Receiver - Solicitor - Negligence - Claimant company suffering losses from fire

Edenwest Ltd v CMS Cameron McKenna: ChD (Mr Justice Hildyard): 14 May 2012

The claimant company carried out business as a distributor of perfumes and similar products. Its bank (the bank) held a debenture granted by the claimant, and a legal charge over the claimant’s premises. The charge extended to monies payable under insurances in respect of such premises. By the end of 2003, the claimant owed the bank more than £4m. The defendant solicitors’ firm was subsequently engaged by the bank. In May 2004, the bank and the defendant considered appointing administrative receivers in respect of the claimant under its debenture, with a view to selling the business and assets, including an outstanding claim which the claimant had against its insurers and an insurance brokers (the claim).

As part of that process, the bank and KPMG, as prospective receivers, sought advice as to the merit of the claims. KPMG was a major client of the defendant. The defendant responded that, overall, the claims had little chance of success. In August 2004, two partners in KPMG were appointed as administrative receivers. On the same day a receivership sale of assets was entered into between the claimant, acting by its receivers, the receivers, and Imperial Ltd, a company contemplating purchase of the claimant’s business. The price apportioned to the claims was £100,000. A deed of assignment was entered into between the claimant, the receivers and Imperial Ltd to effect the absolute assignment in law of the claims which had been agreed.

The claims were subsequently realised and a sum in settlement was achieved materially in excess of the £100,000 that Imperial Ltd had paid for the assignment to it of the claims. As the claimant had released the bank and the administrative receivers from any claims in relation to the administrative receivership, its only potential recourse was against the defendant. The claimant commenced proceedings against the defendant for professional negligence. The defendant applied to the court for, inter alia, an order for summary judgment under part 24 of the Civil Procedure Rules.

The defendant contended that the claimant had failed to demonstrate any relationship between itself and the defendant such as to give rise to a duty of care in either contract or tort. It submitted that: (i) it had never been retained by or on behalf of the claimant, and in acting as solicitors to its administrative receivers it never became so, so there could be no substantial claim in contract; and (ii) the common law did not impose upon an adviser to administrative receivers a duty of care owed to the company (in the instant proceedings, the claimant), so there could also be no claim in tort either. The claimant submitted that: (i) a retainer between it and the defendant to advise on aspects of an intended receivership sale of the claimant’s assets was established, ratified or novated immediately upon the appointment of administrative receivers with a view to effecting that sale, so that, accordingly, it had a contractual claim; and (ii) in advising on the merits of the claims and their value the defendant had come under a duty owed to the claimant to exercise reasonable skill and care in the course of the alleged retainer. The application would be allowed.

(1) Regarding the claimant’s legal case as to whether it had become party to a retainer and thereby a client of the defendant, two fundamental problems for the claimant arose. First, there was the premise that the claimant had been initially intended to be a party to or bound by the act or transaction - in the instant case, the retainer - said to have been ratified. That intention had not been pleaded. Second, ratification would normally have a retrospective effect, which meant that it would be necessary to establish that from the outset of the defendant’s instruction by the receivers, presumably in June 2004, the intention had been that the claimant was to be a party to that retainer, or some separate retainer, which had not been pleaded either.

Further, there was an apparent assumption that in everything an agent did he intended to bind his principal, which was plainly incorrect (see [85] of the judgment). It would be extremely difficult for the claimant to establish a result which was, ultimately, counterintuitive (see [85] of the judgment).

(2) Regarding the claimant’s factual case as to the establishment of a retainer: first, inter alia, there was nothing in the point that the defendant had done what would have been done by solicitors acting for the claimant had it been selling on its own account, if that could be demonstrated at all. The fact was that the sale had always been intended to be, and was implemented as, a receivership sale: the fact of pre-planning and pre-packaging did not alter that analysis.

Second, the advice given by the defendant about the best price for the claims demonstrated that the defendant had perceived itself to be acting for the bank and the prospective receivers personally, but not for the claimant. There was nothing to suggest that the advice given by the defendant had been intended for the claimant itself. Third, it was most unlikely that the same firm could have properly represented all parties, at least without their informed consent. Fourth, the fact that, pursuant to a right of indemnity, the defendant had obtained payment of costs by the claimant did not signify or suggest a contractual relationship between the claimant and defendant. Finally, neither the fact that the receivers had been the agents of the claimant, nor the fact that the transaction had related to the charged assets of the claimant and they had implemented the sale without taking further advice and, on the basis as far as relevant, of the advice already obtained, was sufficient (see [100], [103], [106], [110], [111], [113] of the judgment).

The claimant’s legal case was unclear, and its factual assertions did not disclose any basis for concluding that the retainer was either suggested by the receivers or agreed by the defendant. The contractual claim had no sufficient prospect of success to merit a trial (see [114]-[115] of the judgment).

(3) Regarding the issue of whether the defendant had owed a separate duty of care in tort, the evidence disclosed no sufficient prospect of establishing that the claimant had been an ‘advisee’ in any relevant sense. First, the sale had been a decision for the receivers acting in effect for the bank as mortgagee, rather than for the claimant, and it was in that role that the receivers had sought and been given advice. Second, the receivers had never conceived it to be their duty, nor had been required in law, to hand on the advice they had received from the defendant as to the viability and value of the claims.

Further, the later release of claims against the receivers could not be used to justify the imposition of a duty of care on the defendant in circumstances where, but for that release, there would have been none. The claimant could not confer upon itself a claim against the receivers’ advisers by its own act in releasing the receivers themselves. Its proper complaint had always been against the receivers; it could not complain of its own act in releasing them from any liability. On the evidence, there had been no duty of care in tort (see [127], [128]-[131], [133] of the judgment). The claimant could not establish a duty of care either in contract or tort, and the defendant would be entitled to summary judgment (see [143] of the judgment).

Nicholas Davidson QC and Sian Mirchandani (instructed by Ward Hadaway) for the claimant; Michael Harvey QC and Lloyd Tamlyn (instructed by Simmons & Simmons) for the defendant.