Hughes & Ors v Richards (t/a Colin Richards & Co)

Factual and Procedural Background

The case concerns a dispute arising from the establishment of a trust for the benefit of certain infant beneficiaries ("the children") by their parents ("the parents"). The parents engaged a chartered accountant ("the Defendant") to provide professional services, including tax and investment advice and the setting up and monitoring of an offshore trust and a Swiss trading company. The children, as beneficiaries of the trust, and the parents separately brought actions alleging negligence by the Defendant in relation to the trust's establishment and management, resulting in no benefit accruing to the children.

The Defendant applied to strike out or dismiss the children's claim, but the High Court judge refused this application. The Defendant appealed that refusal with permission.

Legal Issues Presented

1. Whether the contracting party (the parents) or the third-party beneficiaries (the children) have a remedy in tort against the professional adviser (the Defendant) for negligence in the establishment of a trust intended to benefit the children.
2. Whether a duty of care is owed by the Defendant directly to the children, the beneficiaries, or only to the parents as the clients.
3. Whether the children's claim based on the "investment retainer" and the "monitoring retainer" can be maintained or should be struck out as bound to fail.
4. The extent to which existing legal principles and precedents concerning third-party beneficiaries' rights to sue for professional negligence apply to this case.

Arguments of the Parties

Appellant's Arguments

• The judge erred in refusing to strike out the children's claim despite orthodox legal principles indicating the claim should fail.
• The investment claim should be struck out because the loss was suffered by the parents, who provided the funds, not the children.
• The obiter remarks of Lords Goff and Browne-Wilkinson in White v Jones support the position that third-party beneficiaries of inter vivos transactions cannot sue the solicitor for negligence.
• The parents' right to recover damages is consistent with established principles allowing a promisee to recover for third-party benefit in contract cases, such as in Linden Gardens Trust v Lenesta Sludge Disposal and Alfred McAlpine Construction Ltd. v Panatown Ltd.
• The judge was wrong to treat the monitoring claim differently from the investment claim.
• The court should consider that the children's claim is publicly funded and has little prospect of success, and it is unlikely costs could be recovered from the children.

Respondent's Arguments

• The judge did not err in his discretion or reach an unreasonable decision in refusing to strike out the children's claim.
• The law in this area is uncertain and developing, so it is appropriate to allow the claim to proceed to trial on assumed facts.
• The loss is properly regarded as suffered by the children, as the parents effectively divested themselves of the funds and rights; the measure of damages is the value of the fund that should have been held on trust for the children.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
White v Jones [1995] 2 AC 207	Recognition of a tortious duty of care owed by solicitors to intended beneficiaries under testamentary instructions; obiter remarks on inter vivos gifts and third-party claims.	The court considered the obiter remarks but noted they were not binding and had not been applied to defeat claims; the case distinguished because the present transaction was effective and loss emerged later.
Dean v Allin & Watts [2001] PNLR 921	Where a retainer is intended to benefit a third party, that third party may sue even if the client suffers no loss.	The judge found this case provided some foundation for the children's monitoring claim, though the appellate court expressed doubts about its direct applicability.
Woodward v Wolferstans (Chancery Division, 1997)	Recognition of a duty of care owed to a third party where the client could not sue, but claim dismissed on facts.	Referenced as supportive authority for the possibility of third-party claims in monitoring retainer scenarios.
Barrett v Enfield London Borough Council [2001] 2 AC 550	Standard for summary dismissal: claim must be certain to fail to strike out.	Applied to affirm that summary dismissal was inappropriate given factual disputes and developing law.
The Albazero [1977] AC 774	Contracting parties can recover damages on behalf of third parties who have acquired proprietary interests after contract formation.	Used to illustrate exceptions to the general rule limiting damages to the contracting party.
Linden Gardens Trust v Lenesta Sludge Disposal [1994] 1 AC 85	Extension of third-party recovery principle in building contracts where property is sold before breach.	Referenced to support analogy for parents' right to recover damages on behalf of children.
Alfred McAlpine Construction Ltd. v Panatown Ltd. [2001] 1 AC 518	Confirmation and limitation of third-party recovery principles in building contracts.	Applied to confirm the scope of recovery by contracting parties for third-party loss.
Hedley Byrne & Co. v Heller & Partners Ltd. [1964] AC 465	Foundation of liability for negligent misstatement and assumption of responsibility.	Underlying principle for extending duty of care to intended beneficiaries in White v Jones.
Carr-Glynn v Frearsons [1999] Ch. 326	Extension of White v Jones principles to cases involving severance of joint tenancy and testamentary gifts.	Referenced as part of the evolving case law exploring third-party duties.
Hemmens v Wilson Browne [1995] Ch. 223	No duty owed to intended beneficiary under inter vivos gift where donor has remedy against solicitor.	Used to show judicial reluctance to extend third-party claims where donor retains remedy.
Gorham v British Telecommunications plc [2000] 1 WLR 2129	Recognition of duty owed to family members as beneficiaries of negligent advice given to deceased customer.	Indicated acceptance of duty to third parties in certain circumstances, supporting children's claim.

Court's Reasoning and Analysis

The court began by emphasizing the appropriate standard for summary dismissal: a claim must be certain to fail to be struck out. Given significant factual disputes and the developing nature of the law in this area, the court held that it was premature to conclude the children's claim was bound to fail.

The court analyzed the general rule that professional advisers owe duties primarily to their clients, with limited exceptions for third-party beneficiaries. It reviewed established exceptions in contract law allowing recovery for third parties in specific contexts such as carriage of goods and building contracts.

The court then considered the landmark decision in White v Jones, which recognized a tortious duty of care owed by solicitors to intended beneficiaries under testamentary instructions, extending liability beyond the client. However, obiter remarks in that case suggested that for inter vivos gifts the donee could not sue if the donor had a remedy, but these remarks were not binding and had not been applied to defeat claims.

The court noted that the present case differed from the typical inter vivos gift scenario because the loss was not immediately apparent and only emerged years later, raising novel legal questions. It also acknowledged the possibility of a direct contractual duty owed to the children under the monitoring retainer, given that the Defendant was retained to act on behalf of the parents for the benefit of the children.

While the Defendant had a strong arguable case that the duty of care was owed only to the parents, the court concluded it was not certain that the children's claim would fail, especially given the complex factual matrix and the developing legal principles.

The court further rejected the Defendant's submission that the children's public funding should influence the court's discretion, holding that it would be discriminatory and improper to do so.

Accordingly, the court upheld the High Court judge's decision to refuse to strike out the children's claim and allowed the appeal to be dismissed.

Holding and Implications

The court DISMISSED THE APPEAL, thereby affirming the refusal to strike out the children's claim.

The direct consequence is that the children's claim in negligence against the Defendant will proceed to trial alongside the parents' claim. The court recognized the complexity and developing nature of the law concerning duties owed by professionals to third-party beneficiaries in trust and investment contexts. No new precedent was definitively established, but the decision preserves the possibility of third-party claims in similar circumstances and emphasizes the need for factual determinations at trial before concluding on legal duties and liability.