Mills & Reeve were appointed by Christopher Swain to advise on a management buy-out of a company in which he held the majority shareholding. They were also retained to provide advice to his daughters concerning the tax implications of the buy-out.
Shortly after completion, Mr Swain died during a planned heart procedure. The timing of his death gave rise to adverse tax consequences for his daughters, on which Mills & Reeve had not advised.
The daughters sued Mills & Reeve arguing that, had advice been given in relation to the tax implications in the event of Mr Swain’s death, the buy-out would have been deferred until after the operation, avoiding those consequences.
The trial Judge found that Mills & Reeve were under a continuing duty to advise the daughters in the light of changing circumstances. However, he also went on to hold that Mr Swain’s operation came to their attention only by chance and there was no suggestion the procedure was anything other than routine. No advice was sought concerning the possibility of his death and there was no duty to advise deferring completion until after the heart procedure. Accordingly, the claim was dismissed and the daughters were ordered to pay half of Mills & Reeve’s costs.
Decision
The Court of Appeal dismissed the daughters’ appeal, concluding that the Judge was entirely right to attach great weight to the fact that the email indicating Mr Swain’s procedure only came to Mills & Reeve’s attention by them being copied into it and that he was not seeking any advice in light of the operation. There was also nothing in the email to cause or require Mills & Reeve to give further advice.
Mills & Reeve were also successful in their cross-appeal on costs against a finding by the Judge that they had been unreasonable in declining to mediate. After reiterating that when a party reasonably believed they had a watertight case, it might be reasonable to refuse to mediate, the Court of Appeal went on to state that this remained true even if their defence did not succeed on some issues.
Comment
The scope of a solicitor’s retainer, and the nature and extent of the duties arising, will invariably depend on the facts of the particular case. Similarly, what a solicitor should identify as issues that may require further advice, absent a request from their client, will depend on their nature and the manner in which they come to their attention.
This decision will be welcomed by solicitors and their insurers, rejecting as it does what might be considered a claim based strongly on hindsight and one that, had it been successful, would have placed an onerously high standard on solicitors to identify issues on which advice might be required in circumstances where it was not apparent and had not been sought.
Interesting also is the recognition that a party need not mediate a fundamentally flawed claim simply out of fear of being penalised on costs. While mediation can be an effective method of encouraging compromise, where a party (especially a defendant) holds a reasonably held belief that the other side’s case is hopeless, it can serve only to add a substantial layer of costs to a dispute. This decision may provide confident parties with the comfort to refuse mediation if it serves no practical purpose.
