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Updating advice: Shepherd's defeat should be a reminder to contractors

Joanne Kelly is a partner in the construction team at Taylor Wessing

Mr Justice Akenhead’s recent judgment in the case Shepherd Construction Ltd v Pinsent Masons LLP [2012] serves as a useful reminder to contractors, developers and consultants operating within the construction industry that solicitors generally do not have a continuing duty to review and update previous advice given by them.

The outcome of the case very much substantiated the view that a lawyer’s advice only holds strong for as long as they are appointed and engaged on the case and the project at hand, and that if contractors wish for their lawyers to retain responsibility for refreshing and updating their advice on an ongoing basis, that this should not only be explicitly mentioned at the outset and referred to in the retainer for their appointment, but that any such responsibility could also be subject to a significant cost increase for the parties concerned. So how did this decision come about and what is the impact for the construction sector?

Background to the case

In this case, Shepherd Construction claimed around £10.6m in damages against Pinsent Masons.  The losses arose primarily in relation to two developments: Trinity shopping centre development in Wakefield and the Grand Arcade development in Wigan.  Having drafted amendments to the sub-contracts including those in the NEC3 form in relation to both developments, Pinsent Masons had adopted an approach in which their proposed amendments were in line with the Housing Grants, Construction and Regeneration Act 1996 (HGCR), in which they referred to ‘pay when paid’ provisions. That is to say that provisions will be prohibited except when the third party payer is insolvent.

Pinsent Mason’s amendments stated that ‘Insolvency’ was ‘the making of an administration order’ in accordance with the appropriate HGCR legislation. At this point the parties had no issue with Pinsent Masons and their proposed amends.

In 2002, an additional route to administration was introduced, yet the amendments to the draft contracts were not updated by Pinsent Masons to include this additional route to insolvency.  However, it is important to note that, at this stage, Pinsent Masons involvement in these specific projects had come to an end prior to this new introduction coming to market. As a result, Pinsent Masons were not obliged to update their amendments in light of this event – the point upheld by Mr Justice Akenhead.

Unfortunately, for Shepherd, the developers of the Wakefield and Wigan developments were both subject to administration orders by the new ‘additional route’.  Therefore, Shepherd was unable to rely on the ‘pay when paid’ clauses originally drafted within the contracts.

Consequently, Shepherd had to pay its sub-contractors, despite not having received payment from the developers (and unlikely to receive significant payment given the insolvency situation of the developers at hand).

So how did the case play out?

Shepherd’s case placed heavy reliance on the extensive and long relationship that it had held with the personnel from Pinsent Masons.  Shepherd argued that there must have been an overarching retainer with an implied duty on Pinsent Masons to review and update any advice given if, for example, new legislation renders the original advice obsolete.

Akenhead did not favour this argument.  He found that lawyer’s responsibilities are those set out in its original retainer.  To go beyond that and imply a continuing duty to update and review all advice would have “very wide ramifications for the solicitors’ profession and indeed to their clients who might be expected to pay.” There was no general retainer in this case, only a series of individual retainers for each commission or project. 

This is a useful reminder that solicitors, like other professionals, are generally under no continuing duty to review earlier advice undertaken on a separate commission, once their involvement in that case ceases. However, it is worth bearing in mind that if a change or need to review arises whilst the solicitor is undertaking the work, then their position will be very different.

So how does the outcome of this case impact you? - practical tips for Contractors:

  • Wherever possible, ensure there is a written retainer with your solicitors.
  • If you wish the solicitor to retain responsibility for reviewing and updating their advice, even when their involvement in the project comes to an end, this should be set out clearly in their retainer (but be aware of the potential cost of such a role).
  • If the law firm merges or is acquired, ensure you are clear on the entity with the ongoing liability.

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