There was no implied retainer between a businessman who found himself on the wrong end of an expensive short-term loan and the law firm acting for the lender, the High Court has ruled.
Dismissing a professional negligence claim against Yorkshire firm Lupton Fawcett, Mr Justice Snowden said that no time did businessman Dashrathbai Nayee “make even the most basic inquiries” about the law firm that he argued was acting for his company.
Snowden J said Mr Nayee “did not even inquire or have any idea of the identity of the particular solicitor at Lupton Fawcett who was to deal with the transaction” on behalf of his company, NDH.
The High Court heard in NDH Properties v Lupton Fawcett  EWHC 3056 (Ch) that NDH took out a short-term loan of about £350,000 in May 2012 from Amalgamated Finance Limited, represented by Lupton Fawcett.
The loan was secured by a charge over a commercial property in Preston. Its purpose was to enable Mr Nayee, sole director of NDH, to pay off an existing loan of about £282,000 to Yorkshire Bank, secured over the same property.
Yorkshire Bank had appointed receivers, who received offers to buy the property. The new loan enabled Mr Nayee to pay off the debt and terminate their appointment.
However, NDH could not pay off the new loan when it matured three months later, its value having risen to £390,000 as a result of interest and fees. Amalgamated appointed receivers and sold the property for £751,000 in March 2013.
By the time of the sale, under the provisions on default interest and fees set out in the loan agreement with Mr Nayee, the loan had almost doubled in size to over £647,000. NDH received less than £62,500, after receivers’ and agents’ fees were paid.
NDH argued that Lupton Fawcett was implicitly retained to act for it as well as Amalgamated and should have advised against taking out the loan.
Mr Nayee had originally been introduced to Amalgamated as a potential lender to NDH by a related company, The Bankruptcy Protection Fund Ltd (BPFL), which instructed Lupton Fawcett to act on secured loans to bankrupts to assist them in obtaining an annulment of their bankruptcies.
In a letter of authority to ‘whom it may concern’, Mr Nayee gave “formal instructions” to BPFL and Lupton Fawcett to act on his behalf, and to take all necessary steps to stop bankruptcy proceedings.
Snowden J cited several reasons for finding no implied retainer, including that before the loan there had been “no prior relationship of any sort” between Lupton Fawcett and NDH or Mr Nayee.
The letter of authority did not give instructions to Lupton Fawcett to act for NDH on the loan – indeed, it failed to mention NDH at all.
The judge said that “at no time did Lupton Fawcett itself send any letter, email or other communication” that might have signified that the firm had accepted any instructions to act for NDH.
Snowden J said Mr Nayee never asked Lupton Fawcett for any advice or assistance for NDH until he asked for a copy of certain Land Registry documents well after the loan had been advanced.
The judge said there was “simply no documentary evidence and no conduct of the parties which, when viewed objectively, supports the inference that Lupton Fawcett had agreed to be retained to act as solicitors for NDH in relation to the loan transaction”.
NDH argued in the alternative that the law firm owed it a duty of care to give advice on the loan, or “at the very least to warn” that it was not acting for the company.
The judge concluded that Mr Nayee “was not actually relying, or could not reasonably have been relying, on Lupton Fawcett for advice on the financial merits and commercial risks” of the loan.
Nor would it have been reasonable for Lupton Fawcett to think that the businessman was relying on the firm to advise NDH on the benefits and risks of the loan.
On the question of whether the law firm was under a duty to warn Mr Nayee that it was not acting for NDH and that he ought to seek independent advice elsewhere, Snowden J said he could not see “on what basis a solicitor has a free-standing duty in tort to tell the party on the other side of a commercial transaction to get independent advice”, particularly “if it already appears that the other party has such advice”.
He dismissed NDH’s negligence claim.