Reliance On Legal Opinion Is Not A Get-Out-Of-Jail-Free Card

Reliance On Legal Opinion

The case of Financial Conduct Authority v Forster & Ors [2023] EWHC 1973 (Ch) considered (amongst other things) the position that reliance on legal opinion is not a get-out-of-jail-free card. Perhaps unsurprising it said it is not.

This post only looks at what the judge said was the “thorniest” of the matters at large in the case. Reliance upon legal opinion for defence purposes as the Financial Conduct Authority (“FCA”) sought to pursue individuals over an investment scheme.

What Is Deemed To Be Legal Opinion?

Legal opinion is the position in law based on relevant legislation and case law (collectively referred to as law) when applied to a given set of facts.

The facts are therefore fundamental. Different facts applied to the law have the potential (and frequently do) to produce different legal opinions.

The case involved a claim brought by the FCA about a collective investment scheme and suggested contravention of the Financial Services and Markets Act 2000 (“the Act”). 

For the purpose of this post, matters focus on Section 382 of the Financial Services and Markets Act 2000 and the matter of “knowing concern” in contravention of a requirement under the Act which can culminate in a restitution order for the payment of compensation in respect of the profits resulting or the losses incurred by others.

Ignorance Of The Law Is No Defence

Ignorance of the law is a common law position and it has been held that it is knowledge of the facts that need to be shown. In such an event knowledge of the law will not shield someone from the consequences of those facts.

In Burton v Bevan [1908] 2 Ch 240 Neville J said:

‘I think that ‘knowingly’ means with knowledge of the facts upon which the contravention depends. I think it is immaterial whether the director had knowledge of the law or not. I think he is bound to know what the law is, and the only question is, did he know the facts which made the act complained of a contravention of the statute?’

It was held not an issue in dispute that a member of the public cannot be expected to form a view on the correctness other otherwise of legal advice from a qualified professional. It was suggested in submissions for the First Defendant, Mr Forster, that he was entitled therefore to rely upon counsel’s advice.

The Court said a person who acts without obtaining legal advice takes a risk and as such, ignorance would be no defence. Such conduct could reach the threshold of being reckless. 

However, a person having taken professional legal advice from a relevant qualified person and having done so, then acting on it cannot be considered to have been reckless or having intended to break the law.

It does not however provide a complete defence because a legal opinion can cover quite a range of advice, including but not limited to advice based on assumptions unknown to the legal advisor.

Acting On Legal Opinion

The Court said a person who acts on a legal opinion that is wrong that has been obtained through the presentation of accurate facts can expect forbearance to be shown by the Court.

But the Court also said:

…it is equally important to emphasise that an independent legal opinion is not a get-out-of-jail-free card.

However, it is critical the Court said that a client must consider the factual assumptions upon which the legal advice is based otherwise they risk being unable to deploy defences based on its reliance.

In this case, the judge said the legal opinion did not assist Mr Forster because of the factual matrix upon which the legal advice was based.

Can You Rely On Legal Opinion For A Defence?

The judge addressed the suggestion that a client should not rely upon legal advice obtained from inaccurate facts. 

However, although expressed somewhat differently by the judge, legal opinion suffered from the garbage in garbage out vulnerability.

Legal advice obtained from faulty factual suggestions cannot be deployed for a reliance defence:

… the mere fact that a legal opinion has been obtained does not, without more, provide a defence of any kind.

Can You Rely Upon Legal Opinion Based On Incorrect Facts

It is unsurprising that legal advice based on incorrect facts cannot realistically provide a defence.

Reliance upon legal advice based on incorrect facts was colourfully articulated by the judge in the case of Top Brands Ltd & Ors v Sharma & Ors [2014] EWHC 2753 (Ch) in which an Insolvency Practitioner was facing a misfeasance claim and sought to rely upon legal advice as part of the defence. In that case, legal advice was sought based on certain incorrect facts:

Both of the above statements by GS were untrue. At this point, GS was at the helm of a vessel holed below the waterline; she had several times radioed the coastguard for directions to the nearest harbour but had not checked and had repeatedly misstated her position and her bearing, in consequence, the course given was a course further out to sea; and, she was unaware of the state of the vessel because she had not looked below deck or noticed that it had ever decreasing freeboard, rather she continued to rely on the assurance of an owner, who had lately taken to a lifeboat, that the vessel was seaworthy.

In that case, the legal advice obtained did not assist the respondent’s defence to the application.

Legal Opinion Based On Blind-Eye Knowledge

Legal opinion based on blind-eye knowledge also cannot realistically be relied upon.

In the case of Group Seven v Notable Services [2019] EWCA Civ 614 the Court (again) added some colour to its articulation of blind-eye knowledge with its considered analogy in respect of Nelsonian Blindness as follows:

The discussions of knowledge by Lord Hoffmann and Lord Millett in Twinsectra indicate that knowledge of a fact may be imputed to a person if he turns a blind eye to it, as Nelson is supposed to have done at Copenhagen, or if in legal parlance he deliberately abstains from enquiry in order to avoid certain knowledge of what he already suspects to be the case… It is not enough that the defendant merely suspects something to be the case, or that he negligently refrains from making further enquiries…. the imputation of blind-eye knowledge requires two conditions to be satisfied. The first is the existence of a suspicion that certain facts may exist, and the second is a conscious decision to refrain from taking any step to confirm their existence…

In this case, the Court appears to have dismissed the ability to rely upon legal advice procured with Nelsonian Blindness thrown into the mix:

Where a person has sought and obtained a legal opinion as to the legality of his activities based on a false or knowingly incomplete set of facts, that seems to me to be a clear confirmation both of the existence of a suspicion, and a desire for the true position not to be investigated.

Ultimately for Mr Forster the legal advice reliance did not assist him as the Court said the test for the piercing of the corporate veil had been met:

Mr Forster was not simply aware of the position of the Investment Companies and FGM, he was the driving force behind their activities and their business. He also knew that they were raising money on the basis of promises which were first very unlikely to be, and later incapable of being, fulfilled. The reason that the companies were engaging in business in this way was in order to execute a plan which he had devised, and whose implementation he supervised. On the facts of the case before me, it seems clear that Snowden LJ’s test for the piercing of the corporate veil by s.382 is clearly met.