Court of Appeal considers duties owed by solicitors operating advice helplines

A Court of Appeal decision handed down last week contains helpful guidance as to the circumstances in which solicitors may owe tortious obligations to prospective clients who seek limited and preliminary advice from a law firm’s advice helpline – an increasingly common method used by firms to attract new business: Carol Miller v Irwin Mitchell LLP [2024] EWCA Civ 53.

The starting point in the Court of Appeal’s decision was that Irwin Mitchell did assume a tortious duty to the claimant (a caller to its Legal Helpline), even though she was not at that stage a client of the firm. The issue was the breadth of that duty. In cases of this nature, whether a duty is owed (and, if so, its breadth) will turn on whether: (a) it was reasonable for the third party (in this case, the prospective client) to have relied on advice provided by the firm; and (b) the firm should reasonably have foreseen that the third party would do so.

In the present case, both the High Court and the Court of Appeal found that Irwin Mitchell had no duty to advise the claimant to notify the proposed defendant of her potential claim immediately, in the expectation that the defendant would notify its insurers and thereby protect the claimant’s position to recover from those insurers. Irwin Mitchell’s assumption of responsibility to the claimant was confined to the limited advice which it had in fact provided. It was not reasonable for the claimant to have relied on the firm to provide advice on how to protect her position generally and/or for the firm to expect that she would do so. The court did not have to decide whether Irwin Mitchell was obliged to advise on matters “reasonably incidental” to that assumption of responsibility, as it was clear that such advice was not reasonably incidental.

The Court of Appeal’s decision will be welcomed by the increasing number of law firms using helplines to attract potential customers. The decision should however serve as a warning shot. Plainly, firms using helplines should ensure that their staff are appropriately trained in the relevant area of law but, equally, that they are clear on the boundaries within which they are permitted to advise. Since helplines are often staffed by unqualified individuals or junior solicitors, and advice is often provided quickly and with limited information, the risk of incorrect advice being provided is much greater than in the course of an ordinary solicitor/client relationship.

It seems likely that a broader scope of duty may be imposed where firms offer a helpline as an additional service to existing clients (but, as is sometimes the case, not pursuant to a contract), as compared to prospective clients. A court might more easily conclude that it was reasonable for a firm to expect that an existing client would reasonably rely on the advice – as their existing and trusted advisers – as compared to a prospective client where the call also serves as a sales pitch for the firm.

Interestingly, we are now left with two recent appellate decisions (this case and Spire Property Developments LLP v Withers LLP [2022] EWCA Civ 970, discussed below) in which the application of the “reasonably incidental” test to non-contractual claims against solicitors has been considered but not conclusively determined. A positive determination of this issue would be a welcome clarification of the law and, given what appears to be an increase in the prevalence of claims against solicitors by non-clients, such a decision may not be too far afield. Continue reading

Court of Appeal rejects novel duty of care to protect employees from economic loss arising from a criminal conviction in the performance of duties

The Court of Appeal has dismissed the appeal of a bank employee, finding that the bank did not owe a novel duty to take reasonable care to avoid the risk of the employee being convicted, and that there was no implied term of the employment contract that the bank would indemnify the employee against loss of future earnings suffered as a result of his conviction: Benyatov v Credit Suisse (Securities) Europe Ltd [2023] EWCA Civ 140. In doing so, the Court of Appeal upheld the decision of the High Court for essentially the same reasons.

The Court of Appeal refused to draw an analogy with the audit duty found in Rihan v Ernst & Young Global Ltd [2020] EWHC 901 (QB) (see our banking litigation blog post). In Rihan, the established duty on the defendant auditor was to conduct the audit ethically and without misconduct. In the view of the Court of Appeal, this had no application to the circumstances of the present case, where the duty alleged had nothing to do with the bank avoiding wrongdoing, but was an alleged duty to protect the claimant against the wrongdoing/unjust acts of another third party.

The decision demonstrates the court’s conservative approach to establishing a novel duty of care, providing some helpful analysis on the correct approach in law. The Court of Appeal applied well-established principles, taking the incremental approach endorsed in Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4. This will involve consideration of the three-stage Caparo test (namely, (i) foreseeability, (ii) proximity, and (iii) fairness, justice and reasonableness) to the extent that those factors are in issue. The Court of Appeal acknowledged that assumption of responsibility may be a useful analytical tool, but its usefulness will depend on the issues in the particular case. The most decisive factor in the present case was foreseeability, and assumption of responsibility added nothing, because the bank could not have assumed responsibility for risks that were not reasonably foreseeable.

In relation to the contractual indemnity argument, it was common ground that it was an implied term of the claimant’s employment contract that the bank would indemnify him against some forms of harm suffered in doing his job. However, in the Court of Appeal’s view, there was no support in the English authorities for a general principle that if a person acts on the instruction of another, they are entitled to be indemnified against all losses, of any kind, suffered as a result of doing so, irrespective of any fault on the part of the employer. It commented that a general indemnity of this kind would “wholly subvert the way in which both the common law and legislation have addressed the issue of the obligations of employers”.

For more information see this post on our Banking Litigation Notes blog.

Is the decentralised governance of Bitcoin a myth? Court of Appeal finds real issue to be tried as to whether developers owe fiduciary duties to Bitcoin owners

In the latest development in a line of cases involving Dr Craig Wright, who claims to be the creator of the Bitcoin system, the Court of Appeal has held that there is a realistic argument that Bitcoin developers, while acting as developers, owe fiduciary duties to the true owners of that property, which could include taking active steps to introduce code so that an individual owner’s Bitcoin can be transferred to safety: Tulip Trading Limited v Wladimir van der Laan and ors [2023] EWCA Civ 83.

While the effect of the judgment is not to decide whether such a duty exists, in general or in this specific instance, it means that the question will need to be determined at trial, once the relevant facts have been established. If a duty is found to exist, it would in the words of Lord Justice Birss “involve a significant development of the common law on fiduciary duties”.

At the heart of the judgment is a debate about the true nature of decentralisation in the context of the blockchain and, particularly, how the role of software developers fits into that. The Court of Appeal identified the key factual question of whether software developers should be considered a large and shifting class who cannot impose changes to the software, because those could be rejected by miners who would refuse to run them, potentially leading to a fork in the blockchain. In its obiter comments, the court suggested that, if the decentralised governance of Bitcoin really is a myth, then there is much to be said for the argument that Bitcoin developers, while acting as developers, owe fiduciary duties to the true owners of that property. Continue reading

High Court finds developers did not owe duty to cryptoasset owners to enable access to lost cryptoassets

The High Court has held that cryptoasset systems and software developers did not owe a duty to cryptoasset owners to permit or enable access to the assets where the owners had lost control over the assets following a hack. The court set aside an order permitting service of the proceedings on the developers out of the jurisdiction, as the owners had not established a serious issue to be tried on the merits: Tulip Trading Limited v Bitcoin Association for BSV [2022] EWHC 667 (Ch).

This is an important judgment for cryptoasset owners and developers, and is the latest in a series of significant rulings from the English courts in relation to cryptoassets. It suggests that an owner of cryptoassets has no recourse against the developers of the relevant cryptoasset systems if they lose control of their cryptoassets, either accidentally or due to an event such as a hacking incident. It does not, however, altogether close off arguments that the developers or controllers of cryptoasset systems might owe fiduciary duties or a tortious duty of care in other circumstances, for example where they have introduced a bug by means of a software update or otherwise created a risk to users.

The present decision follows an earlier interim order in the same case (discussed in our previous blog post) where the court refused to allow security for costs to be paid in cryptocurrency as that would not result in protection equal to a payment into court or first class guarantee. Continue reading

Supreme Court clarifies proper approach to determining scope of duty of care owed by a professional adviser

In what is now the leading authority on the application of the decision in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 (SAAMCO), the Supreme Court has held that a mutual building society’s claim for damages for economic loss fell within the scope of its auditor’s duty of care in giving (admittedly) negligent advice regarding the accounting treatment of interest rate swaps: Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20.

The Supreme Court overturned the Court of Appeal’s decision which had found that, in applying SAAMCO, the court should consider at the outset whether it is an “advice” or “information” case, ie whether the professional is providing advice on the merits of a transaction overall, to guide the client’s whole decision-making process, or merely providing information on which the client’s decisions will be taken. If the latter, the Court of Appeal found, applying SAAMCO, the adviser would be responsible only for the foreseeable consequences of the information being wrong, and so the claimant would have to prove that the loss would not have been suffered if the information had been correct.

The majority of the Supreme Court said that the descriptions “information” and “advice” should be dispensed with as terms of art in this area. Instead, the court’s focus should be on the purpose of the duty, judged on an objective basis by reference to the purpose for which the advice is being given. In practice, this means that, when looking at the case of negligent advice given by a professional adviser, one looks to see what risk the duty was supposed to guard against and then looks to see whether the loss suffered represented the fruition of that risk. The counterfactual test, as to whether the loss would have been suffered if the information had been correct, should be regarded only as a tool to cross-check the result in most cases, and should not be regarded as replacing the decision that needs to be made as to the scope of duty of care.

In the present case, the purpose of the auditor’s advice was to provide technical accounting advice as to whether the mutual building society could use hedge accounting in order to implement its proposed business model within the constraints of the regulatory environment. As a result of the auditor’s negligent advice, the building society adopted the business model, entered into further swap transactions and was exposed to the risk of loss from having to break the swaps, when it was realised that hedge accounting could not in fact be used and the building society was exposed to the regulatory capital demands which the use of hedge accounting was supposed to avoid. That was a risk which the auditor’s advice was supposed to allow the building society to assess, and which their negligence caused the building society to fail to understand. Accordingly, the losses suffered by the building society when breaking the swaps were within the scope of the duty owed by the auditors. However, the damages should be reduced by 50% on the basis of the building society’s contributory negligence.

For more information see our Banking Litigation Notes blogpost on the decision.

High Court finds in favour of novel duty of care on employers (or quasi-employers) to protect against economic loss by providing an “ethically safe” work environment

In a recent decision, the High Court has awarded a former partner of Ernst & Young (EY) damages exceeding $11 million, broadly equating to past and future earnings for the rest of his career: Rihan v Ernst & Young (Global) Ltd [2020] EWHC 901 (QB). The claimant, Mr Rihan, was a whistle-blower who publicly disclosed suspected irregularities arising out of an audit for a client for whom he was the audit engagement partner, and unilaterally left EY.

While the facts of the case arose in an audit and accounting context, the decision will be of interest more generally. In particular, the duty of care found to have been owed by EY to Mr Rihan was to protect against economic loss (in the form of loss of future employment opportunity), by providing an “ethically safe” work environment, free from professional misconduct. Further, although Mr Rihan was a partner in EY working in Dubai, the court found that this duty was owed (and breached) by four UK-based EY entities.

For more information see this post on our Banking Litigation Notes blog.