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Legal profession round up

7 December 2016

Marlene Henderson and Lorraine Longmore examine Barker v Baxendale Walker Solicitors, LSREF III Wight Limited v Gateley LLP, SRA Reforms to client financial protection and AIG v OC320301 LLP & Ors.

1. Causation - Barker v Baxendale Walker Solicitors [2016] EWHC 664 (Ch)

A firm of solicitors, who specialised in tax advice and had particular expertise regarding planning and avoidance schemes, advised a client to use an employee benefit trust ('EBT') tax avoidance scheme. The solicitors subsequently successfully defeated a claim in professional negligence, which was brought after the scheme was challenged by HMRC.

The Court held that the solicitors were in breach of duty for failing to give a general health warning that the EBT scheme might be challenged by HMRC. However, the Judge considered that the breach did not cause the Claimant’s loss because, even if a warning had been given, the Claimant would have continued with the EBT scheme in any event. He came to this conclusion as the Claimant had admitted that he knew the scheme constituted ‘aggressive tax avoidance’.

This claim highlights the importance of causation principles in professional negligence claims. A solicitor may have acted negligently but, if those actions or advice did not cause loss to the claimant, the claim will simply not succeed.

2. Mitigation - LSREF III Wight Limited v Gateley LLP [2016] EWCA Civ 359

The case concerns the question of failure to mitigate one’s loss. The facts are, very simply, that Gateley admitted liability in failing to notify the Respondents of a clause in a lease over which they were to take a legal charge of security for a loan. The failing resulted in the value of the security being undermined.

The landlord had agreed to remove the clause from the lease in return for a payment of £150,000 which Gateley offered to pay but this offer was rejected. Instead, the claimant successfully pursuing a claim for damages assessed on the basis of the difference in value between what the lease was worth at the time of the transaction with or without the clause and was awarded £240,000. Following the decision, the claimant did obtain the variation of the lease and paid the landlord £150,000.

Gateley appealed the decision and the Court of Appeal was asked to determine on whether damages should be assessed as at the date when the negligence occurred, or whether subsequent events could be taken into account in determining what damages the Gateley should pay. Unsurprisingly, it was held that the subsequent events should have been taken into account and that the Respondent had unreasonably failed to mitigate its loss.

This decision does not disturb the settled approach in quantifying loss suffered as a result of negligent advice but it does clarify the fact that the basic assessment of uncrystallised transactional losses are assessed as at the date of trial but a narrow approach can be taken if losses ought to have been mitigated. It is not open to Claimants to seek a windfall by refusing to mitigate their losses.

3. SRA Reforms to client financial protection

October saw the publication by the Solicitors Regulation Authority ('SRA') of the SRA data pack on PII. This is seen as a building block pointing the way to what is promised to be a wide-ranging consultation paper on reform by the SRA to client financial protection and in particular to the minimum terms and conditions, anticipated in April. There seems no doubting the determination on the part of the SRA to reduce the extent of the cover provided by the MTC, but conversely there can be no doubting the determination of solicitors and consumer lobby groups to retain the breadth and depth of the current protections. The course of that battle and its outcomes should be known by the autumn. Further information on the SRA data pack is found here.

4. Aggregation – AIG v OC320301 LLP & Ors [2016] EWCA Civ 367

This case is the first time that a court has considered the aggregation wording in the SRA’s minimum terms and conditions. For more information please see our aggregation article in the Insurance Law and Practice section.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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