NDH Properties Ltd v Lupton Fawcett LLP  EWHC 3056 (Ch)
The claim relates to a short term loan facility of approximately £380,000 which was taken out in May 2012 by the claimant from Amalgamated Finance Limited ("the funder"). The purpose of the loan was to enable the claimant to discharge a pre-existing debt on a property and to pursue other development opportunities. The defendant firm of solicitors, Lupton Fawcett, were appointed by the funder to prepare the loan and associated security documentation. The claimant subsequently defaulted on the loan and, by the time the property was sold, its indebtedness had increased to almost £650,000.
The claimant alleged the solicitors had been impliedly retained to act on its behalf, as well as for the funder, in relation to the loan and should have advised that the loan was manifestly disadvantageous and should not have been entered into. Alternatively, the claimant argued the solicitors had conducted themselves such that they had assumed a tortious duty of care and / or a duty to warn the claimant they were not acting.
All the arguments were dismissed by Mr Justice Snowden, who found that the solicitors had not been retained and did not owe any tortious duties to the claimant.
Existence of an implied retainer
There was no written contract. Therefore Mr Justice Snowden reviewed the principles relevant to implied retainers, highlighting that the conduct of the parties, viewed objectively, must be consistent only with the parties acting as if there was a contractual relationship of solicitor and client. In this case, whilst there were elements of work carried out by the solicitors for the benefit of the claimant (for example, the drafting of board minutes) that was not consistent only with the solicitors acting for the claimant, because it is commonplace for a lender to provide draft board minutes to a corporate borrower to ensure the security will be enforceable.
Existence of an implied duty of care
Whilst there was no contract that did not prevent the possibility the solicitors owed the claimant a duty of care in tort. Where there is a conflict of interest between the parties and a firm of solicitors acts for one party, it is usually improbable that the solicitor will owe a duty to the other party. However, some special or exceptional circumstances could mean that a duty would be imposed. On the facts, the court concluded there were no such exceptional circumstances; indeed, there was no contact between the claimant and the solicitors.
A duty to warn
The final allegation was unusual. The claimant alleged the solicitors ought to have warned it that they were was not acting for the claimant and that the claimant ought to seek independent advice elsewhere. Mr Justice Snowden dismissed the allegation, saying that the solicitors did not have any reasonable grounds for believing the claimant was relying upon them for advice and, thus, had no duty to give such a warning.
Whilst much of the judgment is uncontroversial, the allegations could have significantly impacted solicitors and so the restatement of the law is helpful. In particular, the alleged duty to warn the other side to a transaction that the firm was not acting for it could have been a major extension of liability for solicitors and would have been of significant concern. Save where there is a retainer or solicitors have reasonable grounds for considering the other side as relying upon them, Mr Justice Snowden could not see on what basis a firm of solicitors would owe a duty to advise the other party to get independent advice.
The case serves as a useful reminder to solicitors and other professional advisers of the importance of a clear and unambiguous retainer letter for each instruction, which makes it clear from the outset who is the client and the capacity in which individuals give instructions. Care should be taken, as always, to carefully document retainers, so as to avoid the need for considering implied retainers and reduce the scope for arguments as to the correct identity of the client and the work undertaken. Should a firm of solicitors have reason to believe the other party may have misunderstood their role and might be relying upon them, they should clarify their role promptly.
DWF Law LLP (Matthew Reynolds and Malcolm Rogers) acted for the solicitors, instructing Jason Evans Tovey from Crown Office Chambers.