Manolakaki v Constantinides & Ors

A solicitor who undertakes to advise on an investment must exercise the professional duties arising from that retainer. Those duties include explaining the relevant documents, identifying and evaluating risks, addressing the adequacy of proposed security, and disclosing conflicts of interest. A solicitor cannot avoid those duties by describing his role as translation or administration where the evidence shows that the client relied on him as her solicitor. Deliberate concealment, lies, circulation of misleading documents and condoning a fraud may amount to dishonesty, even where the solicitor was himself deceived and expected to profit only if the transaction succeeded.

The claimant invested US$1 million in purported high-return investment arrangements introduced and administered by the defendant solicitor. She alleged that he advised her, failed to secure her investment, failed to explain documents in English which she could not understand, concealed his financial interest in Westminster Services Limited, and acted despite conflicts of interest. The defendant maintained that his retainer was limited to translation and administrative services, and that any negligence had not caused the loss. His professional indemnity insurers disputed liability on grounds of dishonesty and non-disclosure in the insurance proposal. The central issues were the scope of the retainer, causation, dishonesty, and the insurers’ entitlement to rely on the policy provisions.

1. Main claim. The defendant was retained as the claimant’s solicitor to advise as necessary on the transaction documentation. He was not merely a translator. The claimant relied on him, and the documents were sent to her for signature without adequate explanation, although they were complex, suspicious and in English. The defendant also failed to disclose his interest in Westminster, which was both his client and a vehicle through which he expected to receive substantial remuneration.
2. The proposed security was illusory. The blocked-account arrangements, promissory note, assignment of the life policy and purported Treasury Bond security did not protect the claimant’s capital. The defendant failed to examine the arrangements critically or to tell the claimant that the June 1998 release of funds left her unsecured. The loss was caused by that failure, not by any decision by the claimant to proceed without protection.
3. The defendant’s conduct amounted to breach of fiduciary duty and dishonesty under clause 6.9 of the policy. Applying Twinsectra Limited v Yardley [2002] 2 AC 164, the relevant standards were those of ordinary honest people, together with the defendant’s awareness that his conduct would be regarded as dishonest. His concealment, lies, misleading documents and condoning of RVL’s fraud satisfied that test. Contributory negligence was unavailable as a defence to the fraud claim and, in any event, was not established.
4. The defendant’s Part 20 claim for an indemnity failed because the liability arose from dishonesty. Alternatively, if the conduct were only negligent, the defendant’s failure to disclose the potential claim when obtaining insurance engaged clause 7.7. The insurers had suffered prejudice and were entitled to a full indemnity from him for any liability they incurred.
5. The claimant succeeded on the main claim. The defendant’s Part 20 claim was dismissed. The judgment contemplated interest from 15 June 1998 and left any alternative damages inquiry for further consideration.