Does a solicitor owe duties of care to third parties when advising a client? This question was considered in the well-known House of Lords' decision in White v Jones1. A solicitor provided negligent advice to a testator in connection with the preparation of a will, causing a beneficiary under that will to suffer loss. There was no contractual relationship between that beneficiary and the solicitor. Nevertheless, in a decision underpinned by social justice considerations, such as the importance of testamentary freedom, the House of Lords held that the solicitor did owe a duty of care to the beneficiary, partly since the absence of any other remedy against the solicitor gave rise to an "undesirable lacuna" in the law.
Claimants have since sought to extend the White v Jones principles to a wider range of circumstances. One example concerns the negligent provision by a solicitor of inheritance tax (IHT) planning advice. There is uncertainty as to precisely who can bring a claim against the solicitor in such circumstances, as is readily apparent from the recent decision of Morgan J in Alan Michael Rind v Theodore Goddard2.
The factual background to Rind is complex. The claimant's mother, Mrs Rind, instructed solicitors to provide IHT planning advice with a view to minimising the value of her estate for IHT purposes. However, following a series of transactions, Mrs Rind unintentionally reserved a benefit in certain assets. Those assets therefore remained part of her estate for IHT purposes. Following Mrs Rind's death, a claim was brought against the solicitors by the claimant, a residuary beneficiary under Mrs Rind's will, in respect of the increased IHT liability of the estate.
The solicitors sought summarily to dismiss the claim, primarily on the basis that no duty of care was owed to the claimant as a beneficiary. This was an unsurprising argument; on the claimant's own case, the solicitors had been retained by Mrs Rind, not the claimant. The solicitors sought to distinguish White v Jones, partly on the basis that the sufferance of loss by the claimant had not been foreseeable on the facts, but also because there was no "undesirable lacuna". The additional IHT liability had been incurred by Mrs Rind's estate. The estate therefore possessed a cause of action against the solicitors. On an application of the test in White v Jones, therefore, there was no need to extend a duty of care to the claimant.
Such arguments appear to be logical. The key question is whether the estate had a cause of action against the solicitors. In technical terms, this would require a combination of: (1) a breach of a duty owed to Mrs Rind during her lifetime; with (2) a loss suffered by Mrs Rind's estate after her death. The Court of Appeal had previously upheld the existence of a cause of action on this basis; see, for example, Carr-Glynn v Frearsons3 and Worby v Rosser4. This is hardly surprising; indeed, one might think that to hold otherwise would be to draw an artificial legal distinction between the testator and her estate.
However, the solicitors' arguments proved unsuccessful. Morgan J was unable to circumvent the difficulties posed by the Court of Appeal decision in Daniels v Thompson5. The facts of Daniels were similar to those in Rind. A testator sought to minimise the value of her estate for IHT purposes. After taking advice from solicitors, she transferred her residential property to her son. However, her continued existence in the property amounted to a reservation of benefit, which brought the value of the property into account for IHT purposes. In that case, a claim was brought by the executor of the estate against the solicitors. The claim failed on limitation grounds. However, in its judgment the Court of Appeal stated, albeit obiter, that if the loss (namely the IHT liability) was only suffered on the testator's death, then the testator did not have a complete cause of action to vest in her estate, and the estate could not therefore bring a claim against the solicitors. This commentary, which effectively required an estate to be owed a duty of care distinct from that previously owed to the testator, has since attracted criticism in the legal press.
Consequently, Morgan J was unable to rule out the existence of a lacuna in the Rind case. On applying the Daniels decision, it became arguable that Mrs Rind's estate did not have any cause of action against the solicitors in respect of the IHT liability, therefore justifying the extension of a duty of care to the claimant as a beneficiary. In rejecting the solicitors' application, however, Morgan J acknowledged the uncertainty in this area of law, and expressed his view that "if Daniels v Thompson were to be considered again by the Court of Appeal ... I am not able to predict what the outcome might be".
The question of whether the beneficiaries of an estate are entitled to bring an action against the testator's former solicitors in respect of IHT liabilities (or, indeed, any other loss) suffered by that estate itself is in need of detailed consideration. The social policy considerations which drove the decision in White v Jones are arguably less compelling where a beneficiary is seeking to recoup the consequences of an estate's failed tax avoidance scheme. Until then, however, the disabling of the estate's ability to bring such claims has opened the door for beneficiaries to do so. The effect of this is perhaps tempered by the need for the solicitor to have been aware of the beneficiary at the time of the alleged breach of duty; this may yet win the day for the solicitors in Rind.
Nevertheless, at least at present, solicitors who advise on matters which could impact upon the value of a client's estate upon death need to pay careful attention to the interests of that estate's beneficiaries. If Rind proceeds to trial, we shall await the outcome with interest.
Footnotes
1. (1995) 2 AC 207
2. (2008) EWHC 459 (Ch
3. (1999) Ch 326
4. (1999) Lloyd's Rep PN 972
5. (2004) PNLR 638
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