LIABILITY UNDER SOLICITOR’S RETAINER COULD NOT BE ASSIGNED: DEFENDANT OBTAINS SUMMARY JUDGMENT IN ALLEGED NEGLIGENCE ACTION

In Burleigh House (PTC) Ltd v Irwin Mitchell LLP [2021] EWHC 834 (QB) Deputy Master Hill QC allowed a defendant’s application for summary judgment. The defendant solicitor’s terms and conditions contained a prohibition against the assignment. The current claimant was an assignee and had no right to bring the claim.

THE CASE

The claimant brought an action alleging negligence by the defendant.  The defendant had the right of action assigned to it by the individual who was the original client of the defendant. The original client had been declared bankrupt, he signed a Deed of Assignment purporting to assign his causes of action against the Defendant to the Claimant.

THE TERMS AND CONDITIONS

The defendant applied for summary judgment on several grounds.  The ground on which it was successful was that the defendant’s terms and conditions prohibited assignment.

    1. The engagement letter stated: “You have instructed us to advise you on matters relating to the loan of £3.8 million by [APL] in March 2013 and in particular to advise on breaches of the Consumer Credit Act 1974 by [APL]“. The agreed next step was for the Defendant to “…correspond with APL Management Limited to inform them that the loan is unenforceable for breaches of the Consumer Credit Act 1974 and thereafter to enter into no doubt without prejudice negotiations…“.
    1. Of the Defendant’s standard terms and conditions, the following are relevant to this application:
(i) Clause 15.11: “You may not assign all or any part of the benefit of, or your rights and benefits under, the agreement of which these standard terms and condition [sic] form part“; and
(ii) Clause 17.3: “We accept instructions from you on the basis that services provided by [us] are provided solely for your benefit and we do not assume any liability to any person other than you in relation to the advice we give you…No person who is not a party to the agreement embodied in these standard terms and conditions and the relative covering letter(s) shall, in the absence of express provision to the contrary, have any right under the Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms, but this does not affect any right or remedy of a third party which exists or is available other than under that Act“.

 

CONSIDERATION OF THE LAW

The Deputy Master considered the legal principles involved.
    1. In Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85 Lord Browne-Wilkinson considered it “satisfactorily settled” law that an attempted assignment of contractual rights in breach of a contractual prohibition is ineffective to transfer such rights. He observed that were the law otherwise, it would “defeat the legitimate commercial reason for inserting the contractual prohibition viz. to ensure that the original parties to the contract are not brought into direct contractual relations with third parties“.
    1. The Claimant accepted that the non-assignment provision at clause 15.11 of the Defendant’s standard terms and conditions relates expressly to contractual rights. The Lenesta principle means that Mr Baxendale-Walker’s purported assignment of his right to sue for breach of contract to the Claimant was ineffective. The Claimant’s position therefore appeared to be tantamount to an acceptance that the Defendant is entitled to summary judgment on the breach of contract claim, although no express concession to this effect was made in argument.
    1. The main issue between the parties was whether the Claimant had a real prospect of showing that clause 15.11 permitted Mr Baxendale-Walker to assign his right to sue in tort.
    1. The Defendant argued that clause 15.11 precluded assignment of Mr Baxendale-Walker’s tortious cause of action because (i) if there had been no contract, there would have been no common law obligations; (ii) the alleged tortious acts overlap entirely with the alleged breaches of contract; (iii) the Claimant’s common law tortious claims arise “under the agreement” (i.e. the retainer) and so fall within clause 15.11; and (iv) this approach is consistent with the wording of clause 17.3.
    1. The Defendant drew support for this interpretation of “under the agreement” from Fiona Trust & Holding Corp v Privalov [2007] Bus LR 1719. In Fiona Trust, the parties had agreed that disputes arising “under” a charter should be referred to arbitration. The appellant’s case was that the arbitration clause did not apply to its claim, which was for a declaration that the contract had been repudiated: it only applied to claims for breach of contract. Lord Hoffman rejected that contention. At [12] he considered that previous cases in which distinctions had been drawn between disputes “arising under“, “arising out of“, “under“, “in relation to“, “in connection with” or “under” a contract “reflect[ed] no credit upon English commercial law“. Rather, at [13] it was held the construction of an arbitration clause should start from the assumption that the parties, as rational businesspeople, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal; and “very clear language” would be needed to show a contrary intention.
    1. Applying this approach to the retainer in this case, the Defendant argued that (i) as a matter of interpretation, there was simply no distinction between the prohibition of the assignment of claims arising “under“, “out of” or “in relation to” the retainer; (ii) “very clear language” would be needed to create different regimes for a client’s contractual and tortious claims, especially, as here, where all the claims concern concurrent and identical rights, acts, omissions and losses, and no such language is present; and (iii) the interpretation advanced by the Claimant – that the parties had intended that clients could assign tortious claims – was entirely uncommercial and undesirable.
    1. On the ‘uncommercial/undesirable’ issue, the Defendant argued that it would be irrational for it to agree that its clients could assign tortious rights during the retainer. If that were possible, the Defendant could find itself under tortious obligations to safeguard the economic interests of a mystery assignee without consent, regardless of money-laundering issues, conflicts or other issues (meaning it could owe obligations to a party it would not have chosen to do business with); and would still be subject to its (unassignable) contractual obligations towards its original client. Further, there might be a risk of ‘double jeopardy’: the original client could sue under the (unassignable) contractual rights; whilst the assignee could sue in tort, in respect of acts and omissions in the course of the same retainer.
    1. In defending the application on this point, the Claimant argued that (i) Henderson v Merrett Syndicates [1995] 2 AC 145 at 190 makes clear that solicitors owe their clients a duty of care in tort quite apart from their contractual obligations; (ii) this is the reason why a claim on the same facts in tort can survive a limitation bar when a claim in contract fails; (iii) the doctrines of maintenance and champerty, as considered in Trendtex Trading Corp v Credit Suisse [1982] A.C. 679, would operate to prevent a purported assignee without a “genuine commercial interest” from taking and enforcing the assignor’s tortious cause of action; (iv) the principle of res judicata would protect the Defendant from any risk of multiple claims arising out of the same facts; and (v) the person who drafted clause 15.11 may well have excluded reference to tortious claims for fear that such a wide clause could be void on public policy grounds as it would, for example, prevent an insolvency practitioner from assigning a cause of action (noting that their power to do so prevails over the doctrines of maintenance and champerty: Stein v Blake [1996] AC 243).
    1. Further, the Claimant argued that the Lenesta decision was expressly confined to assignments that purport to create a new contractual relationship between parties, rather than considering the impact of non-assignment clauses on tortious claims (see page 107F). The Claimant also highlighted that in Lenesta, the party opposing the assignment clause had not been able to point to any objectionable public policy consequence of the clause (see page 107B-C) whereas here, there was such a consequence in the form of the adverse implications of the Defendant’s construction of the clause in an insolvency context.
    1. Having initially characterised this issue as “a pure point of law, but a simple one“, the Claimant finally submitted that the complexity of these arguments and the need to have regard to the “matrix of fact” when construing the retainer (see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pages 912-913, per Lord Hoffmann) meant that this issue was unsuitable for summary determination.
    1. In further responsive submissions on the maintenance/champerty issues, the Defendant highlighted that the Deed of Assignment records that the Claimant was a “person with a genuine interest in the success or otherwise of the claim“. It was therefore apparently specifically designed to circumvent an argument that it was void due to maintenance/champerty principles, from which the Claimant tried to draw support. The Defendant argued that the Claimant “cannot have it both ways“. In addition, the Defendant argued that even if a claim ultimately failed because the assignment was void (and/or, presumably, because the claim was considered an abuse of process), the Defendant would still potentially have incurred irrecoverable costs and adverse publicity. In any event the abuse of process doctrine would not necessarily protect the Defendant from claims being brought by different parties arising out of the same retainer.
    1. The Defendant argued that the Claimant’s reliance on comparisons with the insolvency regime were misplaced: a bankrupt’s assets including causes of action vest immediately and automatically upon bankruptcy by statute (the Insolvency Act 1986, s.306) without any transfer or assignment.
  1. Finally the Defendant emphasised that although it was a right to sue in tort that was in issue in this case, clause 15.11 applies to all the rights and benefits under the contract and had to be interpreted with reference to this wider scope.

THE MASTER’S CONCLUSION

The Deputy Master concluded, on this point, that the Defendant was entitled to summary judgment.

    1. I consider that this point is suitable for summary determination: it is, as the Claimant initially accepted, a short point of law and/or construction of the retainer, all the evidence necessary for the proper determination of the question is available now and the parties have had an adequate opportunity to address the issue in argument.
    1. Clause 15.11 on its face precluded assignment of the right to sue in contract. In my view the Claimant does not have a real prospect of showing that it did not also preclude assignment of the right to sue in tort. I consider that the Defendant is right to argue that the broad scope of clause 15.11 must be borne in mind when interpreting it. Application of the Fiona Trust principle dictates that “rights…under…the agreement” in clause 15.11 includes tortious rights. I accept the Defendant’s arguments as to why permitting the tortious rights to be assigned would be uncommercial and undesirable. On that basis, per Fiona Trust, it is to be assumed that the parties would not have intended such consequences without clear language to that effect, and there is none. The fact that those tortious rights can exist in some cases absent a contract is irrelevant, because here there was a contract, and because the issue here is the extent to which those acknowledged tortious rights could be assigned. I do not consider that the Claimant’s arguments as to the limits of Lenesta assist.
    1. I therefore conclude that the Claimant has no real prospect of showing that Mr Baxendale-Walker validly assigned his rights to sue the Defendant in contract or tort such as to give it ‘standing’ to bring the claims.
  1. On that basis the Claimant has no real prospect of succeeding in any element of the claim. There is no other compelling reason why the case or issue should be disposed of at a trial. Accordingly the Defendant is entitled to summary judgment on the whole claim under CPR 24.2.