Advising sophisticated clients revisited

The decision in Healey suggests once again that the courts are prepared to consider the scope of the solicitor's duty on a case-by-case basis, write Phil Murrin and Mark Healing

Solicitors and insurers will welcome the recent case of Healey & another v Shoosmiths [2016] EWHC 1723 (QB), which involved the scope of a solicitor's duty to a sophisticated businessman client.

The claimant, Mr Healey, wished to buy a 60-metre 'superyacht' which would be built by a shipyard, Benetti. Shoosmiths were instructed, via Healey's yacht broker, to advise him.

Healey signed the build contract, but defaulted on the first scheduled payment. Benetti terminated the contract and obtained summary judgment against Healey in the sum of €7,100,000, enforcing the contract's liquidated damages provisions (decision reported at Azimut-Benetti Spa (Benetti Division) v Healey [2010] EWHC 2234 (Comm)). Healey obtained permission to appeal, before settling with Benetti in the sum of €2,250,000.

Healey later issued proceedings against Shoosmiths. He claimed that he had not been made aware of the extent of his potential liability under the liquidated damages provisions, which differed from earlier yacht transactions in which he had been involved.

Healey sought to recover the €2,250,000 settlement sum together with his costs of defending the claim brought by Benetti.

Shoosmiths had given no direct advice to Healey explaining the various contractual provisions, but asserted that sufficient steps had nevertheless been taken to draw the liquidated damages provisions to his attention, via the yacht broker.

In the alternative, Shoosmiths claimed that Healey would have proceeded regardless, as he had not expected to default and anticipated making a significant profit through subsequent re-sale of the vessel.

Potential liability

The court found in Shoosmiths' favour in respect of both breach of duty and causation. Her Honour Judge Moulder concluded that, in light of Healey's sophistication and experience as a businessman and his previous superyacht transactions, Shoosmiths did not have a duty to go further than highlighting and commenting on the liquidated damages provision in a draft copy of the contract, which had been provided to Healey by the broker.

Shoosmiths did not need to provide any particular advice as to Healey's potential liability in the event of default, and did not need to question Healey as to whether he knew what he was doing.

The judge found as a matter of fact that Healey was likely to have read or looked at the draft contract as marked up by Shoosmiths. Healey's evidence that he had not read the relevant sections was rejected.

The judge also found that Healey had failed to show that he would not have proceeded with the transaction in any event.

Credibility of evidence

This case turned largely on its facts and the judge's view of the credibility of Healey's evidence. His claim that he had not read or understood the relevant parts of the contract was found to be unpersuasive.

Of wider relevance is the finding that, with a sophisticated client such as this, a solicitor will not always be required to explain in detail the effect of contractual provisions. The judge acknowledged that such advice would, in some circumstances, be unwelcome. This is another interesting illustration of the principle set out in Football League Ltd v Edge Ellison [2006] EWHC 1462 (Ch), to which HHJ Moulder referred.

An analysis of the level of advice which needs to be provided to any given client will always be a difficult exercise. Should a dispute arise down the line, the outcome will likely hinge (as it did in this case) on the parties' conflicting witness evidence as to what the client knew, what he ought to have known, and what his lawyers should reasonably have expected him to know.

Prevention, as the old adage says, is better than cure, and best practice for practitioners will of course be to provide detailed advice when in any doubt as to whether it is required. That said, solicitors and their insurers should be encouraged by this decision: it suggests once again that, as well as issues such as causation and the measure of loss, the courts are prepared to consider the scope of the solicitor's duty on a case-by-case basis.

Phil Murrin is a partner and Mark Healing a solicitor at DAC Beachcroft. They acted for the defendant, Shoosmiths, in this case @DACBeachcroft