Professions and Financial Lines Brief: latest decisions May 2023
A roundup of the latest court decisions and regulations touching on the following issues: scope of a solicitor’s duty in the context of a disclaimer, breach of director’s fiduciary duties of an insolvent company, solicitors’ duties to a third party, and interpretation of an exclusion clause.
Court indicates the importance of clear advice on Pension Sharing Orders in divorce settlement, notwithstanding the provision of a disclaimer
Joanne Lewis v Cunningtons Solicitors [31.03.23]
HHJ Coe KC (HHJ Coe), held the defendant firm (the firm) liable to pay their ex-client (the claimant) £400,000 for failing to advise in clear terms that she should apply for a Pension Sharing Order (PSO) in matrimonial proceedings (as the nature of her husband’s occupational pension rendered it far more valuable than its Cash Equivalent Transfer Value (CETV) suggested).
Central to the case was the scope of the firm’s retainer. The firm argued that, having signed a disclaimer and negotiated the settlement directly with her husband, the claimant was owed no duty by the firm to advise on the terms of the settlement.
The claimant reached a settlement (the settlement) with her husband on a clean break basis, under which she received £62,000. The firm said it could not advise on the fairness and reasonableness of the settlement without full financial disclosure, although an exchange of statements of financial information had occurred before the relevant consent order was drawn up (and the firm received those statements). The husband’s statement showed a pension with a CETV of £540,712.60.
HHJ Coe emphasised the fact that the husband’s pension (the largest matrimonial asset) should have been ‘actively considered’, rejecting the firm’s argument, finding that:
Any reasonably competent solicitor would have advised the claimant that the proposed settlement order was obviously and exorbitantly one-sided in the husband’s favour, giving the claimant less than 15% of the disclosed matrimonial assets and leaving her with an inadequate financial provision in the future, particularly in retirement.
HHJ Coe felt there was sufficient information available to the firm to advise the claimant, even if in general terms, prior to the Family Court’s approval of the settlement, and the firm’s failure to do so constituted a clear breach of duty. Merely advising as to the possibility of a PSO was not enough - the advice needed to be clear on what the claimant ‘could reasonably hope to achieve’ in the context of the settlement that she had negotiated.
Whilst obviously fact sensitive, this case serves as a reminder for solicitors that a disclaimer signed by a client will not necessarily conclude the duties owed by them, especially if those duties flow from, or are reasonably incidental to, the subject of the retainer.
Authors: Michael J. Smith, David Robinson
Directors of an insolvent company beware
Manolete Partners Plc v White [16.03.23]
The claimant, Manolete Partners Plc, is a specialist insolvency litigation funder acting on behalf of Lloyds British Testing Ltd (the company) and its liquidators. Mr White formed the company and served as a director from inception to 2016, when the company failed. The High Court had previously held that Mr White had breached fiduciary duties owed to the company by making unauthorised payments in the 20 months leading up to the company entering into liquidation.
The claimant sought an order that Mr White be compelled to withdraw benefits under his occupational pension scheme, to pay an outstanding debt of £996,000. Mr White refused to do so and relied upon Section 91(2) of the Pensions Act 1995. Section 91(2) prohibits the assignment, commutation or surrender of an occupational pension scheme to another.
The High Court upheld the claimant’s application and ordered Mr White to draw down his pension benefits to pay the outstanding debt on the grounds that it would not be just or equitable to allow Mr White to retain the benefit of his pension, while the judgment debt remained wholly unpaid.
The High Court further stated that Section 91(2) did not apply because Mr White was not being ordered to assign his pension benefits directly to the claimant. The funds were to be deposited into a nominated bank account to then be used to pay the debt.
Whilst fact specific, this case confirms that the courts are generally willing to make an order requiring directors to draw down their personal pension pots in cases of misfeasance and breach of fiduciary duty.
Authors: Ann Dingemans, Laura Hurst
The widening of a lawyer’s duties to third parties?
Ashraf v Lester Dominic Solicitors and others [13.01.23]
This is an interesting Court of Appeal (CA) decision on a summary judgment regarding a lawyer’s duties to third parties.
The underlying case itself concerned a purchase transaction between Mr Syed Ul Haq (the claimant), who sold his property in Ealing, London to a Mr Attarian. The Bank of Scotland (the Bank) acted as lender. FLP solicitors acted for all three parties to the transaction and was subsequently intervened upon when the sale proceeds were stolen by the firm’s office manager. In completing the transaction, the parties, except the claimant, instructed new solicitors.
Rees Page solicitors, (the defendant) acting for the Bank, incorrectly completed an application to the Land Registry (Form AP1) to amend the register. The defendant incorrectly listed FLP solicitors as the claimant’s conveyancer when, in reality, the firm was no longer trading and the claimant was unrepresented. The application was approved by the Land Registry.
The claimant brought a claim against various parties, including the defendant, arising from the transaction. The defendant obtained summary judgment on the basis that they did not owe the claimant any duty of care, as he was never a client. The claimant’s personal representative (the claimant had since died) appealed the decision.
The CA found that by incorrectly stating that the claimant was represented on Form AP1, the defendant had arguably assumed a duty to him. The practical effect of this was that the Land Registry did not take any further steps to verify the claimant’s identity, potentially exposing him to fraud. The CA also rejected the defendant’s argument that the task of confirming a party’s identity was for the benefit of society as a whole.
Form AP1 explicitly stated that identity checks were to reduce the risk of property fraud, and thus for the benefit of the parties to a transaction, rather than society.
The CA did not make a finding of whether a duty was owed, only that the case was arguable (and thus outside of the remit of summary judgment). The claim will now continue and we will monitor the outcome.
Authors: Ben Kinnear, Laura Hurst
Related item: The widening of a lawyer’s duties to third parties? Ashraf v Lester Dominic Solicitors & Ors considered
Returning to the proximate cause of the loss
Brian Leighton (Garages) Ltd v Allianz Insurance [11.01.23]
This Court of Appeal (CA) decision revisited how an exclusion clause should be interpreted.
Brian Leighton (Garages) Ltd (the claimant) owned a petrol station which suffered a fuel leak as a result of a punctured fuel pipe. The fuel leak contaminated much of the premises and the business had to be closed for health and safety reasons. The claimant made a claim for material damage and business interruption to its insurers, Allianz Insurance (Allianz), under its motor trade policy.
Allianz declined cover on the basis that the policy excluded loss caused by “pollution or contamination”, which was upheld at first instance.
Upon appeal, the CA first turned to general principles to assess whether pollution or contamination was the “proximate cause” of the loss. The parties at this stage had helpfully agreed that the proximate cause of the loss had been the penetration of the fuel pipe by a sharp object. Accordingly, the CA held that as the pollution exclusion required pollution or contamination to be the proximate cause of the loss, the exclusion did not apply on the facts of this case.
This is a timely reminder that the starting point for interpretation of an exclusion clause is determining causation. The decision also emphasises the need for clear language when drafting a policy exclusion.
Authors: Ann Dingemans, Laura Hurst