Retainers and assumed responsibility for third parties – draw your parameters at the outset

In Caliendo v Mishcon de Reya the High Court recently found that there was no implied retainer between Mishcon de Reya (Mishcon) and the Claimant shareholders of a company for which Mishcon was acting in relation to a sale of shares.

However, taking into account the context of the relationship between the parties, Mishcon had assumed responsibility to the Claimants and owed them a limited duty of care.

Factual Background

 The claim arose out of the sale in September 2007 of the Claimants' shareholding in QPR Holdings Limited (QPRH) to Sarita Capital Investment Limited and Bernie Ecclestone. The first claimant, Mr Caliendo, was a director and the chairman of QPRH and held his shares in QPRH through the second claimant. The context to the transaction is complex, but it was common ground that Mishcon was instructed by QPRH. The judge considered that the instructions were contained in an email from a director of QPRH requesting that Mishcon draft a contract albeit that at that stage QPRH was not a party to the transaction, but did later become so. Further, the judge found that it was essential for QPRH to be represented by solicitors once it was appreciated that the Takeover Code applied to the transaction and once the transaction involved substantial secured loans by the purchasers to QPRH. There was no formal written retainer in place to govern that relationship and no formal mechanism for payment of Mishcon's fees by QPRH, albeit that over time, Mishcon had received a number of match tickets and use of a box in exchange for the provision of legal advice to QPRH. The Claimants were not legally represented in the transaction; however, the T&F Group (tax and trust specialists), who had been advisors to Mr Caliendo for a number of years, liaised with Mishcon on behalf of the Claimants throughout the transaction.

Following the sale, it was alleged by the Claimants that in addition to its role as solicitor to QPRH, Mishcon had been retained by Mr Caliendo (either expressly or impliedly) to act on the behalf of the Claimants in their personal capacity as legal and beneficial shareholders of QPRH. It was asserted that Mr Caliendo gave express oral instructions to Mishcon to act on behalf of the Claimants and that consequently Mishcon had acted in breach of its duty by preparing transaction documentation that "deviated" from the Claimants' instructions without advising them properly or at all. It is difficult to reconcile this claim in circumstances where it would have seemed clear that there would be a conflict between the personal interests of the Claimants and QPRH.

The Claimants claimed damages on the basis that but for Mishcon's breaches of duty, the transaction would not have concluded on the terms set out in the final transaction documentation and that there was a substantial chance that the transaction would have been concluded on the basis of terms which the Claimants contended Mishcon had been instructed to agree. In the alternative, the Claimants claimed for the loss of a chance to find an alternative purchaser, which, it was asserted, would have agreed to the Claimants' terms of sale.

The Claimants also sought to recover the costs incurred by Mr Caliendo in defending proceedings brought against him by QPRH which related to the issue of whether warranties had been made by Mr Caliendo to QPRH about its liability for loans that had been made to QPRH by a third party.

Issues for the court

 The issues for the court were: 

· Was there a retainer in place between Mishcon and the Claimants?

· If not, did Mishcon nevertheless assume a duty of care to the Claimants?

 Had the Claimants retained Mishcon?

Considering this issue, the judge provided a helpful summary of the leading case on implied retainers: Dean v Allin & Watts. In that case, the Court of Appeal held that an implied retainer can only arise where on an objective consideration of all of the circumstances an intention to enter into such a contractual relationship ought fairly and properly to be imputed to the parties. "All of the circumstances" include whether the party in question is liable for the solicitor's fees and instructed the solicitor. The court may also take into account whether a client-solicitor relationship has existed in the past as evidence that the parties intended to resume that relationship. Further, if the solicitor fails to advise the former client to obtain independent legal advice, this may be indicative that such advice is unnecessary because the solicitor is acting for them.

Considering the circumstances in this case, the judge held that the claimants' assertion that there was an express retainer fell "at the first hurdle". The judgment was therefore focussed on whether there was an implied retainer. Having considered "all of the circumstances" the judge concluded that there was no implied retainer between the claimants and Mishcon. He noted that he had "not found this easy", but concluded that the actions of the parties were not consistent only with Mishcon being retained as solicitors for the Claimants, but rather that they were "at least equally consistent" with Mishcon acting as solicitors for QPRH and its directors in their capacities as directors of the company.

While the judge considered the circumstances highlighted in Dean, he concluded that while Mr Caliendo had in the past instructed Mishcon without a retainer, there was no evidence of a general and long-standing relationship between the parties. Further, he considered that was not essential for the Claimants to have been represented by solicitors and they could be advised by other professional advisers (such as the T&F Group).

Had Mishcon assumed a duty of care to the Claimants?

As a starting point, a solicitor does not owe a duty of care to the other side in a transaction or litigation.

The judge again referred to the judgment in Dean v Allin & Watts, which sets out a summary of the relevant case law on this point. He noted that the Court of Appeal in Dean observed that "where a solicitor is retained by one party and there is a conflict of interest between the client and the other party to a transaction, the court should be slow to find that the solicitor has assumed a duty of care to the other party to the transaction, for such an assumption is ordinarily implausible".

Here the judge found that in weighing up the circumstances, there was evidence that Mishcon did assume a responsibility to the Claimants and therefore owed a limited duty of care.

The judge noted that a clear illustration that Mishcon had assumed such responsibility was that the Mishcon solicitor stated in an email that he acted for the Claimants (the judge also considered this email in the context of implied retainers, but, interestingly, found that in the circumstances the email was not probative of a retainer between Mishcon and the Claimants); further he executed several of the transaction documents pursuant to powers of attorney granted by the Claimants. Balancing the circumstances, the judge characterised the duty owed by Mishcon to the Claimants as being limited, so that they had to exercise reasonable skill and care in the negotiation and execution of the transaction documentation but only insofar as the Claimants' interests were aligned with those of QPRH and the claimants were not advised by the T&F Group.

In any event, the court found that Mishcon had not breached its duty and the claim was dismissed.

Comment

This decision shows that the circumstances in which the court will imply a solicitor's retainer are narrowly drawn. However, even where the court declines to imply a retainer, a third party may be able to establish on the facts that the solicitor assumed responsibility to him and therefore owes him a duty of care.

From the perspective of professional services providers this case serves as a useful reminder of the importance of a written retainer letter for each instruction, which clearly excludes liability to any third parties and sets out who the client is. From the perspective of clients of professional services providers, the retainer is an opportunity clearly to set the parameters of your relationship with an advisor, including who precisely is to take the benefit of the legal advice.

By way of post script, in a further recent decision, the judge ordered the Claimants to pay indemnity costs on the basis that their claim had been brought on a fundamentally false premise.