Commodities Research Unit International (Holdings) Ltd & Or v King & Wood Mallesons LLP

A solicitor advising on employment termination must identify and obtain contractual documents expressly incorporated into the employment terms. Failure to notice a reference to missing general terms of employment, where those terms may affect the advice, can constitute negligence.

There is no general duty to demand every document exchanged between the parties or the whole personnel file where nothing puts the solicitor on inquiry. Where negligent advice affects negotiations with a third party, loss is assessed by determining whether the claimant would have acted differently and, if so, whether it had a real and substantial chance of a better outcome.

The claimants, companies in the CRU Group, sued their former solicitors in professional negligence. The claim concerned advice given about terminating the employment of the group’s former chief executive and the effect of a long-term incentive plan.

The solicitors advised that there was no payment-in-lieu-of-notice clause because they had not been provided with the incorporated general conditions of service. The claimants alleged that this advice caused them to agree to vest the final 25 per cent of the incentive plan and later incur losses in litigation and settlement negotiations.

The central issues were the scope of the retainer, breach of duty, contributory negligence, causation and the assessment of loss.

1. Retainer and the LTIP. The solicitors were retained to provide employment advice and to advise on and draft the termination agreement. They were not retained in 2007 or 2008 to advise on the interpretation of the LTIP. The failure to discover the October 2004 emails was therefore not negligent.
2. Duty to identify incorporated terms. The statement of terms expressly referred to the company’s general terms of employment. The addendum contained terms specific to the former chief executive and could not sensibly be treated as the general terms. The solicitors should have asked for the general terms, which would have disclosed the payment-in-lieu-of-notice clause. Their failure to do so breached the applicable standard of care.
3. Consequences of the breach. Correct advice would have shown that the employment could be terminated without notice without repudiatory breach, allowing reliance on the restrictive covenants, subject to their limitations. Whether payment representing the final 25 per cent of the LTIP was due remained a matter of contractual interpretation. The claimants were not contributorily negligent because they had supplied the documents they reasonably understood to be relevant and were seeking expert advice.
4. Causation and loss. The court applied the approach in Allied Maples v Simmons & Simmons [1995] 1 WLR 1602. The claimants would not have offered the final 25 per cent as the starting point in negotiations. They had a real and substantial, assessed at 35 per cent, chance of avoiding that payment. The final 25 per cent was valued at 25 per cent of the £1,350,000 settlement, namely £337,500. The recoverable loss was therefore £118,125.
5. The claim for the claimants’ Chancery action costs failed because those proceedings would have been brought in any event. The management-time claim was not pursued. Judgment was entered for the claimants in the sum of £118,125.