Clients and bankruptcy: a cautionary tale

Divorce|August 27th 2008

The judge found that the solicitors were not responsible for their former client’s financial loss.

Recently I was consulted by a client who was angry with her well known and expensive solicitors. She handed me a court order dated 2001. She had nursed a sense of outrage against them before, during and since the very protracted case.

By now, in summer 2008, there wasn’t anything I could do for her. It seemed to me that she had chosen to settle for a clean break on the terms she had agreed, and although her husband had since prospered there wasn’t much I could do about it, as it was foreseeable. The issues she raised with me were not ones I could deal with.  I don’t sue lawyers for professional negligence – and so I recommended her to a firm that does and warned her she immediately needed to check the time limit for suing the solicitors, assuming she was advised she had a case. However, suing a lawyer, is not easy and there is no guarantee of success. A client must prove there has been a breach of the solicitor’s duty of care – which means, in a nutshell, by either the lawyer failing to do something he should have done, or by doing something he should not have done.

A case heard earlier this year provides some insight into what can happen when a client sues her solicitors and the high standard of proof required.

The wife had instructed a third firm of solicitors in connection with her divorce and went on to sue them in court. She took the third firm to court because she believed that they were responsible for a loss of £190,000 after her husband went bankrupt in 2000. She alleged they had failed in their duty of care to her.

The firm’s retainer had been terminated by the client herself, in September 2000 as she was dissatisfied with them. A petition for bankruptcy against the husband was issued in December 2000 three months after they had ceased to represent her. Shortly afterwards the parties attended court for the financial settlement, both representing themselves.

The husband, a solicitor, never mentioned the bankruptcy petition in the court hearing. The wife obtained an order, but his rock bottom financial situation meant it could not be implemented. When he died shortly afterwards, she was left high and dry. She turned her attention back to her third set of solicitors, accusing them of failing to protect her during the period they had represented her and she sued them for professional negligence.

A spouse’s bankruptcy can present some complex challenges, particularly to less experienced family lawyers. However, if a bankruptcy is foreseen and steps are swiftly taken, it is possible to protect the other spouse to some extent. If the parties agree and obtain an order, or obtain an accelerated hearing if they are contesting a deal, the other spouse can obtain an equitable interest in property ordered to be transferred to her at the date of the order and thus be able to counter a challenge by a Trustee in Bankruptcy.

The judge in this case however, found that the wife’s solicitors were not responsible for her financial loss. He noted – rightly – that a solicitor cannot be judged with the benefit of hindsight. In his judgment he found that the solicitors had failed to advise the wife how bankruptcy would affect her financial claim; however he concluded that this failure did not cause her loss. That the solicitors had not settled the case earlier or obtained an earlier hearing date was not the fault of the solicitors.

The solicitors were protected by their firm’s insurance policy and presumably had no financial worries about the outcome of the case. However they must have been deeply concerned about the potential damage to their professional reputations. Eight years is a very long time to worry about a case particularly where the issues giving rise to the claim arose after the retainer had been terminated.

As the head of my firm, I sent the case report to every fee earner we have, with instructions to read it, and importantly, to learn from it. Unpleasant cases such as this are unsettling, but they are also, a must read for the unwary.

Author: Stowe Family Law

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