Practice and Procedure


PUBLISHED August 12, 2003

Prior to completion of an investment agreement under which a company was established, solicitors had advised their client of the existence, meaning and effect of a provision in the company's articles of association allowing for the removal of directors.Judgment on liability in proceedings against the defendant solicitors for professional negligence. The claimant ('P') had entered into an investment agreement with an investment company ('Innisfree') in relation to his businesses servicing the healthcare sector. Under the agreement, a holding company ('Holdings') was formed as the vehicle for the joint venture. P was a director of Holdings. Under Art.29.2 of Holdings' articles of association, Innisfree could remove any person, including P, as a director of Holdings and take control of the board of Holdings and subsequently the boards of the subsidiaries of Holdings. In July 1998, one of P's colleagues revealed alleged irregularities to Innisfree, who instructed accountants to carry out an investigation. The accountants produced a draft report highlighting various problems. On 4 August 1998 P was removed from his position as a director of Holdings. In September 1998 he was also dismissed as an employee of a subsidiary company. The main issue on liability was whether, prior to completion of the investment agreement, the defendants gave P appropriate and adequate advice on Art.29.2. The defendants counterclaimed for their fees arising from two transactions they continued to work on after 13 August 1998.HELD: (1) On the balance of probabilities P was advised, prior to completion, of the existence, meaning and effect of Art.29.2, including its potential implications for P personally. P's claim therefore had to be dismissed. (2) P was contractually liable to pay the defendants' reasonable fees for the work carried out on the transactions after 13 August 1998. P's request that the defendants continue to act on his behalf in the transactions was an offer to contract that was accepted by the defendants when they accepted his instructions and worked on the two transactions after 13 August 1998. There was no clear statement by P, or express or implicit acknowledgement by the defendants, that P would not be charged for the work. Nor was there any indication that there should be a departure from the normal expectation that the client would pay for commercial work carried out by the solicitor.Claim dismissed. Counterclaim allowed.

[2003] EWHC 1745 (Ch)