Changed circumstances


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For further information, please contact Alan Woolston, Partner, Fladgate LLP (awoolston@fladgate.com)


 

If a piece of advice is correct when given, but later becomes obsolete due to a change in circumstances, is there a continuing duty to advise the recipient? This was the question the court had to consider when Shepherd Construction Ltd brought a claim against their solicitors, Pinsent Masons LLP, following the outcome of an earlier case, William Hare Ltd v Shepherd Construction Ltd [2010] EWCA.

In that case, the court found that a “pay when paid” clause in Shepherd’s standard form of sub-contract did not relieve Shepherd of their obligation to pay their subcontractor, Hare, in a situation where the upstream payer (Trinity Walk Wakefield Limited) went into administration by passing a resolution of its board of directors. The wording of the sub-contract stated that Shepherd was not obliged to make payment where an administration order was made against Trinity under part II of the Insolvency Act 1986, but in this case there was no order: the directors had simply passed a resolution.

The fact that the directors were able to put the company into administration by passing a resolution was due to a change in the law which came into force in 2003 following the passing of the Enterprise Act 2002. Before that a court order was necessary.

The Housing Grants, Construction and Regeneration Act 1996 made “pay when paid” clauses unlawful, except where the upstream payer was insolvent, and section 113(2) stated that a company became insolvent (so far as administration is concerned) “on the making of an administration order against it under part II of the Insolvency Act 1986”. In 1998 Pinsent Masons LLP’s predecessor firm, Masons, drafted amendments to Shepherd’s standard sub-contract in which the wording of section 113(2) was reproduced. However, that section was amended in 2003 by a statutory instrument to bring it into line with the Enterprise Act 2002: a company would now become insolvent “when it enters administration”. This would include the passing of a resolution to go into administration.

Despite the change in the wording of section 113(2), Shepherd continued to use the old wording as drafted by Masons in 1998, which was later shown by William Hare to be insufficient to provide full protection in the event of Trinity going into administration. Meanwhile, Masons (and from 2004 Pinsent Masons and from 2008 Pinsent Masons LLP) continued to advise Shepherd on a variety of matters. Although the advice given by Masons in 1998 was correct at the time, it had become obsolete as a result of the change in the legislation in 2003. Shepherd argued that, because of the continuing relationship, Pinsent Masons LLP and its predecessors were under a duty to advise that the drafting needed to be changed, and in failing to do so had been negligent.

However, Mr Justice Akenhead rejected that argument, commenting “There is something commercially and professionally worrying if professional people are to be held responsible for reviewing all previous advice or indeed services provided”. A solicitor’s functions and responsibilities must be determined by his or her retainer. There was no evidence of an express agreement constituting a single contract comprising a range of specific instructions and commissions. Nor could any overarching general retainer be implied by which Pinsent Masons LLP was required to keep under constant review all advice and drafting previously done. A further complication which undermined the case for there being a single contract was that, although much the same personnel continued to be involved, three distinct firms acted for Shepherd at different stages, namely Masons, Pinsent Masons and Pinsent Masons LLP.

It is clear that any claimant seeking to establish that an adviser has a continuing duty to review previous advice will face an uphill struggle, unless there is clear evidence that such a duty was part of the agreement between the parties. This is not just relevant to legal advice, but could be applicable, for example, where a consultant provides a report, and something happens later on that changes the assumptions on which it is based. Unless it was a specific term of his appointment, the consultant will not be under any duty to advise that the report needs to be updated and that the contents should no longer be relied upon.

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