Solicitors' Duty of Care To Third Parties (The High Court Rules On ‘The QPR Case’)

It’s not often that I blog about published law cases, but (through self-interest) I found myself reading in the last few days (and thought that I would share my thoughts upon), the recent High Court ruling in the case of Caliendo v Mishcon de Reya (a law firm), in which the High Court considered a professional negligence claim by selling shareholders against a firm of solicitors acting for a company on the sale of that company's shares, based on an express or implied retainer - or - alternatively an assumption of responsibility.

As a regular attendee of West London football matches (though thankfully - for my own mental health - not a Queens Park Rangers fan), the case allowed me to enjoy a certain amount of schadenfreude – in wryly observing that those historically interested in personal ownership interests in QPR seemed to manage their own personal affairs as poorly as they managed the club (and that’s ‘justifiable fair comment’ as any ‘Hoops fan’ will tell you!)

I remind you that company affairs at QPR can have a somewhat 'unique' character :-

http://news.bbc.co.uk/1/hi/uk/4149692.stm

None of the interested parties seems to come out of the circumstances (which form the basis of this case) with anything approaching credit.  

QPR fans (or working private practice Solicitors) interested in the fuller details can read the full case transcript here :-

http://www.bailii.org/ew/cases/EWHC/Ch/2016/150.html     

The claim arose from the sale of the claimants' shares in the company owning QPR.

The first claimant, the ‘well known’ (at least to QPR fans), Mr. Antonio Caliendo was a director and chairman of the relevant company (holding his shares through the second claimant).

It was common ground that the law firm acted for the company.  However, the claimants alleged that they had also (expressly or impliedly) retained the firm to act for them; or alternatively that the law firm had assumed a responsibility to do so.

When you stop and consider matters, it might be considered somewhat strange that in a transaction in which (effectively) an individual sold shares to third parties – that the selling individual was not formally legally represented.  However, under modern English company law – the former general prohibition(s) upon a company providing ‘financial assistance’ for the sale of that company's shares have been 'swept away' – and it’s not unusual for shareholder(s) to feel that their 'underlying' company should ‘pick up the legal bills’. 

The outcome of the case is effectively recording that (in such circumstances) while a law firm might undertake a retainer to ensure that the transaction occurs – that law firm may not have a responsibility to the underlying selling shareholder(s) (as was found to be the case in these circumstances).       

The court found that while there was no express or implied retainer, the law firm had nevertheless assumed a limited responsibility to the shareholders, and therefore owed them a limited duty of care.  That duty was characterised as a duty to exercise reasonable skill and care in the negotiation and execution of the transaction documents, but only in so far as (a) the claimants' interests were aligned with those of the company and (b) the claimants were not advised by their tax and financial advisors.

The selling shareholder claimants in these circumstances were represented by ‘tax and financial advisors’ (whose 'pockets were (presumably) not deep enough' to satisfy the claimants complaints about the terms of the resulting ‘deal’ negotiated, settled and documented with the subsequent majority owners of QPR, Mr. Flavio Briatore and Mr. Bernie Ecclestone).  

I say absolutely nothing further - but pause momentarily for a wry smile to myself (and trust that you may join me). 

More ‘unpleasant’ for a working private practice solicitor is to note that the claimants realising that they had no practical 'come-back' for the 'sub-optimal' outcome of their deal, then chose to pursue the ‘deeper pockets’ of the relevant law firm (or more accurately – that law firm's professional indemnity insurers).      

The decision demonstrates that the circumstances in which the court will imply a solicitor's retainer are narrowly drawn.  A retainer will not be implied unless the parties' conduct is consistent only with the defendant having been retained as the claimant's solicitor. In this case, the law firm had acted for the first claimant on previous occasions, but this was not conclusive, as they were specific retainers in relation to separate matters.  In relation to the relevant share sale transaction, the claimants had instructed other professional advisers, which was a factor pointing against the existence of an implied retainer of the law firm.

The judgment also indicates that, even where the court declines to imply a retainer, a third party may be able to establish, on the facts, that the solicitor assumed responsibility to them and therefore owed them a tortious duty of care.  I would suggest that this was therefore rather a ‘narrow escape’ for the law firm involved.

I would ‘preach’ this (of course) but the golden rule to take out of this sorry set of circumstances, is if you are going to deal with a valuable asset that you own – be prepared to spend some sensible professional legal fees (say - netted out of your received proceeds) on receiving some sensible legal advice and assistance that you can rely upon from an authorised and regulated Solicitor - meaning a professional adviser who is qualified, experienced, expert (and insured!) – Failing which, at least ensure someone is formally ‘looking out’ for your interests (even if you are not paying them).

'You know where to find me' (but if you don't - my contact details are):-

Dan.Johnson@EquitableLaw.com

+44 (0) 7788 537 187  (U.K. Cell. Tel.)

March 2016