The FCA – Transformation to Assertive Supervision
Usually, the scope of duty of care between a solicitor and a client will be set out in writing in an engagement letter, but there are some circumstances in which a solicitor may assume duties to someone other than their client, which can create problems if that party is to suffer a loss. In those circumstances, a key question is whether a solicitor owes the third party a duty of care.
The recent case of NDH Properties Ltd v Lupton Fawcett LLP  EWHC3056 (Ch) provides some useful guidance on this very issue. In this case, the High Court held that there was no implied retainer between a company (NDH) that found itself unable to pay off an expensive short term loan and Lupton Fawcett LLP, the law firm acting for the lender. The court therefore dismissed a professional negligence claim made by the company against the law firm.
NDH (the claimant) took out a short-term loan of £350,000 secured over a commercial property it owned in May 2012 from Amalgamated Finance Limited, a lender represented by Lupton Fawcett (the defendant). NDH was later unable to pay off the loan when it matured, its value having risen to £390,000 due to interest and fees. The lender appointed receivers and sold the commercial property for £751,000 in March 2013 and by the time of the sale, the loan’s value had rocketed to nearly £650,000 and NDH received less than £62,500 after fees were paid.
NDH argued that Lupton Fawcett owed them a duty to properly advise on the terms of the short-term loan as there was an agreed implied retainer between them and they should have advised them against taking out the loan. Alternatively, NDH argued that Lupton Fawcett had acted in such a way as to assume a duty of care to properly advise them on the terms of the loan, or at least to confirm they were not acting for NDH in respect of it. NDH also argued that Lupton Fawcett had assumed a tortious duty of care and breached it by not advising properly in relation to the loan.
Lupton Fawcett defended the claim, maintaining that NDH was not its client and that there was no implied retainer, nor was there any assumption of responsibility by Lupton Fawcett to NDH and so no duty of care was owed.
The High Court ruled that there was no implied retainer in relation to the loan as there was no documentary evidence and no conduct of the parties which could objectively support the inference that Lupton Fawcett had agreed to act as solicitors for NDH. In particular, there was very limited contact between NDH and Lupton Fawcett, no prior relationship between the parties, no discussion of proposed fees and no discussion as to the particular solicitor who would deal with the matter. Further to this, objectively, Lupton Fawcett did not believe it was acting for NDH. Lupton Fawcett had not conducted itself in a way that was consistent with it acting for NDH and in these circumstances it was not possible for the court to conclude that Lupton Fawcett had assumed any sort of responsibility in respect of NDH. For similar reasons, the court also rejected the argument that there was a duty of care owed in tort by Lupton Fawcett to NDH.
Unlike what could be described as a typical negligence claim, in this case (i) there was no formal engagement letter between NDH and Lupton Fawcett and (ii) the solicitor had acted for the opposite side in the transaction. Nevertheless, the case helpfully re-affirms the current case law on this issue and demonstrates that a Court will not readily find that there is an implied retainer if the solicitor or professional did not assume responsibility towards the opposite party considering all the facts of the case.
However, for potential claimants looking to bring professional negligence claims in circumstances where they are not a “client” in the transaction but a third party, it should be noted that the court will imply a retainer if, viewed objectively, the conduct of the parties is consistent with the solicitor being retained to act for the claimant.
Whether a retainer can be implied is always fact specific and is not always straightforward. However, relevant factors may include whether the third party was liable to pay the solicitor’s fees, whether there was any past relationship between the parties, whether the solicitor had advised the party to obtain separate and independent legal advice and whether they had approached the solicitors directly for advice.
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