NDH Properties Ltd v Lupton Fawcett LLP

As indicated above, the first issue between the parties is whether Lupton Fawcett was implicitly retained to act as solicitors for NDH by Mr. Nayee. It is common ground that there was no express retainer.

Even if there is no express relationship of solicitor and client between two parties, the court may be prepared to find that there is an implied retainer if, viewed objectively, the parties act as if such a relationship existed. At the risk of stating the obvious, however, what must be implicit is that the parties had agreed to enter into the contractual relationship of solicitor and client.

The leading statement of when a retainer will be inferred in this way is to be found in the decision of the Court of Appeal in Dean v Allin & Watts [2001] PNLR 39 (“Dean v Allin & Watts”). In that case, Lightman J, with whom Robert Walker and Sedley LJJ agreed, stated at [22]:

“… As a matter of law, it is necessary to establish that A&W by implication agreed to act for Mr Dean: an implied retainer could only arise where on an objective consideration of all the circumstances an intention to enter into such a contractual relationship ought fairly and properly to be imputed to the parties. In Searles v Cann and Hallett [1993] PNLR 494 the question arose whether the solicitors for the borrowers impliedly agreed to act as solicitors for the lenders. Mr Philip Mott QC (sitting as a deputy judge of the Queen's Bench Division) held that there was nothing in the evidence which clearly pointed to that conclusion. He went on:

‘No such retainer should be implied for convenience, but only where an objective consideration of all the circumstances make it so clear an implication that [the solicitor himself] ought to have appreciated it.’

‘All the circumstances' include the fact, if such be the case (as it is here), that the party in question is not liable for the solicitors fees and did not directly instruct the solicitors. These are circumstances to be taken into account, but are not conclusive. Other circumstances to be taken into account include whether such a contractual relationship has existed in the past, for where it has, the court may be readier to assume that the parties intended to resume that relationship, and where there has been such a previous relationship the failure of the solicitor to advise the former client to obtain independent legal advice may be indicative that such advice is not necessary because the solicitor is so acting: see e.g. Madley v. Cousins Combe & Mustoe [1997] EGC 63 .…”

In Caliendo v Mishcon de Reya [2016] EWHC 150 (Ch), Arnold J cited that statement of principle and referred also to the decision of Hamblen J in Brown v InnovatorOne plc [2012] EWHC 1321 (Comm) on the requirements for an implied contract. In that case, Hamblen J emphasised that it is for the party alleging the existence of an implied contract to show the necessity for implying it and observed, at [1016],

“1016.

Necessity in this context generally requires demonstrating that the parties have acted in a way which is consistent only with an intention to make a contract. If they would or might have acted the same way in the absence of such a contract then necessity is unlikely to be established. In The Gudermes [1993] 1 Ll.R. 311 at 320 the Court of Appeal approved the following direction given by the Judge (Hirst J): ‘In my judgment no implied contract can be inferred unless it is necessary to give business reality to the transaction, and unless conduct can be identified referable to the contract contended for which is inconsistent with there being no such contract; and it is fatal to the implication of such a contract if the parties would or might have acted exactly as they did in the absence of such a contract..’”

In Caliendo at [682], Arnold J summarised the test by asking,

“Was there conduct by the parties which was consistent only with [the defendant firm] being retained as solicitors for the Claimants?”

Applying these principles in the instant case, I have no doubt that Lupton Fawcett did not implicitly agree to act as solicitors for NDH in relation to the Loan.

The first, and important, point of background is that there had been no prior relationship of any sort between Lupton Fawcett and NDH (or Mr. Nayee).

Secondly, although it would appear that Lupton Fawcett were accustomed to act both for BPFL and its associated companies and for a bankrupt wishing to obtain an annulment of his bankruptcy using the BPFL scheme described in Consolidated Finance, this was not such a case. Specifically, whatever might have been the relationship between BPFL and Lupton Fawcett in relation to the bankruptcy annulment scheme, this provides no objective basis for a finding that Lupton Fawcett had generally authorised Mr. Holmes to be the firm’s agent either to accept instructions to act, or to give any assurance that the firm would accept instructions to act, for a borrower in relation to a transaction which did not involve an annulment of his bankruptcy. Such an arrangement would be highly unlikely in relation to the bankruptcy annulment scheme and even more unlikely in relation to some other type of transaction. A firm of solicitors would doubtless wish to retain a discretion to decide for itself whether to act for a particular client in relation to a particular transaction. In this respect, in cross-examination, Mr. Nayee realistically accepted that even after receipt of the Letter of Authority, Lupton Fawcett would have had the choice as to whether or not to accept instructions to act for NDH in relation to the Loan.

Thirdly, although NDH and Mr. Nayee placed great reliance on the signature by Mr.

Although paragraph 1 of the Terms and Conditions document makes it marginally clearer that the proposed transaction was not the annulment of a bankruptcy, but “In your case assisting with refinancing or property and land”, no emphasis was placed on that document by Mr. Nayee, who said in his written statement and confirmed in his cross-examination that although he signed them, he did not fully understand the Terms and Conditions. There is, moreover, no evidence that this document was sent to Lupton Fawcett together with the Letter of Authority.

Nor did the Letter of Authority mention NDH at all. The closest that the document came to a reference to NDH was that it was addressed to Mr. Nayee at the Property rather than at his home address. I do not, however, consider that there is any great significance in that. Mr. Nayee was the sole director of NDH and the mere use of the that address in the letter does not signify, objectively, that any arrangements contemplated by the letter would relate to a commercial loan to NDH.

Fourthly, there is no evidence to support Mr. Nayee’s assertion that he thought that the Letter of Authority had actually been accepted by Lupton Fawcett as his instructions to act on behalf of NDH. The high water mark of Mr. Nayee’s oral evidence in that regard was that on their first telephone call Mr. Holmes told Mr. Nayee that he would arrange for Lupton Fawcett to accept instructions to act for him. But Mr. Nayee was not subsequently told by Mr. Holmes (or anyone else connected with BPFL or Amalgamated) that Lupton Fawcett had actually accepted instructions to act for him or NDH.

Fifthly, and importantly, at no time did Lupton Fawcett itself send any letter, email or other communication to Mr. Nayee or NDH that might have signified that the firm had accepted any instructions to act for NDH. In particular, in contrast to the procedure which was followed under the bankruptcy annulment scheme as explained in Consolidated Finance (and the witness statements in this case from those who had used the scheme), Lupton Fawcett never sent an acknowledgment of instructions or a client care letter to NDH or Mr. Nayee. Nor did any solicitor from Lupton Fawcett ever initiate or attempt to make direct contact with Mr. Nayee or NDH by letter or email or in any other way.

Sixthly, at no time did Mr. Nayee ever make even the most basic inquiries about the firm of solicitors that he now contends was implicitly retained to act for NDH. So, for example, he did not even inquire or have any idea of the identity of the particular solicitor at Lupton Fawcett who was to deal with the transaction on behalf of NDH. So it was that when Mr. Nayee eventually made contact with Lupton Fawcett to ask for the land registry documents, he did not ask for anyone in particular, and he appears to have been assisted by a solicitor unconnected with the transaction.

Nor did Mr. Nayee question what basis of charging or hourly rates Lupton Fawcett might be charging, or what they had been doing to justify the increasing costs for “Your solicitor” shown in the Key Features documents he was sent by BPFL. When asked in cross-examination why he had not contacted Lupton Fawcett over such matters, Mr. Nayee’s response was simply that he was “not worried” about the solicitors’ fees, but had his mind on developing the Property. That was an unconvincing answer from someone who (on his own account) challenged Mr. Holmes (unsuccessfully) over the increases in the charges and interest rates in the later Key Features documents which he was sent by BPFL.

Seventhly, Mr. Nayee never asked Lupton Fawcett for any advice or assistance for NDH until he asked for a copy of certain land registry documents well after the Loan had been advanced. Specifically, Mr. Nayee never asked for advice about the transaction documents that Lupton Fawcett had drafted with which he was presented by Mr. Holmes. Nor did he ever ask to see the “separate solicitor’s advice note” referred to in the Key Features documents or even inquire what it related to.

Finally, as well as not making any direct contact with Mr. Nayee, Lupton Fawcett never conducted itself in any other way that was, viewed objectively, consistent only with it acting for NDH. So, for example, in preparing the documentation in relation to the Loan and associated security, Lupton Fawcett were acting in a way that was entirely consistent with the firm acting for Amalgamated as lender. Commercial lenders invariably instruct their own solicitors to produce the form of loan agreement and charge that they require to be executed by borrowers.

Likewise, in dealing with Addleshaw Goddard on behalf of the receivers appointed by the Bank, Lupton Fawcett were doing no more than might be expected of solicitors acting for Amalgamated as lender. Lenders who are proposing to advance money to discharge previous loans secured upon a property over which they intend to take new security will not pay over the monies until they are satisfied, via their own solicitors, that the result of releasing the funds will be the discharge of the previous debts and the release of the prior security over the property. That task of protecting the new lender is not normally left up to solicitors acting for the borrower.

One thing that Lupton Fawcett did that might be thought consistent with acting for NDH was the preparation of the draft board minutes of NDH approving the entry into the Loan agreement and the execution of the charge over the Property. But again, that is not consistent only with Lupton Fawcett being retained as solicitors for NDH, because it is commonplace for the solicitors for a lender to provide draft board resolutions and other relevant corporate documents to a corporate borrower in a standard form which the lender requires in order to be satisfied that the borrower will be bound and that the loan and security will be enforceable.

Taking these points together, in my judgment there is simply no documentary evidence and no conduct of the parties which, when viewed objectively, supports the inference that Lupton Fawcett had agreed to be retained to act as solicitors for NDH in relation to the Loan transaction. There is nothing to suggest that Lupton Fawcett thought they were acting for NDH in addition to acting for Amalgamated, and they did nothing which, viewed objectively, indicates that they must have been acting for NDH. Further, although Mr. Nayee now claims that he thought that Lupton Fawcett had accepted his “instruction” in the Letter of Authority, Lupton Fawcett did nothing to indicate to Mr. Nayee that this was so, and Mr. Nayee had no reasonable basis for making any such assumption.

In reality, moreover, Mr. Nayee’s behaviour was not consistent with a belief that Lupton Fawcett was actually retained by NDH. He never contacted Lupton Fawcett at any relevant time prior to the Loan being made and he failed to show any interest in any of the things that a client would obviously wish to know about their firm of solicitors. Nor did he or Ms. Nayee ask for any advice from the firm when it would have been entirely natural to do so had they thought that the firm was actually acting for NDH. Their explanations for such inaction were wholly unconvincing.

The conclusion that Lupton Fawcett was not contractually retained to act for NDH does not, however, exclude the possibility that Lupton Fawcett owed NDH a duty of care in tort. Although such a duty may be more likely to exist where there is a “relationship equivalent to contract” (to use the phrase of Lord Devlin in Hedley Byrne v Heller [1964] AC 465 at 530) the authorities make it quite clear that a duty of care in tort can exist independently of contract.

The modern law of liability in tort for recovery of pure economic loss in negligence originates in the decision of the House of Lords in Hedley Byrne v Heller [1964] AC 465. In a number of subsequent decisions the House of Lords and Supreme Court have sought to rationalise the basis for finding that there was a duty of care. In Customs & Excise v Barclays Bank plc [2007] 1 AC 181 at [4], Lord Bingham identified the three techniques or tests which have from time to time been used,

“… The first is whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by the law as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant … Third is the incremental test … approved by Lord Bridge of Harwich in Caparo Industries v Dickman [1990] 2 AC 605, 618, that:

“It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories …”

Lord Bingham then proceeded, at [4]-[8] to offer a number of general observations upon these tests. These included the following,

“4.

… First, there are cases in which one party can accurately be said to have assumed responsibility for what is said or done to another, the paradigm situation being a relationship having all the indicia of contract save consideration. Hedley Byrne would, but for the express disclaimer, have been such a case. White v Jones and Henderson v Merrett Syndicates Ltd, although the relationship was more remote, can be seen as analogous. Thus, … I think it is correct to regard an assumption of responsibility as a sufficient but not a necessary condition of liability, a first test which, if answered positively, may obviate the need for further inquiry. If answered negatively, further consideration is called for.

5.

Secondly, however, it is clear that the assumption of responsibility test is to be applied objectively … and is not answered by consideration of what the defendant thought or intended. Thus Lord Griffiths said in Smith v Eric S Bush [1990] 1 AC 831, 862, that:

“The phrase ‘assumption of responsibility’ can only have any real meaning if it is understood as referring to the circumstances in which the law will deem the maker of the statement to have assumed responsibility to the person who acts upon the advice.”

The problem here is, as I see it, that the further this test is removed from the actions and intentions of the actual defendant, and the more notional the assumption of responsibility becomes, the less difference there is between this test and the threefold test.”

Each of the other members of the House of Lords expressed similar misgivings about the inter-relationship and use of the tests: see e.g. per Lord Hoffmann at [35]-[37], per Lord Rodger at [49]-[53] and per Lord Walker at [71]-[73].

At [91]-[93] Lord Mance dealt specifically with the interface between the “voluntary assumption of responsibility” test and the “threefold test” in the context of the liability of solicitors to persons other than their clients. He referred in that regard to the decision in White v Jones [1995] 2 AC 207 in which a disappointed beneficiary under a will sued the solicitor who had failed to act upon instructions from a testator to draw up a new will leaving legacies to him and to revoke an earlier will which had disinherited the testator after a family quarrel. Lord Mance said,

“91.

In White v Jones the general approach was revisited. Lord Goff, at p. 257a , referred to assumption of responsibility as the test which “as a general rule” determined whether there could be liability under for purely financial loss, but he recognised that the testator's solicitor could not be said actually to have assumed responsibility towards a disappointed beneficiary, pp 262 b – c and 268 a – b. It was only because there would otherwise be a lacuna in the law leading to injustice that he concluded that the House:

“should in cases such as these extend to the intended beneficiary a remedy under the Hedley Byrne principle by holding that the assumption of responsibility by the solicitor towards his client should be held in law to extend to the intended beneficiary who (as the solicitor can reasonably foresee) may, as a result of the solicitor's negligence, be deprived of his intended legacy in circumstances in which neither the testator nor his estate will have a remedy against the solicitor.”

92.

Lord Browne-Wilkinson, at pp 273g – 274g, addressed the doubts expressed by Lord Griffiths in Smith v Eric S Bush and Lord Roskill in Caparo Industries plc v Dickman by explaining assumption of responsibility as “assumption of responsibility for the task not the assumption of legal responsibility”. He said:

“If the responsibility for the task is assumed by the defendant he thereby creates a special relationship between himself and the plaintiff in relation to which the law (not the defendant) attaches a duty to carry out carefully the task so assumed.”

On this basis he explained Smith v Eric S Bush and Caparo as cases where there had been “the conscious assumption of responsibility for the task” (p. 274 b), and said that, although the categories of cases of special relationship were not closed, the only two hitherto identified were:

“(1)

where there was fiduciary relationship and (2) where the defendant has voluntarily answered a question or tenders skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice. In both these categories the special relationship is created by the defendant voluntarily assuming to act in the matter by involving himself in the plaintiff's affairs or by choosing to speak.”

He recognised that neither of these categories covered the circumstances in White v Jones: p. 275 c. But he considered a duty of care in White v Jones to be justified because “the law in this area has not ossified”, because Lord Devlin in Hedley Byrne had himself envisaged that there might be other sets of circumstances in which it would be appropriate to find a special relationship giving rise to a duty of care, and because the case fell within Lord Bridge's statement in Caparo that novel categories of negligence could be developed “incrementally and by analogy with established categories”. A duty owed by the negligent solicitor to the disappointed beneficiary was closely analogous with existing categories of special relationship: p. 275 f.

93.

This review of authority confirms that there is no single common denominator, even in cases of economic loss, by which liability may be determined. In my view the threefold test of foreseeability, proximity and fairness, justice and reasonableness provides a convenient general framework although it operates at a high level of abstraction. The concept of assumption of responsibility is particularly useful in the two core categories of case identified by Lord Browne-Wilkinson in White v Jones, at p. 274 f-g, when it may effectively subsume all aspects of the threefold approach. But if all that is meant by voluntary assumption of responsibility is the voluntary assumption of responsibility for a task, rather than of liability towards the defendant, then questions of foreseeability, proximity and fairness, reasonableness and justice may become very relevant. In White v Jones itself there was no doubt that the solicitor had voluntarily undertaken responsibility for a task, but it was the very fact that he had done so for the testator, not the disappointed beneficiaries, that gave rise to the stark division of opinion in the House. Incrementalism operates as an important cross-check on any other approach.”

In NRAM plc v Steel [2018] 1 WLR 1190 the Supreme Court returned to the question of the circumstances in which a solicitor might be held liable in negligence to someone other than their client. The claimant was a commercial lender who had granted a loan to a borrower for the purchase of a number of commercial properties over which the lender took security. Subsequently the borrower wanted to sell one of the properties and it was agreed that on sale there would be a partial repayment of the loan and a release of the one property to be sold from the security. Shortly before the completion of the sale the borrower’s solicitor sent an email to the lender, wrongly stating that all of the loan was being repaid and asking for documents releasing the entire security. Without checking the accuracy of the email, the lender discharged the security. The borrower subsequently went into liquidation, the remainder of the loan was not repaid, and the lender sued the borrower’s solicitor for negligent misrepresentation, seeking to recover its losses.

In explaining the development of the law in this area, Lord Wilson held that the assumption of responsibility was the appropriate test to be applied, saying, at [24][25],

“24.

In Williams v Natural Life Health Foods [1998] 1 WLR 830, Lord Steyn remarked at p. 837 that there was no better rationalisation for liability in tort for negligent misrepresentation than the concept of an assumption of responsibility. It has therefore become clear that, although it may require cautious incremental development in order to fit cases to which it does not readily apply, this concept remains the foundation of the liability.

25.

The legal consequences of Ms Steel's careless misrepresentation are clearly governed by whether, in making it, she assumed responsibility for it towards [NRAM]. The concept fits the present case perfectly and there is no need to consider whether there should be any incremental development of it. Nevertheless the case has an unusual dimension: for the claim is brought by one party to an arm's length transaction against the solicitor who was acting for the other party. A solicitor owes a duty of care to the party for whom he is acting but generally owes no duty to the opposite party: Ross v Caunters [1980] Ch 297, 322.”

The reference to Ross v Caunters was to a dictum of Megarry V-C, to the following effect,

“In broad terms, a solicitor's duty to his client is to do for him all that he properly can, with, of course, proper care and attention. Subject to giving due weight to the adverb "properly," that duty is a paramount duty. The solicitor owes no such duty to those who are not his clients. He is no guardian of their interests. What he does for his client may be hostile and injurious to their interests; and sometimes the greater the injuries the better he will have served his client.”

In NRAM, Lord Wilson illustrated the general principle by reference to six cases. One of the six cases was Dean v Allin & Watts. The claimant (Mr. Dean) proposed to make a series of loans to two borrowers on the basis of security provided by two of their business associates (Mr. and Mrs. S) over a property which they owned. The borrowers instructed a solicitor at the defendant firm to effect the security and the claimant made a loan on the footing that the security was in place. Due to the solicitor’s failure to advise that for a valid security a written memorandum of deposit was needed in addition to a deposit of title deeds, when the loan was not repaid, Mr. and Mrs. S were able successfully to argue that the security was invalid. The lender sued the borrowers’ solicitors for his loss in making the loan.

Giving the first judgment in the Court of Appeal, Lightman J set out the general principle at [33],

“33.

In a situation such as the present where (to the knowledge of both parties) a solicitor is retained by one party and there is a conflict of interest between the client and the other party to a transaction, the court should be slow to find that the solicitor has assumed a duty of care to the other party to the transaction, for such an assumption is ordinarily improbable. But the special circumstances of a particular case may require a different conclusion to be reached.”

On the facts of Dean v Allin & Watts, the claimant succeeded in establishing that a duty of care was owed by the solicitor. The key factual findings were twofold. First, that although there was a conflict of interest between the borrowers and the lender as regards the terms of the proposed loan (e.g. as to interest rates before and after a default) there was an identity of interest between the borrower and the lender as regards the grant of effective security by the third parties, because both lender and borrower saw it as essential for valid security to be granted in order that the loan could be made: see per Lightman J at [34(6)]. Secondly, it was crucial that the court found that the solicitor knew or should have known that the lender (who was not sophisticated) had not instructed his own lawyer and, as a result of a series of meetings and communications between them, was relying on the solicitor to ensure

At the conclusion of his summary of the six cases in NRAM, Lord Wilson remarked, at [32],

“… the six authorities cited above demonstrate in particular that the solicitor will not assume responsibility towards the opposite party unless it was reasonable for the latter to have relied on what the solicitor said and unless the solicitor should reasonably have foreseen that he would do so. These are, as I have shown, two ingredients of the general liability in tort for negligent misrepresentation; but they are particularly relevant to a claim against a solicitor by the opposite party because the latter's reliance in that situation is presumptively inappropriate.”

On the facts of NRAM, the Supreme Court held that no duty of care was owed by the borrower’s solicitor to the lender for her erroneous statement. The lender had all the necessary facts within its own knowledge and it had therefore not been reasonable for it to rely upon the solicitor’s statement without checking its accuracy; and by contrast it had been reasonable for the solicitor not to foresee that the lender would rely upon her statement without checking it: see Lord Wilson’s judgment on behalf of the court at [38].

I therefore turn to apply these principles to the facts of the instant case.

It should first be borne in mind that this was the paradigm case in which there was a straight conflict between the interests of the lender for whom Lupton Fawcett was acting and NDH as borrower. This was not a case in which there was any commonality of interest between Amalgamated and NDH. There was, for example, no common interest in obtaining an annulment of any bankruptcy as would have been the case between lender and bankrupt under BPFL’s bankruptcy annulment scheme. Nor was there any common interest in obtaining effective security over the property of a third party to facilitate the making of the loan, as was the case in Dean v Allin & Watts. The presumption must therefore be that there was no duty of care, and that some special or exceptional circumstances would need to be shown for such a duty to be imposed: see the extracts from the judgments of Lightman J and Peter Gibson LJ in

Secondly, I have already set out above my grounds for concluding that Mr. Nayee did not have a reasonable basis for assuming that Lupton Fawcett were actually acting as NDH’s solicitors. Indeed, Mr. Nayee’s inaction has led me to the conclusion that he did not in fact hold such a belief at the time. Many of the same points also indicate why Mr. Nayee could not reasonably have been relying on Lupton Fawcett to give advice to NDH. So, for example, I cannot easily see how Mr. Nayee can actually have relied, or reasonably relied, on receiving advice from a firm of solicitors whom he had never sought to contact, and which had never sought to contact him.

The unusual fact that there was no contact between Mr. Nayee and Lupton Fawcett provides a stark contrast to the facts of both NRAM and Dean v Allin & Watts in which there were direct contacts between the claimant and the defendant solicitor. In NRAM, the entire focus of the argument for the imposition of a duty of care in the Supreme Court was on the inaccurate email sent directly by the solicitor for the borrower to the lender. In Dean v Allin & Watts, the contacts were far more extensive. Prior to the first loan being made, the lender and borrower went together to the borrowers’ solicitor’s office for a meeting at which the solicitor gave the lender an undertaking that he (the solicitor) would hold the title deeds and would not release them to anyone except on the lender’s instructions. Following the meeting, the solicitor then confirmed that arrangement in writing to the lender. Subsequently, the solicitor wrote to the lender to inquire whether the lender would be requiring a new promissory note for some of the further loans, to which the lender replied saying “if you think a new promissory note is required, then I would like you to obtain one for me”. In his judgment, Peter Gibson LJ noted, at [65], that the solicitor had accepted in evidence at the trial that the lender could have got the wrong impression from that exchange, and he concluded that,

“In my judgment it was by then obvious, even if it had been no more than conjectural before, that [the lender] was relying upon [the solicitor] to look after his interests so far as the form of the security was concerned.”

The point that the total lack of any contact between Mr. Nayee and Lupton Fawcett indicated that Mr. Nayee was not in fact relying on the firm was put directly to him in cross-examination. Mr. Nayee accepted that although he had previous experience of using solicitors, he had never contacted Lupton Fawcett for any advice. When asked why that was, he said first that it was a solicitor’s “privilege” whether to give advice. Appearing to realise the oddity of this response, he then asserted that had been the solicitor’s “duty” to contact him to advise whether the transaction was “right or wrong” for him. He then added that Mr. Holmes had said that Lupton Fawcett would contact him, but they had not.

It was then suggested to Mr. Nayee that if Mr. Holmes had told him to expect Lupton Fawcett to contact him, this made it all the more surprising that he had not sought to contact Lupton Fawcett when they had not done what Mr. Holmes had said they would. Mr. Nayee simply repeated that the solicitor had a duty to contact him. It was then put to Mr. Nayee directly several times that the reason that he had not sought to contact Lupton Fawcett, even in those circumstances, was that he was not relying on

In this respect I also reiterate the point to which I referred in paragraph 57 above to the effect that although Mr. Nayee contended in his oral evidence that he was rushed into signing documents prepared by Lupton Fawcett at the meeting with Mr. Holmes on 18 April 2012, he did not contact Lupton Fawcett afterwards for advice as to the effect of what he said he had been pressured into signing. His answer was that there was “no point” was totally unconvincing. Nor, as I pointed out in paragraph 69 above, did it occur to Mr. Nayee to contact Lupton Fawcett to get advice about the “verbal guarantee” that he was given by Mr. Bleakley that long-term finance would be available at the end of the three month term of the Loan, notwithstanding what the formal documents said. As I have indicated, in my judgment Mr. Nayee was in reality just relying on what he was told by Mr. Holmes and Mr. Bleakley when deciding to go ahead.

That view of the facts is supported by a further point on reliance. NDH’s contention was that Lupton Fawcett had a duty of care to give it advice not to enter into the agreements with Amalgamated because the charges and interest were exorbitant and that there was no guarantee that long term finance would be available at the end of the three month term. But that would have been advice about the financial merits (or otherwise) of the offer from Amalgamated and the commercial risk that no long term refinancing might be available.

In cross-examination, Mr. Nayee accepted that from his previous experience in business, that whilst he would look to solicitors for legal advice, he would not look to them for financial or commercial advice. So, for example, Mr. Nayee accepted that he had looked to his accountants, Moore & Smalley, rather than his then solicitors, Napthens, for advice about the financial and tax benefits of setting up NDH.

Moreover, in this particular case, as I have indicated above, Mr. Nayee had replaced JR Commercial and specifically instructed Mr. Bleakley in its place. Mr. Bleakley’s email to Mr. Nayee of 29 March 2012 had set out the three stage process which he envisaged and then said,

“My role is not just to obtain finance for you. My role is to give you advice and act in your best interest.”

These factors provide a further reason why Mr. Nayee did not think to contact Lupton Fawcett, and why he was not relying on the firm to give advice about the proposed transaction. If Mr. Nayee was looking for advice from anyone about the transaction with Amalgamated, he was not looking for advice about the legal nature of the transaction or the drafting of the documents. Mr. Nayee confirmed in his evidence that he was well aware that the Loan from Amalgamated was limited to three months and there was no guarantee that long term finance would be available to refinance it. What Mr. Nayee complains that NDH did not receive, was advice about the financial cost of the Loan and the commercial risks inherent in the transaction. In my judgment, that was advice for which Mr. Nayee was relying on Mr. Bleakley.

Mr. Elleray QC sought to suggest, relying on part of Mr. Bleakley’s email of 29

I therefore conclude that Mr. Nayee was not actually relying, or could not reasonably have been relying, on Lupton Fawcett for advice on the financial merits and commercial risks of the Loan for NDH.

On the other side of the equation, and for very similar reasons, I do not consider that it would have been reasonable for Lupton Fawcett to think that Mr. Nayee was relying upon the firm to advise NDH on the financial and commercial benefits and risks of the Loan.

First, in contrast to the position in the bankruptcy annulment scheme where Lupton Fawcett were accustomed to act for the bankrupt in seeking to obtain an annulment of their bankruptcy by an application to court, in this case there was nothing for Lupton Fawcett to do for NDH which was equivalent to seeking an annulment of the bankruptcy.

Secondly, and again in contrast to the cases such as Dean v Allin & Watts in which a duty of care was held to have arisen because the solicitor should have appreciated that the claimant was relying upon him as a result of their various meetings and communications, in this case there was no contact between Mr. Nayee and Lupton Fawcett whatever. Even if a solicitor at Lupton Fawcett might have contemplated the possibility that Mr. Nayee’s signature of the Letter of Authority was the result of confusion on his part as to whether the firm would be acting for him in some respect, the fact that nothing was heard from Mr. Nayee thereafter as the transaction proceeded would, in my judgment, have allayed any concerns in that respect and led any reasonable solicitor to the conclusion that Mr. Nayee was not, in fact, relying upon the firm.

Thirdly, I do not see why Lupton Fawcett should reasonably have foreseen that Mr. Nayee might be looking to the firm for financial advice about the merits of the transaction. That was not a role that Lupton Fawcett were accustomed to perform for anyone, even in the bankruptcy scheme context; and if it had inquired into the matter, the firm would have discovered that Mr. Nayee had engaged Mr. Bleakley to provide financial advice to NDH.

Mr. Elleray QC sought to support his arguments in these respects by seeking to draw an analogy with the role of Lupton Fawcett in relation to BPFL’s bankruptcy scheme in Consolidated Finance. However, I do not think that authority assists NDH’s case. As appears from paragraphs [17] - [18] of the judgment, Lupton Fawcett’s standard form letter to its individual clients in respect of the bankruptcy annulment scheme, described its introduction to the client by BPFL and the scope of its work as follows,

“We are one of a number of firms of solicitors to whom [BPFL] from time to time refer individuals seeking to annul their bankruptcy with the benefit of funds advanced through [BPFL].

Normally, in addition to acting for you, we will also act for [Consolidated] (a company associated with [BPF]) in arranging for their security (usually a charge over your home) to be completed and registered at H M Land Registry.”

The letter then included a section headed “Work not covered”. This specifically excluded four areas of advice, of which the third was,

“Any advice on the terms of the proposed funding by [BPFL] including any advice on the Loan Facility Letter or the security documents.”

At the end of his judgment, Sir Stanley Burnton expressed concern about Lutpon Fawcett’s role and doubted whether Lupton Fawcett could in fact exclude a duty of care to the bankrupt to advise that the terms of the loan were manifestly disadvantageous to her,

“59.

Finally, I am concerned at the part played by the solicitors. They were not represented before us, and so I can only express my concerns, but I do not come to any conclusion. Lupton Fawcett were well aware of the standard terms of the agreements sought by the companies. It must, and certainly should, have been obvious to them that for the reasons I have given the transactions with Mr and Mrs Collins were manifestly to their disadvantage. Mrs Collins was their client. I raise the question whether in such circumstances a solicitor can properly avoid a duty to advise his client by excluding that duty from his retainer, as Lupton Fawcett sought to do. Did Lupton Fawcett permit their client to enter into transactions that, it seems to me, they must have appreciated were to her disadvantage? At the very least I think that they should have advised Mrs Collins in the strongest terms to seek advice elsewhere. Instead, their client letter merely pointed out that she was free to seek advice elsewhere. I am not confident that this would be sufficient, however. One should bear in mind that someone in her situation may in practice be unable to afford to consult another independent solicitor. It may well be that, given their on-going relationship with the companies that habitually introduced work to them, they had a conflict of irreconcilable interests.”

On proper analysis, that authority shows that in the bankruptcy context, Lupton Fawcett did not give any advice about the loans from BPFL or its associated companies, and took steps to make that clear to their individual clients when setting out the limited scope of the firm’s retainer. That express limitation was necessary because of the risk that people who were Lupton Fawcett’s clients for the purposes of getting an annulment of their bankruptcy would misunderstand the scope of what the

Moreover, Sir Stanley Burnton’s comments that the firm ought at very least have advised its bankrupt clients in the strongest terms to seek independent advice elsewhere on the merits of the transaction were based upon his view that the firm would otherwise have a conflict of irreconcilable interests in acting for both lender and borrower. Those comments are no basis for a conclusion that Lupton Fawcett would be obliged to act in the same way if it was not actually acting for both parties.

These points also answer the way in which Mr. Elleray QC put NDH’s alternative case in tort. As indicated above, he submitted that even if Lupton Fawcett was not under a duty of care to give advice about the wisdom (or otherwise) of NDH taking the Loan from Amalgamated, the firm was nevertheless under a duty to warn Mr. Nayee that it was not acting for NDH and that it ought to seek independent advice elsewhere.

In addition to referring to Sir Stanley Burton’s comments in Consolidated Finance,

In my judgment these materials form no basis for the imposition upon Lupton Fawcett of any duty to warn NDH that Lupton Fawcett was not acting for it and that it should obtain independent advice. In contrast to the position in Consolidated Finance, and that dealt with in Chapter 3 of the SRA Code, Lupton Fawcett was not acting for NDH as well as Amalgamated. Nor did Lupton Fawcett have any reasonable grounds for thinking that NDH was relying upon it for advice. Absent either situation, I cannot see on what basis a solicitor has a free-standing duty in tort to tell the party on the other side of a commercial transaction to get independent advice. Still less can I see on what basis a firm should be under a duty to advise the other party to get independent financial and commercial advice about the transaction if it already appears that the other party has such advice.

Nor do I think that Lupton Fawcett could be said to have owed, or breached, any duty not to take unfair advantage of Mr. Nayee’s lack of legal knowledge. Lupton Fawcett owed a duty to its own client to draft effective legal documentation for the Loan that Amalgamated wished to propose to NDH. For the very reasons explained by Megarry V-C in Ross v Caunters, the firm was not under any duty to NDH in respect of that documentation. But nor does NDH in fact claim that Lupton Fawcett took advantage of any lack of legal knowledge on the part of Mr. Nayee. NDH’s complaint is about a

The consequence is that I reject NDH’s claims that Lupton Fawcett owed or breached any duties in contract or tort. The claim therefore fails and must be dismissed.

For completeness I should deal briefly with Mr. Evans-Tovey’s argument on causation - namely that even if Lupton Fawcett had owed and breached any duties of care to NDH, Mr. Nayee would have caused NDH to take on the Loan nevertheless.

Even though I have found that Mr. Nayee was not relying on Lupton Fawcett to advise NDH, and the firm could not reasonably have thought he was, the hypothesis for this point is that NDH would have been relying on the firm for advice and Lupton Fawcett would have advised Mr. Nayee that the Loan from Amalgamated was manifestly disadvantageous to NDH because of the high financial cost and the risks of enforcement proceedings by Amalgamated if a refinancing could not be obtained at the end of three months.

In that hypothetical situation, I do not doubt that Mr. Nayee would have reassessed his options. However, he was very proprietorial over the Property with which he had been associated for many years, and he saw its redevelopment as a means to his longterm financial security. At the time, Mr. Nayee was under considerable time pressure from the receivers appointed by the Bank who were threatening to sell the Property. As indicated by his evidence to me and as reflected in the email which he sent (albeit at Mr. Bleakley’s dictation) to JR Commercial and the email which he received from Mr. Bleakley on 29 March 2012, Mr. Nayee was extremely anxious to avoid the sale of what he saw as “his” Property, in which he had invested so much time and effort. Mr. Nayee and his daughter also clearly trusted and were much influenced by the assurances of Mr. Holmes and Mr. Bleakley.

Mr. Nayee also accepted that he was aware of the critical features that the Loan had to be repaid within three months and that he was reliant on Mr. Bleakley to find the necessary finance, or risk enforcement by Amalgamated. He was also aware of the significantly increased levels of interest and costs, because he challenged Mr. Holmes (unsuccessfully) on them. In this respect, an insight into Mr. Nayee’s approach to the high potential cost of the Loan and the taking of commercial risk can be seen from his answers set out at paragraph 68 above – namely that Mr. Nayee was not much concerned about the increased costs of borrowing because he saw them as matters that could simply be refinanced in due course.

Taking these matters together, had I been required to do so, and albeit with some hesitation, I would have found that even if Lupton Fawcett had offered cautionary advice about the Loan as NDH now suggests that they should have, Mr. Nayee would probably have been persuaded by Mr. Holmes and Mr. Bleakley that NDH should go ahead with the Loan and take its chances with finding refinancing in order to prevent the immediate sale of the Property by the Bank’s receivers.

Accordingly, even if I had found a duty of care to exist, I would therefore have held the breach of duty by Lupton Fawcett did not cause the loss of which NDH now complains.

I should also record that if I had found in favour of NDH, I would not have calculated the measure of NDH’s loss by making the assumption suggested by Mr. Elleray QC that if Lupton Fawcett had given advice to NDH and stopped the Loan being taken from Amalgamated, the Property would have been sold by the receivers appointed by the Bank in 2012 for the same price at which it was subsequently sold in 2013 by the receivers appointed by Amalgamated.

Regrettably, the evidence did not disclose the offers that had been received by the Bank’s receivers in 2012, and I had no expert evidence about the movement of commercial property prices in the locality over the intervening period until the actual sale in 2013. I can, however, take some judicial notice of the fact that commercial property prices at this time were generally increasing.

As I have indicated, however, I had some evidence that the valuation of the Property for Amalgamated prior to the Loan being made was reported to be £630,000. This was presumably a valuation given on an enforcement basis for the purposes of security and a figure net of the costs of sale. The comparable figure actually achieved in 2013 was about £710,000 (I have assumed that the costs of sale comprise the difference between the actual sale price of £751,000, the amount which was said to be payable to Amalgamated (£647,459.57) and the amount eventually paid to NDH (£62,4456.56) – i.e. about £41,000).

In the absence of any other evidence allowing me to calibrate the likely outcome of a sale by the Bank’s receivers in 2012 more accurately, I would have simply split the difference between the net value of £630,000 given in 2012, and the net £710,000 achieved in 2013, and would therefore have assessed damages on the basis that the Property would have been sold by the Bank’s receivers in 2012 for a net figure of £670,000.

From that sum I would have deducted the £282,218 which was required to be paid to the Bank and its receivers, leaving NDH with a net recovery of £387,782. NDH would also have had to give credit for the £62,456.56 which it actually received from the sale in 2013. The result is that if I had been required to do so, I would have assessed the damages attributable to NDH not having been advised against entering into the Loan agreement with Amalgamated at £325,325.

As it is, however, and for the reasons that I have given, I dismiss NDH’s claim.