Auditor Negligence Claims – A Practical Guide

As specialist professional negligence solicitors, we act for clients nationwide in auditor negligence claims, as well as in claims against other traditional and emerging professionals.

In this practical guide, we seek to answer the initial questions that corporate representatives and stakeholders are likely to have about the possibility of pursuing a claim for damages for professional negligence against an auditor, after sustaining a substantial financial loss or liability.

It should be noted from the outset that, even in comparison to many other types of professional negligence claims, which in general are often more complicated than many of the more routine forms of litigation, audit negligence claims can be relatively complicated and involved. That is a reflection partly of the underlying subject matter, which is extensively regulated, but also the array of legal issues that they frequently give rise to.

In turn, this means that, while pursuing successful claims can be of real commercial benefit, they often require a significant commitment, both in terms of management time and funding. It also means that inexperienced litigation solicitors intending to ‘dabble’ in this area should think twice, as should any individual or board of directors minded to instruct them.

What is the recognised function of an auditor?

The statutory functions of an auditor are set out within Part 16 (Chapter 3) of the Companies Act 2006. However, they were summarised more succinctly by Lord Oliver in the seminal auditor negligence case of Caparo Industries v Dickman (1990) as follows:

‘It is an auditors’ function to ensure, as far as possible, that the financial information as to the company’s affairs prepared by the directors accurately reflects the company’s position in order, first, to protect the company itself from the consequences of undetected errors or, possibly, wrongdoing…and, secondly, to provide the shareholders with reliable intelligence for the purpose of enabling them to scrutinise the conduct of the company’s affairs and to exercise their collective power to reward or control or remove those to whom that conduct has been confided.’

Distilled yet further, it may be stated that the role of the auditor is to safeguard the company and its members, by investigating and opining on the adequacy of the annual accounts produced by the directors.

However, while each of these accounts assists in defining the traditional role of the audit, none of them prohibit the auditor (or his firm) from undertaking ancillary or related functions, either in his capacity as auditor or as an accountant. Therefore, when assessing whether there may be grounds upon which to pursue an auditor negligence claim, it is often worth considering what other services, if any, the auditor (or his firm) performed.

Who can pursue an auditor negligence claim?

Whether or not a party can pursue a claim for auditor negligence will depend in large part on whether or not a legal duty of care was owed to it by the auditor.

Meeting this essential requirement is often relatively straightforward for the company being audited, which will have entered into a contractual relationship with the auditor. This in turn will give rise to an implied duty on the part of the auditor to exercise reasonable skill and care (pursuant to section 13 of the Supply of Goods and Services Act 1982), in addition to any similar express duty. Nevertheless, issues can still arise here in relation to the scope of that contractual duty, as well as any coextensive duty owed in tort or in equity.

The courts have also acknowledged that a duty of care is owed in the law of tort by auditors to the shareholders of a company, albeit as a group or collective. In Caparo, Lord Bridge observed that:

‘…The shareholders of a company have a collective interest in the company’s proper management and insofar as a negligent failure of the auditor to report accurately on the state of the company’s finances deprives the shareholders of the opportunity to exercise their powers…the shareholders ought to be entitled to a remedy.’

However, whether an actionable duty of care is owed by an auditor to an individual shareholder or to a third party has been, and continues to be, a more hotly debated issue in auditor negligence claims. That is because the courts have both recognised and guarded against the potential injustice of exposing auditors to the risk of liability to an indeterminate class of potential claimants, whose reliance may not be foreseeable and whose potential losses could be various and very substantial.

The result is a developing, and perhaps less certain, area of law where inter-changeable legal tests are applied to the individual circumstances of the case, to assess both the existence and scope of the duty of care potentially owed to third parties.

Nevertheless, and having regard to the foregoing policy concerns, it may be generally stated that a duty of care to a third party is less likely to be upheld where that duty is likely to create an indeterminate liability, than where the potential liability would be restricted to a smaller class and where the auditor is aware of the particular purpose for which his opinion is to be relied upon.

Some examples of cases where the courts have found that either an actual or an arguable duty of care was owed by an auditor to a third party are:

·       ADT Ltd v BDO Binder Hamlyn (1995)

In ADT the Claimant was the intended purchaser of a holding company (‘BSG’), which controlled a group of companies that installed the second largest number of security alarms in the UK. The Defendants were the auditors of BSG.

Before completing the acquisition, the Claimant insisted on a meeting with the Defendants at which an audit partner provided assurances that BSG’s accounts provided a true and fair view of the state of affairs at BSG and that there was nothing else that the Claimant should be told.

In the event, however, the accounts did not provide a true and fair view and, if the audit had been properly planned and performed, either a qualified or a delayed opinion should have been given.

Sitting in the High Court, Mr Justice May held that the Defendants did owe a duty of care to the third party Claimant. He observed that the audit partner was fully aware of the intended transaction and had given advice directly to the Claimant, which he knew the Claimant would rely upon without further enquiry.

·       Siddell & Another v Smith Cooper & Partners (A Firm) (1998)

In Siddell the Claimants had purchased an off-the-shelf company (‘Paxwood Ltd’) as a vehicle to buy shares in two other companies. The Defendants had been appointed as the accountants and auditors of Paxwood Ltd and to provide accountancy and financial advisory services to the Claimants personally.

Several years later the financial director of Paxwood Ltd left, at which time various financial irregularities were discovered. This resulted in the appointment of administrative receivers and the enforcement of personal guarantees given by the Claimants.

The Claimants subsequently commenced an auditor negligence claim, alleging that the Defendants had failed to take sufficient care when auditing the accounts of Paxwood Ltd. The Defendants then applied successfully to strike out the claim on the grounds that they owed no duty of care to the Claimants.

However, on appeal by the Claimants the Court of Appeal restored the claim. This was on the basis that (i) the Defendants had acted as accountants as well as auditors and it was arguable that in this capacity they had owed a duty of care to the Claimants; (2) it could not be said that the existence of a contract to advise the Claimants in respect of their personal financial affairs necessarily precluded the existence of a wider duty of care to the Claimants in other respects; and (3) in providing direct advice to the Claimants it was arguable that the Defendants had assumed a responsibility towards them.

·       RBS v Bannerman Johnstone MacLay (2005)

RBS was a claim that came before the Scottish courts. The Claimant was the banker and a shareholder of a plant hire company (‘APC Ltd’) and its subsidiary. The Defendant was the appointed auditor, who had also supplied an employee to act as financial controller of APC Ltd.

In 1998 both companies become insolvent and the substantial loans and investments the Claimant had made were lost in their entirety. The Claimant subsequently commenced an auditor negligence claim, alleging that it was owed a duty of care by the Defendants.

At first instance, and in response to the Defendants’ application to strike out the claim, the court held that there was a case to answer as the Defendants had known when auditing APC Ltd’s accounts that the results of the audit would be communicated to the Claimant, and that the Claimant would use that information in deciding whether to provide, or continue to provide, finance to it. The court further held that it was arguable, in view of the relationship between the two companies, that the Defendants’ duty of care also extended to both the Claimant’s loans to the subsidiary and its purchase of equity in APC Ltd.

Although the Defendants lodged an appeal, this was rejected. The appeal court concluded that it was clearly arguable that the Defendants had owed a duty of care to the Claimant in respect of the finance provided to both companies. Amongst other matters, the court noted that the Defendants had been directly involved in obtaining set-up finance and that the survival of both companies had depended on the Claimant’s continued support, which in turn depended on satisfactory management accounts verified in due course by the Defendants as auditors.

For what losses can an auditor be held liable?

Whether a particular head of loss is recoverable will be governed by the circumstances of the case and the application of certain legal principles and policy. In this latter respect, issues of legal causation and scope of duty have been a frequent feature in auditor negligence claims, where their application (and, on occasions, their mis-application) by the courts has served to restrict some of the losses for which auditors might otherwise have been found liable.

However, some of the heads of loss for which damages have been awarded by the courts are:

  • Defalcations/thefts by an employee or director which could have been prevented
  • Bonuses paid to directors that would not have been approved
  • The difference between the price an investor paid for shares and their true market value
  • Irrecoverable loans made to subsidiary companies
  • Expenditure on management fees that would not have been incurred
  • Dividends paid to shareholders out of capital that would not have been declared
  • Profits diverted from subsidiary companies which would otherwise be available as dividends
  • Costs of undertaking a fresh audit

How prevalent are auditor negligence claims?

Both in the 1990s and at the turn of the 21st century there were a string of high profile and legally significant auditor negligence claims. While these types of claims then subsided during the following decade, they are once again becoming more prevalent. This is apparent not only from the high-profile claims that have recently gone to trial, but also from the raft of negative headlines that have appeared in the financial press, examples of which include:

Where economic conditions deteriorate this trend may become even more pronounced. Not only do tougher trading conditions have a tendency to expose previously latent anomalies, but they can also lead to a change of office holders which, in turn, can provide fresh scrutiny of a company’s affairs.

Are there any time limits for pursuing auditor negligence claims?

Time limits apply to auditor negligence claims as they do for claims against other professionals. These time limits can be found in the Limitation Act 1980. In short, they require legal proceedings to be commenced within:

  • 6 years of the date upon which damage or financial loss occurs – section 2
  • 6 years of the date upon which the mistake occurred – section 5
  • 3 years of the earliest date upon which the claimant has both the knowledge required for bringing a claim and the right to bring a claim – section 14A
  • 15 years of the date on which the mistake occurred, even if the time limit prescribed by section 14A has not expired – section 14B

Therefore, where there are grounds for pursuing an auditor negligence claim, a claimant will generally have 6 years from the date of wrongdoing or loss, but may have 3 years from the date of discovery, if later, in which to bring any claim, subject to a long stop of 15 years.

However, while these time limits may appear straightforward in summary form, applying them in practice can be much more challenging. Unfortunately, there are a multitude of cases in which they have been misapplied, not only by lay clients acting as litigants in person but also by solicitors and other lawyers who have themselves fallen into error.

Although limitation is a complicated area of law with a large body of case law relating to it, further information about it can be found in our introductory guide: Time limits for professional negligence claims – FAQ

When considering limitation periods for auditor negligence claims, it should also be noted that an auditor’s appointment is an annual one, as is apparent from the provisions of section 495 of Companies Act 2006. Accordingly, any appointment for a following year is to be regarded as a consecutive appointment, rather than a continuing one.

What funding options are available for an auditor negligence claim?

Before embarking on any professional negligence claim it is imperative to consider how it will be funded. Fortunately, there are a number of ways to fund litigation. Each has its own advantages and disadvantages and can be more or less suitable, depending on individual circumstances. Further information about these different funding options can be found in our related guide: Fund a claim

How is an auditor negligence claim commenced?

Most auditor negligence claims are commenced by correspondence and by following the procedures set out in the Pre-Action Protocol for Professional Negligence.

The aim of the Protocol is to make the process of resolving professional negligence claims more open and more efficient and, by doing so, to reduce the number of professional negligence claims that require judicial intervention. Happily, and since the introduction of the Protocol in July 2001, the vast majority of professional negligence claims are now resolved at the Protocol stage and without the need to institute and pursue costly and time-consuming court proceedings.

However, it should be noted that as helpful as the Protocol is, it provides only a generic framework for resolving professional negligence claims. It does not identify or assess what facts, issues or evidence is relevant and irrelevant in any particular case, nor does it contain legal advice.

Should the auditor be reported to a regulator?

Under section 1212 of the Companies Act 2006, a person may only act as a statutory auditor if he is a member of a recognised supervisory body (RSB) and is eligible for appointment under the rules of that body.

There are currently only four RSBs. These are:

  1. Association of Chartered Certified Accountants (ACCA)
  2. Institute of Chartered Accountants in England and Wales (ICAEW)
  3. Institute of Chartered Accountants of Scotland (ICAS)
  4. Chartered Accountants Ireland (CAI)

It is possible to identify which RSB regulates a particular auditor by searching the Register of Statutory Auditors.

Each RSB has its own complaints and disciplinary policies, which are published online. In most cases, these policies require any complaint to be made to the auditor or his firm in the first instance, which should maintain their own complaints handling policy.

If the complaint relates to a serious breach of an RSB’s code of conduct, it may well take disciplinary action against an auditor. However, such action is unlikely to result in the payment of any financial compensation to the complainant. Therefore, where a significant financial loss or liability has arisen, a complaint of this nature would be better made in conjunction with, rather than as a substitute for, a civil claim for auditor negligence.

Whether any conduct by the auditor should be reported to an RSB should be decided on a case-by-case basis. Any disciplinary action taken might be in the public interest but may not have a direct bearing on the outcome of any auditor negligence claim.

Where can I obtain further legal advice?

If you are considering embarking on a claim for auditor negligence and require legal assistance, we would be happy to discuss the matter with you.

To arrange an initial consultation with us, free of charge or commitment, please contact us on 0800 195 4983 or by email at mail@pnclegal.com.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.

Tax Penalties – How To Avoid Liability

Tax penalties, and particularly tax-geared penalties, imposed by HMRC can be both substantial and unexpected, in some cases amounting to as much as 200% of the relevant tax. Moreover, they are invariably imposed in addition to an underlying tax charge, which itself carries late payment interest. If funds are not readily available to meet these liabilities, which often they are not, this can lead to considerable stress and worry.

When confronted by HMRC, a taxpayer could be forgiven for assuming that HMRC’s actions fall squarely within the statutory powers conveyed to it, that its assessments comply fully with the letter of the law and that its computations are beyond impeachment. In many instances, that will undoubtedly be the case.

But the subject of tax can be exceptionally complicated, both from a legal and an accounting perspective, and it is certainly not the case that HMRC gets it right every time. Where it does not, there may be justifiable grounds upon which to challenge its position. Alternatively, and even where it does, there may still be scope to recover some or all of the liabilities it imposes from a third party, along with the associated costs of doing so.

As leading professional negligence solicitors, we have advised numerous clients facing tax penalties on claims for compensation, where that liability is believed to have arisen as a result of errors or omissions on the part of an accountant, a solicitor or other professional adviser.

The tax penalty process

There can be a number of sequential steps in this process, each of which we summarise below.

·       Penalty assessment

Having assessed the amount of undeclared tax due, HMRC will often be under a statutory obligation to impose a corresponding penalty upon the culpable taxpayer.

HMRC will usually calculate that penalty as a percentage of lost revenue (‘PLR’) i.e. as a percentage of the undeclared tax that HMRC has assessed as being unpaid. In assessing the appropriate percentage to charge by way of a penalty, HMRC will consider three elements:

  1. Behaviour – the nature of the behaviour that led to the tax going unpaid and whether it was deliberate or careless;
  2. Disclosure – whether the disclosure to HMRC was prompted by HMRC’s actions or unprompted i.e. it was made at a time when the taxpayer had no reason to believe that HMRC was aware of the situation; and
  3. Assistance (also known as quality of disclosure) – the extent to which the taxpayer assisted by telling, helping and giving relevant information and documents to HMRC as part of its tax assessment.

The first two considerations enable HMRC to determine the applicable penalty range. The third consideration enables HMRC to determine what, if any, discount should be applied in return for the co-operation it has received. The applicable percentage is then calculated by deducting any discount from the penalty range and then deducting that sum from the maximum potential penalty. A further reduction to the penalty may then be applied for special circumstances or to make adjustments for other penalties that have been imposed on the same tax charge.

·       Penalty explanation

HMRC will usually send a penalty explanation letter to the taxpayer to explain how the penalty it is proposing to impose has been calculated and to invite the taxpayer to provide any further relevant information it has which might affect HMRC’s final assessment.  It is not uncommon for HMRC to take a hard line at this stage, leaving the taxpayer to explain why no penalty or a lower penalty ought to be imposed.

·       Notice of penalty assessment

If HMRC does not receive any further information, or of it does not consider that the further information it has received affects its assessment, it will issue a notice of penalty assessment. This allows it to then collect the tax penalties due.

·       Personal liability notice

Where HMRC is satisfied that a tax penalty imposed on a company or LLP for a deliberate inaccuracy, failure to notify or wrongdoing was attributable to any of the entity’s directors, shadow directors, managers or company secretary, HMRC can seek to recover the penalty from one or more of them, if they gained or attempted to gain from the inaccuracy or if the entity is insolvent or likely to become insolvent. In this event, HMRC will also serve a personal liability notice on the relevant individual(s).

How to appeal tax penalties

Any decision of HMRC to impose a tax penalty has the potential to be challenged and is open to appeal. However, the prescribed appeal process will depend on whether the underlying tax is a direct tax (such as corporation tax, income tax, capital gains tax or inheritance tax) or an indirect tax (such as VAT, excise duty or customs duty).

As a first step, HMRC offers taxpayers an internal appeal process. While taxpayers of indirect tax are not obliged to follow this ‘in-house’ route and can instead embark upon an appeal to the Tax Tribunal (in relation to which, see further below), it can offer time and cost efficiencies. For these reasons, a sequential approach is commonplace.

·       ‘In-house’ penalty appeals

For penalties arising from a direct tax, the taxpayer usually has 30 days from the notice of penalty assessment within which to notify HMRC of their desire to appeal and their grounds of appeal. The case worker who made the original decision will then determine the appeal.

If the appeal is unsuccessful, HMRC will typically offer a review. In this event, the original decision will be reconsidered by an officer within HMRC’s Solicitor’s Office and Legal Services directorate. If that review is also unsuccessful, the taxpayer can then appeal to the Tax Tribunal, which is a step that can also be taken as an alternative to a review.

For penalties arising from an indirect tax only the review process is available, which is optional i.e. the taxpayer can choose to go straight to the Tax Tribunal.

As confirmed within HMRC’s Compliance Handbook, if HMRC receives an appeal of a penalty it will not seek to collect payment of the penalty until the appeal process has concluded and must instead take steps to inhibit debt management action.  The position is different for an appeal of tax assessed, which must be paid unless HMRC agrees otherwise.

·       Tax tribunal penalty appeals

If an ‘In-house’ appeal is either unsuccessful or undesirable, an appeal can be made to an independent tax tribunal. However, time limits do apply as HMRC will advise in its correspondence.

The First-Tier Tribunal (Tax), as its name suggests, is the first (and the principal) forum for hearing any tax appeal. It is independent of HMRC and falls within the administrative ambit of HM Courts and Tribunals Service.

Most hearings take place before a legally qualified Tribunal Judge, who may sit with up to two non-legally qualified Tribunal Members. The workings of the Tax Tribunal are governed by The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, which are supplemented by various guidance notes and practice statements.

As a general rule, costs incurred in pursuing an appeal in the Tax Tribunal are not recoverable from HMRC, even if an appeal is successful. However, that also means that costs are generally not awarded against a taxpayer if the appeal is unsuccessful. While this leads to a significant percentage of appeals being pursued by taxpayers acting as litigants in person, this can be a false economy. As we explain below, it can also be an unnecessary one.

If a decision of the First-Tier Tribunal contains a material error of fact or law, it may then be possible to appeal to the Upper Tribunal (Tax and Chancery). Permission to appeal is required, which is usually sought from the Tax Tribunal in the first instance and, if refused, from the Upper Tribunal. Relatively few penalty challenges get this far.

How we can assist you to avoid tax penalties

Determining whether the tax penalties (and/or the underlying tax charge) HMRC has imposed are lawful can often involve both an accounting and a legal analysis. In the case of the former, this can be particularly complicated where the assessment period is extensive and/or where the primary accounting records are in either a disorderly or incomplete state. This same combination of expertise is also frequently required for taking a penalty challenge forward.

While it may be tempting to rely on an existing accountant or tax adviser for guidance and support with this process, that is less likely to be appropriate where an error or omission by the accountant or other tax adviser may have caused the penalty to arise.

In those circumstances, there is likely to be an actual or potential conflict, as the interests of the professional diverge from those of the taxpayer. In this event, the actions and advice of the accountant can become tainted by self-interest and a desire to deflect or undermine the risk of a professional negligence claim being pursued against it.

In many cases, and particularly where the penalties in issue are significant, the taxpayer would be wise to retain a new and independent accountant, usually as part of a team of professionals, each of whom can provide an essential and complimentary skill set from a different discipline.

Happily, we have experience of working closely with a number of different forensic accountants, tax consultants, specialist tax solicitors and tax specific counsel. This enables us to make introductions to a range of experienced professionals and to curate a formidable and cohesive team when the circumstances require.

How we can assist you to recover unavoidable HMRC tax penalties

As leaders in our field, with extensive experience of professional negligence claims, we are uniquely placed to advise on the merits of, and an appropriate litigation strategy for, tax related professional negligence claims.

At an early stage, and during the tax assessment process, we are able to offer guidance on the initial steps that should be taken to preserve and support a professional negligence claim, as well as those pitfalls that could prejudice such a claim and that should be avoided. We can also advise on the timing for such claims, which can be pursued concurrently with or consecutively to any tax dispute or tax penalty appeal.

Where tax penalties cannot be avoided, we can then work with the team to prepare, present and prosecute a claim for damages in relation to those penalties.

How we can assist you to recover additional tax charges and interest

Depending on the circumstances of the case, and as part of a professional negligence claim, it may also be possible to recover compensation for some or all of the underlying tax charge, in addition to any tax penalties imposed.

This can occur where it can be established that the underlying tax charge would not have been incurred ‘but for’ the error or omission by the defendant professional. In such cases, it is often argued that an alternative tax planning arrangement would have been put in place, which would either have avoided any tax or would have resulted in a lesser tax charge.

How we can assist you to recover the costs of challenging tax penalties

The costs of responding to an assessment with HMRC can be substantial, as can the costs of challenging its decisions to charge additional tax, tax penalties and interest.

However, in appropriate circumstances and as part of a professional negligence claim, it may well be possible to recover much of these costs from the defendant professional whose errors or omissions caused these liabilities to be incurred. That is so, even where a challenge to HMRC’s decision proves unsuccessful.

While this does not alleviate the burden of funding those costs in the first instance, it can make a professionally resourced appeal a much more economical option overall.

Get in touch with us

If you or your business is facing the prospect of having to pay significant tax penalties, we would be happy to discuss with you the assistance that we can offer.

Working with other professionals, we act for clients nationwide to resolve tax disputes and the related claims that they can give rise to against a range of errant tax professionals, including solicitors, accountants, financial advisers, barristers and chartered tax advisers.

To arrange an initial consultation with us, free of charge or commitment, please contact us on 0800 195 4983 or by email at mail@pnclegal.com.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.

Litigant In Person – A cost saving or fool’s errand?

In this practical guide we examine a range of factors that you may wish to consider when deciding whether to bring or defend a claim as a litigant in person. We do so by answering the following questions:

  1. What is a litigant in person?
  2. How do I become a litigant in person?
  3. What are the advantages of being a litigant in person?
  4. What are the disadvantages of being a litigant in person?
  5. What does the court expect from me as a litigant in person?
  6. What costs can I recover as a successful litigant in person?
  7. What are the costs implications for me as an unsuccessful litigant in person?
  8. Is there any alternative to becoming a litigant in person?

As leading professional negligence solicitors we pursue claims for clients against a wide range of different professionals. Our significant experience means that not only are we understanding of, and conversant with, the extensive rules that govern civil litigation, but that we are also able to advise clients on the alternative ways in which they may be able to fund their claim.

However, it is not a legal requirement to instruct a solicitor (or a barrister) when pursuing or defending a legal claim and there is always the option of acting as a litigant in person.

What is a litigant in person?

A litigant in person is an individual, company or organisation which has chosen to pursue or defend a claim in court without representation from a solicitor or barrister. In Scotland, such individuals and entities are known as a ‘party litigant’.

Simply because you choose to represent yourself in court as a litigant in person does not mean that the opposing party is prohibited from appointing a solicitor and/or barrister. Therefore, taking this approach will often result in an ‘inequality of arms’.

The courts neither encourage nor discourage a claimant or defendant choosing to act as a litigant in person, but some guidance for litigants in person is provided by the Courts and Tribunals Judiciary.

Additional help and guidance is also provided by the charity Law for Life and can be found on its not-for-profit website Advice Now. The section for litigants in person, ‘Going to Court or Tribunal’, was funded by the Ministry of Justice with the aim of improving the experience of those facing the legal process alone, by improving access to information, advice and practical support.

How do I become a litigant in person?

You do not need to seek permission from the court or anyone else to be a litigant in person and to represent yourself in court.

If you are bringing a claim in the civil courts it is necessary only to provide your personal contact details on the Claim Form if you are choosing to represent yourself. Similarly, if you are choosing to represent yourself in defending a claim, you should complete the Acknowledgment of Service form, which is served with the Claim Form, with your personal contact details.

What are the advantages of being a litigant in person?

Bringing or defending a claim yourself and without a solicitor and/or barrister to represent you may have some potential advantages, such as:

  • Your own time is free of charge and you will not have to spend money on solicitors’ and/or barristers’ fees in order to pursue or defend your claim;
  • You will not have to spend time instructing a solicitor or barrister and explaining the background of the claim to them;
  • You will not have to spend the time and potential cost of photocopying documents to provide to your solicitor or barrister;
  • The court may offer you some flexibility for smaller and insignificant breaches of court rules; and
  • As a successful litigant in person you may be able to claim costs from the losing party, which is discussed in more detail below.

What are the disadvantages of being a litigant in person?

Whilst the potential cost saving of acting as a litigant in person may seem attractive, it is important that anyone who chooses to represent themselves in bringing or defending a claim is aware of the significant disadvantages of doing so. These include:

  • Litigation is invariable a stressful process for those involved and this is likely to be all the more acute without a solicitor to shield and support you;
  • Without knowledge and experience of the litigation process, there is a greater risk that you will unwittingly prejudice your claim or defence at an early stage and in a manner that cannot later be remedied;
  • Bringing or defending a claim is incredibly time consuming, even more so when you are unfamiliar with the court’s rules and processes and need to take time to understand what steps must be taken and by when. Whilst you may consider that you are saving time by bringing or defending a claim yourself, you may not appreciate the time it takes to undertake the different steps involved in court proceedings;
  • The court expects anyone choosing to pursue or defend a claim themselves to be familiar with the relevant rules and statutes governing the litigation processes, particularly when such information is readily available online, and to comply with those rules and procedures. This is discussed in more detail below;
  • Whilst you may feel very strongly about the merits of your claim or defence, a solicitor or barrister can provide legal knowledge, experience, insight and objectivity which both individually and collectively can have a material impact on the outcome of the litigation;
  • Many claims, and particularly professional negligence claims, require an expert witness to be appointed to provide an independent opinion on certain liability and/or quantum issues arising in the claim. For example, this may be necessary to determine the value of a property, the level of lost profits for a business or the cause of delay to a construction project. A solicitor can identify a suitable expert, and also recognise those experts which may not be suitable;
  • Whilst only a small proportion of claims reach trial, a trial can be extremely daunting if you are unfamiliar with the court and trial process. Whilst family courts may be more informal, civil court trials can be very formal, with the judge offering little or no assistance to a litigant in person, whether in the presentation of their case or the cross examination of witnesses and experts. For claimants in particular, the preparation for trial is very onerous and includes the production of the bundles of documents for each of the parties, the judge and for the use of the witnesses in court. Depending on the size, nature and value of the claim, this can amount to many thousands of documents. The courts will not vary the rules or allow a litigant in person additional time only because of their lack of legal representation. This was demonstrated in the case of Axnoller Events Ltd v Brake & Anor (2021), which highlighted that the courts would not take into account of a litigant in person’s impecuniosity or lack of representation when considering whether to vary an order relating the conduct of the trial.

What does the court expect from me as a litigant in person?

As explained above, although the courts neither encourage nor discourage litigants in person, the courts expect anyone choosing to pursue or defend a claim themselves to be familiar with the relevant rules and statutes governing the litigation processes, particularly when such information is readily available online, and to comply with those rules and procedures.

This was underlined in the case of Barton v Wright Hassall LLP (2018), when the Supreme Court made clear that being a litigant in person does not excuse compliance with court rules, particularly in cases where the failure to do so was prejudicial for the other party. In the more recent case of Shah  Muhammed v Daily The News International & Ors (2023), the requirement for litigants in person to comply with court rules and have regard to the statutes governing limitation was also reinforced.

The court will not assist you as a litigant in person in bringing your claim or highlight for you the relevant areas of law to which you should have regard. The court will also not expect your opponent’s legal representative to do so either.  A judge at trial will not assist you with presenting your case, with your cross examination of witnesses or otherwise guide you in making submissions.

There could also be significant adverse cost implications for you as a litigant in person if you pursue, whether knowingly or not, a claim or defence which has no basis in law.

What costs can I recover as a successful litigant in person?

If the claim has been allocated to the small claims track all parties, whether litigants in person or legally represented, generally bear their own costs unless the court is satisfied that the losing party behaved unreasonably. Usually, the successful party will only be awarded the fixed costs on the commencement of the claim for court fees, travelling expenses, loss of earnings and expert fees. The amounts recoverable are nominal in those circumstances.

For claims allocated to the fast or multi track, rule 46.5(4) of the Civil Procedure Rules states that the amount of costs allowed to a litigant in person depends on the litigant in person proving financial loss or, where financial loss cannot be proven, an amount for the time reasonably spent doing the work, but which cannot exceed more than two-thirds of the amount to which a solicitor would have been entitled. For those who cannot prove financial loss, the rate of £19 an hour is considered to be suitable compensation for time reasonably spent, as assessed by the judge.

However, in the recent case of Spencer and anor v Paul Jones Financial Services (2017), a Master in the Senior Courts Costs Office allowed a litigant in person to recover a rate of £150 per hour in a claim which settled for £220,000. The reason why the litigant in person was able to claim such a high rate was because he was able to evidence his financial loss very clearly, having adduced company accounts to show that his business had suffered a significant downturn in the period he was working on the case and which he could show was directly as a result of the work he had done. Whilst the hourly rate awarded to a litigant in this case was highly unusual, it does demonstrate that the court is prepared to compensate a litigant in person if there is clear evidence of the loss suffered.

From a practical perspective, in order to claim even the rate of £19 per hour, you must keep careful dated records of the time spent on the claim and the nature of the work undertaken on the dates recorded, in the same way as solicitors are required to record their time as evidence of the work done and time spent. Without that evidence the courts will have difficulty in making any costs award in your favour.

What are the cost implications for me as an unsuccessful litigant in person?

Where you are unsuccessful as a litigant in person in bringing or defending a claim, you are subject to the same rules as if you had legal representation. These generally provide that the losing party pays the winning party’s costs.

The court also has the power to award ‘indemnity costs’ (being a higher scale of costs) if it considers that a party has behaved unreasonably. A party cannot escape such a finding purely by reason of having acted as a litigant in person.

Similarly, there may be some instances where even though it is unusual for costs to be awarded at all, such as in small claims (as discussed above) or in the Employment Appeal Tribunal (EAT), the courts have nevertheless decided to order a litigant in person to pay the successful party’s costs because of unreasonable conduct justifying a costs award.

In the EAT case of Liddington v 2gether NHS Foundation Trust (2016), the tribunal concluded that whilst the standard of pleading expected of a lawyer did not apply to a litigant in person, the litigant in person should still be expected to articulate their complaint properly and with relevant dates. In that case Mr Liddington had been given several opportunities to provide the necessary information but had failed to do so. The EAT concluded this amounted to unreasonable conduct and ordered him to pay 2gether’s costs.

Is there any alternative to becoming a litigant in person?

In some instances, you may well make a conscious decision to act as a litigant in person, particularly if the matter is relatively straight-forward or similar in nature to a dispute in which you have previously been involved. However, for many litigants instructing a solicitor (and/or barrister) to represent them is simply not an affordable option and so the decision to act as a litigant in person is made by default.

However, before you decide to act as a litigant in person, either by design or default, you would be well advised to first explore each of the funding options potentially available to you. This is all the more important in relation to a professional negligence claim, where the issues are likely to be much more complicated than in many other forms of litigation.

The funding options that may be available to you are discussed in more detail in the Fund a Claim section of our website and in our related article: Professional Negligence No Win No Fee.

Further assistance

We act for clients nationwide, to resolve claims against a wide range of professionals, including claims against solicitors, accountants, insurance brokers and surveyors.

If you are considering bringing a claim for professional negligence and require legal assistance, we would be happy to discuss the matter with you. Where the value of your claim is substantial, we may well be able to offer you a range of funding options.

To arrange an initial consultation with us, free of charge or commitment, please contact us on 0800 195 4983 or by email at mail@pnclegal.com.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.

Professional Negligence No Win No Fee

As leading professional negligence solicitors, we pursue claims under professional negligence no win no fee agreements against a wide range of different professionals.

However, professional negligence no win no fee agreements may not be the best option in every case and there are circumstances where a different form of funding could be more advantageous to you as a claimant.

To assist you in deciding whether a no win no fee agreement is right for you, we have prepared this helpful guide. Within it we explain how professional negligence no win no fee agreements operate, what the advantages and disadvantages associated with them are and when an alternative funding arrangement might be more suitable.

What are professional negligence no win no fee agreements?

The colloquial term ‘no win no fee’ is commonly used to refer to conditional fee agreements, which are also known as ‘CFAs’. No win no fee agreements are defined by section 58(2)(a) of the Courts and Legal Services Act 1990 as:

‘an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances.’

In essence, this means that an agreement between a solicitor and client will be a no win no fee agreement (aka a CFA) if it provides that the amount the client pays to the solicitor is dependent upon the outcome of the claim to which it relates.

What is the history behind no win no fee agreements?

No win no fee agreements were introduced into statutory law in England & Wales on 1 November 1990. Prior to their introduction, it was unlawful for a solicitor conducting a professional negligence claim, or any other litigation, to enter into any form of contingency fee arrangement. That was largely due to a concern that such arrangements could give rise to a conflict of interest between the solicitor and client, as well as between a solicitor’s own financial interests and the duties which he/she owed as an officer of the court.

However, with wider pressure to reduce government spending, the mounting cost of the Legal Aid budget and the potential of a ‘cost-free’ alternative, such ethical concerns as there were eventually gave way to the political and economic reality of the day.

Why did no win no fee agreements become so popular?

Both for professional negligence claims and other forms of litigation, CFAs quickly became the ‘go to’ funding option for solicitors and clients alike. There were a number of reasons for this.

When originally introduced, and once coupled with an After-The-Event (‘ATE’) insurance policy, CFAs provided claimants with a largely cost free (and therefore, risk-free) platform for pursuing litigation: if the claim succeeded all the costs were recoverable (subject to assessment) from the defendant; if the claim failed, the defendant’s costs were simply covered by insurance. This made litigation a much more affordable, and far more attractive, option for many.

At the same time, and because most CFAs included an additional fee (known as a ‘success fee’) which significantly increased the defendant’s potential liability for costs, defending litigation became less economical in many more cases. This in turn resulted in an increased prospect of settlement for claimants, which itself encouraged more litigation. This was particularly apparent in claims of more modest value, such as those frequently encountered within the personal injury arena.

Why are no win no fee agreements less popular now?

For the insurance industry that was funding the settlement of many thousands of claims, the imbalance introduced by the CFA regime gave rise to uncomfortable levels of liability. As the associated costs were then passed along to policyholders in the form of increased insurance premiums, that dissatisfaction spread more widely through the general public. Pressure on the Government then mounted and CFAs became a victim of their own success.

On 1 April 2013 Parliament introduced the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (‘LASPO 2012’). Under section 44(4) of LASPO 2012, the success fees usually provided for within a professional negligence no win no fee agreement ceased to be recoverable from the defendant. In addition, and under section 46(1) of LASPO 2012, claimants in professional negligence claims would no longer be able to recover the cost of their ATE insurance policy from the defendant.

For defendants, these changes removed much of the sting in the tail of CFAs, while for claimants it meant that it would now be more expensive to rely on CFAs to fund their claims.

How do no win no fee agreements work in practice?

Under a standard CFA, a solicitor’s fees are made up of two elements: a basic fee and a success fee. The basic fee is calculated at an agreed hourly rate and according to the amount of time the solicitor has spent working on the claim, which is the same way in which a solicitor’s fees are calculated under a more traditional, private retainer. The success fee is then charged in addition to the basic fee and usually at an agreed percentage of the basic fee.

If the claim is unsuccessful, the claimant will not have to pay any fees to the solicitor. However, if the claim is successful, as the claimant invariably hopes that it will be, the claimant will then have to pay both the basic fee and the additional success fee.

The purpose of the success fee is not to act as a gratuity or windfall for the solicitor. Rather, it is the reward the solicitor receives for accepting the risk that he/she may receive no fees at all for the work done and in the general expectation that, over time, the successful and unsuccessful claims should balance one another out.

The percentage at which the success fee is calculated should in each case reflect the merits of the claim and, therefore, the risk of failure. In this way, it should be fair and reasonable as between the solicitor and his/her client.

While some solicitors will apply a pre-determined success fee, or make an arbitrary assessment, we will not do so. In each case, we undertake a methodical assessment, drawing on our extensive experience of professional negligence claims. Only in this way do we consider that a fair balance can be reliably struck.

What are the advantages of no win no fee agreements in professional negligence claims?

Despite the reforms that have been introduced, as outlined above, no win no fee agreements still have certain advantages for claimants. These include:

  • No liability for own costs – CFAs continue to enable claimants to avoid any liability for their own solicitor’s fees in the event that their claim is unsuccessful.
  • No liability for adverse costs – CFAs can still be coupled with an ATE insurance policy to protect claimants from having to pay a defendant’s costs if their claim is unsuccessful.
  • Affordability – As the solicitor’s fees do not have to be paid either upfront or on an interim basis under a CFA, they still have the ability to ‘unlock’ litigation that a claimant might not otherwise have the financial means to pursue.
  • Skin in the game – CFAs require a solicitor to take a direct financial interest in the outcome of the claim and, for some clients, this provides an additional level of comfort.
  • Deferment of fees – CFAs still serve to defer the payment of the solicitor’s fees until the conclusion of the claim, which can be several years away, enabling claimants to deploy such capital as they have available for other commercial purposes.

What are the disadvantages of professional negligence no win no fee agreements?

In our experience, most claimants wishing to pursue a professional negligence claim are aware of the main advantages of a no win no fee agreement, but few are aware of the potential disadvantages. In part because of the reforms made, these disadvantages now include:

  • Additional cost – As the success fee is no longer recoverable from the defendant, it means that CFAs are now more costly than they previously were.
  • More expensive – For the same reason, standard CFAs are now likely to be more expensive than other forms of funding, such as a private retainer.
  • Disproportionate fees – For the same reason too, and while at least the basic fee should be largely recoverable, the total cost of pursuing a claim under a CFA when weighed against the compensation (known as ‘damages’) likely to be recovered may be more difficult to justify commercially.
  • Limited availability – As success fees are usually deducted from the damages recovered from the defendant, many lower value claims will simply not support a CFA and in those circumstances, claimants are much less likely to be offered them by a solicitor.
  • Conflicts of interest – The historical concerns that led to the prohibition on the use of CFAs (and which are set out above) have not been eradicated and there is greater potential for disputes to arise between solicitors and their clients in relation to fees where a no win no fee agreement is utilised.

What are the different types of professional negligence no win no fee agreements?

Some of the disadvantages encountered with standard form CFAs can be mitigated by entering into alternative agreements and options include:

  • Thai Trading Agreements – here the solicitor charges no fee if the claim is unsuccessful and only a basic fee if it is successful.
  • Discounted Fee Agreements – here the solicitor charges a reduced basic fee if the claim is unsuccessful and a full basic fee and limited success fee in the event of success.
  • CFA lites – here the basic and/or success fees payable are limited to those fees which are actually recoverable from the defendant.
  • Capped CFAs – here the success fee is agreed as a percentage of the basic fee, but capped at an agreed level above which no further fees are charged.
  • Staged CFAs – here an additional provision is made within the CFA for the success fee to be adjusted at various stages of the litigation, usually with the percentage increasing as the claim approaches trial.

However, while each of these alternative funding options provides additional flexibility, much will depend on the solicitor’s readiness to accept the transfer of risk from his/her client and the claimant’s desire to secure his/her preferred legal representation.

Are no win no fee solicitors any good?

Although this is a question that is commonly asked by potential claimants, because it relies upon both an imprecise categorisation of solicitors and an inappropriate correlation of attributes, it is one that is unlikely to produce a reliable answer.

While as a matter of policy, some litigation solicitors will never enter into a no win no fee agreement, and while some will enter into CFAs for most of the claims they deal with, the vast majority of litigation solicitors will consider whether or not to enter into a CFA on a case-by-case basis.

Therefore, the term ‘no win no fee solicitors’ arguably represents the vast majority of litigation solicitors and neither the distinction nor the mass categorisation provides any real clue as to the quality of the service they are likely to provide.

The unreliability of this distinction is all the more apparent when considering that a solicitor might offer a CFA either because (i) the solicitor possesses a specialist understanding which enables him/her to see merit in a claim which another, less experienced, solicitor does not; or (ii) the solicitor lacks experience and understanding and has failed to apprehend the shortcomings in the claim. While the former may reasonably be regarded as ‘good’ and the latter as ‘bad’, both could be categorised as a ‘no win no fee solicitor’.

Further, a solicitor’s readiness to enter into a no win no fee agreement is principally a commercial decision, which is likely to be influenced by a range of different commercial factors, none of which is a direct indicator of his/her ability to handle the claim. These factors might include the cash flow position of the solicitor’s practice, the number of current CFAs the solicitor has already entered into and/or the stage the related claims are at, the solicitor’s attitude to risk and/or the attitudes of his/her partners, as well as the business model of the solicitor’s firm.

Therefore, in determining whether a solicitor is well suited to act in a particular claim other, more reliable, factors should be considered. In specialist areas of legal practice, such as professional negligence, experience is often both a key factor and a key differentiator, as we explain separately in our related guide: How to find the Best Professional Negligence Solicitors.

What alternative funding arrangements might be available?

No win no fee agreements are not the only form of funding for a professional negligence claim. Others include:

  • A private retainer – this is the simplest form of funding arrangement, where the solicitor’s fees are calculated on a time spent basis and at an agreed hourly rate. It can also be the most cost effective. For these reasons, it can be a better option for clients who already have the financial means to fund their claim.
  • Before-the-Event insurance – some claimants have legal expenses insurance cover which might meet some or all of the costs of their intended claim. Such cover is often limited in its scope and many policyholders are critical of the standard of advice and service they receive. Nevertheless, it can provide a cost-effective alternative, particularly for low value claims.
  • Damages Based Agreements – these are true contingency agreements where the solicitor’s fees are charged as a fixed percentage of the damages recovered from the defendant. However, for claims that are resolved at an early stage and with limited effort, they can prove unnecessarily expensive.
  • Third Party Funding – in some cases a commercial funder will agree to pay some or all of the costs of a claim in return for a share of the damages if the claim is successful. However, this option is usually restricted to higher value claims, where the damages likely to be recovered are sufficiently great to cover the funder’s profit costs and other expenses.

Further assistance

If you are considering bringing a claim for professional negligence and require legal assistance, we would be happy to discuss the matter with you.

We act for clients nationwide, to resolve claims against a wide range of professionals, including claims against solicitors, accountants, insurance brokers and surveyors.

To arrange an initial consultation with us, free of charge or commitment, please contact us on 0800 195 4983 or by email at mail@pnclegal.com.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.

Requesting a solicitors’ file – A client guide

Requesting a solicitors’ file, or merely a copy of a solicitors’ file, is a course of action that most frequently arises when disputes between clients and their solicitors occur, or are anticipated. It is perhaps no surprise then that such requests can prove highly contentious.

Where there are thought to be grounds for making a professional negligence claim against the solicitors, it is common to request the solicitors’ file in order to confirm the background events to the claim, to establish what documentary evidence exists to support or undermine the claim and, in turn, to better assess the merits of the claim.

However, requesting a solicitors’ file can also arise where there are concerns about the level of fees and/or expenses that solicitors have charged, where there may be grounds for making a complaint regarding the level of service provided by the solicitors, or where a loss of trust and confidence has led to new solicitors being instructed to progress an existing matter.

Whatever the circumstances surrounding the request, what may appear to be a simple step can in reality prove much more complicated and, in some cases, even costly. Therefore, in this client guide we have attempted to highlight and answer many of the questions that arise in relation to it, which we hope will provide you with a better understanding of the process and help you navigate it more efficiently and effectively.

Q.1 – Can I request my solicitors’ file?

There are any number of different reasons why you might request a solicitors’ file and (in England & Wales at least) there are no laws prohibiting you from doing so. Moreover, and to the contrary, there are a number of enabling laws that support the process. These include:

Which of the above applies is likely to depend on the reason for your request and, in the case of any related solicitor-client dispute, the litigation stage that you have reached.

Q.2 – What documents are contained within a solicitors’ file?

Client requests are typically made for a copy of ‘the file’. This is often on the assumption that ‘the file’ will contain all correspondence and documents held by the firm in relation to a particular matter. While that may have been a safe assumption to make historically, when the solicitors’ file was in a hard-copy format and dutifully maintained by a conscientious secretary or filing clerk, it is less so now.

These days most solicitors work electronically, which means that correspondence and documents can be spread across an array of different devices, hard-drives and servers. Therefore, while an electronic matter file may well exist within a document management system, it may not be advisable to limit your request to this file.

For this reason too, and to avoid the disappointment and delay that can arise upon discovering that certain key documents are missing from ‘the file’, it is often prudent when requesting a solicitors’ file to state precisely what documents or categories of documents you require.

Requesting particular documents from your solicitors’ file as a preliminary step, rather than simply requesting ‘the file’, is also an option and might prove more time and cost efficient. It might also prove less contentious and, for the reasons set out below, all the more sustainable.

Q.3 – Who owns the solicitors’ file?

The issue of ownership of the file is distinct from, but sometimes relevant to, the issue of disclosure. In our experience, ownership is rarely considered by clients and, where it is, it is usually assumed that upon payment of the solicitors’ fees, all related documents belong to the client. However, the position is much more nuanced.

In July 2022 The Law Society published updated guidance which advised that, subject to the terms of the solicitors’ retainer, documents within a solicitors’ file are likely to fall within the following categories of ownership:

Documents owned by the client:

  • Original documents sent to the solicitors by the client, except where title was intended to pass to the solicitors;
  • Documents sent or received by the solicitors as the agent of the client, such as written communications with third parties;
  • Final versions of documents, the production of which was the object of the retainer, such as written agreements or representations;
  • Final versions of documents prepared by a third party, including the client’s other advisers, during the course of the retainer and paid for by the client, such as an opinion from counsel or an expert’s report.

Documents owned by the solicitors:

  • Documents prepared for the solicitors’ own benefit or protection, such as file copies of letters, time recording notes, draft documents and working papers generally;
  • Internal correspondence and correspondence written by the client to the solicitors;
  • Accounting records, including vouchers and instructions.

Unfortunately, no express mention is made within the guidance as to which category solicitors’ attendance/file notes fall. As contemporaneous documentary records of discussions, sometimes occurring many years prior, these notes can be particularly helpful when trying to identify and assess historical events.

So far as those categories of documents falling within the latter category are concerned then, absent any legal obligation to provide disclosure, solicitors are much more likely at the pre-action stage to be entitled to refuse to release the original document or a copy of it.

Q.4 – How long do solicitors keep a file?

There is no statutory time period for which solicitors must retain their files. Most solicitors will retain them for at least 6 years from the conclusion of the matter, while others will retain them for longer and often up to 15 years. These periods correspond with the primary limitation period and secondary limitation period within which professional negligence claims must be pursued.

Q.5 – When should I request a copy of a solicitors’ file?

This can be a particularly important consideration in professional negligence claims, where the mistakes made by the solicitors are not discovered until many years after the event, by which time the solicitors’ file may have been destroyed.

While the answer will be informed by the circumstances of your case, if there has been a long period of delay, or if the solicitors are subject to an intervention by the Solicitors Regulation Authority, it may be sensible for you to request the original file without delay or, at the very least, to ask for it to be preserved. Otherwise, in cases of professional negligence, this is a step that can be better left to the solicitors appointed to investigate and advise on your claim.

Q.6 – How do I request a solicitors’ file?

There is no prescribed form that must be followed when requesting a solicitors’ file. However, it is usually advisable to make your request in writing and to address it to a specific individual. This may be the solicitor or fee earner who dealt with the matter or, if they are not appropriate for whatever reason, either the managing partner or complaints partner.

As stated above, it can be helpful for all parties concerned if, as part of the request, you specify which documents or categories of documents you require.

Q.7 – Do solicitors have to release a file upon request?

Solicitors are not obliged to release a file in every case and solicitors might refuse to do so where a client has failed to pay outstanding fees owed to them. In this case, and regardless of which party owns the documents on the file, the solicitors may be entitled to exercise a lien over their own file and any other documents in their possession.

Where the solicitors have been instructed in the same matter by more than one client, they may also be prohibited from releasing certain documents. This most frequently occurs in relation to conveyancing transactions, where the same solicitors are retained concurrently by both a purchaser and a lender.

Q.8 – What if solicitors will not release a file?

What action you can take to force your solicitors to release their file will depend on a number of factors, including the litigation status of any related dispute, the types of documents you are seeking and the basis upon which the solicitors are objecting to their release. As stated above, in certain circumstances solicitors may be legally entitled to withhold their file and/or particular documents contained within it.

However, where the documents being requested are relevant to an issue in dispute between solicitors and their client, and where the content of those documents would help to narrow or resolve that dispute, it may be in the solicitors’ own interests to release them, regardless of ownership or any lien. That may be all the more so where the solicitors would be required to disclose the documents at a later date and in the course of court proceedings.

If there are no related court proceedings, and if the solicitors have failed, without good reason, to comply with a client’s reasonable request for the release of documents belonging to it, then a complaint to the Legal Ombudsman may be appropriate. Alternatively, and if a professional negligence claim is anticipated, an application to the court for an order for pre-action disclosure may be justified.

Q.9 – Can solicitors charge for copying a file?

As most solicitors now create and store documents electronically, this is a question that arises less and less frequently. However, where it does, the starting point are the terms and conditions of business that are contained within the solicitors’ engagement documents, which may or may not make provision for a charge to be levied for providing copies of documents.

A further consideration is the purpose of copying the file. If this is for the solicitors’ own records and in response to a request from a client for delivery up of documents which belong to them, it is less likely that a charge would be justified.

Q.10 – Should I make a data subject access request for a solicitors’ file?

A data subject access request (‘DSAR’ or ‘SAR’) made under Article 15 of the General Data Protection Regulation (‘GDPR’) is not designed to be, and is not, an equivalent alternative to a written request for a solicitors’ file.

A SAR is a legal mechanism by which individuals are entitled to obtain a copy of the ‘personal data’ that is being held or processed by a Data Controller, as well as confirmation of the reason for it doing so.

In responding to a SAR, solicitors are not required to release originals or copies of documents that do not contain personal data. They are not even obliged to release originals or copies of documents that do contain personal data: it is sufficient that the solicitors provide the personal data itself, which can be collated and then recorded in a standalone document, created for the specific purpose of responding to the SAR.

Whether the solicitors elect to release copies of those documents which contain ‘personal data’, rather than extracting it, or any related documents, is a matter for the solicitors’ discretion. It is possible, therefore, but by no means assured, that some documents from the solicitors’ file might be released in response to a SAR.

Final comments

Like many other aspects of the law, what might appear straightforward at first blush is in reality much more complicated. For this reason, and if you are intending to instruct new solicitors, it may well be preferable for them to attend to the request. Although it might seem that this approach is likely to give rise to potentially avoidable costs, in our experience it can in fact prove considerably more efficient and effective.

Alternatively, and if you wish to submit a direct request for documents to your solicitors, whether as a potential or an actual litigant in person, this guide will hopefully assist you in doing so. In that event, the timing, scope and purpose of the request are matters that you may wish to consider carefully.

Further assistance

If you are considering bringing a claim for professional negligence against your solicitors and require assistance, we would be happy to discuss the matter with you.

As professional negligence solicitors we act for clients nationwide, to resolve claims against a wide range of professionals, including claims against solicitors and other lawyers.

To arrange an initial consultation with us, free of charge or commitment, please contact us on 0800 195 4983 or by email at mail@pnclegal.com.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.

Complaints to the Financial Ombudsman Service – An Essential Guide

We have produced this guide to assist anyone who is considering making a complaint to the Financial Ombudsman Service (“FOS”). In doing so, we have drawn upon our own experience of submitting complaints to the FOS, on behalf of clients who have been variously let down by their professional advisers, insurers, banks and buildings societies.

In this guide we seek to explain:

  1. What the FOS is
  2. The types of complaints the FOS handles
  3. Who can use the FOS
  4. The time limits that apply to complaints
  5. The advantages and disadvantages of submitting a complaint
  6. How to make a complaint
  7. How the FOS works
  8. The potential alternatives to complaining to the FOS

What is the Financial Ombudsman Service?

The FOS is a government-run scheme for resolving customer disputes. It was established in 2001 under to the Financial Services and Markets Act 2000 (as amended). The rules which set out how the FOS – and other financial businesses – operate are published by the industry regulator, the Financial Conduct Authority (“FCA”). They are contained within a document known as the FCA Handbook.

The FOS offers consumers and certain businesses a free, informal and independent mechanism for resolving complaints against a wide range of businesses operating in the financial services sector. These include banks, insurance companies, financial advisers, pension providers, stock brokers and insurance brokers.

While subscription to some ombudsman schemes is discretionary, all financial businesses regulated by the FCA must submit to the compulsory jurisdiction of the FOS. In addition, and subject to making the appropriation application and paying the required fees, others can subscribe to the voluntary jurisdiction of the FOS.

What type of complaints does the Financial Ombudsman Service handle?

The FOS is able to deal with a wide variety of complaints relating to most types of financial products and services provided in the UK. This means that complaints can range from issues with bank and building society accounts, pensions and mortgages, to insurance, pay day loans, Payment Protection Insurance and debt collection. More recently, the FOS has also been accepting complaints arising out of the effects of Covid-19 and the impact caused by it upon consumers and eligible businesses.

You can find further information about the types of complaints the FOS can consider in the Complaint we can help with section of its website.

You should note that there are a range of complaints that the FOS cannot consider. These include complaints that:

  • Relate to a non-UK business;
  • Have been made outside certain time limits (for which see below);
  • Are already the subject of court proceedings;
  • Relate to a non-FCA authorised individual or entity.

Am I eligible to make a complaint to the Financial Ombudsman Service?

Access to the FOS, and eligibility to make a complaint to the FOS, is restricted to private individuals (ie consumers), micro-enterprises, small businesses and certain charities and trusts.

A ‘micro-enterprise’ is a business which (i) employs fewer than 10 people; and (ii) has an annual turnover or balance sheet that does not exceed €2 million. A ‘small business’ is one which is (i) not a micro-enterprise; but (ii) nevertheless has an annual turnover of less than £6.5 million; and (iii) has a balance sheet total of less than £5 million, or employs fewer than 50 people.

The test for determining if a business falls within the applicable threshold is determined as at the date upon which a complaint is made to the financial business and not, as is often thought to be the case, the date upon which the issue being complaining about occurred, or the date upon which a complaint is made to the FOS.

Some businesses may temporarily exceed the thresholds in place for determining whether or not a complainant is eligible. However, the FOS will have regard to the ‘two-year’ rule, which recognises that this may happen from time to time.  In such circumstances, the FOS will consider the size of the business in the current trading year and also the preceding two years. It will only conclude that a business exceeds the applicable threshold if over that total three-year period it has exceeded the applicable threshold for two consecutive years.

We can help you determine if your business is eligible to complain to the FOS.

What are the time limits for making a complaint to the Financial Ombudsman Service?

In the same way that there are strict time limits for commencing civil claims for compensation in England & Wales, there are strict time limits for making a complaint to the FOS. If you make your complaint outside those time limits, the FOS will not have jurisdiction to consider it.

The general rule is that you must complain to the business or to the FOS within 6 years of the problem arising. However, the FOS recognises that a complainant may not become aware of the problem until after the expiry of 6 years and may have had no other way of discovering it. In this event, the complaint must be made within 3 years of the date upon which the problem is discovered, or could reasonably have been discovered.

The FOS expects that a complainant will contact the business in the first instance to give it the opportunity to investigate the complaint and provide its response. In most cases, a financial business then has 8 weeks to consider a complaint and provide its written response, known as a ‘final response’.

The complainant then has 6 months from the date of the final response to complain to the FOS. If the complaint is lodged outside the 6-month period, the FOS will not usually consider the complaint, unless the delay is due to exceptional circumstances (such as a serious illness), the response from the business was invalid, or the business otherwise agrees that the FOS can consider the complaint despite the 6-month time limit having expired.

In addition, small businesses can only bring a complaint about a financial business if the matter about which the complaint is being made occurred on or after 1 April 2019.

We can help you determine if your complaint can be made within the applicable time limits or if there are reasons why the time limit should be extended.

What are the advantages of using the Financial Ombudsman Service?

Some potential advantages of complaining to the FOS are that:

  • The service is provided free of charge to complainants
  • It is not necessary to instruct a solicitor or other legal representative or professional to use the service, although it may be prudent to do so if the matter is technical and/or complicated and/or is a claim for significant compensation
  • The FOS is independent of the parties and unbiased
  • The FOS is often inclined to accept a wide range of complaints and not just those relating to issues of poor service
  • If the decision of the FOS is accepted by the complainant, it is binding upon the financial business
  • The complainant is not bound to accept the decision of the FOS
  • Submitting a complaint to the FOS does not prevent a complainant from commencing legal proceedings at any time
  • It is a relatively informal, and therefore user-friendly, dispute resolution process
  • It can be, but is not always, quicker than court proceedings

What are the disadvantages of using the Financial Ombudsman Service?

  • The complaints handlers are lay individuals and not trained legal professionals – they do not have the legal knowledge or experience of a judge
  • The process can lack transparency, with decisions based on evidence that neither the financial business nor the FOS is willing to disclose
  • Unlike in civil proceedings, it is generally not possible to recover any costs incurred in obtaining legal assistance or representation in making a complaint
  • The time limits for making a complaint can be very strict
  • The complaints process does not extend or suspend the time for making a civil claim for compensation, so valuable time can be lost if a complaint is rejected
  • Whilst potentially quicker than court proceedings, the service can still be relatively slow – a complainant can be waiting many months, and sometimes many years, for a decision
  • The amount that the FOS can award by way of compensation is limited (see further below) and may not cover the full amount of the loss sustained

How do I complain to the Financial Ombudsman Service?

The first step is to contact the financial business about which the complaint is being made. This will offer the business the opportunity to resolve the matter without the need for any additional intervention. The complaint should be made within the time limits set out above.

In making the complaint, it is as well to set out each individual element of it as precisely as possible, with sequential numbering. This should assist by (i) reducing the potential for misunderstanding; (ii) reducing the need for further clarification and the delay that this can entail; (iii) averting the chance that an element of the complaint may get overlooked; and (iv) minimising the risk of a later dispute as to the scope of the complaint.

If you are dissatisfied with the response that you receive from the financial business then, provided that the business has issued you with a ‘final response’ (see above), you can make a complaint to the FOS. In some cases, particularly where there have been several rounds of correspondence after the original complaint is made, it may not be clear whether the responses provided by the business, either individually or collectively, constitute a ‘final response’. If the business provides the website address for the FOS within its written response and advises that if you remain dissatisfied you may now refer your complaint to the FOS, that is often a good indicator that it is a ‘final response’. However, if you are in any real doubt, it is usually prudent to ask the business to confirm its position in writing without delay.

Again, it is important that the complaint is made within the time limits set out above. Similarly, if you complain to a financial business and they do not respond within the required timeframe or at all, you are still able to complain to the FOS.

If you choose to make a complaint to the FOS you can utilise the online ‘complaint checker’ to determine if your complaint is eligible. If your complaint is eligible the complaint checker explains how to send your complaint to the FOS and contains links to the complaint forms which can be completed and submitted online or printed off and submitted by post.

What happens when I complain to the Financial Ombudsman Service?

Once a complaint has been made to the FOS it will be allocated to a case handler to investigate. The case handler will consider the complaint, together with any documents provided, and will also ask the financial business for its side of the story.

The case handler may also ask the financial business for documents relating to the complaint or other information which you may not have seen.

Once all relevant information has been obtained and considered, the case handler will make an initial assessment and provide a preliminary decision setting out their view. Both you and the financial business will be able to comment upon that initial assessment. The preliminary decision should also state if the FOS does not consider that the complaint is valid or if there has been no financial loss suffered.

However, if the case handler considers that you have been treated unfairly then the report will say what it considers should be done to resolve the matter. This may require payment of financial compensation or for the business to take another step, such re-opening a bank account that was closed unfairly.

If either party is unhappy with the case handler’s preliminary decision, it can request that the matter be referred to an ombudsman for a final decision.

Alternatively, and where both parties are happy to accept the case handler’s decision, it will be binding on both of you. That will also be the case where the complaint is referred to an ombudsman whose final decision you choose to accept, even if the financial business is unhappy with it.

Where, however, the complaint is referred to an ombudsman (whether at the request of one party (regardless of which) or both of the parties) and you choose not to accept the final decision, you will then be free to pursue the complaint by such other means as you see fit. It is immaterial whether or not the financial business is happy with the final decision.

How much compensation can the Financial Ombudsman Service award?

If the FOS upholds your complaint the financial business will be asked to put matters right. That may include payment of compensation for financial loss and for distress and inconvenience. The award can be in any amount up to the award limit (for which see below) and will be calculated according to what the FOS considers is a fair amount to compensate you financially.

The compensation limit of any financial award depends upon when the complaint was made to the FOS as follows:

  • £355,000 for complaints referred to the FOS on or after 1 April 2020 about acts or omissions by firms on or after 1 April 2019
  • £350,000 for complaints referred to the FOS between 1 April 2019 and 31 March 2020 about acts or omissions by firms on or after 1 April 2019
  • £160,000 for complaints about acts or omissions by firms before 1 April 2019, and which are referred to the FOS after that date

If the FOS cannot calculate how much a financial business should pay to a complainant it may ask the business to undertake the relevant calculation. If the FOS considers that the complainant is entitled to receive a compensation payment in excess of the applicable limit, the FOS will usually recommend an additional amount that the financial business should pay, but the FOS has no ability to order the business to pay that additional amount.

The FOS may also order the financial business to make a payment if it considers that a complainant has suffered emotionally, as well as financially. The FOS can make a financial award for distress, inconvenience and damage to reputation. It can also award interest in addition to any financial award made, even if that takes the total award above the applicable limits.

What alternatives are there to using the Financial Ombudsman Service?

You are not obliged to use the FOS to resolve your complaint and it would seem from the reviews that appear online and on Trust Pilot, that user experience is decidedly mixed.

If the level of financial loss that you or your business have sustained is substantially greater than the limits imposed on the FOS, you may consider that it is not a suitable forum for resolving your complaint. This may also be the case where the complaint is of a technical legal nature and/or raises allegations of professional negligence which require a more careful assessment and/or expert evidence.

Equally, if the time limits within which to pursue a complaint have expired, or if the FOS has (for whatever reason) yielded an unsatisfactory result, you may also wish to consider other forms of dispute resolution.

If the complaint is in essence one of professional negligence, you may well prefer to initiate a civil claim for damages. You can find further information about this process within our related guide: Claim for professional negligence: Your key questions answered

Alternatively, and if your complaint is of a more commercial nature, you may simply wish to commence court proceedings.

Further legal assistance

As professional negligence solicitors we act for clients nationwide, to resolve claims against a wide range of professionals, including claims against a range of financial businesses.

If you would like to arrange an initial consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at mail@pnclegal.com.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.

Examples of Solicitor Negligence

The best examples of solicitor negligence are to be found in the case law reports and in specialist authoritative texts. However, while these sources in combination provide helpful categorisation and referencing, as well as extensive detail, they are only accessible on a private subscription basis and at considerable cost.

In this article, and with unrestricted access, we provide examples of solicitor negligence across a range of different legal practice areas. Further, and in each case, the example given is in summary form, both for ease of understanding and for reader efficiency.

While the examples of solicitor negligence that follow are intended to provide a useful insight into the different ways in which these types of claims can arise, they are by no means exhaustive. Indeed, the capacity for human error, even at a professional level, is such that to do otherwise would be impractical.

It should also be noted at the outset that allegations and claims of solicitor negligence are often highly fact sensitive. This means that although the outcome in one case can provide an indication of the likely outcome in another, considerable care is required when conducting any comparison.

Successful case examples of solicitor negligence

Starting on a positive note, at least from a Claimant perspective, we first set out those carefully selected examples of solicitor negligence which resulted in a finding of liability on the part of the solicitor and a consequential damages award in favour of the Claimant:

1.     Solicitor negligence – conveyancing

Historical claims data provided by market insurers of solicitors has consistently shown that more claims against solicitors arise from conveyancing than from any other area of legal practice. As a result, case examples of solicitor negligence are numerous.

·        Mansion Estates Ltd v Hayre & Co (2016)

In Mansion the Claimant had instructed the Defendant firm of solicitors to act for it on both its purchase of development land and its simultaneous sub-sale of part of that land. However, after completion, the Claimant discovered that the terms of the sub-sale restricted its access to the retained land, which in turn adversely affected its ability to develop the retained land.

The Claimant subsequently issued proceedings against the Defendant for solicitor negligence, alleging that not only had the Defendant failed to attach the correct plan to the conveyancing documents, but that it had failed to advise the Claimant on the potential to reduce its liability for Stamp Duty Land Tax (‘SDLT’).

In response, the Defendant asserted that it had attached the plan it had been given by the Claimant, that it had in fact warned the Claimant of the restrictions arising from that plan and that it had received the Claimant’s instructions to proceed with it regardless. The Defendant also asserted that there was no opportunity to reduce SDLT. In doing so, the Defendant relied upon two attendance notes of its discussions with the Claimant and a letter it had allegedly sent to the Claimant.

In giving judgment, the court concluded that it was implicit from the defence that the Defendant accepted that it owed a duty of care to the Claimant to advise on the issues blighting the retained land and that, in any event, such a duty was incidental to the Defendant’s retainer, as was a duty to calculate SDLT accurately.

The court also found as a matter of fact that the Claimant had given the Defendant the correct plan and that it would not, therefore, have been necessary for the Defendant to have advised on any restrictions. However, and fatally, the Defendant had then attached the wrong plan. In light of these findings, the court also found that the attendance notes relied upon by the Defendant were not accurate and misrepresented the true events.

In addition, the court determined that the structure of the transaction was such that a concession was available to the Claimant in respect of SDLT. Alternatively, and if it was not, it determined that alterations could and would have been made by the Claimant to secure such a concession. In these circumstances, judgment was entered for the Claimant in the sum of £229,970.

Further examples of solicitor negligence in conveyancing can be found in our related articles: Five Common Conveyancing Errors (Residential) and Five Common Conveyancing Errors (Commercial).

2.     Solicitor negligence – wills & probate

Although research suggests that fewer than 40% of the adult population in the UK have a will, given the size and composition of the UK population, this still means that a large volume of wills do exist. In part at least, this also explains why there is a significant body of examples of solicitor negligence in this area.

·        Gray v Buss Murton (1998)

In Gray, the Claimant brought a claim against the Defendant firm of solicitors in her capacity as both beneficiary and executrix under the will of George Akehurst.

Mr Akehurst had been a successful businessman and the owner of a fairly large house, known as ‘The Glen’. After the death of his wife, he had developed an attachment to the Claimant, whom he modestly referred to as his companion and housekeeper. Unfortunately, the relationship was not one of which Mr Akehurst’s son approved and after an acrimonious exchange, Mr Akehurst decided to alter his existing will.

Mr Akehurst undertook the alterations himself, using his existing will as a precedent. Amongst other changes, he sought to bequeath The Glen and various chattels to the Claimant absolutely and to remove any entitlement on the part of his son. Having done so, he asked the Claimant to get it checked by the Defendant.

Upon attending the Defendant’s office, the Claimant met with Mr Lightfoot, a trainee solicitor. Precisely what instructions Mr Lightfoot received and what advice he gave in relation to the altered will was in dispute. However, the meeting concluded with the Claimant (mis)understanding that both the creation and composition of the will was valid, and Mr Lightfoot having satisfied himself only as to the validity of the former.

In the event, and following Mr Akehurst’s death, it was held by judicial pronouncement that while the will was correctly executed and valid, it did not bequeath The Glen to the Claimant absolutely. As this was both contrary to Mr Akehurst’s intentions and the advice the Claimant believed she had received from Mr Lightfoot, she commenced a claim for damages for professional negligence against the Defendant.

At trial the court considered that Mr Lightfoot, with the advantage of the legal training and understanding that he had acquired, should not only have apprehended the potential for misunderstanding by the Claimant, but should also have done more to clarify the scope of the advice that the Claimant was seeking from him. The court further concluded that had Mr Lightfoot done so, the will would have been re-drafted so as to achieve Mr Akehurst’s intended bequest of The Glen to the Claimant.

For further commentary on the mistakes commonly made by solicitors and will writers undertaking wills and probate work, please see our related article: Negligent Will Writing & Probate – Five Common Mistakes.

3.     Solicitor negligence – litigation

The rules and procedures governing civil litigation in England & Wales are both extensive and complex and it is not difficult to fall foul of them. When this happens, the ability to pursue perfectly valid claims can be lost. Unfortunately, delay in these circumstances is a common feature.

·        Pearson v Sanders Witherspoon (1999)

In Pearson the Claimant was the owner and operator of a petrol station, to which he had commissioned Ferranti International plc to reconstruct the forecourt and install the latest computer-operated pumps.

In June 1988, and several years after completion of the construction works, the Claimant issued proceedings against Ferranti for petrol losses caused by leaking tanks or computer error. Little was done to progress those proceedings and in December 1992 the Claimant instructed a new firm of solicitors and then again in 1993.

In 1994, and after Ferranti had appointed administrative receivers, the Claimant issued further court proceedings against it, which were consolidated with the first action. In 1996, and unchallenged, the Claimant obtained judgment against Ferranti for £1,063,707.10. However, by that stage Ferranti had no assets and so the judgment debt was irrecoverable. The Claimant then issued a claim for solicitor negligence against the first and second firm of solicitors he had instructed in his dispute with Ferranti.

Following a trial, Mr Justice Gage found that from December 1988, when the Claimant settled a preceding claim issued against him by Ferranti, it was incumbent upon the First Defendant to progress the Claimant’s claim with all reasonable speed and that in failing to have done so, the First Defendant had acted negligently. The judge also found that had the First Defendant not acted negligently, a trial would have occurred in January 1992 and that the delay was the dominant and effective cause of the Claimant’s loss.

However, on appeal, the Court of Appeal held that it was not until the First Defendant had become aware of a newspaper report in 1991, which raised doubts about the financial future of Ferranti, that it came under a fresh duty to act swiftly and that, had it done so, a judgment could have been obtained in June 1993, around six months prior to the appointment of administrators. The court additionally held that the true value of the Claimant’s claim against Ferranti was approximately £100,000 and that against this, he would have had a 75% chance of successfully obtaining judgment and a 50% chance of enforcing that judgment. Accordingly, it ordered the First Defendant to pay damages to the Claimant in this action of £37,500, less Ferranti’s outstanding costs, plus interest.

4.     Solicitor negligence – matrimonial

Relatively speaking, examples of solicitor negligence are less common in connection with divorce and matrimonial disputes. However, that may suggest a lack of detection, rather than a lack of occurrence.

·        Patricia Beswarick v JW Ripman & Others (2001)

In Beswarick the Claimant instructed Mr Ripman, the First Defendant and a partner in the firm of solicitors named as the Second Defendant, to represent her as petitioner in divorce proceedings.

The underlying matrimonial proceedings, and the financial negotiations associated with them, that gave rise to the claim were prolonged and, at times, acrimonious. After 26 ½ years of marriage and having discovered that her husband was having an affair with her friend and work colleague, the Claimant sought legal advice from the Defendants on separation. This necessitated provision to be made for the disposal of the matrimonial home, the maintenance of two of her three children (‘Children’) and the division of various chattels.

On the basis of the advice she received, the Claimant ultimately agreed to a ‘clean-break’ order (‘Order’) which, amongst other matters, provided for the payment by the husband to the Claimant of a lump sum of £35,000. This was to be paid in part by the transfer of the net proceeds of sale of the former matrimonial home and the payment of £2,000 upon the return by the Claimant to the husband of certain identified items of property removed by her from their yacht.

At the time the Claimant agreed the Order, and with her consent, the Children were living with her ex-husband. However, this changed the following year when the Children returned to live with her. Unfortunately, no financial provision had been made for this eventuality within the Order and, as a result, the Claimant was unable to secure maintenance payments from her ex-husband.

The Claimant subsequently commenced proceedings for solicitor negligence against the First and Second Defendants (collectively ‘Defendants’) alleging, amongst other matters, that they had acted negligently by (i) advising her that she should consent to the Order, which contained inadequate capital provision and failed to cater for the probability that the Children would return to live with her; and (ii) failing to act in her interests so as to secure the return of her chattels.

In a detailed and lengthy judgment, the court held that the Claimant’s recollection of events had been influenced by her determination to achieve a better financial outcome in her current claim and by way of damages, than that achieved by the Defendants on her behalf and that, judged objectively, it could not be said that the Defendants did not act competently in agreeing the lump sum component of the Order.

However, the court also found that the Defendants had been negligent in failing to apprehend the potential for, and failing to make any financial provision for, the Children deciding at a later date to reside with her. In addition, the Defendants had failed to advise the Claimant as to the absence of any provision within the Order for the division of chattels and had instead assumed, unreasonably, that this would be resolved in due course by a separate agreement between the parties.

Having determined that, absent the Defendants’ negligence, the Claimant would have been entitled to maintenance by way of a periodic payments order and have received payments over a 5 ½ year period, the court awarded damages of £30,500, to include the estimated value of the chattels that the Claimant was unable to recover.

5.     Solicitor negligence – personal injury

Much like residential conveyancing, personal injury litigation has in many instances become an industrial exercise, resourced by a production line of paralegals and legal technicians. While this often reflects the economic profile of the claims, it does increase the risk of professional negligence.

·        Charles v Hugh James Jones & Jenkins (1999)

In Charles, the Claimant had been a pillion passenger on a motor-cycle that was involved in a collision with a lorry. The Claimant suffered serious injuries and instructed Goldstones solicitors to pursue a related personal injury claim on her behalf. Although liability was admitted by the driver of the lorry, little was done to progress the claim. The Claimant then instructed the Defendant firm of solicitors but, very shortly after receiving Goldstones’ litigation papers and unbeknown to the Defendant, the claim was automatically struck out for delay.

The Claimant subsequently commenced a claim for solicitor negligence against the Defendant, which admitted liability for allowing the original action to become struck out. However, it disputed the level of damages claimed against it and the matter proceeded to trial.

At first instance, the court found that had the original claim not been struck out, damages would have been assessed at a notional trial in January 1996. In assessing the Claimant’s loss, the court also relied on medical opinions obtained after the notional date of trial, which recorded a subsequent deterioration in the Claimant’s condition, and refused to discount the Claimant’s damages award to reflect the risks generally attendant on litigation.

On appeal by the Defendant, the Court of Appeal endorsed the approach taken by the court below. More particularly, it held that while a judge’s task was to assess damages that the Claimant would have recovered at the notional trial date, in appropriate circumstances, a judge may well be assisted in coming to a view as to the damages which would have been awarded at the notional trial date, by knowledge of what had in fact occurred. Further, and in this case where both the driver of the lorry and the Defendant had admitted liability, there was no risk attendant on the litigation so far as liability was concerned which would warrant a discount to the damages awarded.

6.     Solicitor negligence – corporate

Corporate transactions are often complicated and time-sensitive and these features combined increase the risk of solicitor negligence. Where mistakes do occur, the financial losses can be significant, as can the costs of any related professional negligence claim.

·        Wellesley Partners LLP v Withers LLP (2014)

In Wellesley the Claimant was an executive search agency operating predominantly in the investment banking sector. In 2007 it decided the time was right for further expansion and it identified Addax as a potential investor. The Claimant instructed the Defendant to advise on and prepare the documents needed to complete the investment, which itself necessitated an amendment of the Claimant’s existing LLP agreement.

In due course, Addax’s solicitors circulated an amended draft LLP agreement which, amongst other matters, provided that after 42 months from the date of the agreement, Addax could issue an Exercise Notice which would unwind half of its investment in the Claimant. Unfortunately, and without having appreciated the significance, the Defendant further amended this provision, so as to permit Addax to issue an Exercise Notice from the date of the agreement and for a period of up to 41 months thereafter. Despite other amendments to the draft agreement, this provision remained unchanged and eventually formed part of the signed LLP agreement.

As a result of the global financial crash that followed, and approximately 12 months after entering into the LLP agreement, Addax served an Exercise Notice requiring the Claimant to terminate its membership in relation to 50% and refund 50% of its $4.75m investment. Litigation then followed, which was eventually settled on terms that provided for payment to Addax of various sums in satisfaction of its interest in the Claimant.

The Claimant subsequently commenced a claim for solicitor negligence against the Defendant, primarily asserting that it had amended the Exercise Notice without instruction. Although this was denied by the Defendant, the judge at first instance found on the evidence that there was no conceivable reason why the Claimant would have initiated such an amendment and that the Defendant must have either misunderstood or misremembered the instructions that it had received. On this basis, and this basis only, he considered that the Defendant had indeed been negligent.

As to the losses suffered by the Claimant, the judge concluded that it was entitled to recover damages of £1,612,313, representing the lost chance to achieve those profits that the Claimant would have enjoyed from a continued investment by Addax and wasted management time. Both the Claimant and the Defendant appealed.

On appeal, and amongst other matters, the Court of Appeal held that the judge had been wrong to apply the tortious test for remoteness, rather than the more restrictive test in contract. Nevertheless, this did not affect the result. It also held that the judge had been correct to apply loss of chance principles to the Claimant’s claim for loss of profits and it refused to interfere with his assessments. Accordingly, and save for a modest increase to the damages awarded for wasted management time, the outcome at first instance was unchanged.

Unsuccessful case examples of solicitor negligence

Not all case examples of solicitor negligence end in an award of compensation and assessing the merits of a particular case and its likely outcome is a complicated and involved exercise.

In the interests of balance and objectivity, we also provide the following case examples where the Claimant’s claim was ultimately unsuccessful:

1.     Solicitor negligence – conveyancing

·        Boateng v Hughmans (2002)

In Boateng the Claimant had been a secure tenant of a ground floor flat of a property which was otherwise vacant and in disrepair. As an alternative to undertaking the necessary repairs, the landlord invited the Claimant to purchase its freehold interest in the property for £65,000.

As the Claimant did not have the necessary funds to accept the invitation, he decided in turn to invite a third-party builder to finance the purchase, convert the property into three flats of which he would retain one, and then to re-sell the freehold interest to him.

The Claimant retained the Defendant firm of solicitors to advise and represent him in the proposed transactions. Following negotiations, contracts were then simultaneously exchanged for the purchase of the property by the Claimant for £65,000 and the sale of the property by the Claimant to Balancan Ltd, a developer, for £109,250. Amongst other terms, the contract with Balancan provided that Balancan would seek planning permission to develop the property into three flats and that Claimant would vacate the property when building works commenced.

Balancan funded its purchase by way of a loan granted by Nationwide, which was secured by a legal mortage over the property. This was accompanied by a consent form which the Claimant signed and which postponed his rights over the property to those of Nationwide.

Regrettably, relations between the Claimant and Balancan then broke down and Balancan went into liquidation. Thereafter, Nationwide sold the property to Gracegrove Estates Ltd, which in turn obtained an order for possession.

In a subsequent claim for professional negligence against the Defendant, the Claimant alleged that the Defendant had failed to advise him in various respects, including that he should not part with the freehold interest in the property without first obtaining better security.

Both at first instance, and on appeal, the court agreed that the Defendant had breached its duty of care. Each concluded that any reasonably competent solicitor would have drawn to the Claimant’s attention the fact that the contract with Balancan exposed him to the inherent risk of being left without any interest in the property, and any effective pecuniary remedy, in the event that Balancan became insolvent before completing the proposed construction work.

However, neither court considered that satisfactory or sufficient evidence had been adduced by the Claimant to persuade it that he would have enjoyed a different outcome had the Defendant advised as it should have done. Amongst other matters, the Claimant had not established that the directors of Balancan would have provided personal guarantees or that he would instead have simply sold the property on with vacant possession.

2.     Solicitor negligence – corporate

·        Luffeorm Ltd v Kitsons LLP (2015)

In this case Luffeorm Ltd, incorporated by its directors, Mr and Mrs Coles (collectively and for convenience ‘Claimants’), had decided to purchase the leasehold interest in a public house in Devon known as the Highwayman’s Haunt. Having agreed to purchase the lease from its current owners for £130,000, the Claimants instructed the Defendant to act on their behalf in connection with the purchase of the leasehold business.

Contracts were exchanged and the sale was completed in April 2011, at which time the Claimants commenced trading. However, after one of the vendors took over at a nearby public house in July 2011, trade quickly diminished. This ultimately caused the Claimants to dispose of the lease in July 2012 for £69,950, causing a significant loss to them.

In due course the Claimants commenced a claim against the Defendant for solicitor negligence. In essence, they alleged that the Defendant had failed to advise them (i) of the risk of trade being diverted in the absence of a covenant within the purchase contract preventing the vendors from competing with them; and (ii) to ask that such a covenant be included.

At trial, the Defendant accepted that it had not warned the Claimants about the risks they faced or the absence of such a covenant. While accepting that the Defendant had no obligation to advise the Claimants on the commercial wisdom of the transaction, the court did consider that the Defendant should have drawn the absence of any trade restriction to the attention of the Claimants and that in failing to do so, it had been negligent.

Nevertheless, the court also found on the evidence, and as a matter of fact, that the Claimants were keen to complete their purchase as quickly as possible and that even if the Defendant had acted competently, the Claimants would have proceeded as they did, without seeking such a covenant. Accordingly, the claim was dismissed on causation grounds.

3.     Solicitor negligence – personal injury

·        Perry v Raleys (2017)

In Perry the Claimant was a retired miner, who had been afflicted with Vibration White Finger (‘VWF’), a condition known to cause a reduction in grip strength and manual dexterity in the fingers and, in turn, the ability to carry out routine domestic tasks such as gardening, DIY or car maintenance.

In 1999 the Department of Trade & Industry set up a scheme to compensate miners suffering from VWF (‘Scheme’). Subject to satisfying various claim criteria, the Scheme made provision for the payment of two main types of compensation, similar in nature to awards for general and special damages in personal injury claims.

In 1996, and before the Scheme was introduced, the Claimant instructed the Defendant to pursue a claim for VWF on his behalf. In 1999, and following the introduction of the Scheme, the Claimant agreed to settle his claim in return for a payment of £11,600. However, he later discovered that this sum effectively represented the value of his general damages claim and that no claim had been submitted by the Defendant for special damages.

In 2009 the Claimant issued a claim for solicitor negligence against the Defendant. Damages of £17,300.17 plus interest were claimed, representing the value of the special damages award he had allegedly lost the chance to obtain. Before trial, the Defendant admitted that in failing to submit a claim for special damages it had acted in breach of duty. However, it nevertheless asserted that it had not caused any loss.

After a two-day trial, and based on the evidence before him, the judge concluded that the Claimant had not in fact suffered any significant disability as would have entitled him to a special damages award. He therefore dismissed the Claimant’s claim with costs. While the judge’s conclusions were subsequently reversed by the Court of Appeal, they were later restored following a further appeal to the Supreme Court.

Comments

All of the examples of solicitor negligence provided above are actual cases, rather than hypothetical ones. The range of examples will hopefully demonstrate the array of different scenarios in which claims for solicitor negligence can arise and of which the examples given are but a snap shot.

The unsuccessful examples of solicitor negligence will hopefully highlight that in order to secure any meaningful damages award, a Claimant must do more than prove that the solicitor in question has made a mistake: the Claimant must also prove that the mistake was causative of loss, both as a matter of fact and of law.

Further legal assistance

As professional negligence solicitors we act for clients nationwide, to resolve claims against a wide range of professionals, including against other solicitors.

If you would like to arrange a telephone consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at mail@pnclegal.com.

At PNC Legal there is much more than just the fact that we specialise exclusively in resolving claims for professional negligence that sets us apart from most other solicitors.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.

Negligent Will Writing & Probate –
Five Common Mistakes

It is a difficult time dealing with the death of a loved one. But when it becomes apparent that the carefully made plans put in place by the deceased for the distribution of their assets have unravelled due to negligent will writing by a solicitor or will writer, or that the tax burden for their estate is higher than expected due to a poorly prepared or incomplete probate form, it is an extra stress which is most unwelcome.

The very nature of the will writing process, which is often complex and emotional, means that many mistakes can occur during the course of preparing the document. Sadly, the death of the maker of the will means that some negligent will writing cannot be put right and the beneficiaries (or intended beneficiaries) are inevitably left to deal with the financial burden of the error.

In this article we examine some of the mistakes made by solicitors and will writers when preparing wills and dealing with probate, focussing on those which we see most commonly.

1.    The testator lacked capacity to make a will

As a first step, it is important that the solicitor or will writer is satisfied that the person making the will (known as the ‘testator’) has the mental capacity to do so. If the solicitor is concerned that the testator is not of sound mind for any reason, then they should make further enquiries to satisfy themselves either way. Failure to do so could lead to a subsequent challenge of the will on the basis that the testator did not have full capacity at the time they executed the will.

If a solicitor or will writer fails to address the question of capacity of the testator, or overlooked that the testator was suffering from dementia or under the influence of alcohol or drugs, for example, he or she could be held responsible by the court for the consequences of that will being invalid.

In the will writing case of Feltham v Bouskell, the court found that the solicitor had failed to establish that the testator, a 90-year-old woman who was suffering from dementia, had appropriate capacity and had failed to take the steps he should have done in order to satisfy himself of this. The principal beneficiaries under the testator’s previous will successfully challenged the new will on the grounds of her incapacity. The step-granddaughter who would have benefitted under the new (and invalid) will then brought a successful  claim for negligent will writing against the solicitor for the loss she had suffered as a result.

2. Delays in carrying out instructions

It is not uncommon for wills to be prepared or updated shortly before the testator’s death, particularly if there has been a change in circumstances. A solicitor who is contacted for assistance at that time, may have only a relatively limited period in which to act. In the event that the solicitor delays, either taking instructions or then preparing and having the updated will executed in a timely manner, there is a risk that the testator may die before the new will can be executed.

It is generally expected that a solicitor will carry out their instructions within a reasonable period of time and without undue delay. The question of what is reasonable will depend upon all the circumstances; if the solicitor is aware that the death of the testator is imminent and that the preparation or updating of the will is time-critical, then it would be reasonable to expect the solicitor to act with appropriate haste.

Even if the testator’s death is unexpected, if the solicitor has delayed unreasonably in preparing the will, which could otherwise have been prepared and executed in good time to enable a valid will to have been created before the testator’s death, the solicitor may still be responsible for the consequences of their delay.

The seminal case of White v Jones, which came before the court in 1995, confirmed that a solicitor or will writer may be held responsible to disappointed beneficiaries if it can be shown that the professional delayed unduly in preparing a will for execution prior to the testator’s death. In this particular case, the court concluded that a delay of 59 days after receipt of the letter of instruction was unacceptable and negligent.

3. Poor drafting

The purpose of a will is to both assure and ensure that after a person’s death their wishes for the distribution of their assets will be carried out. However, if the wording of the will is unclear in any way, then there is a risk that the assets will be distributed against the wishes of the deceased and at odds with the expectations of the beneficiaries. Whilst the general rule is that it is unusual for a party who is not a client (commonly known as a ‘third party’) to be owed a duty of care by a solicitor, the case of Ross v Caunters confirmed that in certain circumstances a potential disappointed beneficiary will have a claim against a solicitor or will writer who makes an error when preparing a will.

In practice this could occur, for example, if a will provides for certain legacies to be distributed to ‘my children’. Such a provision would only cover biological children of the testator and any step children who were intended to benefit from such legacies under the will would not do so.

At the other end of the spectrum, wording which is too specific may also result in confusion when distributing assets. For example, referencing a specific motor vehicle such as ‘my black BMW 3 series’, which by the time of the testator’s death had been sold and replaced with an alternative make or model, will cause misunderstanding and potentially lead to an erroneous distribution of assets.

For high and ultra-high net worth individuals, tax planning is often the key driver to a professionally drafted will; the efficient drafting of the will can be crucial to ensure that the inheritance tax burden upon the estate is minimised as far as possible. Careless drafting can result in an inheritance tax bill of many hundreds of thousands of pounds, which with careful thought could have been reduced or even eradicated completely.

Sometimes the negligent will writing is simply as a result of the solicitor’s failure to take proper instructions and to take the time to properly understand the testator’s wishes; the will as then drafted reflects the solicitor’s misunderstanding and not in fact the wishes of the testator.

It is important that the solicitor takes time to understand the extent of the testator’s assets and to ensure that all have been considered. Whilst tangible assets, such as a house and jewellery, are often easily remembered, intangible assets can frequently be overlooked by the testator. It is therefore good practice for the solicitor preparing the will to prompt the testator and urge them to consider less tangible assets, such as bank or building society accounts, stocks and shares and premium bonds, for example.

If the solicitor’s careless drafting of the will has resulted in an intended beneficiary failing to receive a specific asset, then that beneficiary may have a claim against the solicitor for the value of that ‘lost’ asset

4. The will is not correctly witnessed

It is a requirement under section 9 of the Wills Act 1837 (“Act”) that for a will to be valid it must be witnessed by two separate witnesses, who must (i) be physically present (this is discussed in more detail below); (ii) be UK citizens aged 18 or above; and (iii) not be named as beneficiaries in the will or married to a beneficiary.

If a will is not properly witnessed, it may be declared void. In those circumstances, the testator will be treated as having died ‘intestate’ and their assets will be distributed according to the laws of intestacy, which may not accord with the wishes expressed in their will.

When a solicitor sends a draft will to the testator for their review and execution (signature), it is good practice for the solicitor to provide clear instructions as to how the will should be signed and witnessed and who can be a witness to the testator’s signature, so as not to cause an issue with the validity of the will or any intended bequests after their death. In addition, the solicitor should check that the will has been properly executed when it is returned to them and take appropriate steps to rectify any signing errors which have occurred.

By asking or allowing a beneficiary or a spouse of a beneficiary to witness the will, that beneficiary could be excluded from the will entirely and lose out on an otherwise valuable bequest, whether financial or sentimental.

There have been a number of negligent will writing claims where the courts have concluded that the solicitor was at fault for failing to ensure that the testator’s will was properly executed. In the case of Humblestone v Martin Tolhurst Partnership (a firm) the court concluded that the solicitors were negligent for failing to check that a will had been properly executed when it was returned to them for safe-keeping.

In Marley v Rawlings, another will writing case, a firm of solicitors was instructed to prepare wills for a husband and wife. Mrs Rawlings signed Mr Rawlings’ will in error and vice versa, rendering both wills invalid. The court held that the solicitors should pay the legal costs of the parties, rather than the estate, on the basis that it was the solicitors’ negligence which caused the litigation to arise between the beneficiaries.

The Covid-19 pandemic has also played its part in determining what is meant by being ‘physically present’ when witnessing a will, with lockdown presenting significant challenges in witnessing wills safely whilst social distancing. On 28 September 2020 the  Wills Act 1837 (Electronic Communications) (Amendment) (Coronavirus) Order 2020 SI 2020/952 (‘Order’) came into force and applies to wills made on or after 31 January 2020 and on or before 31 January 2022.  The Order introduced the ability to execute and witness wills validly through a live-action video link such as Zoom or Skype.

Guidance was also issued by the Government to practitioners in support of the Order. This made clear that the Order should only be used as a last resort, such as when a testator was in hospital or when there was imminent need. It also recommended (but did not require) that a recording of the video be taken and suggested amendments to the attestation clause. However, the scope for future challenge of a will witnessed in such circumstances is significant. Practitioners unused to dealing with witnessing a will by live video link, or doing so ill-prepared or under pressure, could easily have fallen foul of the provisions of the Act by failing to follow the Government’s guidance, leaving a will invalid and the wishes of the testator unfulfilled. It is still too early to see the knock-on effect of the introduction of live link video calls, but we consider that it is only a matter of time before issues become apparent and disappointed beneficiaries seek help.

5. Filing the wrong or incorrectly completed probate and inheritance tax forms

Probate is the legal term which is used for the legal process of determining the validity of the will and generally administering the testator’s assets and wishes in accordance with the provisions of the will. Naturally, this occurs following the death of the testator. Even in straightforward cases, with few assets or a relatively low value, probate can be tricky. In cases where the testator was a high or ultra-high net worth individual, where the assets to be distributed can be of substantial value and/or located worldwide and the inheritance tax bill can be considerable, probate can be fraught with difficulties.

It is therefore imperative that the solicitor instructed to deal with the probate of the testator’s estate completes and files the correct forms and also, that they include the correct information. Making an error in the course of probate can have significant financial implication, but can also carry civil or even criminal liability for the non-solicitor executors if the solicitor they have retained makes an error.

Failure to deal with probate promptly and to adhere to any required deadlines can also lead to interest and penalties being incurred if any inheritance tax due is not paid on time.

How we can assist

As professional negligence solicitors, we act for clients nationwide to resolve claims against a wide range of professionals, including solicitors and will writers.

If you think that you may have suffered a financial loss as a result of negligent will writing or any other probate error, and if you would like to explore the possibility of pursuing a claim for compensation, please contact us on 0800 195 4983 or at mail@pnclegal.com

At PNC Legal there is much more than just the fact that we specialise exclusively in resolving claims for professional negligence that sets us apart from most other solicitors.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.

Third Party Claims – A Film Finance Scheme Epic

In the recent third party claim of McClean v Thornhill (2022) the court had to determine a plethora of legal issues, including whether a leading tax barrister instructed by the promoter of three film finance schemes owed an actionable duty of care to various third party investors.

Background

The Claimants were all members of one or more of three limited liability partnerships (‘LLPs’) that had been created for the purposes of distributing films in the US, UK and Canada (‘Schemes’).

The Schemes were promoted by Scotts Private Client Services Ltd and Scotts Atlantic Management Ltd (collectively ‘Scotts’) and were marketed to the Claimants on the basis that their investment would entitle them to tax relief against their income or capital gains, for trading losses that the LLPs were expected to make.

Andrew Thornhill QC was a leading tax barrister who had been engaged by Scotts to advise on the merits of the Schemes and who had provided written opinions dated 28 January 2003, 20 October 2003 and 27 February 2004 (‘Opinions’).

The Schemes had been promoted to the Claimants using information memorandums, which Mr Thornhill had confirmed were not inconsistent with his Opinions and in which Mr Thornhill had been content to be named as a tax adviser to Scotts. Mr Thornhill had also consented to his Opinions being made available to any potential investor upon request.

However, in September 2016 HMRC issued a Closure Notice in respect of at least one of the Schemes, confirming its decision to refuse the tax relief claimed in relation to it. HMRC subsequently issued a settlement offer, which all the Claimants accepted.

Professional negligence proceedings were then issued against Mr Thornhill on 5 July 2018. Although the total number of individual Claimants exceed one hundred, a sample of ten claims were initially selected for trial.

Issues for determination

The court was invited to determine a number of issues that were common to all claims, as well as certain issues specific to the ten individual cases comprising the sample. These issues included:

  • Whether Mr Thornhill owed the Claimants, as investors in one or more of the Schemes, a duty to take reasonable care in advising upon tax matters relating to the Schemes;
  • Whether Mr Thornhill had been negligent in providing the Opinions and in endorsing the information memorandums;
  • What advice Mr Thornhill should have given and, if he had, whether the Schemes would have been promoted by Scotts and invested in by the Claimants;
  • In deciding to invest in the Schemes, whether the Claimants relied upon Mr Thornhill’s advice and/or endorsement;
  • Whether the claims were in any event time-barred under the Limitation Act 1980;
  • What recoverable losses the Claimants could recover from Mr Thornhill.

Decision of the High Court

After a 14-day trial in November and December 2021, Mr Justice Zacaroli handed down his reserved judgment on 8 March 2022.

Duty of care

In assessing whether or not Mr Thornhill owed any duty of care to the Claimants, the judge observed that the information memorandums used to promote the Schemes, expressly stated (amongst other matters) that:

  • The Schemes were only directed at investment professionals who had experience of participating in unregulated collective investment schemes;
  • Prospective members of the Schemes were advised to consult their tax advisers in relation to the taxation consequences of investing in the LLPs;
  • There was no guarantee that HMRC would agree that the tax reliefs described in the document would be applicable to the individual member.

The judge also noted that within the subscription documents, the Claimants were required to confirm (again, amongst other matters) that:

  • They were experienced in business matters and recognised that the Schemes were speculative ventures;
  • They had only relied on the advice of, or had only consulted with, their own professional advisers with regard to tax, legal, currency and other economic considerations related to subscription in the LLPs;
  • Neither Scotts nor the LLPs were responsible for assessing the suitability of the Schemes for the prospective member, any needs or any purpose or aim of the prospective member;
  • It was the responsibility of the prospective member to obtain appropriate advice, recommendations and assessment from an independent financial adviser or other suitably qualified person.

In addition, the judge noted that the nature of the Schemes were such that the Claimants had in reality been acting as buyers in a commercial transaction in which Scotts, by whom Mr Thornhill was retained, was acting as seller and on the opposite side.

Having considered various case authorities, including the seminal case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 and the more recent decision of the Supreme Court in NRAM Ltd v Steel [2018] UKSC 13, the judge observed that in determining whether a duty of care is to be imposed on a person, it is necessary to have regard to all the circumstances of the case. Moreover, and while there were certain facts that militated towards imposing such a duty in this case, they could not be viewed in isolation.

The judge concluded that of more critical importance here were the terms of the information memorandums and subscription documents (the material parts of which are set out above). These documents were known to Mr Thornhill and acutely relevant to the issue of whether or not Mr Thornhill could reasonably foresee that the Claimants would rely upon his advice. Taking these documents into account, the judge determined that it was objectively reasonable to assume that independent professional advice would indeed be taken by the Claimants, as they were advised to do and were required to warrant that they had done.

Accordingly, the judge found that no duty of care had been assumed by Mr Thornhill to those Claimants who received a copy of his opinions. The judge also found that there could be no duty of care owed to those other Claimants who had not received copies of the Opinions, as no advice from Mr Thornhill had ever been communicated to them.

Breach of duty

Although, absent any duty of care, the Claimants were unable to establish any liability on the part of Mr Thornhill, the judge nevertheless went on to consider the Claimants’ assertion that no reasonably competent tax QC could have advised in the terms set out in the Opinions, such that Mr Thornhill had acted in breach of duty.

Again, however, the judge was unpersuaded by the Claimants’ contentions. He considered, based on the state of the authorities in 2002-2004 amongst others matters, that the approach which Mr Thornhill took (and the advice that Mr Thornhill gave) was that which a reasonably competent tax QC could have taken.

The judge also considered the Claimants’ alternative assertion that Mr Thornhill breached his duty of care by failing to give a specific warning that there was a significant risk that the tax benefits promised would not be available. However, he rejected this assertion too and on the grounds that no duty to warn the Claimants arose. In doing so, the judge observed that the case authorities upon which the Claimants placed their reliance concerned the duty of a solicitor to issue a warning to his client, which in this case was not in fact the Claimants but Scotts, which were themselves highly sophisticated and likely to have been fully aware from their experience of promoting tax avoidance schemes of the issues to which they gave rise and the risks associated with them.

Causation

On the assumption that, contrary to his conclusions, Mr Thornhill owed a duty of care to the Claimants which he had breached, the judge proceeded to address the issues of causation and reliance.

However, the judge rejected the Claimants’ principal assertion that if Mr Thornhill had given an appropriate risk warning, then the Schemes would not have been marketed at all and so none of the Claimants would have invested. This was on two footings:

Firstly, the judge concluded that such an assertion was wrong as a matter of law. This was because it relied upon a duty being owed to the Claimants to take care that the advice given to Scotts was correct, whereas the duty relied on by the Claimants was a duty to take reasonable care to ensure that advice provided to them was correct.

Secondly, and on the basis of the limited evidence presented, the judge concluded that the Claimants had failed to establish as a matter of fact that there would have been no Scheme in the event that Mr Thornhill had advised differently.

As to any reliance the Claimants would have placed on an appropriately worded risk warning, the judge was mindful not only that the Schemes had ultimately failed with disastrous results for the Claimants, which could taint their evidence, but also that any assertion of reliance would depend on events that had occurred some 18 years prior and be at odds with the Claimants’ decisions to invest in the Schemes, despite the other risk warnings contained within the subscription documents.

He also observed that some Claimants had not received copies of the Opinions at the time, while for others they had been filtered through an IFA, from whom no evidence had been adduced.

Ultimately, therefore, he concluded that none of the Claimants had established causation on a balance of probabilities.

Limitation

Finally, the judge turned his attention to Mr Thornhill’s assertion that the Claimants’ claims were time-barred in any event under the Limitation Act 1980 (‘1980 Act’).

For the purposes of section 2 of the 1980 Act, the judge concluded that the Claimants suffered damage upon making the investment at the time they entered into the Schemes, which in each case was more than six years prior to the issue of their Claim Form on 5 July 2018.

The judge also concluded that section 14B of the 1980 Act barred any claim which was brought more than 15 years after the date on which there occurred any act or omission alleged to constitute negligence and here, that covered the claims relating to Mr Thornhill’s first opinion dated 28 January 2003.

As regards section 14A of the 1980 Act, the judge considered that none of the Claimants were fixed with knowledge of their claims upon receipt of the Discovery Assessments issued by HMRC to some members of the LLPs in December 2009 or upon receipt of a related letter from Scotts to all members on 14 December 2009, which advocated a need to appeal them. Otherwise, the judge addressed section 14A on a Claimant specific basis, concluding that with one exception, none of the claims relating to Mr Thornhill’s second and third opinions would have been time-barred.

Quantum

In view of the judge’s findings on liability, he did not consider any of the issues raised in the written submission he had received in respect of loss and damage.

Comments and observations

It remains to be seen whether the Claimants seek permission to appeal. Given the significant level of investments collectively made by the Claimants (reportedly over £100 million) and the losses likely to flow from them, as well as the substantial litigation costs liability that the Claimants are likely to have incurred, this would not be surprising. That said, the judgment given is thorough and well-reasoned, and the Claimants will have to overcome multiple hurdles if they are ever to achieve success.

As it is, this decision arguably and more broadly reflects the cautionary approach consistently taken by the courts in this area. While in the right circumstances third party claims have succeeded, and will continue to succeed, the goalposts have been kept intentionally narrow. This itself is a reflection of wider public policy and (it is often argued) the need to maintain a sustainable professional services sector, in which claims exposure is both proportionate and insurable.

This decision also reflects the customary approach taken by the courts, particularly in professional negligence claims and when determining events that occurred many years prior to trial, to place greater evidential weight on the contemporaneous documents than on the testimony of witnesses. Further, the decision emphasises that when determining whether a duty of care exists (as well as the scope of any duty of care), engagement documents will almost always be germane and an appropriate starting point of any analysis.

For anyone interesting in reading the full judgment (which runs to c.114 pages), this can be found here: David McClean and others v Andrew Thornhill QC [2022] EWHC 457 (Ch)

Further information

Film finance schemes have received considerable media attention in the last 10 years, not least because of the number of high-profile celebrities that have invested in them, only later to be villainized as tax dodgers in the court of public opinion.

Further information about the history of film finance schemes and how they were arranged can be found in the following insightful articles:

In addition, more general information about the nature and continued prevalence of marketed tax avoidance schemes in the UK can be found in the following report recently published by HMRC: Use of marketed tax avoidance schemes in the UK

Further legal assistance

As professional negligence solicitors we act for clients nationwide, to resolve claims against a wide range of professionals, including claims against solicitors.

If you would like to arrange an initial consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at mail@pnclegal.com.

At PNC Legal there is much more than just the fact that we specialise exclusively in resolving claims for professional negligence that sets us apart from most other solicitors.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.

Business Email Compromise –
Recovering the loss

Business email compromise (BEC), sometimes called email account compromise (EAC) or payment diversion fraud (PDF), is fast becoming one of the most financially damaging crimes facing the commercial sector. In this article we examine both the nature of this crime and the potential to recover the financial losses arising from it.

What is BEC fraud and how does it happen?

Simply put, BEC fraud is the use of email in a business or commercial context to achieve a financial gain by deception.

BEC fraud invariably involves the impersonation of an individual and/or company of which the recipient is aware or familiar, through the medium of email and the leveraging of a pre-established relationship or expectation. Sometimes the scam email can seek information which can then be used to facilitate theft, while on other occasions it can seek to elicit a direct payment.

The fraudsters plan their attacks in advance, gathering as much information as they can in order to produce target specific emails with an air of legitimacy and credibility. With significant amounts of information about a company and its personnel being published online, often on its own website, this task is made much easier. Moreover, a casual reference in a scam email to another member of staff, can sometimes be all that it takes to convince the busy recipient into believing the email is genuine.

The scam typically starts with a phishing email sent to an employee’s email address, allowing the fraudsters access to financial information, calendars and data which provides them with the information they need to carry out the fraud. Sometimes fraudsters use ‘malware’ (malicious software) to infiltrate a company’s networks to gain access to information, such as legitimate email threads, accounting information and names of suppliers, all of which can then be used to support the fraud.

With the ability to utilise copied logos, email footers and other information consistent with a genuine email, spotting a sophisticated fraudster who is impersonating a genuine sender can be very difficult, particularly when very similar email addresses are used. Indeed, with a relatively limited chance of arrest, and a wide opportunity to experiment, the determined fraudster is likely to become increasingly adept at pulling the wool over unsuspecting eyes.

A prime example of the developing sophistication of fraudsters is the advent of ‘Friday afternoon Fraud’. This has become particularly prevalent amongst property conveyancers, where fraudsters began timing their attacks for the end of the working week, when the pressure to complete transaction is highest and when, as a result of either natural or self-induced fatigue, vigilance is often at is lowest.

Business email compromise examples

There is really no limit to the different forms that BEC fraud can take. However, some actual business email compromise examples include:

  • A BEC attack reported by The Guardian in 2017 where the fraudsters used the email address of a member of staff at a firm of conveyancing solicitors, to instruct the purchaser of a residential property to transfer deposit monies totalling £74,837 to different bank accounts, under the pretence that the firm’s usual account could not receive Chaps or Bacs payments.
  • A BEC attack reported by Tripwire in 2019 in which Evaldas Rimasauskas, a Lithuanian national, sent emails to Facebook and Google claiming to be from one of their hardware suppliers, with forged invoices and fraudulent contracts. This deception caused the technology giants to transfer payments in excess of $100 million, into bank accounts he had set up in the bogus company’s name in Cyprus and Latvia.
  • A BEC attack reported by the Wall Street Journal in 2021 where fraudsters hacked into the email system of a company’s bookkeeper and then inserted themselves into existing email chains by using a similar email address to that of the company’s executive director. They were then able to siphon $650,000 from the company by sending one amended and two fake invoices to the director, seeking payments in relation to an intended loan.
  • A BEC attack reported by the Australian Federal Police in 2021 where offenders who claimed to be employees sent internal invoice emails to the company’s finance department, but with altered bank details. The business then processed two payments within a few days, firstly transferring $519,545 and then $2,148,938 to a Singaporean bank account. The BEC attack was then discovered after the second transfer.
  • A BEC attack reported by Europol in 2021, concerning a criminal group who created fake emails and webpages, similar to those of legitimate wholesale companies, offering to sell protective materials after the outbreak of the COVID-19 pandemic. However, the goods ordered were never delivered and the proceeds received in advance were swiftly laundered.

Business email compromise statistics

Both the prominence and success of business email compromise relies upon and exploits the fact that email remains the most utilised form of written communication for business, with an estimated 316 billion emails being sent every day in 2021.

In the UK, BEC fraud is now costing business millions of pounds each year. In a blog report for the ISBL, Lloyds Banking Group confirmed that in the first four months of 2020, BEC fraud accounted for a massive 8 out of every 10 fraud attacks reported by its commercial customers. It has also reported that in 2018, BEC attacks increased by an astonishing 58%, having affected as many as half a million SMEs. Of these attacks, smaller firms were losing on average £27,000 per scam to impersonation fraudsters.

As is apparent from the business email compromise examples above, these attacks are not just a problem affecting businesses in the UK. In its 2020 Internet Crime Report the Internet Crime Complaints Centre (IC3) of the FBI recorded 791,790 complaints of suspected internet crime (a 69% increase on complaints received in 2019) and associated losses exceeding $4.1 billion. It also reported that of these complaints, 19,369 related to business email compromise, where adjusted losses totalled over $1.8 billion.

What is being done to combat business email compromise in the UK?

While it may come as little comfort to those who have already fallen victim to BEC fraud, for others who have been more fortunate, it may be reassuring to know that the National Crime Agency (NCA) is leading the UK’s fight against serious and organised crime, which includes business email compromise fraud.

Through the National Economic Crime Centre, a multi-agency task force which also includes officers and representatives from the Serious Fraud and Financial Conduct Authority (amongst others), the NCA is seeking to ensure that criminals defrauding British citizens, attacking UK industry and abusing UK financial services are effectively pursued. The NCA is also launching campaigns to ensure that UK industries and government agencies know how to prevent economic crime and that UK citizens are better protected.

How to detect a business email compromise attack

While prevention is almost always better than cure, when dealing with increasingly sophisticated fraudsters this can be easier said than done. That said, doing something is far more preferable to doing nothing and publicising the issue is often the first step.

However, in addition to being generally aware of the risks of a BEC attack, at an individual level it can be prudent to:

  • Check for spelling mistakes – Get into the habit of checking for minor spelling mistakes in the addresses of the emails you receive.
  • Verify any changes to payment details – If asked to change a supplier’s payment details, always telephone that supplier on the original number you have saved for them to confirm the changes.
  • Beware of unexpected emails – Be cautious about opening any emails that you were not expecting (even if you think you recognise the sender), and do not click on any links or attachments unless you are confident they are genuine.
  • Double check the sender is real – If you receive an email from a senior manager or a supplier asking you to make an urgent payment always double check the request is authentic by speaking to them, either in person or by telephone.
  • Use anti-virus software – Always use reputable anti-virus software to protect your devices and keep it updated.

How to recover the financial loss from BEC fraud

The level of financial loss suffered as a result of a business email compromise attack is often significant, both in themselves and in proportion to the business’ operational activities. Although the money paid away can represent the only element of financial loss suffered, in other instances significant consequential losses can be incurred, which may include investigation, litigation and public relations costs.

While all of this can make the financial fallout difficult to ignore, in more severe cases, it can threaten a business’ very survival. The question therefore arises, whether anyone else can be held fully or partly responsible for this loss.

  • The fraudster

Where fraudsters obtain monies through a BEC attack, the chances of recovering those funds from them are relatively slim. Frauds of this type, by their very nature, involve moving the funds from the account into which they are deposited as quickly as possible and usually abroad, where the prospects of tracing them are extremely limited. Crypto-currencies are also being used increasingly to mask the banking trail. Consequently, even if an attack is spotted quickly after funds have been released, the company (or person) who has suffered the loss is less likely to recover the monies simply by having the recipient account frozen by the banking provider.

  • The insurance company

Insurance cover for cyber risks is now well established and can be purchased either as a stand-alone policy or as part of a wider insurance programme. Typically, these policies will provide cover for a range of first party and third party liabilities. These include the cost of forensic investigations, litigation expenses associated with the IT breach, regulatory defence expenses/fines, crisis management expenses, business interruption and cyber extortion. However, it does appear that insurance cover for the monies paid away in connection with a BEC attack is less readily available.

Clearly, not all businesses will have cyber insurance cover but, for those that do there will inevitably be terms and conditions attached which will need to be considered in order to determine the applicability and scope of cover. Those terms are also likely to dictate how and when a policy claim should be notified and a failure to comply with them could prove prejudicial.

  • The impersonated sender

The impersonated sender of the email, and whose IT network may have been hacked, presents an obvious potential target for a compensatory claim. It is surprising, therefore, that as yet this is not an area of liability that the courts in England and Wales appear to have addressed. However, given both the prevalence and the scale of this type of fraud, this is only likely to be a matter of time.

When the courts are asked to determine such claims, we anticipate that the final outcome will turn on the particular facts of the case, taking into account such issues as:

  • The nature of the relationship between the sender and the recipient. Was this a ‘one off’ email sent by the sender, in which case, it may be more difficult for the court to conclude that a duty of care existed between them, or was there a history to their relationship, such that a court may be more willing to determine that a duty of care did exist?
  • Did the recipient of the email miss a red flag which should have alerted them to the fraudulent nature of the request? For example, was there a clear error in the email address of the sender which, from their history of email exchanges, should have been obvious?
  • Did the sender of the email ask the recipient to send funds to an account which was different to that used previously and, if so, should the recipient have double checked with the sender by some means other than replying to the email, such as by telephone?
  • Had the sender of the email taken appropriate care with their IT systems to prevent them from being hacked, or was there a history of their systems being used in this way and upon which they had failed to act accordingly?
  • Was the sender of the email negligent in allowing its IT systems or email to be compromised by clicking on ‘phishing’ emails, or in failing to educate its employees to be alert to such scams?

Whether or not these court decisions will then provide useful guidance in other cases is likely to depend not only on whether the facts are comparable, but also on whether the courts take an early opportunity to lay down any broad principles of law and practice. The latter we consider doubtful, and all the more so if the decisions rest only with the lower courts.

However, any success by claimant businesses in this arena is likely to receive significant publicity and may well embolden other victims to pursue similar action.

  • The transacting bank

BEC fraud is a type of Authorised Push Payment (APP) fraud and in our related article Authorised Push Payment Fraud: Can I claim for compensation? we explore the potential to claim compensation from the bank which handled the transfer of funds subject to the fraud.

  • The insurance broker

While an insurance broker retained by the business may not seem like an obvious source from which to recover the loss suffered from a BEC attack, it is one worthy of consideration. Depending on the circumstances, such recovery could take the form of a claim for damages for professional negligence. This could be the case if:

  • The business has cyber insurance cover but the limits of indemnity are insufficient;
  • The business has cyber insurance cover but it is limited in scope;
  • The business does not have cyber insurance cover due to an error or omission on the part of its broker when arranging or renewing cover;
  • The business does not have cyber insurance cover as a result of the broker’s failure to advise as to its availability and/or desirability.

Further guidance on pursing these types of claims can be found on our Claims For Insurance Broker Negligence webpage.

Closing comments

Sadly, the huge financial gains potentially available, combined with an abundance of opportunity and a relatively limited risk of prosecution or conviction, make business email compromise a positively irresistible enterprise for tech-savvy fraudsters.

This is certainly borne out by the available statistics, which show that this type of fraud is becoming increasingly prevalent and this will undoubtedly continue well into the future, despite the counter-measures deployed at state level.

While there is an array of pro-active steps that businesses can take both to protect and to insulate themselves from the risks associated with business email compromise, these will never provide a complete solution. Whether litigation through the courts will provide an avenue of additional protection is currently less clear, but it certainly has the potential to do so and it will be interesting to see on a case by case basis how the law develops in this area.

Further legal assistance

As professional negligence solicitors we act for clients nationwide, to resolve claims against a wide range of professionals, including claims against banks and other financial institutions.

In doing so, we rely on the unique insight and experience that we have gained over many years from previously advising many of the leading financial services institutions on industry claims, including claims arising from business email compromise attacks.

If you would like to arrange an initial consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at mail@pnclegal.com.

We have experience of resolving claims against a wide range of professionals.

Using the links below you can learn more about specific professions and some of the common mistakes that give rise to negligence claims against them.