Hudson v Solicitors Regulation Authority (SRA)

Legal costs incurred to recover or preserve wrongfully released property may be loss directly connected with the claimant’s proprietary or possessory interest. In a conversion claim, ordinary rules concerning intervening acts do not apply to such recovery expenditure, subject to proportionality and the ordinary requirements of causation.

For breaches of equitable or common-law duties protecting confidential information, ordinary causation principles apply. An intervening act breaks the chain only where, having regard to the scope of the duty and all the circumstances, it eclipses or obliterates the defendant’s wrongdoing. Foreseeability assists the inquiry but is not determinative.

The claimant, a solicitor and former member of a limited liability partnership, claimed damages from the defendant regulator after it released confidential hard drives and documents supplied to it for regulatory purposes. The pleaded causes of action were conversion, breach of an equitable duty of confidence and breach of a common-law duty to preserve confidentiality.

The claimant sought unrecovered legal costs incurred in an interim application against the person to whom the materials had been released. The defendant accepted, for the purposes of its application, that its release of the materials was wrongful, but argued that later conduct by the recipient and the claimant broke the chain of causation. The central issue was whether the pleaded loss had a viable causal connection with the assumed breaches of duty.

1. Application dismissed. The claimant had a real prospect of establishing that at least some of the legal costs of the interim application were caused by the defendant’s assumed breaches. The amount and recoverability of particular costs remained matters for trial.
2. In conversion, the defendant’s liability is strict and the causal requirements follow from the nature of the tort. The costs of recovering or preserving the Drives and Documents were expenditure directed to protecting the claimant’s and the firm’s proprietary interests. They were not consequential losses at one or more removes from those interests. The ordinary rules concerning intervening acts therefore did not apply. The reasoning in Kuwait Airways Corporation v Iraqi Airways Company (Nos 4 and 5) [2002] 2 AC 883 was applied. The costs were also recoverable on the assumed facts because they were foreseeable.
3. For the equitable duty of confidence, the ordinary rules of causation apply. There was no sufficient reason to assess loss differently merely because the duty arose in equity rather than contract or common law. The observations in AIB Group (UK) plc v Mark Redler & Co Solicitors [2015] AC 1503 and Target Holdings v Redferns [1996] AC 421 concerned breach of trust and were of limited assistance.
4. For the common-law confidentiality duty, causation and foreseeability perform different functions. The court must identify the scope of the duty and ask whether the later event eclipsed or obliterated the defendant’s wrongdoing. Foreseeability is relevant, since foreseeable intervention is less likely to constitute a novus actus interveniens, but it is not conclusive. The ultimate question is whether the defendant should fairly bear responsibility for the intervention.
5. The recipient of the materials was not properly treated as a sufficiently independent third party. He was the person to whom the materials had been wrongfully released and was at the heart of the breach. His unreasonable resistance to returning them therefore did not break the causal chain. Nor did the claimant’s reasonable decision to settle the underlying costs issues. The legal entitlement to claim damages from the regulator was distinct from the ability to recover costs from the recipient.
6. The equitable confidence claim also had a real prospect of success. In addition, the absence of direct authority on the assessment of loss for that cause of action supplied a compelling reason for a full trial under CPR Part 24.