Be clear who is (and is not) your client

Posted: April 8, 2016

In Caliendo and another v. Mishcon de Reya (A Firm) and another [2016] EWHC 150 (Ch), the High Court was asked to consider the circumstances in which (a) an implied retainer agreement can arise for the provision of professional services and (b) a professional firm can assume a duty of care to a person who has no retainer agreement.  The case provides a useful summary of the law in this area, and is a cautionary reminder to all professional advisers to clearly identify their client and the scope of their retainer in a written engagement letter.

Background

A firm of solicitors, Mishcon de Reya, acted in a commercial transaction for football club QPR. The transaction concerned the sale of shares in QPR by the claimants in this action. The first claimant, Mr Caliendo, was, at the relevant time, a director of QPR.

The claimants argued that an implied retainer agreement had arisen between them and Mishcon or, in the alternative, that Mishcon had assumed a duty of care by conduct. As a result, the claimants said, Mishcon had breached its duty of care by failing, to the claimants’ detriment, to include certain deal terms in the finally executed sale documents.

Decision

Arnold J. considered the law on implied retainers and, in particular, the leading case of Dean v. Allin & Watts. This case provides that all the circumstances must be taken into account when seeking to imply a professional retainer agreement, including whether the party was liable for fees, whether the party directly instructed the professional, and whether a contractual relationship had existed between the parties in the past.  Arnold J. also considered the case of Baird Textiles Ltd v. Marks & Spencer plc which provides that the test for implying such a retainer is one of necessity i.e. that the parties have acted in a way which was consistent only with an intention to make a contract.  Arnold J. held that there was no implied retainer in this case.  The actions of the parties were just as consistent with Mishcon acting for QPR and Mr Caliendo in his capacity only as a director of QPR.  The claim for an implied retainer therefore failed the test as set out in Baird.

Arnold J. then considered whether Mishcon had assumed responsibility to the claimants, and so owed them a duty of care. Again, Arnold J referred to Dean v. Allin & Watts, reiterating that the court should be slow to imply a duty of care where there is a conflict of interest between the actual client and the party asserting a duty of care, but that the law did not preclude it.  Arnold J. was persuaded that Mishcon did assume a duty of care by correspondence where Mishcon stated that it acted for the claimants, and also by virtue of documents which Mishcon executed on behalf of the claimants under powers of attorney.  However, on the facts, Arnold J. held that Mishcon’s duty was limited in scope as the claimants were advised in the transaction by another professional firm (albeit not lawyers).  Consequently, Mishcon was not in breach of its duty of care.

Comment

For professional advisers this case demonstrates the importance of clearly identifying who is (and is not) your client in a transaction. Engagement letters should be used for each matter which clearly identify who the client is, the capacity in which the instruction is given, and the scope of work.  In a transaction, especially where an unrepresented party is apparently on the same side, firms should be clear to avoid any suggestion that they have assumed responsibility for that party’s personal interests and therefore owe them a duty of care.  Failure to implement these best practices leads to uncertainty can lead to costly litigation.

Ciarán Noonan, Trainee Solicitor, Michael Simkins LLP