In the name of duty

The current economic downturn has led to a rise in the number of claims pursued against the legal profession, with more claims likely to be brought over the coming years as the UK emerges from the recession. This trend presents a suitable opportunity to restate the courts' approach to the standard of care owed to clients by lawyers and to look at how some recent cases may affect the scope of a lawyer's duty of care to their client.

The standard of care required of solicitors in professional negligence claims is that expressed by Oliver J in Midland Bank Trust Co. Ltd v Hett, Stubs & Kemp (A Firm) [1955-95] P.N.L.R. 95; namely, 'what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession'. The same standard applies to barristers, as reaffirmed by Pritchard Joyce & Hinds (A Firm) v Batcup [2009] EWCA Civ 369. There, Sedley LJ commented: 'The law does not'¦ demand either omniscience or infallibility in lawyers any more than it does in doctors or architects. The law's standard of reasonable competence means not only that there will be errors which are not compensable but that legal advisers are not expected to divine every claim that a client may theoretically have.'

Historically, the key determinant of the scope of a lawyer's duties to their client has been the precise terms of their retainer. In the words of Oliver J in Midland Bank, there is 'no such thing as a general retainer'¦ the extent of [a lawyer's] duties depends upon the terms and limits of that retainer and any duty of care implied must be related to what he is instructed to do'. Thus, in Smith v McInnis (1979) 91 D.L.R. (3d) 190, specialist insurance counsel was instructed by solicitors to advise in relation to loss for claims being pursued under insurance policies. The solicitors missed the relevant limitation period and, in the ensuing professional negligence proceedings, sought a contribution from counsel. The Supreme Court of Canada held that counsel had only been retained to advise on how to organise the insurance claims (in terms of the preparation of the proofs of loss) and was not required to give advice on the relevant limitation period.

Extended scope

However, the English courts have more recently been at pains to emphasise that lawyers' duties often extend beyond the strict scope of their retainer. In Credit Lyonnais SA v Russell Jones & Walker [2002] EWHC 1310 (Ch), solicitors were instructed by a tenant to serve notice on its behalf under a break clause contained in a lease while the tenant itself took care of making a payment which was a condition precedent to the exercise of the break. The tenant's payment was made out of time and it alleged that the solicitors were in breach of duty by failing to advise in relation to the time factor.

The solicitors argued that the scope of their instructions was so restricted as to exclude any duty to advise in relation to the payment or as to the law on conditions precedent. They relied on Clark Boyce v Mouat [1994] 1 A.C. 428, in which the Privy Council held that where a client is 'in full command of his faculties and apparently aware of what he is doing'¦ the solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction'. For its part, Credit Lyonnais relied on the comments of Bingham LJ in Mortgage Express Limited v Bowerman and Partners (A Firm) (No.2) CA (Civ Div) 11/07/95 that 'a client cannot expect a solicitor to undertake work he has not asked him to do and will not wish to pay him for such work'¦ But if in the course of doing the work he is instructed to do the solicitor comes into possession of information which is not confidential and which is clearly of potential significance to the client, I think that client would reasonably expect the solicitor to pass it on and feel understandably aggrieved if he did not.'

Laddie J considered both authorities and held that they were consistent with each other. He stated that a lawyer's duties are defined by the extent of his agreed retainer and he 'is under no general obligation to expend time and effort on issues outside the retainer'. However, 'if in the course of doing that for which he is retained, he becomes aware of a risk or a potential risk to the client, it is his duty to inform the client'. Laddie J found the solicitors to have been negligent on the basis that the client should have been warned of the risk implicit within the break clause. So, the current position would appear to be that, although a retainer may be carefully defined and a lawyer under no obligation to spend time on issues outside of that retainer, they are not absolved of the duty to ensure that any risks they become aware of during the course of carrying out his instructions are brought to the client's attention.

Commercial transactions

Other recent cases show that while the characteristics of the client may shape the scope of the duties owed by lawyers, it is not part of the lawyer's duty to give advice as to the commerciality of any transaction.

In Pickersgill v Riley [2004] UKPC 14 a businessman guaranteed his company's obligations under a lease and then negotiated the terms of the sale of the company, agreeing to take an indemnity from the purchaser in relation to any liability he might incur under the lease. When he tried to enforce the indemnity only to find that the purchaser had at all times been a shelf company and was unable to pay, he alleged that the solicitor was in breach of duty in failing to advise against the taking of the indemnity.

Lord Scott explained: 'The scope of the duty may vary depending on the characteristics of the client, in so far as they are apparent to the solicitor. A youthful client, unversed in business affairs, might need explanation and advice from his solicitor before entering into a commercial transaction that it would be pointless, or even sometimes an impertinence, for the solicitor to offer to an obviously experienced businessman.' But, the fact that the client was an experienced businessman who had negotiated the share sale himself would not have absolved the solicitor from a duty to point out to his client any legal obscurities of which he might have been unaware. That said, it was not the duty of the solicitor to go beyond advising of the risk of taking an indemnity from a limited company, and certainly not to advise of the specific risk constituted by the company in question which both he and his client assumed to be of substance.

However, in the same year that Clarke v Iliffes Booth Bennett [2004] EWHC 1731 came before the courts, it was held that a solicitor has a duty to understand the effect of the document being negotiated and may (depending on the circumstances) have a duty to be equipped to correct the client's misunderstanding of an important part of the transaction. He cannot claim to be under no duty to understand commercial terms 'simply because the client is sophisticated' and has been involved in the negotiation himself.

The effect of a client's apparent sophistication was considered again in Football League Ltd v Edge Ellison (A Firm) [2006] EWHC 1462 (Ch), where solicitors were alleged to have been negligent by omitting to obtain the Football League's instructions as to whether it wished to ask for guarantees from the parent companies of ONdigital. Rimer J asked 'is the solicitor supposed to review the whole range of commercial considerations that underlie a particular deal, work out which ones he is concerned the client may not have given sufficient thought to and remind him about them?'. He held that the answer is 'no': on the facts, the question of parent company guarantees was primarily a matter for the client to consider and assess for itself without any need for advice.

In Tamlura N.V. v CMS Cameron McKenna [2009] EWHC 538 (Ch), the clients had agreed the principal commercial terms of a transaction. The main principals were 'experienced men of commerce' who had 'engaged an experienced finance expert '¦ to advise and act for them in matters of his commercial expertise'. The High Court found that it did not fall to the solicitors to point out to the clients the commercial effects of a particular aspect of the deal. They were entitled to assume that the clients had worked these out for themselves.

The above cases appear to indicate that the sophistication and knowledge of a client can, in certain circumstances, shape the scope of a lawyer's duties. However, this is only likely to be the case where the court is asked to consider whether the scope of the solicitor's duty includes advising on what might be seen more as a commercial point than a legal one.

Clear advice

The extent to which a lawyer is under a duty not just to give correct advice but also to do so clearly, was highlighted in the court's findings in Levicom International Holdings BV v Linklaters (A Firm) [2009] EWHC 1334. The case concerned solicitors' advice given in relation to a dispute regarding alleged breaches of a shareholder agreement which was eventually settled part way through an arbitration hearing. Levicom alleged that, had the solicitors provided it with proper advice, it would have negotiated an earlier, and more advantageous, settlement. Mr Justice Andrew Smith emphasised that the solicitors' duty was to 'exercise reasonable skill and care to convey their advice to Levicom with proper clarity', and he adjudged that they were in breach of this duty, albeit finding that the breach did not cause Levicom to suffer any loss. He found a letter written by the solicitors 'was negligent, not because they failed to exercise proper skill, care or competence in reaching the opinions that they were seeking to express in it, but because the letter did not properly convey their advice'. The solicitors' specific failure was, given that Levicom were clients 'who applied their own mind to the advice that they received and made independent decisions', the failure to communicate as effectively as they should have done the extent to which they disagreed with its views.

By contrast, the House of Lords ruled in Moy v Pettman Smith (A Firm) [2005] UKHL 7 that counsel did not owe her client a duty to spell out her reasons for advice given at the door of the court as to the prospects of beating a payment into court. Her advice that the payment into court was likely to be beaten, while non-negligent, had failed to make clear that it assumed that the application about to be made for leave to adduce key medical evidence would be successful, and that it was based on an assessment that the application was more likely than not to succeed. In the event, against her reasonable expectations, that application was not successful with the result that the client concluded a settlement which was less favourable than if the payment into court had been accepted. The fact that the outcome was less favourable to the lawyers in Levicom than in Moy no doubt had much to do with the circumstances in which each was given, full recognition having been afforded by the lords to the difficult and pressured circumstances in which the barrister was asked for her advice.

Based on these cases, lawyers can feel reasonably comfortable that the courts are not about to make it easier for clients to make them liable for failures which are not strictly related to the job that they are retained to do, or which, because of the circumstances in which they occur, do not denote any lack of competence.