The Queen’s Bench division recently considered the nature of professional negligence claims where the conduct in question was undertaken in a foreign jurisdiction.
The Claimant solicitors initially commenced proceedings in respect of its outstanding fees owed by the Defendant in respect of the drafting of three share purchase agreements (the ‘Agreements’), which concerned investments made by the Defendant.
The Claimant obtained summary judgment and as a consequence the Defendant paid £22,104 to Court in satisfaction of the summary judgment, pending the outcome of the Defendant’s counterclaim against the Claimant in relation to negligence and/or breach of duty relating to the appropriate corporate structure and contractual provisions contained in the Agreements.
The Defendant alleged that the Claimant had failed to exercise reasonable care and skill when drafting the Agreements and in the advice that the Claimant had provided, or failed to provide, to the Defendant in respect of the Agreements. Specifically, the Defendant stated that the Agreements did not obey the ‘Points for Agreement’ and they failed to provide the Defendant with the appropriate protection. Consequently, the Defendant submitted that they lost the majority of investments sought by them. The Defendant claimed loss of opportunity to sell the investments and claimed for loss of profit and wasted expenditure.
The issues to be decided as identified by the Judge were as follows:
(a) Whether the Claimant had acted negligently;
(b) Whether the Defendant would have acted differently if he had been advised properly;
(c) Whether there was any causal connection between the Claimant’s alleged negligence and the Defendant’s claim for loss of profit;
(d) Whether there was any causal connection between the Claimant’s alleged negligence and the Defendant’s claim for wasted expenditure;
(e) Whether and to what extent losses were recoverable by the Defendant for the claim for loss of profit; and
(f) Whether and to what extent losses were recoverable by the Defendant for the claim for wasted expenses.
In assessing whether the Claimant had acted negligently, the Judge assessed the extent of the Claimant’s retainer. The Judge reviewed the context of the Defendant’s instruction of the Claimant. It was the Claimant’s submission that they were required only to produce an agreement incorporating the terms of the Points for Agreement.The Judge noted that there were many matters which were left undetermined in the Points for Agreement and on which advice or action was required. The Judge concluded that this obligation was satisfied by the Claimant requesting instructions on matters not considered in the Points for Agreement and producing drafts with explanations for the changes, the Judge concluded that this amounted to a form of advice. Accordingly, the Judge did not accept the Claimant’s definition of the retainer, as it was demonstrably necessary for the Claimant to advise a numerous important matters not covered by the Points for Agreement. Further, the Judge concluded that the Defendant’s argument that the Claimant had failed to incorporate the key parts of the Points for Agreement was incorrect, as the Agreement built upon this document and provided many terms that benefited the Defendant.
Specifically, the Judge noted that the Defendant did not want or request advice on corporate structure, in order to minimise costs.
The Judge concluded that the terms of the retainer were to build upon the terms within the Points for Agreement.
Breach of Retainer
It was accepted that the basis for assessing whether there had been a breach of the retainer was to assess the Claimant’s conduct against the standard of a competent Greek solicitor.
Upon review of the evidence and the specific allegations of negligence, the Judge concluded that the Claimant adopted a sound structure for the Defendant with specific rights and remedies which could be utilised by the Defendant. The terms of the Agreement drafted by the Claimant provided for a controlling system of the Defendant over the other parties and provided for the Defendant to have control over his investment, pursuant to the requirements in the Points for Agreement.
Accordingly, the Judge concluded that the Claimant had produced the Agreements required by the Defendant in accordance with the terms of the retainer.
Variation of the Agreement
The Judge proceeded to conclude that, in any event, had the Claimant breached the terms of the retainers, the Defendant would not have acted differently. In this respect, the Judge analysed the conduct of the Defendant and how the terms of the Agreement were disregarded by the parties. Specifically, the Judge noted that the Defendant did not give the letter of guarantee to secure payment of a substantial bonus. Further, the Defendant did not take advantage of his rights to appoint the company which would purchase the 1% shareholding of the project company subject to the investments. Lastly, the Defendant did not seek to enforce the pledge to which he was entitled. The Judge concluded that the Defendant was not concerned with enforcing his contractual rights pursuant to the Agreement or placing reliance on them.
Further, the Judge noted that the Defendant also started voluntarily paying sums to parties to the Agreement despite not being required to do so under the terms of the Agreement and also promising payment of sums but failing to provide payment. Consequently, this changed the nature of the Agreement. As a result of the above, the Judge found that there had been renegotiation of the Agreements and the terms of these Agreements were therefore varied. The Judge noted that it was not suggested that the Defendant’s decision to take on these additional financial liabilities was provided for in the Agreement or connected with the alleged negligence of the Claimant. Further, the Judge found that there was no evidence to show that the Defendant would have acted differently if the Agreements had contained the provisions that the Defendant alleged should have been provided for in the Agreements.
The ‘Credit Crunch’
Lastly, the Judge assessed the economic climate at the relevant period and found that, as a result of the growing worldwide financial problems, the Defendant suffered from a major cash flow problem.
Causation – Loss of Profits/Wasted Expenses
The Judge concluded that, even if the Defendant had been able to establish that he has suffered loss of profits/wasted expenses, there was no casual connection between the Claimant’s alleged negligence and the loss of profits/wasted expenses.
This judgment emphasises the need to properly consider the terms of the retainer when assessing allegations of negligence. Further, the judgment highlights the importance of causation and the ability to prove that any breach actually caused the loss claimed. Although this case was fact specific and involved detailed analysis of the actions of the Claimant in the context of the standards of Greek law, it provides useful guidance to those considering claims in foreign jurisdictions.
For further information, please contact Georgina Squire or the Partner with whom you usually deal.