Newcastle International Airport Ltd (NIAL) v Eversheds LLP

A solicitor may rely on instructions given by an agent with apparent authority where the company has represented that the agent is authorised to conduct the retainer. Once apparent authority is established, the solicitor generally has no additional duty to investigate the agent’s actual authority or to give advice to another company officer, provided the solicitor has no reason to suspect dishonesty, irrationality or unauthorised conduct. Constructive notice is insufficient to displace apparent authority. Loss caused by the company’s own failure to review, understand or challenge contractual terms will break the chain of causation. The claim therefore failed.

Newcastle International Airport Ltd claimed that its solicitors were negligent when drafting new service contracts for the airport’s two executive directors. The contracts contained substantial, non-discretionary refinancing bonuses and relaxed restrictive covenants. The claimant argued that the solicitors should have obtained instructions directly from the chair of the Remuneration Committee and advised her about the contractual changes.

The defendant argued that the executive directors had apparent authority to instruct it, that its duty was confined to performing the retainer with reasonable skill and care, and that the claimant’s own failures caused the loss. The central issues were authority, the scope of the solicitor’s duty and causation.

1. Claim dismissed. Eversheds acted in good faith on instructions it was entitled to accept.
2. The starting point was that a solicitor’s duty depends on the terms and limits of the retainer. Miss Radcliffe had actual authority to authorise Mr Parkin and Mr Friis to deal with Eversheds over the drafting of the new contracts. By doing so, she represented that they were authorised to give instructions on the contents of the contracts. That representation, coupled with Eversheds’ reliance, established apparent authority.
3. Apparent authority was not displaced. The relevant inquiry was whether Eversheds knew of, turned a blind eye to, or irrationally relied on the absence of actual authority. Constructive notice was insufficient. Eversheds was entitled to assume that the Remuneration Committee had followed proper procedures, that the executive directors were acting properly and that the contracts would receive final approval from the chair.
4. The existence of a conflict between the executive directors’ interests and NIAL did not alter the result. The proposed changes were disclosed to the Remuneration Committee and the drafts were sent to Miss Radcliffe for approval and signature. Eversheds was not required to investigate the competence or understanding of its commercial client, or to advise a different company officer once it had properly acted through an apparently authorised agent.
5. In any event, causation failed. The Remuneration Committee had opportunities to review the terms, obtain clarification and halt or renegotiate the refinancing. The evidence showed that the loss resulted from the failures of NIAL’s directors, including their failure to read or understand the contracts and to disclose material matters. That conduct broke the chain of causation and the loss could have been entirely mitigated.
6. The court declined to determine the construction and reasonableness of the liability cap and net contribution clause in the Eversheds Protocol because those findings would have been obiter. No finding on quantum was necessary.