Continuing to act after negligence rights, problems and consequences Leslie Blohm QC, St John s Chambers Published on 29 th April 2014 What is the scope of this talk? 1. With the best will in the world, no professional gets through an average career without making his share of mistakes. This talk considers what solicitors (and some other professionals) can do when they make mistakes that cause their clients loss; what they should do; and what the consequences of any particular course of conduct may be. 2. The areas that this may have ramifications in are: - The availability of fresh causes of action - Limitation of actions - Mitigation of loss/remoteness of further loss - Regulatory punishment. The source of the professional s powers and obligations 3. There are broadly speaking three sources from which the professional s powers and obligations derive in these circumstances. These are: - The common law, being the terms of the retainer supplemented by the duty of care in negligence; Page 1 of 12
- Equity, and in particular the fiduciary obligation of loyalty that most professionals will owe towards their clients for the duration of the retainer 1 ; - Professional regulation. A continuing obligation to review work? 4. Let s start with a consideration of the obligations of the negligent professional. What must he do? One argument that not infrequently crops up in connection with limitation points is an assertion that the professional is under an obligation to review his work. The argument runs that even if the negligent default is statute-barred, the professional s negligent failure to review, and inform the client of the default (within the limitation period) is itself an actionable breach. 5. The Courts have drawn a distinction between three situations, being: (1) When the professional is unaware of the breach. Here there will only be a fresh cause of action if the obligation to review falls within the scope of the professional s instructions; and this will not be implied save in clear cases; (2) When the professional is aware of the breach. Here the professional is obliged to inform his client if (a) the retainer requires it; or (b) a fiduciary relationship exists between the client and the professional or (c) professional regulation requires it. For solicitors this is likely to mean that they are obliged to spill the beans if, but only if, the retainer is still in existence at the date of the acquisition of knowledge. (3) When the professional is aware of the possibility that he has been negligent. Here his obligation is to be measured by the yardstick of the right-thinking professional, keen to do the right thing. 1 The duty of confidentiality extends post- termination of retainer; Page 2 of 12
An obligation to review in ignorance of the breach? 6. A slew of cases relating to ignorance of the professional s breach start with Midland Bank v. Hett Stubbs Kemp [1979] Ch 384, where solicitors negligently failed to register an option as a land charge, rendering it voidable as security (and in the events that happened, void). Oliver J held that on the facts of the case there was a continuing duty on the part of the solicitors to ensure that the option was protected. The solicitors kept the option in their strong room; they had subsequently been consulted about the option, and failed to mention (or appreciate) that the option was unregistered. That was a cause of action in negligence on which the Claimant could rely, and the terms of Oliver J. s judgment indicated that in appropriate (but not all) circumstances a continuing duty to act or advise would be found. 7. The scope of the decision in Hett Stubbs Kemp was seriously narrowed in Bell v. Peter Browne & Co.[1990] 2 QB 495, where solicitors failed to protect by registration their client s agreed share in the former matrimonial home. Some years later his wife announced she had sold the property and spent the proceeds. The claim against the solicitors was statute barred, the Court of Appeal holding that the solicitors were, on the facts, under no duty to review past events. The Court of Appeal accepted that such an obligation might be expressly undertaken, but thought it would be only exceptionally be implied. 8. In Nouri v. Marvi [2010] 3 EGLR 79 a fraudster forged the signature of the owner of a leasehold flat on a transfer to himself. The Respondent solicitors acted on the sale. By the time the claimant sued the solicitors (for breach of a duty allegedly owed to him to take reasonable care ensure that the fraudster was who he said he was 2 ) more than six years had passed. Ironically, in the interim the claimant had been seeking, unsuccessfully, to 2 The claim could not be in contract (the fraudster, not Mr. Nouri, was the solicitor s client) and so was in tort. Page 3 of 12
have the register rectified 3. The claimant argued that the solicitors were under a continuing duty to take steps to prevent the claimant from losing his registered title; and that obligation, and breach, continued until the fraudster was registered as owner. The court concluded that there were no special facts to suggest that the solicitor assumed a continuing duty to Mr. Nouri that survived the completion of the transaction 4. 9. Although these cases concern solicitors obligations, there is no reason to think that any different principles apply to any other profession. In New Islington and Hackney Housing Association v. Pollard Thomas and Edwards Ltd. (2000) 85 Const LR 194 the claimants sued the architects of social housing for designing accommodation with inadequate sound-proofing. The action was brought more than six years from the delivery of the design, but the architect s retainer had continued thereafter until the issue of final certificates. Dyson J held that in the absence of an express term an architect was not under a duty to review his design unless something occurred which made it necessary, or at least prudent, to do so. A duty to inform where the breach is known of? 10. Let s turn to the position where the professional is aware of the breach. What is his obligation then? In New Islington Dyson J had a shot at setting out the principles 5 : 17..In Midland Bank Trust Co Ltd and another v Hett, Stubbs & Kemp (a firm) [1979] Ch 384, [1978] 3 All ER 571, at p 403C of the former report, Oliver J said: "It is not seriously arguable that a solicitor who or whose firm has acted negligently comes under a continuing duty to take care to remind himself of the negligence of which, ex hypothesi, he is unaware." 3 See Nouri v. Marvi [2006] 1 EGLR 71. 4 Patten LJ at [38] 5 These are obiter dicta; PTE Ltd neither knew nor ought to have been aware of the alleged defect. Page 4 of 12
18. In my view, that observation is as apt to apply to an architect as it is to a solicitor. The position is quite different where the architect (or solicitor) knows, or ought to know, of his earlier negligence. When that occurs, then he may well be under a contractual obligation to review his earlier performance, and advise his client honestly and competently of his opinion. Whether he is in fact under such a duty when he has actual or constructive knowledge of his earlier breach of contract will depend on whether the contract is still being performed. If the contract has been discharged (for whatever reason), then the professional person may be under a duty in tort to advise his client of his earlier breach of contract, but it is difficult to see how he can be under any contractual duty to do so. 11. I would suggest that where the professional knows of the breach, and the retainer is continuing, the rule is strict: there is an obligation to disclose the breach. This arises for a number of reasons: (1) The obligation to disclose (I think) satisfies the contractual test for implied terms. The officious by-stander would, if asked whether the professional should disclose to his client that he had broken the terms of his contract, say of course. In New Islington at [18] Dyson J. suggested that If the contract has been discharged (for whatever reason), then the professional person may be under a duty in tort to advise his client of the earlier breach of contract. For my part, I think it unlikely that an independent tortious duty would exist where there was no contractual obligation, in the absence (pace Nouri v. Marvi supra) of an assumption of responsibility. (2) Most professionals owe their clients fiduciary duties in equity. One fiduciary duty is loyalty the obligation to faithfully serve one s client in preference to one s own interests. If the client has a (valuable) right to sue his adviser, then the adviser is obliged to ensure that the client can enjoy that benefit, even if it is at his own expense. However, fiduciary obligations (save confidentiality) do not extend beyond the termination of the retainer. It follows that where the professional discovers the Page 5 of 12
breach after the retainer has determined, he is not obliged 6 to disclose the breach. (3) There is often a professional obligation to disclose the breach. In the case of solicitors, this arises under the 2011 Code of Conduct, O 1.16: [solicitors must] inform current clients if you discover any act or omission which could give rise to a claim against you Note: (i) that this obligation is confined to current, not past clients 7 ; and (ii) that the obligation is wider than knowledge of breaches; it extends to potential claims. We ll have a look at what potential claims might mean in the next section of the talk; and (iii) the obligation does not stipulate that the retainer under which the breach arose must be the same one that continues; or even that the retainer must be continuous. All it seems to require is that the client is a current client. 6 In the absence of contractual terms to the contrary. 7 The 2011 Code did not initially refer to current clients, which might have given rise to a possible obligation to inform former clients of breaches, which would be significant. Page 6 of 12
Obligation to inform where there is a suspicion of a breach? 12. If the obligation to inform of a known breach arises only where the retainer is continuing, then it follows that the retainer must be continuing for suspicion to oblige the professional to make disclosure. This gives rise to the question what amounts to suspicion sufficient to inform? This will often be a question of fine judgment and assessment on the part of the professional, weighing up his professional obligations against the inconvenience and embarrassment of such disclosure. 13. In New Islington at [18] Dyson J. suggested that the obligation to review earlier performance arose or might arise where there was constructive knowledge; that is where the professional did not know, but reasonably could have discovered it had he enquired. That seems to me to be inconsistent with the approach of the Court of Appeal in Ezekiel v. Lehrer [2002] Lloyds Rep PN 260, approving the view of Neuberger J in Gold v. Mincoff Science [2001] Lloyd s Rep PN 423. Thus, Ward LJ put the matter graphically in this way: [25] Secondly, if it is correct that a solicitor, or barrister or any professional person genuinely believes that the advice he has given is good advice, and not negligent advice, then it would be absurd to suggest that he has to tell the client at the time he gives the advice that it may be negligent and that the client had better take other advice to see whether or not it is negligent. The adviser to whom the client turns would be bound to give the same warning. Like Rugby football's mythological Ooh-Aah bird, the client would be going round and round in ever decreasing circles seeking advice on the advice on the original advice ad infinitem (and professional life would end up suffering the bird's ghastly fate). Putting the analogy to one side, Ward LJ s warning applies to the professional who genuinely believes that his advice was good; whether or not he objectively should have realised it was bad. Constructive notice should therefore be irrelevant. Page 7 of 12
14. The professional s obligation, as a fiduciary, is to act in the best interests of his client. There is a point at which a professional should consider that circumstances are such that the client should be warned of a potential breach. When the professional s belief reaches that point, then the obligation to communicate concern it triggered. However one analyses it, (a) it is a matter of intuition whether concerns should be disclosed and (b) a court is likely to tend to consider that any potential claim should be disclosed, unless risible. 15. This approach may be supported by the Solicitor s Code at (IB 1.12) Considering whether a conflict of interests has arisen or whether the client should be advised to obtain independent advice where the client notifies you of their intention to make a claim or if you discover an act or omission which might give rise to a claim. Page 8 of 12
If the professional discovers his breach, and stays silent, can he rely on the passing of time under the Limitation Act? 16. The question arose in Williams v. Fanshaw Porter & Hazelhurst [2004] 2 All ER$ 616. The solicitor acted for a client in a claim for professional negligence against two doctors. In 1994 the solicitor, without instructions, agreed to the dismissal of the action against one, the solicitor considering that the doctor could be re-joined if desired. The solicitor clandestinely and unsuccessfully applied for the doctor to be re-joined; she them started a new claim against the doctor which was (unsurprisingly) struck out 8. In 1996 the solicitor advised to client to seek other legal advice, without informing the client of her default. 17. The client commenced an action for professional negligence as little over six years from the original order of dismissal. The claimant relied on deliberate concealment under section 32 Limitation Act 1980 to extend the running of time. It provided: '... where in the case of any action for which a period of limitation is prescribed by this Act, either--(a) the action is based upon the fraud of the defendant; or (b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or (c) the action is for relief from the consequences of a mistake; the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it... (2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.' 8 The client appealed unsuccessfully. Page 9 of 12
18. It was section 32(1)(b) that was relied upon. The Court of Appeal set the scene by referring to two earlier decisions of the House of Lords, Sheldon v. RHM Outhwaite [1995] 2 All ER 558 and Cave v. Robinson Jarvis [2003] 1 AC 384. As far as Cave was concerned, it was summarised in this way: The subsection [section 32(2)] required the defendant, not just to know what he was doing, but also to know that it was a breach of duty. It did not apply to a negligent breach of duty which the defendant did not realise he was committing. 19. In the present case the solicitor had not informed the client of his actions because he was embarrassed to do so; and because he believed (until the dismissal of the appeal from the striking out application) that his actions were curable. The judge at first instance held that a failure to inform in these circumstances did not fall within section 32(1)(b). The Court of Appeal allowed the appeal. Park J. noted: (1) The concealment need not be of the cause of action, simply a relevant fact; (2) The defendant need not appreciate that the fact was relevant to the cause of action; (3) Deliberate concealment required the consideration of whether to disclose the fact or not; (4) The defendant must be under a duty to disclose the fact, or the fact must be one that would be normally disclosed in the normal course of the relationship with the Defendant. 20. At the time that the consent order was made, the solicitor did not believe he had erred. His failure to inform the client then was not deliberate concealment. By the time his application had been struck out, he must have known he had blundered. His motivation for withholding such a relevant fact from the client was irrelevant. The point as Mance LJ put it at [29]) that a solicitor owes his client a duty to keep his client informed about the general conduct of the matter he is handling. Where there is a duty to Page 10 of 12
inform. The intentional suppression of information which it is known should be communicated pursuant to that duty can be readily regarded as concealment of that information (at [36]). 21. Equally it was irrelevant that the solicitor only appreciated that his blunder had irreparable consequences once his attempt to start a fresh action had spectacularly failed: It is a commonplace of human experience that someone who has made a mistake may realise it in time to take steps which prevent the mistake having harmful consequences. If he can do that it does not change the fact that he made a mistake in the first instance. The recorder erroneously proceeds on the basis that, if the consequences are successfully averted, there never was a mistake (or a blunder) to begin with. So you think you can extricate yourself? 22. There is always a temptation to try to correct one s mistakes. If a professional is not obliged to act when he has committed a breach, might he be prohibited from acting? For solicitors at least, this turns on a consideration of the Solicitors Code. Under O (3.4) a solicitor may not act if there is an own interest conflict or a significant risk of an own interest conflict. An own interest conflict is defined as meaning any situation where the solicitor s obligation to act in the best interests of the client in relation to a matter conflicts, or there is a significant risk that it may conflict, with the solicitors interests in that or a related matter. Unlike 9 the obligations arising where there is a client conflict (that is, a conflict between two clients interests) no provision is made for a solicitor to act, or to continue to act, where an own interest conflict arises. 23. The literal meaning of the Code is that a solicitor may not continue to act for a client where there is an own interest conflict. But surely, you might think, where there is fully informed consent on the part of the client, he 9 See O(3.6 (3.7). Page 11 of 12
might waive the conflict, such that there is no own interest conflict? The Code permits that for client conflict only, and the implication is that it is not available for own interest conflicts. The consequences of continuing to act 24. Let s assume that our professional considers that it has been in breach; it has fully informed the client, and the client is keen for the professional to continue to act and to seek to remedy the position to the advantage of both; and there is no regulation preventing this. What happens then? 25. The first point to make is that such a decision is likely to be unwise except in the Judge s favourite get-out, special circumstances. It is very difficult for the professional to be objective in his consideration of his client s best interests. Furthermore, if it all goes wrong a Court is likely to be sceptical of any suggestion that the consequences did not flow from the initial negligence. There may be situations where a change of professional advisers will inevitably lead to disaster, for example by the missing of a critical time limit, and acting or continuing to act for the client one has already damaged may be the least worst decision for both parties. The moral of the story is of course not to get into this position in the first place. Leslie Blohm QC St John's Chambers leslie.blohm@stjohnschambers.co.uk April 2014 Page 12 of 12