20 January 2012

The court, the thief, his wife and her solicitor

The message: Free advice can prove very costly.

The case: The Court of Appeal has decided that solicitors can owe extensive duties to clients, even where quick advice is given at no charge (Padden v Bevan Ashford, 21.12.11).

In March 2003, Mrs Padden was informed by her husband, a financial consultant, that their joint bank account had been frozen and he was facing the possibility of criminal prosecution for misuse of £200,000 of a client’s funds. She was told by her husband’s solicitor that the only way he could avoid jail was to charge their joint assets, including their home, to provide security to repay his debts.

Her husband’s solicitor correctly informed her that she had to seek her own independent legal advice before agreeing to their joint assets being used to help meet her husband’s liabilities.

On 28 March 2003, Mrs Padden went without an appointment to the defendant’s Tiverton office and asked to see a solicitor. She was seen for 15 minutes by a newly qualified solicitor who advised her against agreeing to what her husband wanted. However, Mrs Padden made clear she wanted to proceed to protect her children. No charge was made as the solicitors had a policy that the first half-hour given to a client was free.

On 10 April 2003, Mrs Padden went to the defendant’s Exeter office and a different solicitor, again at no cost, witnessed her sign all the documents whereby all her shares in the house, endowment policies and certain shares were pledged as security on behalf of her husband.

Despite her efforts, Mrs Padden’s husband was prosecuted and jailed in 2005 for stealing £2m from his clients. He died while serving his sentence in 2010. The house was sold to meet his debts and Mrs Padden is now living in rented accommodation with her children.

In 2009, Mrs Padden commenced legal proceedings on the basis that the defendant had not properly advised her. At first instance, the judge held she had no case against the solicitor as it had seen her hurriedly at no charge and had advised her not to proceed.

The Court of Appeal then set out the extent of a solicitor’s duty when advising a wife who is charging her assets as security for her husband’s business debts. It made clear that this duty is extensive, as the whole point of a wife seeking such advice is that the party who will have the benefit of the security can rely upon it to stop the other party arguing that they acted under undue influence, or was unaware of what they were agreeing to.

The court made clear that it is not sufficient to simply advise the wife not to proceed. The solicitor’s duty is to establish all the relevant facts and to ensure the client understands the nature, effect and potential consequences of the transaction.

In the circumstances of this case, it was particularly important for the solicitors to explore why a wife would put all her assets at risk to protect her husband. On ascertaining she was seeking to protect her children, she should have been advised that there was still a strong probability of her husband going to jail and she may better protect them by retaining her assets.

The court said the fact it never sought to charge Mrs Padden for any advice made no difference to the extent of its duty to her.

It nevertheless gave or stated it had given the legal advice to enable the transaction to proceed. It should have said if it needed more time to ascertain the facts and provide additional advice.

The court also held that the defendant may well have been negligent on 10 April when witnessing the documents, as they contained a certificate saying that Mrs Padden had been independently advised and understood what she was doing.

The court only went as far as holding that there was a case to answer. Mrs Padden still has to establish that the defendant was negligent and that she would have acted differently if correctly advised. She also has to establish her case is not time-barred, as the defendant is arguing proceedings were not brought within the requisite six-year period for making a claim.

Summing up: Padden v Bevan Ashford

  • Mrs Padden learned that her husband was facing prosecution, but that he could avoid going to jail if she charged their joint assets
  • Mrs Padden disregarded free legal advice advising her not to agree to the assets being used to cover her husband’s liabilities. Mr Padden was jailed and their assets sold
  • Mrs Padden argued in court that she was not properly advised. The Court of Appeal made clear it is not sufficient for a solicitor to advise without any proper explanation.

First seen in Property Week, 20 January 2012.

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