No Soft Target

Author:Ms Nichola Evans
Profession:Browne Jacobson
 
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This article was first published in Accountancy

Age

Given the amount of news coverage on accountancy firms being

taken to court for negligence, you would be forgiven for assuming

that successfully suing advisers was a common occurrence. In

reality, firms are in a stronger position to defend themselves

against such claims, given recent cases.

So what can be done by accountants to limit their exposure to

potential claims? One area which requires some consideration is the

scope of the retainer which underpins most professional

relationships.

One case reported last year is instructive as it clarifies the

importance of getting the basic framework right from the outset of

a contractual agreement. In the case of J P Morgan Bank

(formally Chase Manhattan Bank) v Springwell Navigation Corp [2008]

EWHC 1186, the Commercial Court robustly dismissed a

claim for damages in relation to alleged negligent advice with

regard to emerging markets investments.

The claim was complex, with the trial taking over 60 days,

culminating in a lengthy judgment and a great deal of commentary.

In the current climate, we believe that this case is likely to be

relied upon and referred to in many similar claims.

Springwell Navigation Corporation, a company owned and operated

by one of Greece's wealthiest shipping dynasties - the Polemis

family - had a longstanding relationship with J P Morgan Bank.

During the 1990s Springwell borrowed increasingly large sums of

money from J P Morgan and invested very heavily in exotic debt

instruments. In particular, Springwell invested heavily in Russian

bonds which collapsed in value in 1998 during the Russian debt

crisis.

Springwell brought claims against J P Morgan, for damages of

$700 million, alleging that an advisory relationship existed with

them and that they – the bank's client - should have

been advised that this was not an appropriate investment. Further,

even if J P Morgan had no duty to provide advice, they alleged that

they had been misled by statements that the investment

opportunities were suitable.

J P Morgan claimed it did not have an advisory relationship with

Springwell and the Polemis family, who they said were experienced

investors who chose their own trades in full knowledge of the risks

involved.

The Court rejected the allegations made by Springwell,

particularly highlighting its sophistication and experience as an

investor able to engage in the higher risk transactions and

ultimately make its own decisions. The Court took into account how

the business between the parties had been conducted throughout

their relationship and reviewed all contractual documentation. This

showed that the parties contracted on the basis of a trading and

banking relationship and not that of an advisory capacity.

The allegation that, even if J P Morgan had no duty to give

advice they did not provide full information as to the nature of

the investment, also failed for the same reasons. Springwell's

claim therefore failed on all accounts.

Whether an investor actually relies on advice and whether a duty

of care exists will always be fact specific. The Court will clearly

be wary of holding anybody liable unless there is a clear

contractual obligation or strong evidence to the contrary and will

place a great weight on how sophisticated the investor is.

This case follows that of The Football League

Limited v Edge Ellison where the law firm was sued in

relation to an agreement concerning the televising of football

matches. In this case, the...

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