A fiduciary duty arises in a legal relationship between two parties (the fiduciary and the beneficiary) where one must act in the best interest of the other. It is based on the utmost trust and confidence arising from a position of power and obligation; the Latin term, ‘fiducia’ literally translates to trust, confidence, faith, and reliance.
It has been adeptly described in the case of Bristol and West Building Society v Mothew (1998):
“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.”
The Solicitor-Client Relationship
The retainer between a client and their solicitor will normally govern their legal contractual relationship.
In addition, the tort of negligence will imply concurrent duties on a solicitor to act in the best interest of their clients.
Furthermore, solicitors will also have statutory and regulatory obligations to uphold, a breach of which could lead to fines, strike off or even at the most serious, imprisonment.
Normally you would not expect such a duty to arise until you have signed a retainer, however this issue came under scrutiny in the recent case of Belsner v CAM Legal Services (2020).
Belsner v CAM Legal Services (2020)
The Defendant firm of solicitors were instructed in a Personal Injury Claim for the Claimant arising from a Road Traffic Accident. The claim settled for £1,916.98 in damages as well as fixed costs and disbursements of £1,783.19 (including VAT).
Pursuant to the retainer, the Defendant were entitled to a deduction of 25% from the damages, in addition to the costs recovered. The amount in dispute was £385.50.
The Claimant issued Part 8 proceedings for detailed assessment of the solicitor-client costs under the Solicitors Act 1974. The judge at first instance assessed the solicitors costs at £3,104.15 (being base profit costs of £1,392 + VAT, success fee profit costs of £208,80 + VAT and disbursements of £1,783.19), i.e. more than the damages recovered by the client.
The Claimant appealed and the question for the appeal judge was whether informed consent had been provided which allowed a solicitor to charge and recover costs in excess of what the client may recover from the paying party. This was based on consideration of the fiduciary nature of the relationship between solicitor and the client.
The starting point for the judge was that, “As a fiduciary, a solicitor may not receive a profit from his client without his client’s fully informed consent.”
He quoted the principle as set out in Snell’s Equity (2020):
“To provide the fiduciary with an effective defence to a claim for breach of fiduciary duty, the principal’s consent to relaxation of the fiduciary’s liability must be fully informed. The burden of establishing informed consent for conduct which would otherwise constitute a breach of fiduciary duty lies on the fiduciary. In order to show that the consent was fully informed there must be clear evidence that it was given after the fiduciary made “full and frank disclosure of all material facts”.”
The judge stated that the requirements were therefore:
- A written agreement
- Informed Consent to the Agreement
- Sufficient Disclosure to show that informed consent has been given
“The key question in this case is therefore whether the Defendant made sufficient disclosure to the Claimant for the purposes of section 74(3) and CPR 46.9(2).”
The Defendant did disclose that:
- They could deduct from damages a sum greater than what could be recovered from the paying party
- The client would have to pay the Success Fee and this was not recoverable from the paying party
- Likely costs were £2,500 + VAT
- Fixed costs would apply in cases where damages were worth less than £25,000
The Defendant however did not disclose that:
- Fixed costs recoverable from the paying party might only be £500 or £550 + VAT
- There was no cap on the client’s liability so costs could exceed the level of damages recovered
It is noteworthy that whilst they were not obliged to, the Defendant did in fact apply a cap in practise so that the client’s damages were all extinguished; but the important point for the judge was that this was a possibility on the strict reading of the retainer.
As such the appeal was granted on the basis that no informed consent has in effect been given for the deduction set out in the retainer.
This seems to indicated that solicitors owe a fiduciary duty to provide disclosure to enable informed consent before a contractual relationship has even arisen, despite the fact that a potential client has not even decided whether they wish to instruct a firm or not.
Given the far reaching implications for other similar cases, especially in the Personal Injury sector, an appeal is expected so this may not be the final word on the matter.
However, for all solicitors and clients involved, it may be prudent to revisit the terms of any current retainer in place to ensure you do not fall foul of Belsner in the meantime.