Good faith does not go both ways
It is common knowledge that solicitors owe fiduciary duties to their clients but what about the other way around? Do clients owe a duty of good faith to their solicitors (as an implied term of the retainer)?
The answer is "no" – according to High Court judgment in Candey Limited -v- Bosheh & Anor  EWHC 3409 (Comm), an unusual dispute about the terms of a solicitor's retainer that also includes an interesting ruling on how the fraud exception to privilege may operate (or not) when a solicitor alleges fraud against their former client.
The law firm Candey Limited ("Candey") acted for Mr Basem Bosheh on a conditional fee agreement to defend Chancery proceedings involving allegations of fraud against Mr Bosheh. Mr Bosheh settled the proceedings on terms that meant Candey was unable to recover its success fee from Mr Bosheh. Following the settlement, Candey sued Mr Bosheh (and a third party, Mr Salfiti) claiming damages of £3 million for fraud and breach of contract. Mr Boshesh and Mr Salfiti applied for strike out / summary judgment and for an injunction preventing Candey from relying on privileged / confidential information.
No implied duty of good faith
The Court ruled that Candey had no real prospect of establishing an implied duty of good faith towards Candey on Mr Bosheh's part. At paragraph 84 of the judgment Ms Clare Ambrose (sitting as a Deputy Judge) held that:
"A retainer between a solicitor and client is not subject to a duty of good faith and this is not necessary for the relationship to work. A solicitor owes a fiduciary duty. [Candey] argued that its relationship with Mr Bosheh was a relational contract giving rise to a duty of good faith […] However, there is no authority to support the argument that a client owes his solicitor a duty of good faith. Indeed the solicitor's fiduciary duty to the client would displace such a finding […] The presence of a contingency fee arrangement does not change that and the Claimant's case had no real prospect of success on these implied terms."
Summary judgment was granted for Mr Bosheh on this part of Candey's claim.
Privileged not displaced by fraud
The Defendants sought to prevent Candey from relying upon documents disclosed by Mr Bosheh to Candey during the course its retainer (including emails and bank statements) arguing the documents remained both confidential and privileged. Candey raised various arguments as to why the documents were no longer privileged / confidential, including an argument based on fraud. Candey maintained that where there is a prima facie case in fraud against a former client, privilege is lost.
Candey alleged Mr Bosheh was guilty of various deceptions. However, the Court found that (even taking Candey's case at its highest) the alleged deceptions did not take the matter "outside the ordinary course of the professional engagement of a solicitor or mean that there has been an abuse of the solicitor/ client relationship such that privilege over those communications are negated. The matter can be tested by asking whether a third party would be entitled to require disclosure of these communications [...] In that situation the answer would have to be that the Boshehs' conduct was within the ordinary run of case where a client is accused of fraud."
The Court granted the order sought by the Defendants.
The ruling that clients do not owe their solicitors a duty of good faith may (at first glance) seem surprising. However, the court's reasoning (in particular the application of the test for the existence of an implied term) appears sound. If the court had ruled to the contrary it could have opened the door for some weird and wonderful claims (and counterclaims) by legal professionals against their clients – although it is hard to imagine that such claims arising outside the realm of disputes over the solicitors' fees. The ruling on privileged / the fraud exemption is perhaps less surprising, but a useful reminder that it will be extremely difficult for a solicitor to rely on documents obtained during its retainer to support a claim against its former client. More generally, the facts of the case serve as a salutary lesson to firms that do a lot of CFA work of the commercial risks in this area (i.e. the risk that the client may prefer to pursue a settlement outcome that deprives the firm of a significant portion of its fees).
It should be noted that the Court did not dismiss the entirety of Candey's claim. If found there was a good arguable case for recovery by Candey of fees of around £21,000 (as opposed to £3 million) and this part of the claim as allowed to proceed. It is not known whether Candey has sought leave to appeal against the other parts of the judgment.