Duty to warn: An additional aspect of a solicitor’s duty

22nd January 2018

Professional Negligence specialist reviews a recent case which highlights an additional aspect to a solicitor’s duty to its client.

Applicable duty of care?

For over sixty years the test for the standard of care expected of a professional has been that set out in the Bolam [1] case – that is, whether the adviser acted in accordance with practice accepted as proper by a responsible body of professionals (the ‘reasonably competent practitioner’ test).  In an earlier issue of [Banking Matters][Mutual Matters] we highlighted the cases of Montgomery and O’Hare v Coutts [2] in which Bolam was not applied and instead a new standard of care, which was concerned with whether the adviser has taken reasonable care to ensure that any material risks involved in, and any alternatives to, a proposed course of action have been fully explained to and understood by the claimant, was adopted.  In another, even more recent case, Barker v Baxendale Walker Solicitors [3], the question of the appropriate standard of care for professionals has arisen again.

Case in question

In this case the client was considering selling shares in his company. He sought advice from his solicitor, who recommended an employee benefit trust, modelled on section 28 of the Inheritance Tax Act 1984 (the ITA), whereby the client would gift his shares to the trust in return for tax exemptions for himself and his family.  The client followed the solicitor’s advice, but years later HMRC assessed the client as liable for tax arising from the trust to the tune of some £11.2 million.  HMRC relied on its interpretation of subsections 28 (4) (a) and 28 (4) (d), which differed from the solicitor’s interpretation.  In the subsequent claim against the solicitor, it was not alleged that the solicitor was negligent to take the particular view that he had as to the interpretation of the relevant sections; rather, the question was whether the reasonably competent practitioner would have failed to warn the client that there was a significant risk that the trust arrangement could be fiscally ineffective because of uncertainty surrounding the relevant legislative provisions.

Court of Appeal decision and guidance

The Court of Appeal explained that what advice should have been given by the reasonably competent practitioner in the particular factual circumstances at the time turned partly on the view that the professional took as to the provisions in question, but it also turned on whether contrary arguments as to interpretation were significant enough to merit mention. It offered the following guidance:

• The question of whether a solicitor is in breach of a duty to explain the risk that a court may come to a different interpretation from that which he or she advises, is highly fact sensitive;
• The test is whether there is a “significant risk” of a court reaching a different interpretation;
• If the construction of the provision is clear, it is very likely that the threshold of “significant risk” will not be met and it will not be necessary to caveat the advice given and explain the risks involved;
• However, depending on the circumstances, it is perfectly possible to be correct about the construction of a provision or, at least, not negligent in that regard, but nevertheless to be under a duty to point out the risks involved and to have been negligent in not having done so;
• It is more likely that there will be a duty to point out the risks (i.e. that a reasonably competent solicitor would not fail to point them out) if any question or dispute about the point has already arisen, although this need not necessarily be the case; and
• The issue is much more nuanced than one of percentages or whether opposing possible constructions are “finely balanced”.

The Court of Appeal considered the Montgomery case, in which the Bolam test was not applied, but decided that the situation here was different.  The court decided that the Montgomery case was concerned with a duty to ensure that material risks associated with a particular course of action was an entirely separate duty to that of treating a patient or advising a client with reasonable care.  In the current case, legal advice was to very service being sought and relied upon and so there could be no separate between the giving of advice an appropriate caveats – they were one and the same.  In such circumstances, the Bolam duty applied, and it incorporates a duty to explain and warn of significant risk.

WM Comment

This case seems to demonstrate that the Bolam and Montgomery/Coutts tests are not necessarily strictly ‘alternatives’.  Instead, the case suggests that the duty to give specific warning is an aspect of a solicitor’s fundamental duty in appropriate cases, depending on the facts – it may therefore represent a subtle re-working of the existing Bolam duty to include some emphasis on the explanation and client understanding-aspects of the Montgomery duty?  There is therefore a potential blurring of the lines as to exactly what is the applicable standard of care and scope of duty.

Much will, of course, depend on the nature of the retainer and the work that the solicitor (or indeed other professional) is being asked to do. In the banking context, where a solicitor is simply being asked to complete a transaction, it is likely that the Bolam duty will apply.  In a matter where a solicitor is instructed more widely, not only will the BPE information/advice distinction [4] be crucial (as we have reported previously), but it also seems that Montgomery places the professional under an additional or enhanced duty to ensure that any material risks involved in, and any alternatives to, a proposed course of action have been fully explained to and understood by the client.

Walker Morris will continue to monitor and report as the law in this area continues to develop.

What is immediately clear is that solicitors face a dilemma between complying with their duty to provide advice to the requisite standard of care whilst giving confident advice to clients which is not so peppered with caveats as to be unhelpful. Hopefully the Court of Appeal’s guiding principles, set out above, will assist.

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[1] [1957] 2 All ER 118
[2] [2015] UKSC 11 and [2016] EWHC 2224 (QB)
[3] Barker v Baxendale Walker Solicitors & Anor [2017] EWCA Civ 2056
[4] which distinguishes between cases where a professional is under a duty to provide information to enable someone to decide upon a course or action (in which case the professional is under a duty to make sure that the information provided is right); and where a professional is under a duty to advise someone as to what course of action to take (in which case the duty on the professional is much wider).  BPE Solicitors v Hughes-Holland [2017] UKSC 21