Mischon De Reya (A Firm) v Barrett

In a professional-negligence claim arising from urgent insolvency proceedings, a claimant may have a real prospect of showing that solicitors acted negligently by failing to obtain the application materials promptly and to investigate an early application to discharge provisional-liquidator orders. The appropriate advice depends on the urgency, the likely commercial damage, and the possibility of protecting assets and businesses through undertakings or conditions. A failure to comply with good practice concerning without-notice applications does not, by itself, require discharge of the orders or a cross-undertaking in damages. At the summary-judgment stage, causation and the value of a lost opportunity may require a full trial where the evidence leaves open the possibility that relevant actors would have changed position.

The claimant solicitors sought payment of legal fees from their former client, who defended the claim and counterclaimed for loss caused by alleged negligence and breach of contract. The alleged negligence concerned the period after provisional liquidators were appointed without notice over companies owned or controlled by the defendant, following applications by the Secretary of State under the Insolvency Act 1986.

The Master allowed a draft re-amended defence and counterclaim in part. She held that the defendant had no real prospect of establishing negligence in the first week, but did have a real prospect of establishing that advice should have been given, and an application prepared, during the later period ending 28 January 2002. The issues before Kitchin J were whether the proposed pleading should be permitted, whether the earlier adverse finding should be reversed, and whether causation and loss of chance were suitable for summary determination.

1. Disposition. The appeal against the Master’s conclusion concerning the first week failed. The court declined to strike out the defence and counterclaim and would consider permission to serve an amended pleading.
2. Urgent advice and preparation. MDR had a real prospect of being found negligent for failing to press urgently for the evidence, skeleton argument and hearing note, and for failing during the week beginning 21 January 2002 to advise on and prepare an application to discharge the orders. The commercial consequences of delay were potentially severe, and the material was needed to assess possible grounds of challenge.
3. Undertakings and alternative safeguards. The court treated the possibility of undertakings, conditions, or a suitably controlled management structure as a real issue. Although courts should be slow to accept undertakings where the Secretary of State relies on serious allegations of dishonesty and impropriety, the unusual presence of legitimate and potentially viable businesses, together with the absence of a cross-undertaking, meant that the proposed application could not be characterised as hopeless at the summary stage.
4. Etherton Protocol. The principles from In The Matter of the City Vintners Limited established good practice, not an automatic procedural requirement. Failure to draw the protocol expressly to the judge’s attention, failure to offer a cross-undertaking, and alleged failure to consider notice or possible defences did not provide a realistic basis for discharging the orders where the application was made in the public interest on strong grounds. The application based solely on those matters was properly rejected.
5. Non-disclosure and causation. The alleged misrepresentations and non-disclosures were not made out. Causation nevertheless remained arguable because the Bank might have reconsidered the administrative receivers’ appointment if the provisional-liquidator orders had been discharged. The issue could not fairly be resolved on summary judgment.

The judgment records an appeal from, and an application for permission to appeal against, orders made by Master Fontaine on 21 July 2005. The High Court upheld the Master’s conclusion that the first-week negligence case had no real prospect of success, but upheld the later-period case as arguable and allowed the defence and counterclaim to proceed in the form permitted by the judgment.