Member Article

Advisor beware: duty of care

With Watson Burton LLP Law Firm

Professional advisors or sub-contractors should be aware that they may be liable to the end client despite a commercial decision to structure the relationship so there is no direct contract between the parties.The Court of Appeal looked at the potential dangers in Riyad Bank v Ahli United Bank (UK) Plc (UKB) [2006] EWCA Civ780: Riyad Bank entered into an agreement with RBE Fund Plc under which the Bank would act as its general investment advisor. Riyad Bank sub-contracted the performance of some of its advisory service on the operation of the RBE fund to the defendant, UBK.

There was no contractual relationship between UBK and RBE Fund because the fund did not want to appear to be the product of a competitor bank. The fund performed poorly and it was discovered that assets had been overvalued. Riyad Bank claimed that UBK had breached a duty of care to the fund by negligently analysing the assets. UBK argued that they owed no such duty as the deal was intentionally structured to avoid this.

The Court found that there was a duty and provided guidance as to the circumstances in which a duty of care may be found to exist:

• An awareness that the end client will be reliant on the advice
• An awareness that the information will be passed on without qualification
• Holding oneself out as an expert in the field

There is no general proposition that, just because a contractual chain exists, no responsibility for advice is ever assumed to a non-contractual party. This is only relevant if the contract indicates that there was an intention not to have a legal relationship of any kind. Courts will look at the substance of the business relationship, not just the legal, contractual form.

Practice points:

Advisors or sub-contractors need to ensure that any contract between the main service provider and the end client also addresses contracts further along the chain.

• The main contract should expressly exclude liability on the part of the advisor or sub-contractor to the person ultimately acting on their advice
• If this cannot be agreed, the contract should stipulate that any limitations on liability should apply to any claims against advisors/ sub-contractors as well
• Standard form contracts may need to be revisited

An advisor or sub-contractor should take care that its agreement to advise does not allow a duty to survive.

If you have any queries in relation to this article, or any other commercial law matter, please contact Nicola Marriott at Watson Burton LLP by emailing nicola.marriott@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .