Professional Negligence Philip Shaw and Joe Bellhouse 27 March 2013 Case study - background Two wealthy individuals loaned money to a foreign national Intended to fund transport of large shipment of gold from an African country to Paris But the money was never repaid Circumstances leading up to the loan Their solicitor introduced the deal to them...... and drafted security documents to protect their position 1
The claim against the solicitor Solicitor denied existence of retainer There was no engagement letter No invoice was rendered for the work done Solicitor argued no responsibility to investigate financial standing simply documented the deal The legal position Duty Breach Loss Was there a duty? Retainer Duty 2
The retainer established Existence of a retainer: Referred to as my clients in emails Correspondence with other party s solicitors The scope of the retainer But, what was the scope of the retainer? A property in Spain was put up as security There was plenty of equity It was owned by a UK company But the company was insolvent! Breach of duty We said there was a breach of duty for failing to investigate the adequacy of the security. No said the PI Insurers See Pickersgill v Riley (2004) solicitors owed no duty to an experienced businessman who was entering a personal guarantee to advise him on the financial prudence of the project. 3
Breach of duty Yes, we said See Spiterri v Roccisano (2009) The Plaintiff engaged the Defendant as his solicitor to ensure that he had adequate protection for his investment The Plaintiff looked to him to exercise reasonable care and skill to ensure that there was adequate security for his investment Conflict of interest The solicitor had been in contact with the other party throughout! He even rendered an invoice which was paid! Outcome Mediation Solicitor responsible for majority of the losses Payment of damages and costs BUT a lot of time would have been saved if there was a clear, written retainer at the outset 4
The contract for services Nature of contract oral or written Nature of contract construction or other professional services Standard of care Services and additional services Payment terms Limitation of liability Professional indemnity insurance Standard of care Reasonable skill and care Enhanced reasonable skill and care acceptable Strict liability will not be covered by PII Services and additional services What would have helped in the Fool s Gold case? Scope of services - consider carefully Additional services Fee basis 5
Payment terms Fixed fee, % of project cost, or rates? Timing of payment Non-construction Instalments and HGCRA 1996 (Construction Act) Suspension Non-construction Construction Act Additional services Limitation of liability Limitation period Statutory limitation Contractual limitation Evaporation clause Cap on liability Net contribution clause Professional indemnity insurance For protection of the professional, not the client Annual renewal and claims made basis Each and every claim or in the aggregate? No cover for strict liability 6
Professional indemnity insurance Obligation to maintain limitation period Think twice (and again) before settling terms that are outside PI insurance Dispute resolution Litigation courts Advantages:» Binding on parties unless appealed» Non-contractual parties can be joined in» Judge likely to have seen similar issues before Disadvantages:» Public» Slower than eg arbitration Dispute resolution Arbitration Advantages:» Choice of arbitrator» Choice of location» Private» Expertise» Expertise Disadvantages:» Arbitrator s fees judges are free» Non-binding without court order» Difficult to join in third parties 7
Dispute resolution Mediation Advantages:» Quick weeks rather than months» Binding agreement on the day» Private» Settlement can be anything» Success rate of 80% Disadvantages:» Parties have to agree» Adds to overall costs if fails Dispute resolution Adjudication (for construction contracts) Advantages:» Very speedy» Expertise Disadvantages:» Paper process no hearing» Non-binding without court order» Rough and ready Conclusions Think about relationship Agree responsibilities Document it Keep under review Remember we re here to help! 8
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