Longstaff v Birtles

A solicitor’s fiduciary obligations may continue after the relevant retainer has ended. Their source is the subsisting relationship of trust and confidence created by all the circumstances, rather than the retainer alone.

A solicitor who pursues a personal business transaction with a client or former client must avoid a conflict between duty and personal interest. The solicitor must insist that the other party obtains independent advice. A transaction undertaken in breach of that obligation may be set aside or, where rescission is unavailable, attract equitable compensation for loss caused by the breach.

After instructing a firm of solicitors concerning a proposed hotel purchase, the claimants abandoned that transaction. One of the solicitors then invited them to invest £40,000 in a separate hotel partnership in which he and his associates had a personal interest. He drafted the partnership agreement without insisting that the claimants obtain independent advice. The investment failed and the claimants suffered substantial loss.

HHJ Roger Cooke dismissed their action. He found that the original retainer had ended and that no contractual or tortious duty of care arose in relation to the partnership. He nevertheless found that, had advice been legally required, the solicitor’s conduct was negligent and the claimants probably would have withdrawn from the proposal after receiving proper advice.

The claimants appealed. During the appeal, the Court permitted them to amend their pleading to allege breach of fiduciary duty. The central issue became whether the relationship of trust and confidence survived the termination of the retainer and prohibited the solicitor from proceeding without independent advice.

1. Appeal allowed unanimously. Mummery LJ gave the leading judgment. Laws LJ and Sir Anthony Evans agreed that the claimants succeeded in equity and that the case should be remitted for assessment of compensation.

2. The Court permitted the late amendment alleging breach of fiduciary duty. The existing pleading contained the relevant facts, and the respondents accepted that an earlier fiduciary claim probably would not have required further evidence. The amendment caused no prejudice and was necessary to achieve justice.

3. Per Mummery LJ, the fiduciary duty arose from the relationship of trust and confidence created by all the circumstances, including the former retainer. It did not automatically end when the retainer concerning the first hotel purchase ended. While that confidential relationship continued, the solicitor could not place himself in a position where his duty to the claimants might conflict with his personal interest.

4. The solicitor introduced a business opportunity in which he had a personal interest and continued to deal with the claimants without insisting that they obtain independent advice. That conduct breached the fiduciary obligation of loyalty and transparency. Advice that the claimants were merely at liberty to consult another solicitor would not have sufficed; the solicitor was required to insist upon independent advice before proceeding.

5. The claim did not depend on a continuing contractual retainer or an assumption of responsibility in tort. Mummery LJ accepted the correctness of the principles discussed in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 and White v Jones [1995] 2 AC 207, but considered their invocation unnecessary and inappropriate. Laws LJ regarded an additional tortious duty as confusing and unnecessary. Sir Anthony Evans likewise rejected the proposed common-law route merely as a means of obtaining a potentially different measure of recovery.

6. The trial judge’s findings established causation. Had the solicitor insisted on independent advice and adequate financial information, the claimants would probably have withdrawn from the partnership proposal. Applying the compensatory approach exemplified by Swindle v Harrison [1997] 4 All ER 705, they were entitled to equitable compensation sufficient to make good the loss caused by the breach and to restore them, so far as money could, to their pre-breach position.

7. The case was remitted for assessment of equitable compensation if quantum could not be agreed.

• Court of Appeal: The appeal was allowed unanimously. The claimants were permitted to plead breach of fiduciary duty, and the case was remitted for assessment of equitable compensation.
• Carlisle District Registry, Chancery Division: HHJ Roger Cooke dismissed the action on 9 May 2000, holding that the original retainer had ended and that no contractual or tortious duty of care arose concerning the later partnership transaction. He made contingent findings on breach, causation and damages in case his conclusion on liability was reversed.