Longstaff and another v Birtles and Others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MUMMERY,LORD JUSTICE LAWS,SIR ANTHONY EVANS |
| Judgment Date | 26 July 2001 |
| Neutral Citation | [2001] EWCA Civ 1219 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2000/2401 |
| Date | 26 July 2001 |
[2001] EWCA Civ 1219
Lord Justice Mummery
Lord Justice Laws and
Sir Anthony Evans
Case No: A3/2000/2401
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIS HONOUR JUDGE ROGER
COOKE CHANCERY DIVISION CARLISLE DISTRICT REGISTRY
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Gregory Pipe (instructed by Suttons Solicitors, Bishop Auckland for the Appellant)
Mr Christopher Gibson QC and Mr Ulick Staunton (instructed by Crutes, Carlisle, Cumbria for the Respondent)
Introduction
This case powerfully demonstrates the importance of the paramount duty of a solicitor to observe fiduciary obligations in his personal dealings with a client and even with a former client. A solicitor proposing either to buy property from, or to sell property to, a client is under a duty to cause the client to obtain independent advice. That duty may endure beyond the termination of the retainer, which initially formed the professional relationship of solicitor and client : see Snell's Principles of Equity (13th Ed) para 11–83. The source of the duty is not the retainer itself, but all the circumstances (including the retainer) creating a relationship of trust and confidence, from which flow obligations of loyalty and transparency. As long as that confidential relationship exists the solicitor must not place himself in a position where his duty to act in the interests of the confiding party and his personal interest in acting for his own benefit may conflict. Breach of that duty may result in the setting aside of the transaction or, if that is no longer possible, in the award of equitable compensation for resulting loss.
Unfortunately, these basic principles neither featured in the pleadings nor in the arguments in the court below. They only surfaced in the course of the hearing of this appeal.
The Factual Background
As foreshadowed by the opening words of HHJ Roger Cooke's detailed and careful judgment, the facts are redolent of some famous judgments of Lord Denning MR:
"Whatever is the result on the merits this is a tragic case of a bad business decision.When the story started the Claimants Mr & Mrs Longstaff had £50,000 to invest in a small hotel business.When it ended their £50,000 was gone and they had no employment and were and are destitute. All this happened nearly ten years ago."
Mr Longstaff was an executive officer in the Department of Employment.In 1982 he and his wife bought a guest house in Blackpool. Mr Longstaff retired from the Civil Service in 1984 to concentrate on the guest house. The Longstaffs decided that they would rather run a place in the country. So they sold up in Blackpool in 1987 and went to live temporarily in Kirby Stephen. They started to look for a place. They had about £58,000 available. They found a Moorland pub called the Moorcock Inn at Egglestone, Co Durham. It was on the market for £150,000.They proposed to inject £50,000 and to borrow £100,000.
Mr Longstaff, who conducted the negotiations on his wife's behalf as well as for himself, needed a solicitor. So he instructed a local firm in Kirby Stephen in January 1988.They were called Hewitson & Harker. He had never had anything to do with them before. He just went to them off the street. The partners were two brothers,Peter and Michael Birtles. Mr Longstaff dealt with Mr Michael Birtles.
The Longstaffs did not know that the Birtles were also partners, along with Mr Middleton (a local builder) and Mr Allen (an associate of Mr Middleton), in a hotel business at the Castle Hotel at Brough. It was bought by them in August 1986 in a run down condition. There was a loan of £76,000 from the Midland Bank to finance improvements to the premises. The hotel opened for business in July 1987. Mr & Mrs Williams became resident landlords in October 1987 and gave notice to expire in 1988. According to the accounts for the trading year August 1986 to August 1987 the business had been trading at a large loss.
The Moorcock negotiations were not fruitful. The business accounts were unsatisfactory and showed that the representations about turnover were wrong. At a meeting on 24 February 1988 Mr Longstaff told Mr Michael Birtles that he had decided not to proceed with the purchase of the Moorcock. The negotiations were ended by a letter sent by the solicitor the next day and the papers were returned.
At the same meeting Mr Michael Birtles told Mr Longstaff about the Castle Hotel. He suggested that he might like to buy into the Castle Hotel partnership. He indicated that the business was worth £250,000 and referred Mr Longstaff to a local valuer in Penrith, who said that the figure was about right. Next day Mr Longstaff visited the hotel with Mr Michael Birtles. There were four further meetings in February and March 198Mr Michael Birtles drafted a partnership deed. He did not insist that Mr Longstaff should obtain independent advice. The deed was signed on 22 April 198It was agreed that the Longstaffs would introduce £40,000 into the partnership for a half share in it, manage the business, live on the premises, draw a combined weekly gross salary of £250 and receive half of the profits. The partnership was to be for six months terminable by six months notice.
To begin with the hotel appeared to be doing well. The Longstaffs did not exercise the right to terminate and a bonus arrangement was negotiated. By the winter of 1989/90 trade at the Castle Hotel had dropped off. All was not well. A decision was made to sell the hotel for £450,000, but nobody wanted to buy it. Salary was stopped. Trade did not improve. The hotel was in real trouble. Mrs Longstaff suffered ill health. The Longstaffs moved out of the hotel into Oakley Cottage, 2 New Street, West Auckland. Mr Michael Birtles had acted as their solicitor on the purchase of it. Mr Longstaff continued to run the business for a little longer. He went to see another firm of solicitors. They advised him to dissolve the partnership. It is common ground that this was done with effect from 9 December 1990, although partnership affairs have still not been wound up and this would now be difficult to do satisfactorily. Since then the Longstaffs have neither had business nor employment. Mrs Longstaff became gravely ill and has recently died.
The Proceedings
The writ was issued on 23 December 1992.The Longstaffs claimed damages for professional negligence, misrepresentation and breach of the fiduciary duty of good faith arising between partners. The two latter claims, which were rejected by the judge, have not been pursued on appeal. It is, however, necessary to refer to the pleadings in order to understand the issues at the trial and the circumstances in which counsel for the Longstaffs came to make an application for leave to re-re-amend the Statement of Claim in the closing stages of the appeal to this court.
In the re-amended Statement of Claim it was alleged that in January 1988 the Longstaffs entered into an oral contract of retainer with the firm of Hewitson & Harker
"to provide general advice over the purchase of a Hotel business and
specific advice over the purchase of a business at the Moorcock Inn"
Under the particulars of negligence it was alleged that the solicitors had failed to advise them to seek independent advice; or to insist on the inclusion of financial guarantees in the partnership agreement; or to advise them that the losses suffered by the business prior to their negotiations to become partners were such as to make it a high risk venture given their limited resources and the income they required; or to make any or any adequate enquiry as to the limits of their financial resources or the profits they required from their investment in the partnership; or to advise them that they should not enter into a partnership which could result in them being bankrupted as a result of their partners' actions; or to warn them to be sceptical of the trustworthiness of their proposed partners.
They also alleged that, if the firm of solicitors had not acted negligently, they would not have entered into the partnership agreement and that, as a result of the negligence, they had suffered loss of all sums invested and the loss of opportunity to generate income.
In their defence the solicitors denied that there was a general retainer. They pleaded that the relationship of solicitor and client ceased following the decision of the Longstaffs not to proceed with the proposed purchase of the Moorcock Inn. It was only thereafter that they asked the Longstaffs if they were interested in joining the Castle Hotel partnership. It was admitted that Mr Longstaff was shown writing indicating that the Castle Hotel was running at a loss prior to the partnership and, indeed, since it was bought at auction in 1986.The allegations of misrepresentation and negligence were denied. It was pleaded that the Longstaffs were informed that they were at liberty to seek independent advice and were advised to seek it. It was denied that the Longstaffs entered into the partnership agreement by reason of the alleged negligence or in reliance on any representation. It was even alleged that any loss or damage that the Longstaffs might prove was caused wholly or in part by reason of their own negligence in failing to seek independent advice and relying on their own...
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