Solicitor’s duty of care — Duty to advise — Extent of duty — First appellant instructed to implement business transaction negotiated by respondent client — Respondent accepting contractual indemnity — Whether solicitor under duty to warn of risks — Appeal allowed
The appellants practised together as a firm of solicitors. The respondent retained the first appellant to act for him on a commercial transaction involving: (i) the grant of a 28-year lease of business premises in Jersey to M Ltd, in which the respondent owned shares; and (ii) the sale of those shares to an English company, WEN. At the request of the lessor of the Jersey property, the respondent gave a guarantee underwriting the payment by M Ltd of the rent falling due under the lease. The respondent wished to be released from the guarantee upon the sale of his shares in M Ltd, but the lessor was not willing to accept substitute guarantors. Accordingly, a solution was negotiated whereby WEN, as a term of its purchase of the shares, undertook to indemnify the respondent against any liability that he might incur under the guarantee.
Neither the respondent nor the first appellant carried out any investigation into the financial status of WEN, which they both assumed to be a company of substance. However, the first appellant warned the respondent of the risk of taking a contractual indemnity from a limited company. Several years later, M Ltd became insolvent and fell into arrears with the rent under the lease. The lessor claimed against the respondent, who had to pay £52,152 to the lessor to discharge his liability under the guarantee. When he attempted to obtain reimbursement of that sum from WEN, he discovered that WEN was, and had been at the time of the original transaction, a shell company with no assets.
The respondent brought proceedings against the appellants for negligence. He succeeded in the courts below on the ground that the appellants had breached their duty of care by failing either to investigate WEN or to advise the respondent of the risk he ran by not investigating the financial standing of that company. That conclusion rested upon the proposition that a solicitor in Jersey, upon accepting instructions, became the client’s “l’homme d’affaires”, thereby justifying a client’s high expectations of him. The appellants appealed.
Held: The appeal was allowed.
The categorisation of the first appellant as the respondent’s l’homme d’affaires was a misdirection. The scope of a solicitor’s duty was governed by the scope of the instructions that he received and the circumstances of the case. The scope of a solicitor’s duties might, in some cases, justify his description as a l’homme d’affaires, but bestowing that description could not alter or add to the extent of the duty of care that he would otherwise owe.
In the present case, it was a positively misleading description, and was apt to suggest a duty to advise on the commercial implications and wisdom of the transaction, which had been warranted neither by the respondent’s instructions nor by the circumstances. The first appellant had been instructed to implement a transaction on the terms that the respondent himself had negotiated. The respondent had been aware of the nature of the guarantee that he was giving, and the possibility that WEN might be a company with little or no financial substance was a commercial risk of which he could, as an experienced businessman, have been expected to be aware. It was not a risk arising out of any legal complexity, and was not a “hidden pitfall” about which the first appellant had had a duty to warn him. The first appellant had discharged his duty by giving clear and correct advice on the risk of taking a contractual indemnity from a limited company. It had been a matter for the respondent’s commercial judgment as to whether he would be prepared to accept the protection of the contractual undertaking offered by WEN. He could not extend the first appellant’s role from that of his solicitor acting on his instructions to that of his commercial advisor, or to that of his insurer against his commercial misjudgment: Clark Boyce v Mouat [1994] 1 AC 428 and Reeves v Thrings & Long [1996] PNLR 265 applied.
Bernard Livesey QC (instructed by Reynolds Porter Chamberlain, of Tiverton) appeared for the appellants; Matthew Thompson and Naomi Rive (instructed by Clyde & Co) appeared for the respondent.
Sally Dobson, barrister
