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Solicitor's Negligence: Allegations of Dishonesty

20 May 2019

In the solicitor’s negligence claim of Brearley v Higgs & Sons [2019], the High Court was asked to consider whether one party may refer in the pleadings to allegations of dishonesty made against the other party, when there is not yet clear supporting evidence to back those allegations up.

Brief Summary

The decision followed an application by the Claimant, Mr Brearley, for strike-out of certain paragraphs in the Defence which referred to allegations of dishonesty made against him. The High Court refused Mr Brearley’s application, on the basis that the Defendant was not positively asserting that the allegations were true, that a strike-out application was premature, and that the issue would be better dealt with at trial.

The Background

The Claimant (“Mr Brearley”) had worked for a car dealership chain (“the Dealership”). His contract of employment contained restrictive covenants preventing him from competing with the Dealership. Mr Brearley engaged Higgs & Sons Solicitors to advise him on the possibility of opening a separate car dealership in Wolverhampton (“the Rival Dealership”). Having obtained that advice, Mr Brearley resigned from his employment with the Dealership, and took steps towards setting up the Rival Dealership.

The Dealership then issued proceedings against Mr Brearley for breach of the restrictive covenants under his contract. The Dealership claimed that, whilst working for them, he had spent time identifying potential sites for a new showroom, including the Wolverhampton site, and that he had dishonestly persuaded his employers at the Dealership not to pursue that opportunity, so that he could do so himself.

By this time, Mr Brearley had engaged new solicitors (i.e.not Higgs & Sons Solicitors), and with their assistance the Dealership’s claim was settled. As part of that settlement, Mr Brearley gave undertakings similar to the restrictive covenants that had been in his contract, but covering a longer period. The Wolverhampton opportunity then fell through, the Rival Dealership came to nothing, and Mr Brearley was left feeling that he was in a worse position than ever.

The Professional Negligence Claim

Mr Brearley brought a claim against Higgs & Sons Solicitors (“the Defendant-Solicitors”). He alleged that they had advised him negligently as to the risks of opening up the Rival Dealership. As a result, he claimed that he had lost the chance to reach a much more favourable and earlier settlement with the Dealership. Mr Brearley claimed that, had he been properly advised by the Defendant-Solicitors, he would have been able to negotiate a clean break from the Dealership without having proceedings issue against him, and would have avoided the stricter restrictions placed upon him by the subsequent settlement.

In their Defence, the Defendant-Solicitors referred to the allegations which had been made in the Dealership’s particulars of claim, that Mr Brearley had dishonestly dissuaded his employer from pursuing the Wolverhampton opportunity. The Defendant-Solicitors argued that it would never have been possible to negotiate a clean break from the Dealership, due to the Dealership’s allegations of dishonesty on the part of Mr Brearley.

In this way, the case had similarities to the recent decision in Perry v Raleys Solicitors [2019], in that a claimant was alleging that negligence on the part of his solicitors had caused him a disadvantage, whilst the defendant-solicitors maintained that other factors – including the claimant’s own conduct – would have prevented the claimant’s success in any event.

The Decision

It has long been the case that parties to litigation must be extremely careful when making any allegations of dishonesty. Such allegations must be set out fully and carefully (so that it is crystal clear what, exactly, is being alleged) and must not be made without clear supporting evidence. To make such allegations without proper evidence would constitute professional misconduct on the part of the solicitor or barrister who had drawn them up. Courts will strike out allegations of fraud which are not pleaded specifically enough, and/or which are not based on sufficient evidence.

This was the basis upon which Mr Brearley applied to the court to strike out those parts of the Defence which referred to the alleged dishonesty.

In response, the Defendant-Solicitors argued that they were not positively alleging that Mr Brearley had acted dishonestly. Rather, they were making the point that allegations of dishonesty had been made by Mr Brearley’s previous employer, and that in those circumstances, a “clean break” settlement would never have been possible.

The High Court agreed with the Defendant-Solicitors. It found that the Defence did not contain allegations of fraud or dishonesty, such as would require clear, supporting evidence. The High Court said that the nature of this type of case was that, if supporting evidence existed, it was unlikely to have emerged by this early stage, and may only become apparent following disclosure, or later. In this situation, it was permissible for the Defendant-Solicitors to state that they had reason to believe, but could not positively confirm, that there had been dishonesty on the part of Mr Brearley, and that it was a matter for the trial judge to decide, based on the evidence that would be available by the time of the trial.

Of course, just because Mr Brearley’s strike out application failed, it does not mean that it is the end of the road for his professional negligence claim. He may still go on to successfully show that the Defendant-Solicitors were negligent, and that their advice deprived him of a real chance of getting a much better and cleaner settlement. However, in the meantime, this decision will be a useful reference point whenever the spectre of dishonesty rears its head – particularly in the context of professional negligence – and is a useful illustration of where the courts will draw the line between allegations of fraud on the one hand, and reference to a third party’s belief that there was fraud, on the other.

By Esther Millard

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