First Asia Finance International Ltd v Tso Au Yim & Yeung(1) appears to be another example of a misconceived claim against a defendant solicitors' firm. In this case, the court held that the solicitors owed no duty of care to the plaintiff company (which was not a client) with respect to the preparation of a settlement agreement. The plaintiff also failed with a claim that it had informally retained the defendant solicitors with respect to the drafting of the settlement agreement.
The plaintiff company entered into a settlement agreement in respect of claims under a loan agreement with another company, after having discovered that the loan had gone sour.
After experiencing some difficulty in recovering money under the settlement agreement, the plaintiff commenced legal proceedings against the solicitors' firm which prepared the settlement agreement. The plaintiff had instructed its own solicitors at one point. The defendant solicitors were retained by the other party to the settlement agreement.
The plaintiff's purported claim was for breach of an alleged oral retainer between the plaintiff and the defendant solicitors and, alternatively, breach of an alleged duty of care said to have arisen as a result of the defendant voluntarily assuming responsibility to the plaintiff with regard to the drafting of the settlement agreement.
The oral retainer was alleged to have arisen out of a meeting and some direct communication between the plaintiff's representative and a solicitor at the defendant firm – in effect, the plaintiff argued that the defendant solicitors were (at some point) acting as its solicitors as well as for the other party to the settlement.
On the facts, the court found that there was nothing to suggest that an oral retainer existed.
The judgment notes that it would be "extraordinary" for solicitors to agree to act for both parties in circumstances where a conflict of interest was likely to exist.(2) Matters, for the plaintiff, may not have been helped much by the court being less than impressed with the credibility of the plaintiff's only witness, whose evidence appears to have contradicted certain agreed facts, some contemporaneous documents and his own testimony when cross-examined – for example, by appearing to deny that the plaintiff had at one time been represented by its own solicitors.
With respect to the claim based on an assumption of responsibility, the court considered that the rejection of the plaintiff's claim concerning the existence of a retainer sat uncomfortably with an alternative claim based on an assumption of responsibility.(3) There was also the general point that a solicitor usually only owed a duty of care in tort (or a duty to exercise reasonable care and skill in contract) to his or her client.
In the absence of any special circumstances, it was difficult to see how the defendant solicitors assumed a duty of care to the plaintiff. The plaintiff appears to have suggested that there was an identity of interest (between the plaintiff and the other party) to settle the dispute over the loan but, as the court noted, this was not an identity of interest with respect to the settlement agreement.
For good measure, the court also addressed the point that even if the plaintiff succeeded on its claim (that a duty existed), it was difficult for the plaintiff to show any loss on the facts. The fact that the settlement agreement might be difficult to enforce or less of an attractive commercial bargain than was hoped for did not establish a loss.
Therefore, the plaintiff's claim was dismissed, with an order that the costs of the action be paid by the plaintiff to the defendant solicitors. Those costs are likely to be significant (given the nature of trials or substantive hearings in the High Court).
The judgment will be welcomed by defendant solicitors that sometimes find themselves on the receiving end of misconceived claims by (for example) parties looking for someone to blame following a transaction that turns out to be a bad deal.
In this case, the court appears to have had little sympathy for the plaintiff, which was (presumably) responsible for its predicament. As the judgment notes, the parties negotiating the settlement agreement were all "shrewd businessmen" who entered into the settlement as a result of their own commercial judgement.(4)
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