Duty bound

Lawyers are required to act in good faith towards the other party in a dispute as well as their clients. But how far need they go?

Lawyers, while mindful of their professional duties to their client and their obligations to the court, may lose sight of their additional duty to act in good faith towards the other party and its solicitors. But what is this duty and its limits?

Thames Trains Ltd v Adams (2006)

The parties were engaged in settlement negotiations. Following an admission of liability, Thames had paid $9.3m (£4.78m) into court and after a representation by Thames’ solicitor, Victor Rae-Reeves of Halliwells, that no further monies were available, Michael Adams’ solicitor, Louise Christian of Christian Khan, sent a fax offering to accept the monies in court subject to certain conditions. However, receipt by Rae-Reeves was delayed by a problem with his fax system.

During the delay, and Mr Rae-Reeves having received further instructions, a telephone conversation took place in which Mr Rae-Reeves offered to pay an increased sum of $9.8m (£5.03m). That offer was accepted.

Christian’s offer lapsed upon Rae-Reeves putting forward the increased offer, so the issue was whether Christian was under a duty to inform her opponent of her fax. The court held that she was not.

Crucially, it held there was no general duty upon one party to point out the mistakes of another party – albeit that the court recognised that solicitors must “be scrupulously fair and not take unfair advantage of obvious mistakes” (Ernst & Young v Butte Mining plc (1996)).

Here, Christian did not know whether her fax had actually been sent and, had she informed Rae-Reeves of her faxed offer, she risked breaching the duty she owed to her client not to communicate privileged instructions. Furthermore, Rae-Reeves’ previous statement that no more money was available was inaccurate.

The court concluded that Christian was entitled to stay silent in her client’s best interests. Importantly, however, if Christian had been asked a specific question, ie whether the money in court was accepted, she would have been duty bound to say that it had.

Each situation will be judged on its facts, with the courts seeking to ensure that the parties are on an equal footing. Adams was recently approved in Thompson v Arnold(2007), where the court confirmed there is no general duty to draw mistakes to the attention of one’s opponent.

The Law Society v Sephton & Co (A Firm) & Ors (2006)

The Law Society’s action was for damages in respect of monies paid out of its compensation fund as a result of alleged negligent reporting by Sephton, the defendant accountancy firm.

Sephton claimed that the Law Society’s action was statute-barred as the relevant limitation period had expired. In response – and in addition to contesting that the limitation period had expired – the Law Society argued that Sephton’s solicitors had estopped their client from relying on a limitation defence by indicating in pre-action without prejudice correspondence that Sephton would be prepared to concede breach of duty (subject to certain conditions) in negotiations over quantum.

The Law Society asserted that this communication gave the impression that no limitation defence would be raised by the defendant and led to the Law Society delaying the commencement of proceedings.

After a detailed review, the court concluded that the defendant’s solicitors had not made “a clear, unequivocal or unconditional promise not to rely on its right to plead limitation” and so were not estopped from raising the limitation defence. The court’s conclusion highlights the importance of precision and clarity in correspondence.

Khudados v Hayden & Ors (2007)The duty to act in good faith when dealing with one’s opponent equally applies to barristers. In Khudados, the Court of Appeal considered whether counsel was under a duty to disclose a medical report favourable to the claimant litigant in person.

It concluded that while a barrister’s overriding duty to the court may require disclosure of relevant decisions and legislative provisions which may be unfavourable towards his client’s case, it does not require counsel to alert the court to unfavourable evidence. A barrister “would fail in his duty to his own client were he to supplement the deficiencies in his opponent’s evidence”.

In this case, although not determinative, the court recognised that the claimant was also in possession of the relevant medical report. Further, the court expressly concluded that “the fact that the other side is a litigant in person cannot make any difference as to the manner in which he fulfils his duties to his client”. Of course, counsel must still comply with the general duty not to mislead the court.

Additional considerations

Solicitors may also have a duty to explain exactly how their opponent has erred. In Hertsmere Primary Care Trust v Estate of Balasubramanium (2005), the claimant made a defective Part 36 offer. The defendant’s solicitors replied six weeks later stating that the offer was defective, but did not explain why.

The court held that the overriding objective required the defendant to explain the defect in order to enable its opponent to rectify it, warning that deliberately refusing to provide such an explanation could justify an indemnity costs order.

Lawyers additionally have a duty to deal fairly with an opponent litigant in person, as highlighted in Adams. Lawyers must consider carefully the level of experience of their opponent litigant in person and act accordingly.

However, the courts (see Fitzhugh Gates (A Firm) v Sherman (2003) and Khudados, above) recognise that the primary responsibility for protecting a litigant in person rests with the court. An apparent failure by an opposing solicitor or barrister to assist a litigant in person will not automatically be improper, unreasonable or negligent.

Lawyers similarly have a duty not to take advantage where privileged documents have obviously been disclosed by mistake.

Lawyers can take some comfort from the courts’ clear conclusion that there is no general duty to point out another’s mistakes, albeit that the factual context remains critical in determining whether or not the duty has arisen and been breached.

The essential lesson to be learned from these cases is that lawyers cannot assume that their only duties are to their own clients and the courts. Lawyers should analyse their duties to the other side in light of common sense, the overriding objective and guidance provided by the case law, while remaining mindful of their obligation to protect their clients’ interests to avoid breaching their duties to them. A careful balancing exercise is required.

Andrew Blair is a partner and Gaby Kaiser an associate at Barlow Lyde & Gilbert