Picture the scene: you sell a majority stake in your favourite (but ailing) football club and are thrilled when they’re subsequently promoted to the Premier League, not least because under the terms you agreed you’ll be getting an extra payment of £2,000,000 – hurray! But when you check the documents, the extra payment isn’t mentioned – oh no! So you sue your solicitors for negligence but the court rules you’re offside as they weren’t acting for you anyway – what?!
What the solicitors did
These were the facts of a recent case involving the sale of shares in Queen’s Park Rangers Football Club. It was agreed that the solicitors had acted for the club but had they also acted for the sellers?
Some of the relevant facts which the court considered were:
- the solicitors were the only firm of solicitors negotiating with the buyer’s solicitors on the transaction;
- the solicitors had previously acted for the sellers, sometimes without formal engagement letters;
- a partner at the firm of solicitors had executed the transaction documents under powers of attorney given to him by the sellers;
- the solicitors had been appointed as the sellers’ agent for service in the sale agreement; and
- the proceeds from the sale of the sellers’ shares were paid into the solicitors’ client account.
Was there a retainer between the sellers and the solicitors?
The court held there was no express retainer: there was clearly no written agreement between the sellers and the solicitors and, although an agreement can be created orally, the court held that this had not happened on the facts of this case.
Was there an implied retainer? Again, the court said no. A retainer would only be implied in very limited situations, where an objective consideration of all the circumstances made it fair to imply a contractual relationship between the parties. Because the facts of this case could be consistent with the solicitors acting for the club and its directors (in their capacity as such), rather than them acting only for the sellers, the case did not fall within those limited circumstances and a retainer could not be implied.
So the solicitors owed no duty to the sellers? Wrong…
A limited duty of care
The court held that, although there was no express or implied retainer, the solicitors did owe the sellers a limited duty of care. In their actions on the share sale, the solicitors had gone beyond their role as agent for their client and accepted a direct responsibility towards the sellers. This gave rise to a limited duty of care, namely to exercise reasonable skill and care in the negotiation of the relevant documents. However, that duty only applied to the extent that the sellers’ interests were aligned with those of the club (the solicitors’ client) and the sellers were not advised on the relevant matters by their separate financial advisers.
No harm done?
Despite finding that the solicitors owed the sellers a limited duty of care, the court held that the alleged breaches of that duty had not in fact caused the sellers any loss. The court said if the sale with the buyer had not gone ahead, on the terms approved by the buyer (which did not include the extra payment), there was no prospect of the sellers finding another buyer willing to buy on the same terms, let alone ones which included the missing terms of which the sellers complained. Not only had the buyer refused to make the extra payment but the sellers would have been unable to find any other buyer who would have agree to it. So the sellers hadn’t suffered any loss by the extra payment not having been included in the transaction documents.
Know your adviser
The case is a good reminder of the fact that a written engagement letter offers both client and adviser certainty about the nature and extent of the advice being provided, if any!