A Cautionary Reminder: Be Clear who your Client is
Published 20 June 2016
In the recent decision of Caliendo and Another v Mishcon de Reya (a Firm), Mishcon de Reya was subject to a professional negligence action by shareholders of QPR Football Club.
Mishcon acted for QPR Holdings Ltd ("QPRH") in a 2007 transaction for the sale of the company's shares. The claimant shareholders alleged that there was an implied retainer between Mishcon and them, or alternatively that Mishcon had assumed a duty of care to them in the share sale.
Mishcon had not entered into a formal written retainer when acting for QPRH in the transaction. The claimants, collectively owning a majority of shares in QPRH, had not appointed legal representation. They had, however, been advised by a firm of tax and trust specialists, who liaised with Mishcon on their behalf throughout the transaction.
Following the sale, the claimants alleged that Mishcon had been retained to act on their behalf in their personal capacity as legal and beneficial owners of QPRH. They alleged that Mishcon had breached its duty to them by failing to include certain deal terms in the sale documentation.
The Court was asked to consider:
- Whether there was an express or implied retainer in place between Mishcon and the claimants; and
- If not, whether Mishcon had assumed a duty of care to the claimants.
Was there a retainer in place?
The Court relied on Dean v Allin & Watts  in which it was held that all circumstances must be taken into account when seeking to imply a professional retainer agreement, including whether the party was liable for fees, whether there was a direct instruction and whether any contractual relationships had existed between the parties in the past.
Having considered "all the circumstances" the Court concluded that neither an express nor implied retainer existed – there was no evidence of a general and longstanding relationship between the parties and it was not essential for the claimants to have been represented by solicitors, particularly as they had received other professional advice.
Had Mishcon assumed a duty of care?
The court emphasised that it should be slow to imply a duty of care where there is a conflict of interest between the actual client and the party asserting the duty of care, but that the law did not preclude it. The court was persuaded that Mishcon did assume a duty of care, albeit a limited one, in part due to Mishcon referring to the claimants as clients in an email and executing several transactional documents pursuant to powers of attorney granted by the claimants. The limited duty required that there was an exercise of reasonable skill and care in the negotiation and execution of the transaction documentation, but only insofar as: (i) the claimants' interests were aligned with those of QPRH, and (ii) the claimants were not advised by their other professional advisors.
Hence, while a duty did exist, the Court found that Mishcon had not breached the duty and the claim was dismissed.
- Ensure that you prepare a written retainer letter for each instruction, clearly excluding liability to any third parties. Be careful to set out exactly who the client is;
- Where there are unrepresented parties, particularly in transactional work, they should be advised to obtain independent legal advice;
- Always bear in mind that failure to implement these simple best practices will result in uncertainty and could lead to costly litigation.