Free advice can prove very costly.
The Court of Appeal has decided that solicitors can owe extensive duties to clients even where quick advice is given at no charge In March 2003, Mrs Padden was suddenly informed by her husband, a financial consultant, that their joint bank account had been frozen and he was facing the possibility of criminal prosecution for misuse of some £200,000 of a client’s funds. She was told by her husband’s solicitor that the only way her husband could avoid jail was to charge their joint assets, including their home, so as to provide security to repay his debts.
Mr and Mrs Padden had been married since 1977 and had 3 children and, particularly for her children’s sake, she was anxious to assist her husband in avoiding going to jail. Her husband’s solicitor correctly informed her that she had to seek her own independent legal advice before agreeing to their joint assets being used to help meet her husband’s liabilities.
On 28 March 2003, Mrs Padden went without an appointment to the Defendant solicitors’ Tiverton office and asked to see a solicitor urgently. She was seen by a newly qualified solicitor who saw her for no more than 15 minutes and advised her against agreeing to what her husband wanted. However, Mrs Padden made clear she was minded to proceed so as to save her husband from prison. No charge was made for the meeting as the solicitors had a policy that the first half-hour given over to a client was free.
On 10 April 2003, Mrs Padden went to the Defendant solicitors’ Exeter office with her husband and a different solicitor there, again at no cost, witnessed her sign all the documents whereby all her shares in the house and endowment policies and certain shares were pledged as security on behalf of her husband with the documentation then referring to a sum of £740,000 being owed.
Mrs Padden’s actions were to no avail. Her husband was prosecuted in 2005 for stealing some £2 million from his clients and he went to jail and, in fact, died there in 2010. The house was sold to meet his debts and Mrs Padden is now living in rented accommodation with her children.
In 2009, Mrs Padden commenced these proceedings on the basis that the Defendant had not properly advised her. At first instance, the Judge held she had no case against the solicitors given they had seen her hurriedly at no charge and had advised her not to proceed.
The Court of Appeal first set out the extent of a solicitor’s duty when advising a wife who is charging her home or other assets as security for her husband’s business debts. It made clear that this duty is extensive as the whole point of a wife seeking such advice is that the party who will have the benefit of the security can rely upon it to stop the wife arguing she acted under undue influence or duress or was unaware of what she was agreeing to or the consequences of so agreeing.
In particular, the Court made clear that it is not sufficient to simply advise a wife not to proceed without any proper explanation. The solicitor’s duty is to establish all the relevant facts and to ensure the client understands the nature, effect, and potential consequences of the proposed transaction and is not acting under undue influence or a misapprehension.
In the circumstances of this case, it was particularly important for the solicitor to explore why a wife would put all her assets at risk to protect her fraudster husband and, on ascertaining she was primarily seeking to protect her children, to advise that there was still a strong probability of her husband going to jail and she may better protect her children by retaining her assets.
The Court made clear that the fact they never sought to charge Mrs Padden for any advice made no difference to the extent of the Defendant’s duty to her. They nevertheless gave, or stated they had given, her the legal advice to enable the transaction to proceed and, insofar as they needed further time to ascertain the facts and to advise, they should have said so.
The Court also held that the Defendant may well have been negligent on 10 April 2003 when it just witnessed the documents as the documentation itself required them to have given the appropriate advice as it contained a certificate that Mrs Padden had been independently advised and understood what she was agreeing to.
The Court only went as far as holding that there was a case to answer. Mrs Padden still has to establish not only that the Defendant was negligent but that she would have acted differently if correctly advised. She also has to establish her case is not time-barred as the Defendant is arguing proceedings were not commenced within the requisite 6 year period for bringing any claim.
Interestingly, 2 other firms of solicitors declined to advise Mrs Padden before she consulted the Defendant as they, clearly correctly, thought the risks were too great.