Marplace (Number 512) Ltd v Chaffe Street (a firm)

A solicitor’s duty is defined primarily by the retainer and the client’s instructions, assessed in the circumstances and having regard to the client’s sophistication. A solicitor may need to give unsolicited advice where matters arising during the retainer disclose a legal issue or hidden pitfall requiring the client’s attention. The duty does not ordinarily extend to advising an experienced businessman on the commercial wisdom of a transaction or to managing commercial negotiations allocated to another adviser. A solicitor must, however, understand relevant contractual documents and explain material legal obscurities. On the facts, the defendant solicitors were not put on notice of the alleged contractual breaches and were not negligent in failing to advise on them, amend the agreement, or attend a late meeting. A proposed property option was unenforceable without a written contract satisfying section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, but no actionable breach was established.

The claimant company pursued negligence claims against its former solicitors arising from a proposed acquisition of a clothing business. The transaction depended on bank finance and a statutory financial-assistance whitewash. Before completion, payments by Marks & Spencer were accelerated and applied against intra-group debt, while issues arose concerning letters of credit, working capital and the availability of finance. The claimant alleged that the solicitors should have advised that the vendor was in breach, preserved the claimant’s contractual remedies, drafted wider protection against asset disposals, and attended a crucial meeting.

The claimant also alleged that a later compromise included payment of professional fees and an option over surplus properties, and that the solicitors should have required the arrangement to be recorded in writing. The court also considered a limitation clause in the retainer.

1. Claim dismissed. The defendant solicitors were competent corporate lawyers whose duties were governed by the scope of their retainer, the instructions given and the circumstances of the transaction. The claimant’s advisers, particularly TMG, had responsibility for financial structuring, commercial negotiations and project management.
2. A solicitor may have to proffer unsolicited advice or seek further instructions where matters arising in the course of the retainer disclose an issue of concern. That principle does not require a solicitor to advise an experienced businessman on the wisdom or commercial terms of a transaction. The client’s sophistication is relevant to the content of the duty.
3. The solicitors had to understand the legal effect of the documents and draw attention to legal obscurities or hidden legal pitfalls. They were not required to review the entire range of commercial considerations underlying the transaction. Whether they had to attend a particular meeting depended on the client’s instructions and requirements; there was no absolute duty to attend the meeting on 28/29 November.
4. The solicitors knew generally about the M&S debt, financial assistance and the need for continuing solvency, but lacked the trading terms, cash-flow requirements and critical debt level. TMG was dealing with the accelerated payments and negotiations. The solicitors were not, or should not have been, aware of a material or anticipatory breach by CVP. They were therefore not obliged proactively to advise on remedies or the draft amendment agreements.
5. Although it was unnecessary finally to decide construction, the natural meaning of clause 5(5) did not encompass collection of customer debts and payment of existing debt. The NWC/Excluded Debt mechanism was the contractual control mechanism for current-asset movements. The alleged wider implied terms were neither necessary for business efficacy nor obvious.
6. The alleged property option required writing under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. The evidence showed only a commercial possibility, not an offer of a binding option. The claimant’s solicitor was not negligent in failing to insist on writing where the client had twice indicated that he did not wish to pursue the property proposal. The court observed that, if there had been a firm option offer, advice about writing would have been required.
7. The £20 million limitation clause was reasonable under the Unfair Contract Terms Act 1977. The parties’ bargaining positions were effectively equal, the claimant was sophisticated, the term was known and negotiable, and the limit reflected reasonable commercial considerations including insurance.