The limits of a professional's duty of care

In two recent cases, the Courts have grappled with separate, but related issues, in relation to the limits of a professional's duty of care – often a thorny topic in professional negligence claims.

The cases highlight the importance of clearly documented engagement terms, and the approach a Court will take in interpreting the breadth of duty and to which party it is owed.

Honda Group v Mercer: a continuing duty of care?

In Honda Group-UK Pension Scheme Trustee Ltd v Mercer Ltd, the court considered a question that often arises in professional negligence claims: was the professional under a continuing duty of care to detect a particular issue?

The claim

The pension advisers, Mercer Limited, were engaged in or around 1993/1994 to provide various services to the trustee, including the preparation of a new deed for the scheme.

As matters transpired, the old deed (prepared by former advisers in 1986) contained an error. It was alleged that, in preparing the new deed, Mercer should have picked up on the error and brought it to the trustee's attention.

For the purpose of a strike out application, the key question was one of the scope and timing of Mercer's obligations. Mercer contended that its duty ended upon circulation of the first draft of the new deed in 1994. That was more than 15 years prior to the claim form being issued in 2009, and as a result, was time barred pursuant to s.14B of the Limitation Act 1980.

The deed was not, however, completed and signed until 1998. If Mercer were under a continuing duty to detect the error in the 1986 deed until that date, the claim would not be time barred.

The Court therefore had to interpret the scope of Mercer's engagement terms. In doing so, it considered the scope of the retainer on an objective basis on the evidence available, viewing objectively the evidence when the task was completed in the context of the retainer.

In this case, the Court noted that the question was not whether there had been a failure to revisit the issue following the circulation of the 1994 draft but rather that the issue had never been considered in the first place. This left the advisers in continuing breach of their duty to take reasonable care throughout the drafting process.

What does this mean for professionals?

This case is a useful reminder of the importance of clearly documenting the scope of an engagement and its limits. Absent clear wording to the contrary, the Court found that it was at least arguable that the scope of work negotiated for a fixed fee by Mercer extended beyond producing the first draft of the deed in 1994, and could have encompassed post-draft discussions and negotiations.  

The case also serves as a reminder for professionals to take particular caution when taking over an existing matter from previous advisers to the extent that work is relevant to their engagement. Mistakes created in the past can create problems for professionals well into the future if not identified and rectified. 

Ashraf v Lester Dominic Solicitors: assuming a duty of care to third parties

The Court of Appeal's recent decision in Ashraf v Lester Dominic Solicitors and others is a cautionary tale about the circumstances in which a solicitor can assume a duty of care for a non-client third party.

The claim

The claim relates to an alleged fraudulent property transaction. Addressing the facts briefly:

• Mr Ul Haq owned the freehold of a property subject to a mortgage in favour of the Bank of Scotland (the Bank).   

• In 2008, Mr Ul Haq instructed FLP Solicitors ("FLP") to act for him in relation to the sale of the property. Unfortunately, FLP's office manager stole most of the purchase monies and the property was not transferred from Mr Ul Haq to the buyer. After that date, FLP no longer acted for Mr Ul Haq and, on Mr Ul Haq's case, he took no further steps to transfer the property to the buyer.

• The Bank, however, thought that the transaction was going ahead and instructed Rees Page to act for it. A transfer was executed, and Mr Ul Haq's signature (the authenticity of which is disputed by Mr Ul Haq's estate) was apparently witnessed by a solicitor at Lester Dominic Solicitors. 

• Rees Page applied to the Land Registry on the Bank's behalf to register the transfer and charge. In completing the form, they incorrectly stated that FLP was Mr Ul Haq's conveyancer. The transfer of the property completed, and Mr Ul Haq (and subsequently his estate) remains liable to the Bank pursuant to the terms of Mr Ul Haq's mortgage.

At first instance, Mr Ul Haq's claim was summarily dismissed on the basis that there was no arguable duty of care owed by Rees Page to Mr Ul Haq. 

A solicitor's duty of care

It is well established that solicitors generally owe a duty of care only to their client. There are, however, exceptions. A solicitor may owe a duty of care to non-clients if:

• party A instructs a solicitor to confer a benefit on party B

• a non-client reasonably and foreseeably relies on a solicitor's representations or actions

• a solicitor steps outside their role.

At issue in this appeal was whether Rees Page had stepped outside its role as solicitor for the Bank and owed Mr Ul Haq a duty of care as a result.

Lord Justice Nugee considered it arguable that, in giving the confirmations required in the relevant form, Rees Page was not acting for the Bank alone.  The solicitor owed a duty to all parties to act with reasonable care to complete the form accurately.

In finding for Mr Ul Haq's estate, Lord Justice Nugee rejected Counsel for Rees Page's argument that the confirmations required were for the Land Registry's benefit. Lord Justice Nugee concluded that the Land Registry "is not a commercial business simply looking after its own interests but is a public body whose purpose is to provide a service to those who want to engage in land transactions". The confirmations required in the form, which are intended to guard against identity fraud, were for the benefit of all parties and by giving these confirmations Rees Page had assumed a duty of care to Mr Ul Haq.

What does this mean for professionals?

The imposition of additional duties of care may lead to substantial liabilities for firms of solicitors. Where a duty of care is owed to a non-client, any liability for breach of that duty will not be capped by an engagement letter and may not be covered by insurance. 

This case is an important reminder for solicitors acting in multi-party transactions to consider carefully the limits of their duties, and whether they are assuming a duty of care to third parties.  

If you would like to know more about what these cases might mean for you, please reach out to a member of our Disputes & Investigation team.