rights and remedies available to Spire? The Court of Appeal held that Withers had not assumed such a duty of care and placed significant weight on the actual communications between the parties and the nuances in the choice of language used; the context for the communications including the fact that there was implied criticism of Withers and the broader context including an uncertain factual position and the sophistication of Spire as a client – "highly experienced and well-resourced".
The key takeaway is that when defending a claim where a professional has provided informal advice outside a retainer, look carefully at the context and the actual communications. Exactly what was agreed and what was the broader context? How sophisticated was the client? A professional will only be liable in respect of informal queries after the retainer to the extent that they voluntarily assume a legal duty when doing the work.
Duty before a retainer: the claimant's belief is not the deciding factor
Spire was a sophisticated and experienced client and a legally inexperienced client may expect a solicitor or other professional to take a broader view of their duties. The recent High Court decision of Miller v Irwin Mitchell LLP [2022] EWHC 2252 (Ch) highlights that the claimant's belief is not the deciding factor because the court will apply an objective test and look closely at the parties' conduct in order to assess whether a duty of care is to be implied.
The facts and a detailed analysis can be found here. In summary, Mrs Miller alleged that she lost the opportunity to recover compensation for personal injury sustained on holiday as a result of the solicitors' negligence. She maintained that the solicitors failed to advise her to notify the travel agent of her claim in May 2014 when she first contacted them after her injury. The solicitors relied on the fact that the parties did not sign a retainer until January 2016 and argued that any work carried out until then was purely to ascertain whether they could take on the case. Moreover, the solicitors expressly told Mrs Miller that they required documentation from her in order to assess whether they could accept her case and warned her on several occasions when chasing for documents that the firm could not take steps to protect her right to take legal action.
In order to succeed with her claim, Mrs Miller had to prove that there was an express or implied retainer before the retainer documents were signed in January 2016 or, failing that, an implied duty of care in tort.
The court held that there was no express retainer and that an implied retainer will not be inferred where the parties' conduct is not wholly consistent with a retainer being in place. In other words, the parties' conduct must be consistent with the solicitors being retained as solicitors for the client. In this case, this did not happen until January 2016 when the firm told Mrs Miller that it was ready to proceed to a CFA. Until that point, the firm's conduct was consistent only with it seeking information with a view to deciding whether or not to take on the case. The letters from the solicitors warning the client that it was unable to progress the claim pending receipt of such information could not be interpreted as being consistent with an implied retainer.
Mrs Miller's alternative case was that the solicitors had voluntarily assumed responsibility to her and treated her like a client by giving her a file reference, advice, recording time against her file, updating her and so on. The judge did not accept this argument – the true nature of the relationship was that Mrs Miller was only a potential client until January 2016 and no duty of care was owed prior to that date.
The takeaway point is that the claimant's belief as to the extent of the professional's duty is not the deciding factor. It follows that even when dealing with a legally inexperienced client, a retainer will not be implied unless the parties' conduct is consistent only with the professional being retained by the client. It will be difficult for a claimant to prove this if the professional has put in writing that formalities are required before a retainer comes into effect and that it is not acting until then. The Court of Appeal is due to hear Mrs Miller's appeal by October 2023.
Choosing not to have an express retainer will put the claimant at a disadvantage
The High Court examined similar issues around the existence of an express retainer, an implied retainer or an implied duty of care in tort in McDonnell v Dass Legal Solutions (MK) Law Ltd (t/a DLS Law) [2022] EWHC 991 (Admin). In that case, there was an existing solicitor/client relationship between the claimant Mr McDonnell and the defendant firm of solicitors DLS. Mr McDonnell had instructed DLS on various corporate and personal matters over a three year period but there was a conflict of evidence as to the issue of a retainer in respect of a particular land transaction in 2017.
Mr McDonnell claimed he had instructed DLS to draw up a deed of trust to protect his interests in the land transaction. He said they did not do so nor did they offer any other advice on how to protect his interest as a result of which he suffered losses of some £2.5m. The solicitors denied that Mr McDonnell was their client for the purpose of the land transaction. Their position was that Mr McDonnell had introduced the solicitors to the sole director of a company in which he had a beneficial interest and that company instructed the firm to act in respect of the land transaction. The solicitors said that there was no express instruction from Mr McDonnell and he did not rely on the firm to safeguard his interests. It would not have been reasonable for Mr McDonnell to provide instructions in all the circumstances and the firm could not have reasonably thought that he was doing so.
The judge found Mr McDonnell's evidence on the retainer "most unsatisfactory" and held that there was no express retainer. Nor was there an implied retainer. As with the Miller case, the judge highlighted that, in order for there to be an implied retainer, the parties' conduct must be consistent only with the solicitors being retained as solicitors for the client.
Further, where the parties have chosen not to enter into an express retainer, the court will be slow to find an implied retainer. The judge emphasised that an objective consideration of all of the circumstances must be carried out and an implied retainer will not be imposed for convenience. In this case, an evaluation of all of the circumstances, included consideration of the character and knowledge of Mr McDonnell as well as the history of the parties including the fact that Mr McDonnell was "well-versed in seeking and taking advice" and chose not to enter into a retainer with the firm in respect of the land transaction.
The alternative case that the solicitors had voluntarily assumed responsibility in tort to Mr McDonnell was also dismissed. As we have seen from the previous case, context and the actual communications are key to determining whether responsibility should be held to have been assumed by the professional to the claimant. The court will take a broad view of context including "the characteristics of the client as known to the solicitor … and that includes business experience and relevant personal characteristics". It was relevant that Mr McDonnell was "a taker of commercial risks" and that he had "a wide variety of advisors available to him". The history of the parties' previous dealings was also relevant. Mr McDonnell had "a history of presenting the issues he wished to be dealt with squarely, of asking for such advice as he needed to be resolved in a manner that he chose".
The key takeaway is that, even where there is an ongoing relationship between the professional and the client, where the client has chosen not to enter into an express retainer in respect of a particular matter, the court will be slow to find an implied retainer or an assumption of responsibility. In this case, as well as examining the parties' conduct, much emphasis was placed on the broader context due to the conflict of evidence about the retainer. This included an evaluation of the personal characteristics of the claimant, his business experience and the history of previous dealings with the professional.
A narrow interpretation of scope of duty in a mortgage mis-selling claim
An interesting scope of duty judgment was handed down in Taylor & Anor v Legal and General Partnership Services Ltd [2022] EWHC 2475 (Ch) where the central issue in dispute related to the scope of a mortgage broker's duty. The issue was whether the broker should have declined to recommend an interest only mortgage until such time as the borrowers had obtained independent advice in respect of their proposed investment. The court preferred a narrower interpretation of the mortgage broker's scope of duty and the case will be a useful precedent for those defending similar interest only mortgage mis-selling claims. Although there have been a spate of such claims in recent years, this is the first High Court decision in a full contested trial.
The claimants, Mr and Mrs Taylor, invested in an offshore property development scheme through a company called Harlequin Hotels and Resort. Little did they know, the venture was "a gigantic Ponzi scheme" run by the now-jailed David Ames. According to the SFO, the Harlequin Group lost £398m of investor funds and unfortunately the Taylors were among those who lost their investment.
The Taylors had obtained funds for their investment from Platform Home Loans Limited secured by way of an interest only mortgage on their property. The mortgage was arranged by L&G's appointed representative. The Taylors brought a claim against L&G alleging that it was liable for their loss as the mortgage broker had recommended an interest only mortgage before the Taylors had received independent advice on the investment in breach of the Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB). They claimed that, if they had received independent advice, neither the mortgage nor the subsequent investment would have gone ahead. L&G denied liability on the basis that no such duty of care was owed to the Taylors.
The judge dismissed the claim and held that the scope of a mortgage broker's duty of care, which is informed by MCOB, did not extend to consideration of whether the borrowers intended to apply the monies in a financially prudent way. The MCOB is intended to protect borrowers from being introduced to a mortgage that is unsuitable for them for reasons such as affordability for example. The scope of duty will be highly sensitive to the particular circumstances of the borrower and, in the present case, there were a number of factors which pointed firmly against the broker being subject to any such duty. For example, the broker had identified that Mr and Mrs Taylor were aware that what was proposed was not without risk and that they had a realistic fallback position for repaying the mortgage in the event that the Harlequin investment failed. The broker's file clearly recorded that he had advised the Taylors that, if they had any concerns with regard to reliance on the Harlequin investment for the repayment of the mortgage, they should seek independent financial advice. Further, the Taylors were enthusiastic investors who had already made significant investments in Harlequin and it would have been an unreasonable restriction on their autonomy as consumers to have the broker decline to recommend a mortgage pending financial advice they considered unnecessary.
The judge's findings on the scope of the mortgage broker's duty when recommending interest only mortgages is a helpful decision for other mortgage mis-selling claims. Clear communication, a detailed note of the advice given and information shared by the clients were all important factors in narrowing the scope of duty. The case is also a useful reminder of the importance of the choice of expert witness. The judge "unhesitatingly" found the opinion evidence of L&G's expert witness more reliable than that of the Taylor's.
The judge dismissed the claim and held that the scope of a mortgage broker's duty of care, which is informed by MCOB, did not extend to consideration of whether the borrowers intended to apply the monies in a financially prudent way. The MCOB is intended to protect borrowers from being introduced to a mortgage that is unsuitable for them for reasons such as affordability for example. The scope of duty will be highly sensitive to the particular circumstances of the borrower and, in the present case, there were a number of factors which pointed firmly against the broker being subject to any such duty. For example, the broker had identified that Mr and Mrs Taylor were aware that what was proposed was not without risk and that they had a realistic fallback position for repaying the mortgage in the event that the Harlequin investment failed. The broker's file clearly recorded that he had advised the Taylors that, if they had any concerns with regard to reliance on the Harlequin investment for the repayment of the mortgage, they should seek independent financial advice. Further, the Taylors were enthusiastic investors who had already made significant investments in Harlequin and it would have been an unreasonable restriction on their autonomy as consumers to have the broker decline to recommend a mortgage pending financial advice they considered unnecessary.
The judge's findings on the scope of the mortgage broker's duty when recommending interest only mortgages is a helpful decision for other mortgage mis-selling claims. Clear communication, a detailed note of the advice given and information shared by the clients were all important factors in narrowing the scope of duty. The case is also a useful reminder of the importance of the choice of expert witness. The judge "unhesitatingly" found the opinion evidence of L&G's expert witness more reliable than that of the Taylor's for a number of reasons, one of which was the precise ambit of his experience.
Conclusion
Although most of the cases we have looked at have arisen in relation to solicitors, there is no reason why the principles would not apply in respect of other professionals. These cases illustrate that professionals can limit the extent of their duty by creating clear procedural frameworks to limit their retainer, documenting instructions and advice and any limitations on that advice and taking care to ensure that prospective clients are made aware of the fact that formalities are required before a retainer comes into force.
This article was prepared with the assistance of Deirdre Fenton, Matthew Wright and Tom Fennelly.
