Mr Keating (K) had been injured in a road traffic accident, and instructed a solicitors firm, Stewarts (S), to act for him in a claim against the negligent driver. The matter was dealt with by Mr Dinsmore (D). S expected that K would receive substantial interim payments that would affect his entitlement to social security benefits. They therefore retained Ms Phelps (P), a specialist in trust matters to act as an advisor in setting up a trust for K.
At a meeting with D and K, P advised K to set up a discretionary trust, and provided him with a standard letter in which she described, in simple terms, the important features of a discretionary trust. P did not, however, advise K that monies paid into the discretionary trust in excess of the nil rate band would attract an initial charge to tax of 20%.
K opted to implement a discretionary trust, and a substantial amount of compensation was paid into it, incurring an immediate tax charge at 20%. This resulted in a loss of £181k to K. K issued proceedings against P and S. P settled the proceedings against her and sought a contribution from S.
The key issue was the nature and scope of duty which was imposed on P by her retainer. P contended that she had been retained only for a limited purpose of drafting a discretionary trust to receive a first interim payment of £35k. She asserted that at the meeting with K, she had orally advised against the placing of further sums into the trust without further advice from her.
The Court considered, however, that there was no specific term in the retainer limiting its scope or any relevant limiting circumstances. K was an unsophisticated client and this was apparent to P. P had held herself out as having special expertise and knowledge in relation to the matter, which neither K or D possessed. Given that K was an unsophisticated client and in light of the complexity and significance of the limitation as her retainer argued for by P, the limitation could not be effective unless it was in writing, highlighted and properly explained to K. Further, there were a number of positive indications in the letter of advice from P to K that she contemplated the introduction of further monies into the trust. At no point did the letter of advice refer to the need to take advice before introducing any additional payment into the trust. On the evidence, the Court decided that P had not orally advised K or D at their meeting that further advice was required. Even if she had done so, however, the Court considered that oral advice was not sufficient. The issues on which P was advising were complex, especially as she was dealing with an unsophisticated client. P should therefore have advised on the matter in writing to both K and S.
The judge described this case as “the other side of the coin from Pickersgill v Riley”1, which dealt with the scope of the duty of care of a solicitor where he is dealing with a particularly experienced businessman. In that case, the solicitor was not obliged to advise his client as to the commercial merits of a transaction; an experienced businessman should be aware of the risks.
As this case demonstrates, there is a higher duty of care where the client is unsophisticated. This case highlights the importance of clarifying the scope of a solicitor’s retainer as soon as instructions are received. Any limitation on the scope of a solicitor’s retainer must be in writing, and properly explained.