Regent Leisuretime Ltd & Ors v Skerrett & Anor

The Court of Appeal dismissed an appeal in a solicitor's negligence action brought by directors/shareholders and their company. The court affirmed that the crucial questions are the scope of the retainer and for whom the solicitor was engaged. It held that the judge was entitled to find as a matter of fact that Mr Pearson had not been retained by the company and owed no duty to it, and that, in relation to Mr Amos and Mr Barton personally, Mr Pearson was entitled to rely on the advice of experienced counsel (Mr Jackson) unless that advice was obviously wrong.

The court considered the interplay between the "Prudential" principle (that shareholders cannot generally recover for loss to the company by way of diminution in share value), the limitation consequences following discovery of the fraud, and the scope of professional obligations of a solicitor who had instructed specialist counsel. On the facts the solicitor was not negligent in failing to take different steps to seek joinder of the company or to start separate proceedings.

Background and facts:

• The company was formed by Mr Amos and Mr Barton and acquired holiday properties financed by a bank loan. The bank required a valuation on a forced sale basis but an open market valuation was obtained; the bank employee represented it was "just enough." The company later defaulted and receivers were appointed. Mr Amos discovered in September 1993 the valuation was on an open market basis.
• The directors consulted solicitors and instructed specialist counsel at various times who advised that shareholders could not generally recover for diminution in the value of their shareholdings and that any action would likely need to be brought in the company's name with an indemnity as to costs.
• An appeal to this court in July 1999 succeeded on the issue of fraud, enabling an award of damages to be assessed. After that decision the solicitors arranged further conferences with counsel about assessment of damages; counsel warned of difficulties arising from the Prudential principle and other practical issues.

Procedural posture and nature of the claim:

• The present claim, begun in November 2003, was a solicitor negligence claim against the successor solicitor, Mr Pearson, and earlier solicitor, alleging they had failed to advise that the company should be joined or should bring its own proceedings, causing loss by reason of failure to preserve a company claim (and consequent diminution in share value). The trial before Simon J was of liability only and the claim against Mr Pearson was dismissed on 13 July 2005. Limited permission to appeal was later given and this appeal followed to the Court of Appeal.

Issues framed by the court:

1. Whether the judge erred in finding that Mr Pearson did not owe a duty of care to the company because he had not been retained by it.
2. The scope of the duty of care owed by a solicitor to director/shareholder clients seeking to recover diminution in share value where specialist counsel had been instructed but had not advised joinder of the company.

Court's reasoning and conclusion:

• The court reiterated settled principles: identify scope of the retainer; a solicitor may rely on properly instructed counsel but must exercise independent judgment and reject advice that is obviously wrong; the more specialist the field, the more reasonable it is to accept counsel's advice.
• The judge's factual findings that the company did not retain Mr Pearson and that the directors were well aware of prior counsel advice on the difficulties of pursuing a shareholders' claim were amply supported by the evidence.
• Mr Jackson was an experienced, long-instructed Chancery counsel who had been consulted repeatedly and had warned of the Prudential difficulty; Mr Pearson was entitled to rely on his advice on damages and on how to proceed unless the advice was obviously wrong.
• There was nothing in the contemporaneous papers or instructions to put Mr Pearson on notice that counsel should be asked to address a limitation point or to revert to joinder of the company; on the facts, failure to take those steps did not amount to negligence. The appeal was dismissed.

The court noted with sympathy the appellants' position but cautioned against hindsight critique where specialist counsel had been properly consulted and where factual findings supported the judge's conclusions.

This was an appeal from an order of Simon J dismissing the claim against Mr Pearson. The Court of Appeal dismissed the appeal. The court held that the judge was entitled to find that Mr Pearson had not been retained by the company and owed it no duty, and that, in relation to the directors, Mr Pearson was entitled to rely on the advice of experienced counsel (Mr Jackson) and was not negligent in failing to take further steps to join or procure proceedings by the company on the facts of the case.

Appeal from the order of Simon J (trial of liability only) dated 13 July 2005 dismissing the claim against Mr Pearson. Permission to appeal was initially refused; Hallett LJ refused permission on paper; Latham LJ subsequently granted limited permission to appeal on specified grounds. The appeal to the Court of Appeal (this judgment) was dismissed. The factual and legal history includes an earlier successful appeal on the fraud finding to this court in July 1999 and a later dismissal of the Company's appeal by this court ([2003] EWCA Civ 391).