PROSSER v CASTLE SANDERSON SOLICITORS (A FIRM) AND ANOTHER

An insolvency practitioner may owe a debtor a duty of care when, during an adjournment of a creditors’ meeting, he gives advice in his separate advisory capacity. The court should identify the capacity in which the practitioner is acting and should not impose conflicting duties arising from his statutory office.

Where professional negligence allegedly deprived a claimant of a better outcome dependent partly on independent creditors, the claimant must prove his own conduct on the balance of probabilities and establish a real and substantial, rather than speculative, chance that the third parties would have acted differently. If that chance is absent, no recoverable loss is established.

The claimant appealed against the dismissal of his negligence claims against two firms involved in advising him in connection with an individual voluntary arrangement under Part VIII of the Insolvency Act 1986.

The first respondent’s solicitor was held to owe a duty of care and to have negligently failed to advise the claimant that the creditors’ meeting could be adjourned for up to 14 days. The second respondent’s insolvency practitioner, who acted as nominee and chairman of the meeting, was held below not to owe a duty during the relevant discussion.

The central issues were whether the insolvency practitioner owed a duty in the circumstances, and whether the failure to advise about an adjournment caused recoverable loss.

1. Appeal dismissed. The dismissal of the claims against both respondents was upheld.
2. Lord Justice Clarke held that the second respondent owed the claimant a duty of care during the short adjournment. Although he was acting as nominee and chairman of the creditors’ meeting, he was then advising on the same options on which he had advised before assuming that statutory role. In the absence of a clear indication that he had changed capacity, it was fair, just and reasonable to impose a duty. The judgment emphasised that insolvency practitioners should make clear the capacity in which they are acting.
3. The first respondent’s breach was accepted for the purposes of the appeal. He should have advised that the meeting could be adjourned for up to 14 days under rule 5.19 of the Insolvency Rules 1986.
4. Applying Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, the claimant had to prove on the balance of probabilities what he would have done, but only needed to show a real and substantial chance that the creditors would have acted differently. The chance had to be assessed as a matter of loss and quantification, not treated as a probability.
5. The claimant failed to establish such a chance. He was unlikely to produce proper accounts within the 14-day period, and without them the creditors were unlikely to alter their position. The suggested provision of security, a sale of the shares, or an alternative arrangement was speculative. The claimant would probably have faced the same choice and the same consequences at the adjourned meeting.
6. The court therefore found no recoverable loss. It was unnecessary to decide whether the second respondent had breached the duty of care.

• Court of Appeal (Civil Division): Appeal from the order of His Honour Judge Hegarty QC dated 16 March 2001 dismissing the negligence claims. Appeal dismissed.
• Queen’s Bench Division, Manchester District Registry, Mercantile List: The trial judge held that the first respondent owed a duty and was in breach but that no recoverable loss was proved. He held that the second respondent owed no duty of care in the relevant circumstances.