Legal Mistakes Can Prove Costly

Legal mistakes can prove costly

A fascinating case which reached the Court of appeal emphasises the need for agents to know and understand the law and to be wary when entering into contracts. The case is generally of interest in highlighting that a legal technicality can prove very costly

In brief, the facts of the case, Wright Hassall Solicitors v Duncan Morris were as follows :-

Mr Morris is an Insolvency Practitioner and was appointed administrator of two companies.
The 2 companies had strong legal claims against a 3^rd party worth at least several hundred thousand pounds.
Wright Hassall solicitors (WH) agreed to pursue the claims on a no win no fee (conditional fee agreement) basis.
In the retainer arrangement between the administrator and WH, the administrator did not expressly state that he was instructing as agent of the two companies and without personal liability.

The claims by the two companies in administration were settled and WH submitted their bill but it was not paid, so they sued the administrator.

The case went to appeal because WH failed in the High Court to argue that the administrator was personally liable for the debt. WH of course realized that they would not be paid by the companies in administration who would need to pay secured creditors first.

The case is somewhat unusual also in that there were mistakes and confusion on both sides. When initially invoicing for fees, WH invoiced the Insolvency Partnership of which Mr Morris was a partner rather than him personally, which they later corrected. They subsequently sued Mr Morris personally but as agent of the 2 companies, potentially causing confusion as to who they actually intended to sue and the nature of the legal argument.

Notwithstanding all of the above, WH were successful on appeal, which, as things stand, leaves the administrator personally liable for the original invoices of £134,000.00 plus undoubtedly very expensive legal costs associated with the case and appeal.

Basic principles

An agent is not normally liable for contracts he, she or it enters into on behalf of a Principal. The agent may be personally liable in circumstances where he, she or they did not disclose they were acting on behalf of a Principal. One indication of this may be entering into a contract which makes no mention of acting as agent or not being liable.

The mistake made by the administrator in the above case was in not insisting on any contractual clause stating that he would not be personally liable and was acting on behalf of the companies in administration.

The case outcome

The case, even on appeal, seems to have almost been decided on technical points, such as the companies themselves having never been parties to the litigation, and therefore an earlier order by a lower Judge stating that they were liable not the administrator could not be correct legally.

Interestingly, in their Judgments, one of the appeal Judges referred to the fact that even where there is a principal, such as was clearly the case here, an agent can be personally liable.

Recommendations

Insolvency Practitioners will no doubt be very careful when entering into contracts from now on, ensuring that there are suitable clauses, in the body of agreements, the way they are executed and surrounding negotiations and correspondence to make it very clear that they are not personally liable. The principles in the above case also extend to all forms of agents, so in any type of agency arrangement, the agent should take note of this case and act accordingly.

For expert insolvency law advice, please contact Bradley Bloom