The recent case of Marplace (No. 512) Limited v Chaffe Street [2006] revisits some of the issues raised in Football League Ltd v Edge Ellison (a Firm) [2006] EWHC 1462 regarding the scope of a solicitor’s duty to advise on the commercial aspects of a transaction, and caps on solicitor’s liability for negligence. The firm of solicitors advised a company on a corporate acquisition. For various reasons the acquisition went wrong and the solicitors were accused of negligence.
Ultimately the solicitors were found not to be negligent. The scope of a solicitor’s duty depended on the context of his instructions from his client.
A solicitor may be duty bound to proffer unsolicited advice or seek further instructions for example, if they were not involved in the negotiation of a transaction but were simply instructed to implement that transaction, the solicitor must still point out any legal obscurities of which the client may be unaware, or point out any hidden pitfalls.
However, a solicitor is not under a duty to review the whole range of commercial considerations underlying a particular deal to which the client may have given insufficient thought. In this instance, the solicitors in question had been entitled to take the view that their clients were intelligent, sophisticated and experienced businessmen who were perfectly able to seek advice if they desired it.
The case went on to comment on the cap on liability. The solicitors letter of engagement said “You agree that … our maximum aggregate liability to you in the event of professional negligence on any matter in relation to which we are instructed shall be £20 million… should you want to vary these limitations we shall be pleased to discuss it with you but we reserve the right to vary our fees accordingly”.
As context:
* Chaffe Street’s turnover was low - about £4 million.
* The amount of the limitation set by Chaffe Street with its various clients did vary from one transaction to another.
* Chaffe Street’s insurance at the time of the alleged breach was £25 million.
* Chaffe Street accepted that the Unfair Contract Terms Act applied to the cap on liability and therefore they were obliged to demonstrate it was reasonable.
The court did find that limitation was reasonable for the following reasons:
* The claimant was a sophisticated and wealthy consumer, and therefore the bargaining positions of the parties were equal. In particular the claimant was used to contracting with professionals and the basis of limitations of liability.
* The claimant was aware of the cap on liability and had in fact discussed it with Chaffe Street. It had not been imposed as a non-negotiable term (albeit the court recognises that it would have probably been difficult to switch solicitors at the time).
* The engagement letter made it clear that if the claimant wanted different limitations of liability then Chaffe Street was prepared to discuss that.
* Chaffe Street determined the £20 million limit on reasonable commercial principles taking into account insurance cover, expenses and circumstances of the transaction.
We don’t frequently get suggestions from the court as to what levels of limitation of liability will be reasonable under UCTA. It’s always nice when one comes along!
suing an insurance broker for negligence - the issue of the sophistication of the buyer of the insurance cover has arisen ie the broker is saying he did not have to bring to the clients attention “conditions precedent to liability” as the client was a commercial person and “should have known” the effect - quite - but the clauses were not even pointed out!!
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