The Solicitors Regulation Authority (SRA) has failed to strike out a damages claim by a solicitor at the High Court who claims it breached his confidentiality.
The claim stems from a row between solicitors Alexis Maitland Hudson, whose firm Maitland Hudson has now been dissolved, and Peter Dempsey, former partner and compliance officer for finance and administration (COFA) at the firm.
Chief Master Marsh said the test for breach of an equitable duty of confidentiality was the general common law test, but there was “an absence of authority” in the arguments on the issue.
“There is, in my judgment, a compelling reason why this element of the claim should receive a full airing at a trial, not because there are necessarily complex issues of fact but because a careful and full review of the legal principles is highly desirable.”
The court heard in Hudson v SRA  EWHC 1249 (Ch) that before he resigned in 2013, Mr Dempsey, who “became concerned about the manner in which Mr Maitland Hudson was conducting his practice”, handed over two hard disc drives and two lever-arch files of documents to the SRA.
The following year the SRA gave them back to Mr Dempsey, to help him prepare a defence to a separate claim against him by Mr Maitland Hudson.
Despite his initial resistance, Mr Dempsey consented to an order for delivery of the drives and documents to Mr Maitland Hudson’s solicitors in the autumn of 2014.
Chief Master Marsh said the SRA had accepted it breached duties to preserve the confidentiality of the information, use it only for the purposes of the investigation and either to destroy the drives and hard copy documents once they were no longer required or return them to Mr Maitland Hudson.
Master Marsh said the SRA argued that “even if it was reasonably foreseeable that Mr Maitland Hudson would incur some legal costs in seeking to recover the drives and the documents, or to preserve the confidentiality in the information contained in them, it does not follow that the SRA has in law caused such loss”.
Describing the release of the documents as “wrongful”, the Master said that to succeed in its application for a strike-out, the SRA “must satisfy the court in relation to each cause of action that its breach of duty, which is assumed for the purposes of the application, has not caused any loss”.
Accepting Mr Maitland Hudson’s argument that the SRA’s behaviour amounted to a “wrongful interference” with his goods under the Torts (Interference with Goods) Act 1977, Master Marsh said: “Mr Maitland Hudson took steps to protect his proprietary interest in the drives and the documents by making the application not just to preserve them but also to obtain their return or placing for safe keeping with his lawyers.
“Such expenditure is directly related to his and the firm’s proprietary interest. The normal tortious rules in relation to causation, including those relating to intervening acts, do not apply to loss that relates to the proprietary or possessory interest.”
In relation to Mr Maitland Hudson’s claims for breach of equitable and common law duties of confidentiality, the SRA claimed that the conduct of both solicitors in relation to the separate claim constituted a novus actus interveniens, which broke the chain of causation.
The regulator claimed that Mr Dempsey had opposed the claim to recover the information on a flawed basis, then “capitulated” at a later hearing by agreeing to an order to hand it over, while Mr Maitland Hudson had agreed to an order that made it impossible for him to recover costs from Mr Dempsey before the trial judge could determine the issue.
Master Marsh said Mr Dempsey could not be categorised as a ‘third party’ for the purposes of establishing that there was an intervening act, since he was “at the heart of the very events upon which the breach of duty is founded”.
Even if he was seen as a third party, the SRA’s breach of duty was “very closely related to his actions and the expense he caused”.
The master said it was foreseeable that Mr Dempsey “might not immediately return the drives and documents” on receipt of a request by Mr Maitland Hudson, and “plainly foreseeable that some legal costs would be incurred” following the release.
In relation to Mr Maitland Hudson’s conduct in entering into an agreement with Mr Dempsey, Master Marsh said this was “some considerable way” from breaking the chain of causation, and Mr Maitland Hudson was “perfectly entitled” to take a “practical decision” to end the litigation.