No Soft Target
This article was first published in Accountancy
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
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 
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
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
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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