Regent Leisuretime Ltd. v Amos

SIR PETER GIBSON: This is an appeal by the first claimant, Regent Leisuretime Limited (“the Company”), the second claimant, Stephen Amos, and the third claimant, Peter Barton, from the order made on 13 July 2005 by Simon J, by which the judge dismissed the appellants’ claim against the second defendant, Kenneth Pearson, after a trial of liability only in a solicitor’s negligence action. The first defendant, Phillip Skerrett, was not properly served and the proceedings against him were struck out earlier. The judge refused permission to appeal, as did Hallett LJ on paper, but at an oral hearing Latham LJ granted limited permission to appeal.

The issues to which this appeal gives rise are first, the question whether the judge in finding that the Company did not retain Mr Pearson and was owed no duty of care by him was wrong and secondly, and more substantially, the extent of the duty of care owed by a solicitor to his clients, who are the directors and shareholders of a company, and his clients seek to recover damages for deceit for the loss suffered by them through the diminution in value of their shareholdings, when experienced specialist counsel has been instructed by the solicitor and has advised on pursuing the damages claimed but has not advised joinder of that company.

The Company was formed by Mr Amos and Mr Barton early in 1991. They are the sole directors and shareholders of the Company. In March 1991, it acquired a holiday complex in Cornwall with the aid of a short term loan from County NatWest Limited (“the Bank”). In early 1992 it sought a loan of £2,025,000 from the Bank to purchase two further properties and to refinance the earlier loan. The Bank was prepared to make the loan subject to two conditions: (1) an independent valuer should value at a forced sale value the three properties at not less than £3.5 million; and (2) Mr Amos and Mr Barton should give personal guarantees of the Company’s liabilities to the Bank, and charges over Mr Amos’s and Mr Barton’s matrimonial homes should also be given.

The Bank originally instructed the valuers to value the three properties, both on an open market basis and on a forced sale basis, but an employee of the Bank, Mr Murphy, changed the instructions without telling Mr Amos and Mr Barton and the valuers prepared the valuation on an open market basis only. Mr Murphy informed Mr Amos and Mr Barton that the valuation was “just enough”, thereby representing to them that the properties had been valued at not less than £3.5 million on a forced sale basis. Had that been the basis of the valuation, the value would have been reduced by between 30 and 50 per cent.

The transaction went through on 1 April 1992. Thereafter the Company defaulted on its loan. The Bank in July and August 1993 demanded repayment from the Company and the guarantors. When payment was not made, the Bank on 31 August 1993 appointed administrative receivers of the Company. On 6 September 1993, a date of significance for limitation reasons, Mr Amos ascertained from the valuers that their valuation had been on an open market basis.

In 1993, Mr Amos and Mr Barton consulted Mr Skerrett, who was in practice as a solicitor on his own, about the possibility that they or the Company might make a claim against the Bank for fraudulent misrepresentation. Mr Skerrett sought the advice of counsel. Mr Andrew Geddes advised in conference and also on 22 October 1993 in writing in strong and clear terms that Mr Amos and Mr Barton could not as shareholders recover damages for damage to the Company resulting in a reduction in the value of their shareholdings, but that they could bring proceedings in the Company’s name if they were prepared to give the Company an indemnity against costs, and any damages recovered by the Company would be available to be meet prior charges.

Mr Geddes was appointed to the Bench in 1994. On 7 November 1994 Mr Skerrett was instructed by Mr Amos and Mr Barton to seek the advice of new counsel, Mr Dirik Jackson. On 2 December 1994, Mr Jackson advised in conference that Mr Amos and Mr Barton could not claim for diminution in the value of their shareholdings due to the diminution in value of the Company’s assets. He referred to the decision of this court to that effect in Prudential Assurance v Newman Industries Ltd (No 2) [1982] Ch 204. He also advised that if Mr Amos and Mr Barton were to bring an action in the name of the Company, they would have to give an indemnity as to costs.

On 13 February 1995, the Bank commenced proceedings in the Chancery Division under the guarantees. Mr Jackson drafted, and on 24 April 1995 the guarantors served, a defence and counterclaim. In the latter, damages for fraudulent misrepresentation were claimed and included in it was a claim for diminution in the value of Mr Amos’s and Mr Barton’s shareholdings. Mr Charles Macdonald QC was then instructed on behalf of Mr Amos and Mr Barton. He gave advice in a lengthy conference lasting three and three quarter hours on 22 July 1996, with Mr Amos and Mr Barton present. He advised that the claim for diminution in value of the shareholdings was misconceived.

On 10 June 1997 he advised in conference again. He supplied Mr Skerrett with a long note in advance of the conference. In it he said he had again considered the issue of the claim for diminution in the shareholdings’ value and that his opinion remained the same. His note was faxed to Mr Amos by Mr Skerrett and they discussed it by telephone for an hour on 7 June and again at a meeting lasting one and a half hours on 9 June. At the conference on 10 June Mr Macdonald advised that the counterclaim was unsustainable.

After the conference Mr Macdonald faxed a revised version of his note to Mr Skerrett. Again he addressed the counterclaim and said that the shareholders had no personal right to the loss suffered by the Company. He said that the problem was likely to be a practical one, namely, that the Company could only sue by a lawyer and did not qualify for legal aid. Unless the directors could raise the necessary legal fees, the Company could not in practice enforce its rights. He suspected that that might apply in this case. That revised note was faxed on 11 June 1997 to Mr Amos and Mr Barton and discussed by Mr Skerrett with Mr Barton.

Mr Macdonald represented the guarantors when the Bank’s action on the guarantees was tried by HHJ Weeks QC, sitting as a deputy judge of the Chancery Division, in January 1998. On 20 February 1998 the judge gave judgment for the Bank and dismissed the counterclaim. While he found that Mr Murphy did make the false representation that the value was at a forced sale value, knowing that to be untrue, the judge found that the misrepresentation was not intentional and that the guarantors had not relied on it.

Mr Amos and Mr Barton were unhappy with Mr Macdonald’s conduct of their case. They expressed their dissatisfaction to Mr Skerrett. He drafted a letter of complaint to Mr Macdonald, although it is not clear that that letter was sent. However, it indicates by its terms that Mr Amos and Mr Barton were well aware of the difficulty of their claiming damages for diminution in the value of their shareholdings and maintaining that claim until the trial. That dissatisfaction with Mr Macdonald led to Mr Jackson being instructed again. He advised favourably on an appeal and drafted the notice of appeal.

In September 1998, the Office for the Supervision of Solicitors intervened in Mr Skerrett’s practice. Mr Pearson’s firm, Blight Broad Skinnard (Saltash), now called Blight Skinnard, took over responsibility for Mr Skerrett’s then current files, which left the previous clients of Mr Skerrett with the option of deciding whether or not to instruct the new firm.

Mr Pearson is an experienced solicitor who qualified in 1974 and has much experience of litigation. He was only able to recover the files relating to Mr Amos’s and Mr Barton’s dispute with the Bank a couple of days before Christmas 1998, the files apparently being needed for taxation of costs prior to that. He then started to read those files. He wrote to Mr Amos and Mr Barton in January 1999, and after a meeting with them they agreed to retain him. Mr Pearson continued to instruct Mr Jackson. Mr Pearson believed that he was acting for them only and that he was not acting for the Company. The Company had come out of receivership on 30 January 1998. But on 17 November 1998, the Company was struck off the register as a defunct company under section 652 of the Companies Act 1985 and dissolved seven days later.

At the hearing of the appeal from Judge Weeks’ order, Mr Jackson appeared for the guarantors. On 14 July 1999 their appeal was allowed by this court (Roche and Morritt LJJ and Lindsay J) which, unusually in a case where the trial judge has found no fraud, held that it was clear that the misrepresentation had been intentional and so the misrepresentation by Mr Murphy had been fraudulent. Further, this court held that the presumption that the fraudulent misrepresentation had been relied on had not been rebutted by the Bank. Accordingly, on the counterclaim this court ordered the Bank to pay damages to be assessed.

Mr Amos on 16 July asked Mr Pearson to arrange a meeting with counsel as soon as possible to take advice on the assessment of damages. On 19 July Mr Jackson telephoned Mr Pearson to sound a word of warning to the clients that it might be wrong for them to be thinking “in telephone numbers” because there were still legal problems standing in the way of their damages claim. Mr Jackson and Mr Pearson discussed damages generally, including the Prudential principle, and it was left between them that counsel would be advising further on this at a conference. Mr Pearson, the judge found, passed on that warning. He arranged a conference for 24 August 1999. Mr Pearson was unable to attend, but he arranged for his London agents to attend on Mr Jackson with Mr Amos and Mr Barton present. Mr Pearson instructed the agents in writing. He drew attention to the potential difficulties in the damages claim, including the argument that the losses were sustained by the Company rather than by them as individuals. Mr Jackson was described by Mr Pearson to the agents as fully versed with the case and having a full grasp of the picture.

Mr Pearson prepared instructions to Mr Jackson. In them he said that Mr Amos and Mr Barton would want to seek the fullest extent of damages that they could following the decision of this court. He said that they had been reminded and were aware that there were some difficulties in the way. Mr Pearson continued:

The conference on 24 August lasted nearly two hours. Mr Amos phoned Mr Pearson the next day to say that it had gone extremely well and that Mr Jackson had encouraged them to think that they might recover quite substantial damages. The London agents wrote to Mr Pearson on 26 August, summarising Mr Jackson’s views and recommendations. With a letter dated 7 September 1999, the agents’ note of the conference was sent to Mr Pearson. There was nothing in any of these communications to suggest that counsel had advised taking any action in relation to the Company. Thereafter work was carried out by Mr Pearson to substantiate the facts on which reliance was placed for the damages claimed. The Bank had petitioned the House of Lords for leave to appeal but that petition was dismissed in March 2000.

In December 1999 Mr Jackson told Mr Pearson that he had written offering help to leading counsel in another case which was to be heard in the House of Lords and which could be relevant to Mr Amos’s and Mr Barton’s claim for damages. Mr Jackson showed himself in that letter to be fully aware that the Bank was likely to argue that the Prudential principle was fatal to the shareholders’ claim. The case that was about to go to the House of Lords was Johnson v Gore Wood [2002] 2 AC 1. That was heard in July 2000 and decided in December of that year.

Before it was heard, Mr Jackson on 15 May 2000 wrote a further opinion in which he referred again to the problem caused by the Prudential principle, but suggested two lines of argument to defeat it. When the House of Lords gave judgment in the Johnson case, in effect the Prudential principle was upheld. On 26 September 2000 the Bank’s solicitors in a letter to Mr Pearson not only raised the Prudential principle but also a limitation point were any action now to be brought by the Company. That day, Mr Pearson wrote to Mr Jackson asking for his views but Mr Jackson was unable to advise further because he then went on the Bench. New counsel were instructed to advise and on 25 March 2001 they advised that Johnson was fatal to the claim brought by Mr Amos and Mr Barton, so far as they claimed damages for the diminution in value of their shareholdings, and that any such claim would have to be brought by the Company.

On Mr Amos’s and Mr Barton’s instructions, Mr Pearson procured the restoration of the Company to the register to enable the Company to bring an action against the Bank. On the Bank’s application, HHJ Overend struck out the Company’s claim and on 26 March 2003 the Company’s appeal was dismissed by this court ([2003] EWCA Civ 391). The basis of that decision was that although time had been extended by section 32(1)(b) of the Limitation Act 1980 until the Company had knowledge of the fraud, the claim became statute barred six years after 6 September 1993, when Mr Amos discovered the truth about the basis of the valuation. Subsequently, the Bank settled its liability to Mr Amos and Mr Barton on the counterclaim in the sum of £375,000.

In November 2003 the action with which we are concerned was commenced, initially with the Company alone as claimant but by amendment Mr Amos and Mr Barton were joined as additional claimants. They claimed that Mr Skerrett in February 1995 was instructed by Mr Amos and Mr Barton to act for the Company as well as themselves in or about the Company’s business, and that Mr Pearson took over Mr Skerrett’s practice on 7 September 1998 and continued to act for the Company, thereby accepting all retainers undertaken by Mr Skerrett, and that Mr Skerrett and Mr Pearson were negligent and/or in breach of their contracts. Substantial damages in excess of £3 million were claimed.

Mr Pearson by his defence denied that the Company had ever instructed Mr Skerrett or himself to act for it. He denied negligence and breach of contract. Before Simon J that argument was expanded to include the submission that Mr Pearson’s duty owed to Mr Amos and Mr Barton had been discharged by Mr Pearson’s instruction of competent counsel.

At the hearing before the judge, Mr Amos represented all the claimants. He also gave oral evidence, as did Mr Pearson. The judge found it clear that Mr Amos and Mr Barton by the time of the conference with Mr Macdonald on 10 June 1997 had been advised by Mr Geddes, Mr Jackson, and Mr Macdonald that there were legal difficulties in advancing their counterclaim for damages, insofar as it was based on the diminution in the value of their shareholdings.

The judge had formed the view that Mr Amos and Mr Barton were capable businessmen who had a close interest in the litigation and understood that there were legal difficulties in advancing the counterclaim. He also found that they had been advised by the same three counsel that there were practical problems in advancing such claims through the Company. Again, the judge found that Mr Amos and Mr Barton well understood the nature of the practical problems in advancing the claims through the Company and the concomitant advantages of trying to claim by way of the counterclaim brought by Mr Amos and Mr Barton.

The judge summarised the law by reference to Locke v Camberwell Health Authority [1991] 2 Medical Law Reports 249, Ridehalgh v Horsefield [1994] Ch 205 and Jackson and Powell on Professional Negligence 5 ^th edition, paragraph 10-118. His summary was as follows.

The judge reached the following conclusions:

Mr Pearson was not retained by the company and did not owe a duty of care to the company. He was retained by Mr Amos and Mr Barton to pursue the appeal from the decision of Judge Weeks and advised them in relation to the contingent counterclaim.

The duty owed to Mr Amos and Mr Barton extended to ensuring that consideration was given as to whether the financial benefit, which was the object of the counterclaim, could be recovered in that litigation or whether it might have to be recovered by another party (such as the Company) and in separate proceedings.

Once Judge Weeks’ order had been set aside, Mr Pearson’s obligations were to act in relation to (a) the Bank’s potential appeal to the House of Lords and (b) to the counterclaim.

In their grounds of appeal, the appellants said that the judge erred in law and misdirected himself in two particulars:

They also alleged a procedural error by the judge. I need not say anything about that because permission to appeal on that ground was not given. Latham LJ at the oral hearing had only Mr Amos appearing before him. He granted permission limited to grounds 1.1 and 1.2 on the basis that it was at least arguable that Mr Pearson failed to appreciate that the changed situation resulting from this court’s decision of 14 July 1999 required new instructions to counsel to consider the consequences of this court’s decision.

I have to say that I doubt whether the Lord Justice could have been taken to all the evidence of Mr Jackson’s involvement in this case and to the contemporary documents relating to the period after this court’s decision, and in particular to Mr Pearson’s instructions to Mr Jackson.

On this appeal, Mr Amos has helpfully provided a skeleton argument, to which he has added oral submissions this morning. He has addressed us with great courtesy. He has emphasised to us the important change in circumstances effected by the decision of this court in July 1999. As he rightly points out, fraud was then established and so the limitation period was extended and the counterclaim for damages could be maintained. He also points out that the Company was no longer in receivership. He asserts that the directors were able not only to act for the Company but also to fund the litigation on behalf of the Company. Mr Amos stresses to us that the limitation point was never raised by solicitors or counsel acting for him and Mr Barton; it was only when the Bank’s solicitors in September 2000 raised the limitation point as well as the Prudential principle as obstacles to any claim, whether by Mr Amos and Mr Barton or by the Company, that the limitation point surfaced.

Mr Amos submitted that the judge erred in finding that Mr Pearson’s reliance on counsel discharged his duty to act with care and skill. He says that Mr Pearson’s failure to advise on the need for the Company to join in the action, or bring an action itself, was negligent. So far as the law is concerned, Mr Amos drew our attention to Estill v Cowling [2000] WTLR 417. That was a case involving the negligence of, amongst others, a solicitor in advising on inheritance tax. The solicitor in that case had wrongly considered and read counsel’s opinion to mean that which it did not mean, that a transfer to a settlement was a potentially exempt transfer. In those circumstances, it was held that the solicitor was not absolved from liability merely because he had instructed counsel. In the present case Mr Pearson made no such mistake. It is not of course suggested on behalf of Mr Pearson that it is sufficient merely for a solicitor to instruct counsel.

Mr Amos in an earlier skeleton made reference to the well-known will cases Ross v Caunters [1980] Ch 297 and White v Jones [1995] 2 AC 207. I need say nothing about them. Those cases have no relevance whatever to an action such as has been brought in the present case, and it is quite impossible to extend the principles arising from the special situation of a beneficiary under a will to circumstances such as the present.

In my judgment, the judge’s directions as to the law were impeccable. In any solicitor’s negligence action it is crucial to identify the scope of the retainer, for whom the solicitor is retained to act and in respect of what matters. As Mr Bernard Livesey QC and Mr Cannon for Mr Pearson have pointed out in their skeleton argument, there is no such thing as a general retainer imposing a duty to consider all aspects of the client’s interests whenever the solicitor is consulted. Oliver J in Midland Bank Trust Co. Ltd v Hett, Stubbs & Kemp [1979] Ch 384 said of a solicitor:

Mr Amos has not been able to cast any doubt on the judge’s finding that Mr Pearson was not retained by the Company and owed no duty of care to the Company. That was a finding of fact which was amply backed by the evidence before the judge.

The substantial question on this appeal is whether Mr Pearson failed to perform his duty owed to Mr Amos and Mr Barton when, following this court’s decision in July 1999, he did not take the steps which Mr Amos now suggests should have been taken to warn Mr Barton and him of the need for the Company to be joined to the counterclaim or to bring proceedings in its own name. He, in particular, challenges the propriety of Mr Pearson giving general instructions to counsel to advise as he did and not to question counsel’s advice when it had been given.

In considering that question, it is important to bear in mind the limits of what can be expected of a solicitor. A solicitor is not bound to know all the law. His duty is merely to exercise that reasonable degree of care and skill to be expected of competent and reasonably experienced solicitors (see Clerk & Lindsell on Torts, 19th Edition, paragraph 10-115).

In my judgment it is pertinent in this context to consider the position and knowledge of, first, Mr Amos and Mr Barton, second, Mr Jackson, and third, Mr Pearson.

First, Mr Amos and Mr Barton. I have drawn attention to the findings of the judge as to the advice Mr Amos and Mr Barton had received as at 10 June 1997 and as to their understanding of that advice. Mr Macdonald’s revised note after the conference of that date reaffirmed the practical difficulties in the way of the Company taking proceedings.

In addition, before the receivership ended on 30 January 1998 the receivers had told Mr Amos and Mr Barton that they would not bring an action in the Company’s name against the Bank and that if Mr Amos and Mr Barton wished to do so, security in a sum of some £200,000 would be required. Although the Company came out of receivership at the end of January 1998, I would infer, as indeed Mr Amos has confirmed, that the receivers sold the Company’s assets to pay off the prior charges. The Company itself had no money. Mr Amos has asserted that the directors would have been able in July 1999 to fund litigation brought by the Company. There is no evidence of that. Mr Amos and Mr Barton at the time were in receipt of legal aid.

Mr Jackson had been told in conference that the Bank had put the Company into liquidation. That Mr Jackson records in his opinion of 15 May 2000. The judge found that that must have come from Mr Amos or Mr Barton on 24 August 1999. Before us Mr Amos has strenuously denied that he would ever have said such a thing. However, I think his memory may not be correct on this. I say that because Mr Amos and Mr Barton did not query with Mr Pearson that statement in Mr Jackson’s opinion, although Mr Pearson discussed that opinion with them, and further in telephone conversations between Mr Amos and Mr Pearson, both on 26 and 27 September 2000, Mr Amos referred to the Company being wound up by the Bank. He has told us today that indeed the Company was wound up by the Bank.

It was an unfortunate error of communication that led Mr Jackson to understand that the Company had been wound up. If that had been the position, that would have been something of a deterrent to any action to be taken by the Company against the Bank; for example the liquidators would have to be consulted and security would probably have had to be provided. It is not of course an insuperable obstacle, but that may well have confirmed the impression that in July 1999 there was no question of the Company being brought into the existing action on the counterclaim or starting an action on its own.

Second, Mr Jackson. In 1999 Mr Jackson was an experienced Chancery counsel of 30 years’ call. His expertise in the relevant field was recognised. He had first been instructed in the case in November 1994. He had advised in December 1994 on the applicability of the Prudential principle and on the need to provide an indemnity if Mr Amos and Mr Barton were to bring an action in the name of the Company. Mr Jackson had drafted the defence and counterclaim and although he had included a claim for damages for diminution in the value of the shareholdings, I do not doubt that he did so knowing that there was a serious obstacle in the way of that claim succeeding. Although not briefed at the trial he had been instructed on the appeal which he had successfully conducted.

After the judgment had been obtained from this court in that case, Mr Jackson had phoned Mr Pearson to warn against over-optimism as to the amounts to be recovered by the award of damages because of the Prudential principle, and he and Mr Pearson had agreed that Mr Jackson was to advise the clients on damages. The judge found that Mr Amos and Mr Barton had been warned that there were difficulties in the way of the counterclaim succeeding. No one knew more about the counterclaim than Mr Jackson, who showed himself to Mr Pearson to be well aware of the difficulties caused by the Prudential principle. His instructions from Mr Pearson were wide enough to include advising on any course of action to recover the damages claimed. It would indeed have been foolish of Mr Pearson not to rely on Mr Jackson to advise on what steps needed to be taken, unless his advice was obviously wrong or inconsistent with previous advice. That cannot be said in this case.

Third, Mr Pearson. It was only in January 1998 that he had been retained by Mr Amos and Mr Barton. He cannot be criticised for continuing to look to Mr Jackson for specialist advice on what to do to further the counterclaim. Criticisms are made by Mr Amos that Mr Pearson should have been more explicit in his instructions to Mr Jackson. Such criticism would carry force if Mr Jackson had no knowledge of the case nor of what had happened previously, but that is not this case. Criticisms by Mr Amos that Mr Pearson should have obtained Mr Skerrett’s files earlier and attended the appeal hearing seem to me to be wholly unsubstantiated attempts to find fault where, objectively, none can be seen to exist.

The crucial question is whether there was anything in the papers to put Mr Pearson on notice that a limitation point had to be addressed by counsel and that, if he did not expressly do so in his advice, counsel should have been given further instructions to provide such advice. But I can see nothing in the files nor in the circumstances at the relevant time, including what Mr Pearson had been told by his clients, to put Mr Pearson on notice that a relevant time limit was about to expire. The Company was in effect out of the picture so far as bringing an action was concerned. There was nothing to suggest that Mr Amos and Mr Barton, still less Mr Jackson, needed reminding yet again of the difficulties created by the Prudential principle. That is so even though there is no express mention of the Prudential principle in the note of conference which was provided by the agents and, as the judge found, in any event by the time the note was received by Mr Pearson from the agents, time had expired.

In these circumstances, I think it quite impossible to find fault with the conclusions reached by the judge that Mr Pearson was entitled to rely on the advice of counsel and that there was no negligence on Mr Pearson’s part. Having said that, I should add that I do have sympathy with Mr Amos and Mr Barton. We do not know why Mr Jackson, in the period after the decision on the appeal in this court, did not raise again the question whether the Company might be joined as a party to meet the Prudential principle point. It may be that the impression Mr Jackson had gained, that the Company had been wound up, had something to do with it. Sadly, because of Mr Jackson’s premature death, no evidence could be taken from him.

With hindsight, no doubt it is possible to say that some things might have been done somewhat differently for the benefit of Mr Amos and Mr Barton, though whether they would have been bound to succeed had the Company been joined is not to my mind to be taken for granted.

However, for the reasons which I have given and in acceptance of the arguments for Mr Pearson, I have no doubt but that this appeal must be dismissed.

LORD JUSTICE MAURICE KAY: I entirely agree.

LORD JUSTICE BUXTON: I also entirely agree. For the reasons given I consider it quite unreasonable to argue, as has to be argued in this case, that Mr Pearson of his own motion should have reverted to the question of joining the Company as a claimant, something that had not been suggested by experienced counsel that he had instructed and something that had been excluded by other experienced counsel over several years previously.

For those reasons, therefore, this appeal is dismissed.