Swindle v Harrison & Anor

A solicitor who enters a financial transaction with a client assumes fiduciary duties of loyalty, full disclosure of material facts, and avoidance of unauthorised profit or conflict. Breach may justify equitable remedies, including rescission, restitution or compensation, but it does not automatically make the solicitor liable for every loss following the transaction. Equitable compensation requires a causal connection between the loss and the particular breach. Foreseeability and remoteness may be less restrictive than at common law, but common-sense causation remains essential. Where disclosure would not have changed the client's decision, and the alleged loss arose from a separate transaction outside the relevant duty, the loss is not recoverable absent fraud or a breach equivalent to fraud. The appeal was dismissed.

Alsters, solicitors, acted for Mrs Harrison and her family in the proposed purchase of the Aylesford Hotel. When expected brewery finance failed, Alsters offered Mrs Harrison a £75,000 bridging loan, while failing to disclose material information and obtaining a profit from the transaction.

The Recorder at Warwick County Court held that Alsters had breached fiduciary and contractual duties but that no recoverable loss flowed from those breaches. He also dismissed Mrs Harrison's negligence claim concerning a later transfer of the hotel to her son. Mrs Harrison appealed both decisions. Her principal argument was that, but for the bridging loan, she would have retained the equity in her home. The central issue was whether that loss was caused by the fiduciary breaches relating to the loan.

The Court of Appeal unanimously dismissed Mrs Harrison's appeal. The first defendant's appeal was dismissed by consent. The Recorder's costs order was upheld.

1. Fiduciary duties. Evans LJ and Mummery LJ held that a solicitor owes fiduciary duties in addition to the common-law duty of skill and care. A solicitor who deals with a client as principal must disclose all material facts known to him, avoid conflicts of interest and unauthorised profit, and act with loyalty and good faith. The Recorder was entitled to find breaches arising from the undisclosed profit and the failure to disclose the risk that the brewery loan would not be made. The absence of practical time for independent advice did not remove the breaches. The principles in Nocton v Lord Ashburton and Bristol and West Building Society v Mothew were explained and applied.
2. Equitable compensation and causation. Equitable remedies may be restitutionary and foreseeability or remoteness may be less restrictive than at common law. Nevertheless, compensation requires a causal connection between the particular breach and the loss. Target Holdings Ltd v Redferns and Canson Enterprises Ltd v Boughton & Co supported an assessment based on hindsight and common sense. There is no equitable bypass of causation.
3. Application. The relevant fiduciary duty concerned disclosure in the bridging-loan transaction. It did not impose a duty to prevent the purchase of the hotel. Mrs Harrison would have accepted the loan and completed the purchase even with full disclosure and independent advice. The loss of equity in her home therefore resulted from the separate purchase decision, not from the breaches concerning the loan. Evans LJ further stated that the more stringent restorationary measure would require fraud, an equivalent breach, or proof that full disclosure would have prevented completion.
4. 1993 transfer. The negligence claim concerning the transfer to Miles was rightly dismissed. Mrs Harrison faced a serious financial crisis, the transfer was treated as an arm's-length transaction, and it released her from personal liability under the relevant borrowing. Mummery LJ disagreed with the Recorder's finding of a tacit agreement to mislead about value, but that disagreement did not affect the result.

Hobhouse LJ agreed with the orders and emphasised that the claimed loss related to the hotel purchase rather than the loan disclosure. The costs order was within the Recorder's discretion.

• Court of Appeal (Civil Division): Mrs Harrison's appeal against the dismissal of her counterclaims was dismissed. Miles Harrison's appeal concerning the transfer was dismissed by consent.
• Warwick County Court: Recorder Sir Andrew Watson dismissed both counterclaims after trial on 6 November 1995. He found breaches of fiduciary and contractual duties concerning the bridging loan but no recoverable loss, and rejected the negligence claim concerning the later transfer.