Solicitors undertook irreconcilable duties.
See also:
HOUSE OF LORDS
SESSION 2004-05
[2005] UKHL 8
on appeal from: [2002] EWCA Civ 723
OPINIONS
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
Hilton (Appellant)
v.
Barker Booth and Eastwood (a firm) (Respondents)
ON
THURSDAY 3 FEBRUARY 2005
The Appellate Committee comprised:
Lord Hoffmann
Lord Hope of Craighead
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Lord Brown of Eaton-under-Heywood
--------------------------------------------------------------------------------
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Hilton (Appellant) v. Barker Booth and Eastwood (a firm) (Respondents)
[2005] UKHL 8
LORD HOFFMANN
My Lords,
1. For the reasons given in the speeches of my noble and learned friends Lord
Scott of Foscote and Lord Walker of Gestingthorpe I too would allow this appeal
and make the order proposed.
LORD HOPE OF CRAIGHEAD
My Lords,
2. For the reasons given in the speeches of my noble and learned friends Lords
Scott of Foscote and Lord Walker of Gestingthorpe, which I have had the
advantage of reading in draft, I too would allow this appeal and make the order
which has been proposed by Lord Walker.
LORD SCOTT OF FOSCOTE
My Lords,
3. I have had the advantage of reading in draft the opinion prepared by my noble
and learned friend Lord Walker of Gestingthorpe and am in full agreement with
the reasons he has given for allowing this appeal. I wish particularly to
associate myself with my noble and learned friend's remarks in paragraphs 10 and
47 of his opinion. Since, however, your Lordships are disagreeing both with the
trial judge and a unanimous Court of Appeal, I want to add a few words of my
own.
4. The issue in this case is determined, in my opinion, by the principles
expressed in Moody v Cox [1917] 2 Ch. 71. Lord Walker has cited the relevant
passage from the judgment of Lord Cozens-Hardy MR. I would add to that citation
a passage from the judgment of Scrutton LJ, at p 91. Scrutton LJ referred to
evidence given by the defendant Cox to the effect that he, Cox, knew that the
price the client, Moody, was paying for the cottages was a good deal more than
the value that had been placed on the cottages for probate purposes and that he,
Cox, had not told the client the amount of the probate valuation. Scrutton LJ
then continued:
"A man who says that admits in the plainest terms that he is not fulfilling the
duty which lies upon him as a solicitor acting for a client. But it is said that
he could not disclose that information consistently with his duty to his other
clients, the cestius que trust. It may be that a solicitor who tries to act for
both parties puts himself in such a position that he must be liable to one or
the other, whatever he does. The case has been put of a solicitor acting for
vendor and a purchaser who knows of a flaw in the title by reason of his acting
for the vendor, and who, if he discloses that flaw in the title which he knows
as acting for the vendor, may be liable to an action by his vendor, and who, if
he does not disclose the flaw in the title, may be liable to an action by the
purchaser for not doing his duty as solicitor for him. It will be his fault for
mixing himself up with a transaction in which he has two entirely inconsistent
interests, and solicitors who try to act for both vendors and purchasers must
appreciate that they run a very serious risk of liability to one or the other
owing to the duties and obligations which such curious relation puts upon them."
5. The reasoning in Moody v Cox did not depend on the circumstance that actual
misrepresentations might have been made by the solicitors to their client. It
depended on the failure by the solicitors to disclose to their client
information that it was their contractual duty to him to disclose. The fact that
the disclosure of the information would, or might, have placed the solicitors in
breach of duties they owed to others did not relieve them of the contractual
duties they had undertaken or of the legal consequences of their breach of those
contractual duties.
6. The Court of Appeal in the present case recognised, I think, that in general
it could be no answer to a claim for damages for breach of a contractual
obligation that performance of the obligation would have constituted a breach of
a contractual obligation owed to someone else. Hence the attempt by Sir Andrew
Morritt V-C to identify an implied term in the contract between the appellant
and his solicitors under which the solicitors would be excused from disclosing
to the appellant information that they were legally obliged to someone else to
treat as confidential (see paras 32 and 33 of Sir Andrew Morritt V-C's
judgment). I agree with Lord Walker that the proposed implied term cannot be
justified by any of the various tests for the implication of terms into a
contract. If, when instructing the respondent firm to act for him, the proposed
implied term had been put to the appellant, it is inconceivable that he would
have responded "Yes, of course", or with words to that effect. He would have
asked what sort of information his solicitors were talking about and to whom the
duty of confidentiality was owed. He would surely have asked for guidance as to
whether his assent to the proposed term would be prejudicial to his interests.
The implied term route as a way of relieving the respondent solicitors of
contractual obligations that they would otherwise have owed the appellant seems
to me to be an impossible one.
7. In any event, the description of the information about Mr Bromage that ought
to have been disclosed to the appellant as "confidential" seems to me a red
herring. I doubt whether a fact that is a matter of public record, such as a
bankruptcy or a criminal conviction, can justify such a description. The reason
why it would have been a breach of the solicitors' duty to Mr Bromage to inform
the appellant of Mr Bromage's bankruptcy and criminal conviction was not because
the information was "confidential" but because it was their duty as Mr Bromage's
solicitors to do their best to further Mr Bromage's interests in the transaction
in respect of which Mr Bromage had instructed them. To have disclosed those
facts to the appellant would surely have peremptorily frustrated the proposed
transaction. It would, therefore, have been a breach of their duty to Mr Bromage
to have done so.
8. So the conclusion seems to me inescapable that the solicitors had put
themselves in a position in which they owed to their two clients, Mr Bromage on
the one hand and the appellant on the other hand, contractual duties that were
inconsistent with one another. If, at an early stage, they had told the
appellant that they could not act for him and that he should go to other
solicitors, they would have extricated themselves from their dilemma. In the
event, however, they continued to act for both clients and it was inevitable
that they would be in breach of the contractual duties they owed to one or the
other. The unfortunate victim turned out to be the appellant and they have no
answer, in my opinion, to his claim against them for damages for breach of
contract.
9. So I would allow this appeal and make the order that Lord Walker has
proposed.
LORD WALKER OF GESTINGTHORPE
My Lords,
10. The facts of this case need to be set out in some detail. The courts below
do not seem to have found them particularly shocking. I have to say that I do.
It adds to my dismay that if (as I would) your Lordships allow this appeal, it
will still not achieve finality in the appellant's efforts to obtain redress for
the wrong which was done to him nearly fifteen years ago.
The facts
11. The appellant Mr Ian Hilton started work in 1972, at the age of 17, as an
apprentice bricklayer. He became an experienced subcontractor in the
house-building industry. In 1978 he became a client of the respondent, Barker
Booth and Eastwood ("BBE"), a firm of solicitors practising in Blackpool. In the
mid 1980s Mr Hilton began to trade as a developer in a small way of business,
buying small sites in or around Blackpool. He traded in partnership with his
wife, but he was the only one who was in any way active in the business. In 1988
the partnership made a profit of over £100,000 from developing and selling two
sites. In the course of that transaction he called on his solicitor, Ms Helen
Lawson of BBE, and was introduced to her partner Mr Kevin Gorman. At that time
Mr Gorman ranked fourth, and Ms Lawson fifth, out of the six partners in the
firm.
12. In 1989 Mr Hilton separated from his wife. At that time they owned two
undeveloped sites, one at Falmouth Road, Blackpool (acquired in 1985) and
another larger site at Watson Road, Blackpool (acquired in 1988). The Falmouth
Road site was developed by the erection of one house and was transferred into
the sole name of Mrs Hilton. The Watson Road site was a larger area suitable for
the erection of several flats. In 1990 it was still undeveloped. Mr Hilton put
up a large sign carrying the words "Hilton Homes" and his telephone number.
13. In June or July 1990 Mr Hilton received a phone call (perhaps as a result of
the "Hilton Homes" notice) from Mr Neil Bromage. Mr Bromage introduced himself
as a cousin of Mr Hilton's estranged wife (and it is accepted that he was a
cousin of hers) but Mr Hilton had never met him before and had no idea who he
was. In the next few weeks Mr Hilton had a number of phone calls and visits from
Mr Bromage, all concerned with possible development plans. Mr Bromage expressed
an interest in buying the flats at Watson Road, once they had been built. In his
witness statement Mr Hilton described Mr Bromage as pestering him.
14. What Mr Hilton did not know, and did not discover until much later, was that
Mr Bromage had only a few months before been released from prison on licence. On
30 October 1989 he was sentenced at Preston Crown Court to nine months'
imprisonment after pleading guilty to three offences of participating in the
management of a company while an undischarged bankrupt, one offence of
fraudulent trading, and nine offences of obtaining credit while an undischarged
bankrupt. He was released from prison on 16 March 1990.
15. These facts were however known to BBE since that firm had acted for Mr
Bromage in the criminal proceedings. Mr Gorman had not himself acted in the
criminal proceedings but he knew of Mr Bromage's bankruptcy and his prison
sentence. In his witness statement he described Mr Bromage as an established
client of the firm.
16. At the end of July and during August 1990 there were several meetings at
BBE's offices between Mr Gorman, Mr Bromage and Mr Hilton. At trial there were
conflicts of evidence about these meetings. BBE's pleaded case was that Mr
Bromage and Mr Hilton instructed BBE jointly, and Mr Gorman in his witness
statement stated that an agreement between them was already in place, and that
he (Mr Gorman) was "merely instructed to act for Bromage with regard to
conveyancing formalities." That was the case which BBE ran at trial, asserting
that no conflict of interest arose until much later in the retainer. But the
judge did not accept that case. He preferred Mr Hilton's evidence, which was
significantly different. The judge found Mr Hilton to be an honest witness. He
specifically rejected the statement in Mr Gorman's witness statement that a deal
had already been concluded before BBE were instructed. It is accepted on this
appeal that at these meetings Mr Gorman lent credence to Mr Bromage.
17. Mr Hilton expected that at the first meeting at BBE's offices Mr Bromage
would make an offer in respect of the Watson Road site. He did not do so on that
occasion, although he did about two months later. The first transaction between
Mr Hilton and Mr Bromage (and the only one which formed part of Mr Hilton's
pleaded case) related to a site at 74 Waterloo Road, Ashton on Ribble, which had
been found by Mr Bromage. It had planning permission for the erection of six
flats.
18. The outcome was that Mr Hilton agreed to buy the Waterloo Road site from its
owners for £85,000. He agreed to develop it by the erection of six flats and to
sell the developed property to Mr Bromage for £351,000. The procedure envisaged
in the contract (which was far from a routine conveyancing document) was that as
each flat was completed the purchaser would pay £58,500 (credit for the original
£25,000 deposit being given on the sixth flat) and would be granted a 999 year
lease of the flat, with the freehold eventually being vested in a management
company. Mr Bromage (unknown to Mr Hilton) agreed to sell on the flats to a
subpurchaser, Mr John Riley, for £390,000. This third contract was in delphic
terms and provided for no deposit. Mr Riley is a very shadowy figure in the
story. His address was given as Mottram in Cheshire, but the judge recorded that
he seemed to have spent much of his time in Mozambique, and that he proved of no
more substance than Mr Bromage.
19. All three contracts were exchanged on the same day, 10 September 1990. BBE
acted for both Mr Bromage and Mr Hilton. Mr Bromage had the professional
services of Mr Gorman. Mr Hilton had the professional services of Mr Barry
Scott, whom Mr Gorman described as a colleague but was in fact a solicitor
employed by BBE. According to Mr Hilton's witness statement, he was told by Mr
Gorman that Ms Lawson, a partner and his usual solicitor, was "busy with
probate." Mr Gorman said that Mr Hilton himself suggested Mr Scott. The judge
made no finding about that, but on any view it was professionally improper for
BBE to act on both sides in a transaction of this sort. Rule 6 of the
Solicitor's Practice Rules 1990 (replacing an earlier rule to the same effect)
contained an unqualified prohibition on the same firm of solicitors acting for
both sides "if a conflict of interest exists or arises" or if the seller is
selling or leasing as a builder or developer. Each of these is a free-standing
prohibition which cannot be waived even by informed consent (and in any case any
consent which Mr Hilton gave to these arrangements was plainly not his informed
consent).
20. Not only was Mr Hilton selling as a builder and developer, but BBE had a
direct and personal conflict of interest arising out of the deposit which Mr
Bromage paid under his contract to purchase the Waterloo Road flats. Mr Hilton
was well aware that he was embarking on a larger development than he had ever
previously undertaken, and that he would need a large bank loan. He originally
estimated this at £180,000 and Mr Gorman arranged that facility for him at
Barclays Bank (it was later increased to £220,000). Mr Hilton also estimated
that he needed a cash deposit of 10% of the full development value (that is
£35,100). But at the last moment, Mr Scott told him that only £25,000 was
available. As the judge laconically recorded:
"The deposit on the first contract was negotiated down to £25,000 and advanced
by the firm."
Mr Hilton was not told that his own solicitors were advancing the entire deposit
to a convicted fraudster so as to clothe him with the appearance of being a man
of substance. They did the same (to the extent of £30,000) when (in or around
December 1990) Mr Hilton agreed with Mr Bromage to develop the Watson Road site
and sell it after development for £585,000. Mr Hilton did not discover these
facts until much later, when BBE's files were disclosed. Neither Mr Gorman nor
Mr Scott could bring himself to mention these highly relevant facts in his
witness statement.
21. As Sir Andrew Morritt V-C said in his judgment in the Court of Appeal
([2002] EWCA Civ 723, [2002] Lloyds Rep PN 500, para 5), from Mr Hilton's point
of view, the Waterloo Road transaction was a disaster. In brief summary, he
built the six flats (with a secured bank facility which had increased to
£220,000) and in August 1991 Mr Scott gave notice to Mr Gorman that flats 1 to 4
were ready for completion of the leases. Mr Gorman responded on Mr Bromage's
behalf that the flats were not ready, and it is accepted that the first notice
of readiness, and some subsequent notices, were premature. But the flats were
ready by 20 November 1991. On 5 December 1991 Mr Hilton gave a notice to
complete. Mr Bromage failed to complete, and also refused to vacate a caution
which had been placed on the title. On 10 January 1992 Mr Hilton decided to
rescind the contract. In his witness statement he gives an account of his last
interview as a client of BBE:
"I was very disillusioned with Bromage because I was under pressure from both my
ex-wife and from the bank. When I asked Barry Scott to rescind the contract, he
told me to sit where I was and he called on the internal telephone to Kevin
Gorman, who came into his room and told me that the firm should not have acted
because there was a conflict of interest. He told me that I would have to go to
a different firm of solicitors to take advice. He told me to get out of the
office. I left."
22. The next few years saw the collapse of Mr Hilton's business and a series of
frustrations in his attempts to retain redress. The following summary is taken
from Mr Hilton's witness statement and was not the subject of findings by the
judge, but it appears only too credible. In January 1992 a bankruptcy petition
was presented against him, but in the autumn of that year he put forward
proposals for an IVA which were accepted. In April 1992 Mr Bromage offered to
remove his caution if Mr Hilton returned his deposit with interest. Mr Hilton
refused, partly because he did not have the money and partly because Mr Bromage
had already persuaded Mr Hilton to advance him a total of £18,000 for commission
which Mr Bromage claimed under an oral agreement. In October 1992 Mr Hilton
issued a writ against Mr Bromage, with some modest financial backing from
Barclays Bank. Mr Bromage seems to have been a very persuasive man; he later
obtained waiver of a debt of £6,000 and a further £17,000 from the Bank as the
price of vacating his caution.
23. Early in 1993 the Bank proceeded to enforce its securities. Waterloo Road
was sold for £180,000 and Watson Road for £32,000. There was still a large
deficit. In April 1993 Mr Hilton was advised for the first time that he had a
better prospect of obtaining redress by suing BBE. But he had difficulty both in
obtaining legal aid and in finding solicitors to act for him. Eventually, in
December 1993 a writ was issued against BBE. During 1993 his estranged wife
obtained a decree nisi of divorce but it was not made absolute because of Mr
Hilton's uncertain financial position.
24. Mr Hilton's legal aid for his action against Mr Bromage was withdrawn and in
August 1994 those proceedings were struck out. In November 1994 his IVA was
determined by the supervisor. Mr Hilton had great difficulty in achieving
progress in the proceedings against BBE. Nothing happened between March 1996 and
June 1997, when the Law Society intervened in the practice of the solicitors
then acting for Mr Hilton. In 1997 Mr Hilton was adjudicated bankrupt, but the
bankruptcy was annulled. Somehow Mr Hilton and his present solicitors managed to
get the action to trial.
The proceedings below
25. The case was tried at Manchester before His Honour Judge Maddocks on three
days during September 2001. The judge gave a reserved judgment on 28 September
2001. He made some findings of fact which I have already noted. He also made a
clear finding that if Mr Hilton had been informed of Mr Bromage's antecedents,
he would not have had anything to do with the Waterloo Road transaction. He
found that BBE had been in breach of their professional duty but that the breach
had caused no loss to Mr Hilton.
26. There were three important steps on the way to that conclusion. The first
(and uncontroversial) step was that BBE were in breach of their professional
duty in acting for both Mr Bromage and Mr Hilton. The second was that the facts
of Mr Bromage's bankruptcy and convictions although "in the public domain and in
that sense . . . not confidential information" were information which BBE could
not pass on to Mr Hilton without a breach of their professional duty to Mr
Bromage. The third step was expressed as follows by the judge:
". . . the breach of duty here lay in continuing to act, not in failing to pass
on the information. Upon that footing, Mr Hilton was entitled to be placed, and
is entitled to be placed, in the position he would have been if he had
instructed an independent solicitor. The claim was not advanced that any such
solicitor would have been aware or would have become aware of Mr Bromage's
conviction, nor was it suggested that he should have advised Mr Hilton to have a
credit report."
So the judge dismissed the action with costs. Had he found liability, he would
have awarded damages of £175,335. Mr Hilton appealed against the judge's
conclusion on liability and quantum. BBE cross-appealed as to quantum.
27. On 22 May 2002 the Court of Appeal (Sir Andrew Morritt V-C, Judge and
Jonathan Parker LJJ) unanimously dismissed Mr Hilton's appeal. The
Vice-Chancellor recorded the parties' agreement that if the appeal were to be
allowed, the assessment of damages should be remitted to be assessed by a judge.
Before I examine the reasoning in the Court of Appeal's judgments, it may be
useful to state some basic principles.
The solicitor's duty to his client
28. A solicitor's duty to his client is primarily contractual and its scope
depends on the express and implied terms of his retainer. When a mortgage lender
such as a building society or bank instructs a solicitor who is also acting for
the borrower, the solicitor is invariably given detailed, standard-form written
instructions and these define with some precision the solicitor's duties to the
mortgagee. Mr Hilton, by contrast, gave no written instructions to BBE, and
there seems to have been no other documentary evidence of the terms of the
retainer.
29. The relationship between a solicitor and his client is one in which the
client reposes trust and confidence in the solicitor. It is a fiduciary
relationship. But not every breach of duty by a fiduciary is a breach of
fiduciary duty: see the observations of Millett LJ in Bristol and West Building
Society v Mothew [1998] Ch 1, 16-17. If a solicitor is careless in investigating
a title or drafting a lease, he may be liable to pay damages for breach of his
professional duty, but that is not a breach of a fiduciary duty of loyalty; it
is simply the breach of a duty of care. This may have practical consequences,
for instance in relation to causation, as in the Mothew case.
30. A solicitor's duty of single-minded loyalty to his client's interest, and
his duty to respect his client's confidences, do have their roots in the
fiduciary nature of the solicitor-client relationship. But they may have to be
moulded and informed by the terms of the contractual relationship: see the well
known observations of Mason J in Hospital Products Ltd v United States Surgical
Corporation (1984) 156 CLR 41, 97, cited by Lord Browne-Wilkinson in giving the
judgment of the Privy Council in Kelly v Cooper [1993] AC 205, 215. In this case
no such moulding is necessary, since there were no express terms agreed as to Mr
Hilton's retainer of BBE. Mr Hilton did not expressly plead that BBE was in
breach of any fiduciary duty. He did not need to, since at trial he was not
seeking to take the sort of causation point that was raised in the Mothew case
[1998] Ch 1 (in this House the appellant's printed case did seek to take points
based on a fiduciary relationship but the House did not find it necessary to
decide whether to consider those points). On this issue of liability both sides
have been content for the case to be dealt with as a claim for breach of
contract. However, the content of BBE's contractual duty, so far as relevant to
this case, has roots in the parties' relationship of trust and confidence.
31. The solicitor's duty of single-minded loyalty to his client very frequently
makes it professionally improper and a breach of his duty to act for two clients
with conflicting interests in the transaction in hand. Lord Jauncey of
Tullichettle, giving the judgment of the Privy Council in Clark Boyce v Mouat
[1994] 1 AC 428, 435 said:
"There is no general rule of law to the effect that a solicitor should never act
for both parties in a transaction where their interests may conflict. Rather is
the position that he may act provided that he has obtained the informed consent
of both to his acting. Informed consent means consent given in the knowledge
that there is a conflict between the parties and that as a result the solicitor
may be disabled from disclosing to each party the full knowledge which he
possesses as to the transaction or may be disabled from giving advice to one
party which conflicts with the interests of the other."
Here "disabled" plainly does not carry with it the meaning of "exonerated". Lord
Jauncey then cited Richardson J in Farrington v Rowe McBride & Partners [1985] 1
NZLR 83, 90:
"A solicitor's loyalty to his client must be undivided. He cannot properly
discharge his duties to one whose interests are in opposition to those of
another client. If there is a conflict in his responsibilities to one or both he
must ensure that he fully discloses the material facts to both clients and
obtains their informed consent to his so acting …. And there will be some
circumstances in which it is impossible, notwithstanding such disclosure, for
any solicitor to act fairly and adequately for both."
32. I need not go further into this point because it is (since the judge's
rejection of BBE's case that Mr Bromage and Mr Hilton came to Mr Gorman with
their deal already done) common ground that BBE could not properly act for both
vendor and purchaser on the Waterloo Road transaction. Their duty was to inform
Mr Hilton (first) that they could not act for him and (second) that he should
seek legal advice from other solicitors, starting afresh (and not relying on any
advice that he might already have received from BBE). A bare refusal to act,
without clear advice about going to new solicitors, would not have been
sufficient to discharge their duty. It is unnecessary to consider whether they
should also have given the same advice to Mr Bromage.
Confidentiality
33. Two of the most important facts
known to BBE, but unknown to Mr Hilton, were that Mr Bromage had been made
bankrupt and that while an undischarged bankrupt he had committed numerous
offences of dishonesty for which he was sentenced to a term of imprisonment.
These facts were known to any journalist or member of the public who had been
present in the Preston Crown Court when Mr Bromage pleaded guilty and was
sentenced. They were also probably reported in local newspapers. They were, as
Sir Andrew Morritt V-C observed, in para 11:
"matters of public record and so not confidential in any strict legal sense."
Judge LJ's reference, in para 36, to legal professional privilege was, with
respect, quite inapposite as regards the bare facts of the bankruptcy and the
convictions.
34. In my opinion the notion of confidentiality, as generally understood by
lawyers, is not really relevant to the issues in this case. It is a solicitor's
duty to act in his client's best interests and not to do anything likely to
damage his client's interests, so far as this is consistent with the solicitor's
professional duty. To disclose discreditable facts about a client, and to do so
without the client's informed consent, is likely to be a breach of duty, even if
the facts are in the public domain. Some of the references in the Court of
Appeal judgments to confidential information must, I think, be understood in
this looser sense. The appellant's counsel was right to concede in the Court of
Appeal, that disclosure of Mr Bromage's past by BBE would have been a breach of
their duty to him, and the appellant did not seek to withdraw the concession
before your Lordships.
Irreconcilable duties
35. If a house owner contracts to sell his house to one purchaser for £240,000
and then a week later contracts to sell it to another purchaser for £250,000, he
assumes two contractual duties which are on the face of it irreconcilable,
unless the seller has grounds for rescinding either contract, or can persuade
one or other purchaser to release him from his obligation. That is so whether he
enters into the second contract with his eyes open, in the hopes of making a
larger profit, or whether (rather improbably) he does so inadvertently. It is no
answer for him to say to either purchaser: I am sorry, I am obligated to
another. His dilemma is his own fault (the phrase used by Lord Cozens-Hardy MR
in Moody v Cox [1917] 2 Ch 71, 81, a case to which I shall return).
36. Mr Gibson QC (who appeared for BBE in this House and argued a difficult case
with brevity and tact) did not accept that the man who sells his house twice was
a fair analogy. He supported the reasoning in Sir Andrew Morritt V-C's judgment
that the decision of the Court of Appeal in Moody v Cox was distinguishable, and
that the only breach of duty on the part of BBE was their failure to refuse to
act for Mr Hilton and to advise him to consult another solicitor. He did not
accept that BBE's failure to disclose the facts about Mr Bromage's past was a
second and more serious breach of duty, which did cause Mr Hilton actionable
loss.
37. Sir Andrew Morritt V-C reasoned as follows, in paras 32 and 33:
"I do not accept that BBE were also in breach of a duty to disclose to Mr Hilton
what they knew of Mr Bromage. Just as the retainer of BBE by Mr Bromage in
connection with his prosecution was not subject to some implied limitation by
reference to disclosure to later clients so the retainer of BBE by Mr Hilton
must be subject to an implied exclusion from any general duty of disclosure of
that which they are legally obliged to treat as confidential. In my view such an
exclusion satisfies all the well-known tests for the implication of contractual
terms. Such an exclusion does not impinge on the solicitor's duty to do the best
for his client; rather it demonstrates the importance of performing that duty
promptly by informing the client that he cannot act for him.
Thus it is not a question of two irreconcilable duties, to which the principles
of Moody v Cox would apply, but of one being modified to take account of
another."
Sir Andrew Morritt V-C did not explain how this implied term (which was never
pleaded) satisfied the well-known tests for implied terms. In my respectful
opinion the suggested term plainly did not meet those tests, whether formulated
by reference to the officious bystander or by reference to business efficacy.
The suggested term would no doubt have been very convenient for BBE. But from Mr
Hilton's point of view it would have amounted to his agreeing that because his
solicitors had failed in their duty to tell him to take separate advice, and had
instead proceeded to act for him as well as for Mr Bromage, and (unknown to Mr
Hilton) in a matter in which they had a personal financial interest, their duty
to Mr Hilton must in some way be curtailed in order to accommodate their first
breach of duty.
38. The notion that one breach of duty by BBE (failure to tell Mr Hilton that
they could not act for him and that he should seek independent advice) should
exonerate BBE in respect of a subsequent and more serious breach of duty
(failure to disclose to Mr Hilton facts which would have saved him from ruin)
seems contrary to common sense and justice. It is also in my opinion contrary to
the principles stated by the Court of Appeal in Moody v Cox, a decision which
has often been cited and followed both in England and in Commonwealth
jurisdictions.
Moody v Cox
39. Moody v Cox [1917] 2 Ch 71 was an action for rescission of a contract of
sale of a public house and four cottages, with a counterclaim for specific
performance. The sellers, Hatt and Cox, were respectively a solicitor and his
managing clerk. They were the trustees of a will trust, and were selling as
such. In addition Hatt acted as solicitor for the purchaser Moody. The contract
price was £8,400. Moody complained that Cox had failed to disclose to him a
valuation showing the property to be worth less than the contract price, and
that Cox had expressly asserted that the cottages were worth £225 each when he
knew that they were worth less. There was also a "clean hands" issue arising
from the fact that Moody had paid two sums of £100 to Cox as a sweetener; that
point is of no relevance to this appeal.
40. Since Hatt and Cox were selling as trustees, they had a duty to their
beneficiaries to obtain the best price reasonably obtainable. It was argued that
this modified the extent of Hatt's duty, as a solicitor, to Moody as his client.
That argument was decisively rejected. They key passages in the judgments of
Lord Cozens-Hardy MR, Warrington LJ and Scrutton LJ [1917] 2 Ch 71, 81, 85, 91
are set out in Sir Andrew Morritt V-C's judgment (paras 12, 13 and 14
respectively). It is sufficient to repeat what Lord Cozens-Hardy MR said, at p
81:
"A man may have a duty on one side and an interest on another. A solicitor who
puts himself in that position takes upon himself a grievous responsibility. A
solicitor may have a duty on one side and a duty on the other, namely, a duty to
his client as solicitor on the one side and a duty to his beneficiaries on the
other; but if he chooses to put himself in that position it does not lie in his
mouth to say to the client 'I have not discharged that which the law says is my
duty towards you, my client, because I owe a duty to the beneficiaries on the
other side'. The answer is that if a solicitor involves himself in that dilemma
it is his own fault. He ought before putting himself in that position to inform
the client of his conflicting duties, and either obtain from that client an
agreement that he should not perform his full duties of disclosure or say -
which would be much better - 'I cannot accept this business.' I think it would
be the worst thing to say that a solicitor can escape from the obligations,
imposed upon him as solicitor, of disclosure if he can prove that it is not a
case of duty on one side and of interest on the other, but a case of duty on
both sides and therefore impossible to perform."
41. The thrust of this passage, and of all three judgments in Moody v Cox, is
that if a solicitor puts himself in a position of having two irreconcilable
duties (in that case, to his beneficiaries and to his client, Moody) it is his
own fault. If he has a personal financial interest which conflicts with his
duty, he is even more obviously at fault. In this case BBE were in the position
(through their own fault) of having two irreconcilable duties, to Mr Bromage and
to Mr Hilton, and of also having a personal interest (because of the undisclosed
£25,000 loan, which was likely to be recoverable only if Mr Bromage did well in
his transaction with Mr Hilton). On the face of it their position was
significantly worse than that of the solicitor in Moody v Cox.
42. However, Mr Gibson submitted that Sir Andrew Morritt V-C had been right in
distinguishing Moody v Cox, in para 15:
"In that case the duty arose from the fiduciary relationship between the
purchaser, Moody, and his solicitor and vendor Hatt and the presumption of undue
influence in consequence of the fact that Hatt was not only Moody's solicitor
but a vendor to him. No such relationship is relied on in this case."
Similarly, he said in para 33:
"But that case concerned the breach of a fiduciary duty and presumption of undue
influence arising on the sale of property by a solicitor to his client to which
different considerations apply."
With great respect to Sir Andrew Morritt V-C I cannot agree with that analysis.
In Moody v Cox Hatt owed a (purely) fiduciary duty to his beneficiaries and a
duty to his client which was (in the way that I have already explained) both
contractual and fiduciary, the content of the contractual duty of full
disclosure being rooted in the fiduciary relationship between solicitor and
client. In the present case BBE owed that type of duty to both Mr Bromage and Mr
Hilton, and they also had a personal financial interest. In Moody v Cox [1917] 2
Ch 71, 80 Lord Cozens-Hardy MR expressly stated that the solicitor's duty of
disclosure does not depend on undue influence.
43. Mr Gibson also relied on the reference at the end of the judgment of
Scrutton LJ, at p 92, to "actual misrepresentations". But in my opinion my noble
and learned friend Lord Hoffmann was right in describing this (in the course of
argument) as a throwaway remark. The overwhelming focus of all three judgments
in Moody v Cox is on non-disclosure, and the principle as to the solicitor's
duty is stated in wide terms.
44. Mr Gibson submitted that a solicitor who has conflicting duties to two
clients may not prefer one to another. That is, I think, correct as a general
rule, and it distinguishes the case of two irreconcilable duties from a conflict
of duty and personal interest (where the solicitor is bound to prefer his duty
to his own interest). Since he may not prefer one duty to another, he must
perform both as best he can. This may involve performing one duty to the letter
of the obligation, and paying compensation for his failure to perform the other.
But in any case the fact that he has chosen to put himself in an impossible
position does not exonerate him from liability.
Mortgage cases
45. During the 1990s there were many reported cases concerned with claims
(resulting from the crash in the property market) against solicitors who had
acted for both sides in mortgage transactions. These cases are discussed at some
length in the parties' written submissions. But counsel rightly spent little
time on them in oral argument because many of them turned (as I have already
noted) on special features of the mortgage lender's instructions to the
solicitors. I do not think it is necessary or helpful to embark on a survey of
the recent mortgage cases, but I note that in Mortgage Express Ltd v Bowerman &
Partners [1996] 2 All ER 836, 844-845, Millett LJ stated the solicitor's duty in
wide and general terms:
"A solicitor who acts for both a purchaser and a mortgage lender faces a
potential conflict of duty. A solicitor who acts for more than one party to a
transaction owes a duty of confidentiality to each client, but the existence of
this duty does not affect his duty to act in the best interests of the other
client."
Millett LJ then went on to explain why no conflict arose on the particular facts
of that case.
46. Sir Andrew Morritt V-C referred to the Mortgage Express case but treated it
as inapplicable because of the implied term which he discerned as modifying the
solicitor's duty. Parker LJ, in para 47, also referred to the Mortgage Express
case and derived from the judgment of Sir Thomas Bingham MR, at p 842, the
proposition that any term in a solicitor's contract of retainer relaxing a
solicitor's duty of confidentiality to his client (save with informed consent)
would be contrary to public policy. I respectfully doubt whether Sir Thomas
Bingham MR intended to lay down any such rule, and I do not think there is any
such rule. In any case the issue is not as to the extent of BBE's duty to Mr
Bromage, but as to their duty to Mr Hilton. It comes back to the same simple
point that if a solicitor is unwise enough to undertake irreconcilable duties it
is his own fault, and he cannot use his discomfiture as a reason why his duty to
either client should be taken to have been modified.
Disposal
47. For these reasons I would allow the appeal and direct that the quantum of
damages (if not agreed) should be assessed by a judge. But it is now 15 years
since Mr Hilton suffered a grievous wrong for which he has not been compensated.
For the good name of the solicitors' profession his compensation should be
agreed, on a generous scale, without further delay.
LORD BROWN OF EATON-UNDER-HEYWOOD
My Lords,