A firm of solicitors advising a group of companies regarding the termination of the employment of a chief executive officer had not been asked to advise and had not breached its duty by not advising on the interpretation of an incentive plan clause. However, it had been in breach of its duty of care by failing to identify the CEO’s conditions of service and by not asking for them, as if it had, a payment in lieu of notice clause would have been identified and resulted in a 35% chance that the companies would have been able to avoid a substantial payment out.
The claimant companies (C) claimed damages for professional negligence against a firm of solicitors regarding advice given on the termination of employment of a chief executive officer of C.

The CEO’s employment had been terminated by an agreement about which the firm had given advice, but two years later he brought proceedings regarding his entitlement under a long-term incentive plan agreed when he became a CEO. It had been referred to in a side letter to the termination agreement. The action was compromised for £1,350,000 by a settlement agreement. C claimed that sum in damages from the firm. 

C submitted that (1) the firm had been asked to give and had given advice about the meaning of the incentive plan clause; (2) the firm should have identified that there were general conditions of employment incorporated into the employment contract that contained a payment in lieu of notice clause, which if discovered would have resulted in more favourable terms for C under the settlement agreement.

HELD: (1) It was for the court to determine the terms of the retainer, Minkin v Landsberg [2015] EWCA Civ 1152, [2015] 6 Costs L.R. 1025 followed. The relevant standard of skill and care was that of the specialist employment lawyer willing to do work relating to the matters arising when a corporate client was contemplating ending the employment of a chief executive, Wright v Lewis Silkin LLP [2015] EWHC 1897 (QB), [2015] P.N.L.R. 32 applied. Further, there was the question of whether, on the balance of probabilities, C would have acted differently with correct advice, and if so, and if negotiations were with a third party, the court had to assess whether C had “a real and substantial chance of a better outcome” and not a speculative one in negotiations and if so to assess it in percentage terms and quantify any loss, Allied Maples Group Ltd v Simmons & Simmons [1995] 1 W.L.R. 1602 followed. The court’s findings were that the firm was not asked to and did not advise C on interpretation of the incentive plan and did not act in breach of duty by failing to ask for the file (see paras 13-15, 51, 59 of judgment). 

(2) When advising on the employment settlement agreement the firm was in breach of duty by failing to identify the conditions of service and by not asking for them; if they had, the notice clause would have been identified. Correct advice on its effect on the vesting of the final 25% of the incentive plan would have meant that C’s chairman would not have offered it to the former CEO. There was approximately a 35% chance that C would have been able to avoid agreeing to the vesting of the remaining 25% in the settlement agreement and side letter. The valuation of that 25% was 25% of the sum agreed to be paid to the former CEO to settle the action he had brought. That figure, together with the one representing the 35% chance, was the amount of damages awarded (para.110).

Judgment for claimants in part

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