Hughes & Ors v Richards (t/a Colin Richards & Co)

A negligence claim should be struck out only where the court is certain that it is bound to fail. In an uncertain and developing area of law, development should normally proceed on facts found at trial. The availability of a possible remedy to settlors did not conclusively defeat beneficiaries’ claims concerning an effective trust arrangement whose investment losses emerged years later. Remarks excluding claims by intended recipients of imperfect or misdirected inter vivos gifts were obiter and did not conclusively resolve those circumstances. The substantive existence and scope of the adviser’s duty remained open. Public funding was irrelevant to the decision whether to permit the claims to proceed.

David and Alison Hughes retained Colin Richards, a chartered accountant, to advise on investing royalty payments for their children’s education. They alleged that he recommended an offshore trust and a Swiss company, Cedrus AG, and subsequently undertook to monitor the arrangement. Their children, Thomas, Stephanie and Charlotte Hughes, became trust beneficiaries. The arrangement produced no payments for their benefit, and its assets were largely absorbed by costs, charges and taxation.

The parents and children brought separate negligence actions concerning the investment advice and subsequent monitoring. The children claimed the value of an investment made with competent advice or, alternatively, the assets that could have been preserved by timely advice to wind up the arrangement. Richards sought to strike out or summarily dismiss their action, arguing that any remedy belonged to the parents. On 30 July 2003, Judge Norris QC, sitting as a High Court judge, refused the application and granted permission to appeal. The Court of Appeal proceeded on the assumed truth of the children’s pleaded facts and considered whether their claims were bound to fail.

1. The appeal was dismissed unanimously. Peter Gibson LJ’s judgment was expressly agreed by Jacob LJ and Sir William Aldous. The court could strike out the claim only if certain that it was bound to fail. Where the law was uncertain and developing, disputed facts bearing on the existence and scope of a duty should normally be established at trial: Barrett v Enfield London Borough Council, [2001] 2 AC 550, applied.

2. A professional adviser ordinarily owed duties to the client, but limited exceptions permitted recovery for loss suffered by third parties. White v Jones, [1995] 2 AC 207, recognised a tortious duty to intended testamentary beneficiaries. Its observations concerning inter vivos gifts were obiter. They concerned imperfect or misdirected gifts, or transactions whose negligent consequences were immediately apparent. They did not conclusively address an effective disposition whose investment losses emerged years later.

   Richards had a strongly arguable case that the investment duty was owed to the parents alone. Nevertheless, the court could not be certain that the children’s claim would fail. It left the substantive duty unresolved, including questions concerning the availability of a remedy to a donor.

3. The monitoring claim also required factual investigation. The alleged monitoring retainer followed the parents’ disposal of their interests in the transferred assets. However, Dean v Allin & Watts and Woodward v Wolferstans provided little assistance: those cases involved clients who had suffered no loss or could not sue, whereas the parents might have good claims against Richards. They were distinguishable and did not establish the children’s substantive entitlement.

4. The parents’ action would proceed to trial and raised substantially the same issues. Trying the children’s action alongside it was unlikely to add significantly to hearing time or costs. Their losses were partly overlapping but not identical, and double recovery for the same loss was prohibited. The alternative pleading did not necessarily require separate counsel.

5. The children’s public funding was irrelevant to the exercise of discretion. Taking it into account would discriminate against publicly funded litigants contrary to section 31(1)(b) of the Legal Aid Act 1988. No error of law, consideration of irrelevant matters, omission of relevant matters or plainly wrong exercise of discretion justified appellate interference.

6. Jacob LJ, expressly agreed by Sir William Aldous, identified an additional arguable analysis. The parents might have instructed Richards directly on the children’s behalf, creating a direct contractual duty to them. The pleading covered that possibility. The court did not determine that such a duty existed. The refusal to strike out or dismiss the children’s action stood.

• Court of Appeal (Civil Division): On 9 March 2004, unanimously dismissed Richards’s appeal in [2004] EWCA Civ 266 . The refusal to strike out or dismiss the children’s action stood.
• High Court, Chancery Division, Birmingham District Registry: On 30 July 2003, Judge Norris QC refused Richards’s application to strike out or dismiss the children’s claim. He required the parents’ and children’s claims to be pleaded in the alternative and granted permission to appeal.