Professional negligence in failing to explain the effect of documents

Our professional negligence recovery team considers the role of professional negligence in failing to explain the effect of documents.

11 November 2013

Mrs Mathieson suspected her husband and was concerned that he was taking, or would take, too much money out of the family business. So she demanded he sign a shareholders’ agreement under threat of divorce if he didn’t. She instructed Clintons solicitors to draw up the shareholder’s agreement to ensure that she and her children would be properly provided for on her husband’s death and that the amount of capital her husband could withdraw from the family business without her consent was restricted. Clintons proceeded to prepare an agreement on behalf of Mrs Mathieson which was duly signed.

Subsequently, Mrs Mathieson retained Clintons to monitor compliance with the shareholder’s agreement but did not give them sufficient documentation to do so. Finally, the marriage broke down and Mrs Mathieson alleged that the shareholders agreement (and Clinton’s monitoring of it) had failed to prevent her husband drawing down large sums of money from the business without her knowledge for a decade. Consequently, she said, as a result of Clintons’ negligence, her share of the assets when she divorced him in 2011 was substantially reduced. Her alternative case was that if the agreement had not been executed, she would have divorced her husband earlier, in 2004, and would have received a bigger sum in ancillary relief.

Mrs Mathieson was a sophisticated client with a good working knowledge and understanding of the negotiations and the assets over which she sought control. The judge also considered her an evasive witness and rejected her complaints about Clinton’s monitoring of the agreement, in part, because she clearly knew they did not have the information necessary to do so.  

Nonetheless, despite Mrs Mathieson’s sophistication – she was still a lay client and one who had never seen a document of this type before. Clintons should therefore have taken prudent steps before completing the agreement, such as investigating and confirming the level of Mr Mathieson’s salary and the proposed executive profit-sharing scheme. Whilst Clintons were not negligent in failing to take these steps, they were negligent in failing to explain and confirm in writing the effect of the key clauses in the agreement to Mrs Mathieson. Mrs Justice Asplin found that any reasonable competent solicitor would have advised his client as to the workings of the final version of the agreement before it was executed. Although not essential, it would be prudent to give that advice in writing. Despite Mrs Mathieson’s sophistication and her apparently unreliable evidence, she was still entitled to more detailed advice than she got and would, in 2002, have had a claim.

However, she had known this more than six years before bringing her claim and it was therefore time barred. Her arguments about Clintons having concealed errors in the drafting of the agreement at the time of their monitoring role failed.

The case provides a good reminder to solicitors to advise clients in full and in writing, and to ensure that their clients fully understand the advice provided. This principle extends to clients who already have a good working knowledge of the subject and circumstances.

The author Emily Maliphant is part of Burges Salmon’s professional negligence recovery team led by Andrew Burnette.

Key contact

Andrew-Burnette---PGP_3989

Andrew Burnette Partner

  • Dispute Resolution
  • Professional Negligence
  • Banking Disputes

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