THE CONSEQUENCES WHEN SERVICE OF THE CLAIM FORM GOES WRONG: SOLICITOR’S LIEN OVERRIDDEN: NOT KNOWING THE RULES IN RELATION TO SERVICE AMOUNTS TO “MISCONDUCT”

The judgment in Higgins & Ors v TLT LLP [2017] EWHC 3868 (Ch) shows another case that has been made problematic because of basic errors in failure of service of the claim form. The errors made by the solicitors in that case were so great that they amounted to “misconduct” and overrode their claim to a lien over papers.

“This is not a case of just a single and unfortunate mistake on the part of the defendant. This was incompetence on a fairly grand scale, and on a continuing basis: forgetting or not knowing what the rules prescribed about service of a claim form, being ignorant of the need for solicitors to have their client’s instructions to accept service and the importance of it, failing to appreciate that what was being served were particulars of claim and not a claim form, failing to consider the terms of the consent orders which were obviously clearly relevant to what needed to be done and when it needed to be done, and leaving the matter of service until very late in the day”

THE CASE

The claimant had instructed the defendant solicitors to bring a negligence action against his former tax advisers. That action failed because the claim form was not properly served. The claimant brought this application against the solicitors to obtain a copy of the file. The purpose of this was to assess the strength of any limitation defence the tax advisers may have in relation to limitation. The defendant refused to hand over the file on the grounds that they had a lien for unpaid costs.

THE ISSUES WITH SERVICE OF THE ORIGINAL CLAIM FORM

The judgment of Mr Justice Barling sets out an all too familiar story in relation to service (or rather non-service) of the claim form.
    1. What happened, in brief terms, was as follows. The claim form had been issued but not served while discussions were proceeding. The Judge found, first, that the solicitor left service of the claim form until very late in the period of what he described as its extended validity, there having been agreed extensions of time for service. Having left it very late in that period, the solicitor then failed to achieve service in accordance with the requirements of the rules. It appeared that she had forgotten about the need to serve the claim form, or that she had understood the claim form to have been served in circumstances where it had simply been sent to the tax defendants’ solicitors the previous July, some eight or nine months earlier. In fact, she had not consulted the wording of the consent orders, which had provided for service of an amended claim form. When, at the end of the period, she did purport to serve a document, it was not in fact the claim form that was served but the particulars of claim. Furthermore, it was not served on the tax defendants but on their solicitors, who had been asked whether they were instructed to accept service but had not confirmed that they were so instructed.
    2. In her evidence to the Judge the solicitor accepted that she should not have forgotten about the consent orders, but stated that she was surprised by the need for instructions from the tax defendants concerning service on their solicitors. She considered that whether a firm of solicitors accepted service was “solely a matter of policy for the law firm concerned.” In his judgment the Judge commented that that statement suggested that the solicitor was unaware of the general principle that instructions of that kind are a matter of crucial importance.
    3. Thus, there had been a series of what the judge described as negligent or incompetent errors. He found these were such that there could not be a good reason for granting the relief from sanction sought. He stated:
“The breaches that occurred in this case are not trivial. The claimants’ solicitors failed to take the most basic step required in civil litigation, which was to serve the claim form on the defendants within the jurisdiction of the court in accordance with the straightforward code for service set out in Part 6 of the Civil Procedure Rules.”

THE DEFENDANT’S LIEN

The judge then dealt with the issue of whether the defendant solicitors could now claim a lien over the papers. The retainer had been terminated by the claimant client.  For the claimants to override the defendant’s claim to a lien they had to establish “misconduct” on the defendant’s part.

  1. In my view Mr Ogden’s preliminary point is not correct. As Mr Berragan has pointed out, if there is a repudiatory breach of contract which is accepted by the other party, then even if the reasons for acceptance are not fully or accurately stated in correspondence, as long as sufficient reasons actually exist that is good enough. In the present case, in view of what had happened, it would have been wholly unrealistic for the defendant to have continued to represent the claimants in the second claim. Not only were the breaches multiple and cumulative, rather than there being a single occasion of forgetfulness, but the conflict of interest here would have been a huge obstacle to providing (and being seen to provide) objective advice and generally acting for the claimants in the second claim. No matter how the claimants’ decision was expressed in correspondence one or two days after HH Judge Pelling QC’s judgment, it is clear that as soon as it was delivered the defendant might properly have indicated that the claimants should seek, or consider seeking, independent legal advice. I am sure it came as no surprise to the defendant when the claimants did so, and indicated that the defendant should no longer act for them.
  2. In my view, in the light of the authorities to which I have referred, it is reasonably clear that “misconduct” for present purposes is not restricted to matters which would be regarded as amounting to a professional or a disciplinary offence under whatever professional code is current at the material time. In the authorities, the word is not prefixed by “professional” or “disciplinary”. Although its origins seem to be lost in the mists of time, “misconduct” is undoubtedly a word of considerable breadth and generality. I do not consider that for misconduct (in the relevant sense) to be found there need necessarily be any impropriety, moral turpitude or dishonesty.
  3. It is, on the other hand, unlikely to be satisfied by what might be classed as “mere” negligence, or an incidence of negligence without any obvious aggravating features. If there is to be misconduct on the basis of negligence, there must, in my view, be something in the circumstances which takes the matter outside the norm, such as, for example, an act or omission, or series of acts or omissions, which calls into question the overall competence and/or carefulness of the professional in question. In the course of argument Mr Berragan suggested that gross negligence would amount to misconduct. I would accept that proposition.
  4. Obviously, misconduct can also encompass behaviour implying moral turpitude, such as dishonesty, deceit and so on, but the question is how low the threshold is, and whether there must at least be misconduct in accordance with a disciplinary code. As I have said, I do not consider that that is the case. Nor do I consider that the authorities are such as to suggest that there must be moral turpitude. In my view, very serious negligence in the conduct of litigation is capable of amounting to misconduct for this purpose.
  5. A number of specific factors were emphasised by Mr Berragan which do not appear to have any bearing on the question of whether there has been misconduct, although they may well be relevant considerations if and when it comes to a decision whether to exercise my discretion to make the order sought, if misconduct is found to exist.
  6. First, I am told that the tax claim and the fraud claim, taken together, could quite reasonably be valued at about £4 million. I do not know how much of that sum relates to the fraud claim alone. That claim concerns monies alleged, effectively, to have been stolen, plus some consequential losses. The tax claim concerns the failure of a tax scheme. It appears not unlikely that the tax claim, which was the head of claim affected by the defendant’s failures, may well be the larger of the two elements.
  7. Second, I have already described how, in his order disposing of the claimants’ unsuccessful applications against the tax defendants, HH Judge Pelling QC decided that the costs incurred by the claimants in those applications could not in the future be recovered from the tax defendants. Those costs, as I understand it, include some element in respect of TLT’s fees. The claimants have paid some £130,000 to TLT in respect of fees, and there is said to be about £130,000 outstanding. Therefore, none of these sums will be able to be recovered from the tax defendants, even if the new proceedings against them are successful.
  8. Third, it is at least on the cards that there will be a claim for professional negligence against the defendant, TLT. This will depend on the outcome of the second claim and possibly on the section 14A element of that claim. So, there may be a substantial claim or counterclaim against TLT. Yet, as things stand, TLT, through its lien, is attempting to extract payment from the claimants in advance of any such potential litigation between them.
  9. Fourth, it is clearly in the interests of all parties present here that the second claim against the tax defendants should be prosecuted expeditiously and successfully. The more successful it is against the tax defendants, the better it is, not just for the claimants but also for TLT. It is, therefore, somewhat counter- intuitive that TLT should be, as the claimants say they are, holding up the investigation of the merits of that claim, including the assessment of the section 14A issue, by refusing to supply these important documents to the claimants.
  10. Turning again, then, to the fundamental question of misconduct, I am satisfied that in the present case the hurdle of establishing misconduct for the purposes of the lien has been surmounted. This is not a case of just a single and unfortunate mistake on the part of the defendant. This was incompetence on a fairly grand scale, and on a continuing basis: forgetting or not knowing what the rules prescribed about service of a claim form, being ignorant of the need for solicitors to have their client’s instructions to accept service and the importance of it, failing to appreciate that what was being served were particulars of claim and not a claim form, failing to consider the terms of the consent orders which were obviously clearly relevant to what needed to be done and when it needed to be done, and leaving the matter of service until very late in the day, as the learned Judge held.
  11. Whether these failures occurred because someone was inadequately trained and/or insufficiently supervised and/or simply incompetent, one knows not, and one does not need to determine. There was conduct that was negligent to a very high degree, such as to satisfy the various tests formulated in the authorities as amounting to “misconduct” for present purposes.
  12. Therefore, I conclude that I am in a position, if it is otherwise appropriate, to make an order overriding what would otherwise be the effect of a solicitor’s lien. Taking account of all the circumstances, including the considerations to which I have specifically referred, including the likely prejudice to the defendant in the decrease in value of its lien resulting from release of the file, I have decided that I should exercise my discretion to make an order in approximately the terms that have been sought by the claimants. The papers in question should be delivered up at the earliest opportunity. The claimants’ current solicitors have indicated, by way of the recitals to the draft order they have settled, that they will undertake to protect the lien to the extent consistent with their and their clients use of the documents for the purpose of making the assessments that need to be made. I agree that the offered undertaking in that regard should be given.
  13. Subject to discussing with counsel the precise terms of the order, if they cannot be agreed, I believe that these conclusions are sufficient to deal with the application.”