No negligence despite firm's knowledge, says court

Solicitors not liable for misstatement in bond of caution application

News, 1 June 2007

Information, even if confidential, held by one partner in a legal firm is knowledge of the firm, a judge has held, but there were no relevant averments of fraudulent or negligent misrepresentation where another partner declared that the firm had no such knowledge.

Lord Brodie in the Court of Session has given this ruling in an action by Zurich GSG Ltd against Aberdeen solicitors Gray & Kellas and their partners, arising out of a bond of caution in John Murdoch's executry.

Gray & Kellas were the second solicitors to act in the executry, which had initially been handled by Glasgow firm Matheson Ritchie. Mr Murdoch's son David instructed Gray & Kellas after being appointed executor dative in the sheriff court. When David Murdoch applied for the necessary insurance cover to handle the estate, he failed to disclose to Graham Morrison, the partner acting for him that there was an outstanding claim for over £40,000 against the estate, and Mr Morrison certified that the firm was not aware of any fact or circumstance that would render the information provided untrue or inaccurate.

The claim had however been referred to when another firm had been in correspondence with Mr Morrison's partner John Hardie some years previously, when Mr Hardie acted for David Murdoch's sister Lorraine on a separate matter, and after Zurich were obliged to settle the claim, the estate having been distributed, they sued alleging that the statement certified by Mr Morrison was false and made fraudulently or negligently.

Gray & Kellas argued first of all that Mr Hardie's knowledge should not be treated as that of the firm, since it was confidential between him and his client: it would be unworkable if a partner were to be imputed with knowledge of something he was not permitted to know. But Lord Brodie held that it would be unworkable to make an exception for confidential information, and section 16 of the Partnership Act 1890 clearly applied to the information in question.

However he dismissed the action as Zurich had no relevant pleadings that Mr Morrison had acted fraudulently or negligently in signing the certificate. They accepted that he had not acted knowingly, and although at least one person with Matheson Ritchie was aware of a possible claim, it was not enough to allege that Mr Morrison should have requested unspecified papers from Matheson Ritchie over and above the copy petition to the sheriff court and correspondence relating to David Murdoch's appointment as executor, which had been provided.

Lord Brodie said that an alleged omission had to be placed in a proper context, and "there is nothing in the averments to indicate whether such papers would or could have been provided and what they would have contained had they been provided".

The decision can be read at http://www.scotcourts.gov.uk/opinions/2007CSOH91.html .