City law firm ordered to pay damages for Solicitor Professional Negligence
Problem: In the case Forster v Reynolds Porter Chamberlain LLP, Ms. Forster, defending against fraudulent misrepresentation and pursuing a section 994 Companies Act 2006 petition, was represented by RPC (a city law firm) under a Conditional Fee Agreement (CFA) with a 100% uplift. The Deacon Loan Agreement, a loan arranged by RPC to cover her expert fees, led to a conflict of interest for RPC. Ms. Forster contended that RPC’s conflicted position and failure to enforce the settlement agreement with her opponents resulted in significant prejudice and financial loss. Additionally, she claimed RPC failed to adequately inform her about escalating costs under the CFA, affecting her financial decisions and strategy.
Outcome: The High Court found in favour of Ms. Forster awarding her £192,500 in compensation for professional negligence. The court determined that RPC had breached its duties by failing to manage conflicts of interest arising from the Deacon Loan Agreement and the CFA. Additionally, RPC was found negligent for not keeping Ms. Forster adequately informed about the accumulating costs under the CFA.
The judgment emphasized the importance of law firms maintaining transparency and prioritizing client interests, especially in complex financial arrangements. The court’s decision highlights the crucial role of clear communication and conflict management in legal representation.
Forster v Reynolds Porter Chamberlain [2023] EWHC 1150 (Ch)
Case Background
Ms. Deborah Anne Forster (a technology inventor) instructed Reynolds Porter Chamberlain LLP (RPC) to defend her in a fraudulent misrepresentation claim brought by Ms. Kate Bleasdale and Mr. John Cariss and pursue an unfair prejudice petition under section 994 of the Companies Act 2006.
RPC acted for Ms. Forster under a Conditional Fee Agreement (CFA) with a 100% uplift. Ms. Forster also arranged ‘after the event’ insurance (ATE Policy), which covered limited adverse costs, non-lawyer disbursements payable to RPC, and repayment of a loan for funding her expert witness fees. This loan, the Deacon Loan Agreement, was provided by Giltspur Capital LLP, a firm controlled by Mr. Deacon and recommended by RPC, though Ms. Forster was unaware of the pre-existing relationship between Giltspur and RPC.
The case was settled via a Tomlin Order, where Ms Bleasdale and Mr Cariss agreed to pay Ms. Forster £350,000 plus 80% of her costs. However, the total fees incurred by RPC and Counsel exceeded £5.3 million.
Under the CFA terms, Ms. Forster was required to pay monies recovered to RPC, who would repay the Deacon Loan Agreement on her behalf and cover their fees, and any surplus would be paid to Ms Forster. RPC delayed the enforcement of the settlement, which led to limited recovery (£50,000) and subsequent bankruptcy of Ms Bleasdale and Mr Cariss.
Ms. Forster’s claim against RPC for professional negligence was for the lost opportunity to enforce the Tomlin Order terms within a reasonable period, alleging that RPC’s interest in the Deacon Loan Agreement created a conflict and led them to prefer their interests over hers and deprived her of recovering the balance of the settlement monies.
Decision
Fancourt J found that RPC breached its duty of care in several aspects. RPC failed to keep Ms. Forster informed about the escalating legal costs, contradicting the CFA’s terms that required providing ‘the best information possible’ about costs. Furthermore, the court found that RPC did not adequately advise Ms. Forster regarding the benefits and risks associated with the Loan Agreement and the use of a Deloitte partner as her expert witness.
The judge highlighted that RPC’s advice to Ms. Forster to borrow money from Mr. Deacon, and their subsequent actions to prevent her from enforcing the settlement agreement, constituted a clear conflict of interest.
Fancourt J stated that RPC had “a clear conflict of interests in advising Ms Forster to borrow money from Mr Deacon and … acting for Mr Deacon in preventing Ms Forster from enforcing [the settlement agreement]”. The court emphasized that informed consent from both parties was essential for RPC to properly advise or act for Mr. Deacon and Ms. Forster.
Further, Fancourt J also concluded that RPC’s refusal to act according to Ms. Forster’s express instructions to enforce the terms of the settlement agreement was a breach of duty, resulting in a loss of opportunity for her. The court determined that “‘RPC were not entitled to refuse to act in accordance with [Ms Forster’s] instructions”.
The claimant was awarded damages of £192,500, representing 55% of the £350,000 settlement amount, which represented the likelihood and loss of opportunity of Ms. Forster’s full recovery if enforcement action had been taken in 2011 and 2012.
Comments from Expert Professional Negligence Lawyers
Our professional negligence lawyers have previously written about the importance of legal representatives providing their clients with information on (i) how they might be able to fund their case and (ii) an estimate of the costs. You can read that article here.
The recent decision in Forster v Reynolds Porter Chamberlain LLP serves as a reminder of the obligations and duties on lawyers to provide clear and regular communication regarding costs and potential conflicts of interest.
If your solicitor fails to give you adequate advice on litigation funding this could cause financial loss, and can give rise to a claim for professional negligence.
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