Was there authority to provide instructions?

6 December, 2012
by: Cripps Pemberton Greenish
It is important for solicitors to be able to rely upon the apparently authorised agents of a company when taking instructions.
 
The professional negligence case of Newcastle International Airport Ltd v Eversheds LLP [2012] EWHC 2648 (CH) will be reassuring to solicitors.  
 
The defendant solicitors drafted new service contracts which gave the claimant company’s executive directors very substantial bonuses.  Executive pay was determined through a remuneration committee chaired by a non-executive director.  It appears that the remuneration committee approved the idea in principle but did not consider the detail.  The directors instructed the solicitors to draft the service contracts, which were signed by the chair of the remuneration committee and by the directors.
 
Once the size of the bonuses became apparent, there was a disagreement about the terms of the new contracts.  The company pursued a claim in negligence against the solicitors on the basis that the solicitors should have confirmed the wishes of the remuneration committee via the chair.
The court held that the remuneration committee had, through its chair, held out the directors as being authorised to give instructions to the solicitors.  It also appeared to be common practice for remuneration committees to instruct solicitors through the directors.  The solicitors were entitled to assume that the remuneration committee had been properly briefed and followed proper procedures.  Completed drafts had been sent to the chair of the remuneration committee for signature and approval.