Reliance on legal advice

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You may see this sort of clause, especially in a custody or agency agreement:

Agent May Consult with Counsel
The Agent may from time to time obtain and rely upon advice from professional advisers and will not be liable for any action taken or not taken in reliance upon that advice.

You may hear the agent’s legal advisers sagely intoning that, yes, this is absolutely standard market practice and non-negotiable, being a simple and effective allocation of risk by a service provider who gets paid a pittance and otherwise does not benefits from the fruits of the transaction.

Have no truck with this nonsense. Especially not from external legal advisors, who have a raging conflict of interest in dispensing this sort of “market colour”.

Bad advice is not the client’s problem

No one is stopping an agent getting whatever advice it wants, on its own dime and at its own risk. It’s a free country.

No one is stopping the agent relying on whatever advice it gets. That’s an agent’s prerogative. That it did get advice may even be (weak) evidence that it diligently discharged its duty and wasn’t, factually, at fault.

But if the advice is wrong that’s the agent’s problem, not yours. The answer is not for the agent disclaim its liability to you: it is for the agent to sue its lawyer. That’s what it paid the blighters for: so they, and that juicy professional indemnity insurance policy they never seem to claim on, can cover the agent’s sorry arse if their advice turns out to be wrong and their client — you, kind sir — goes on the warpath.

If fails the commercial imperative

In any case, agents: think about it from your counterparty’s perspective. If you’ve buggered up, she’s lost money, you will not make her good, and you are letting your own (Q.E.D. negligent) lawyers off the hook. Whatever the documents say you will still have a pissed-off counterparty: make no mistake about that. She will think you are a moron. She may be right. She may withdraw her business. This undermines the commercial imperative. The commercial imperative is the main thing keeping you in business.

Nor, this way, are you getting good value out of that professional indemnity insurance you just bought, are you? You are letting the actually delinquent party – your lawyer – off scot-free (your counterparty can’t sue your lawyer for (legally privileged) advice) and leaving your valued client – who is also, don’t forget, the only innocent party here – high and dry and without any legal recourse against anyone, while your lawyer laughs it up all the way to the bank. A grand an hour charge-out rates, right?

To say nothing of the perverse incentives this creates: in any time of doubt you run to matron for (most likely crappy) legal advice since every email, file note or memo, however misconceived or dunderheaded, functions like a cloak of mithril, protecting you from all pecuniary harm, parking all questions as to your culpability in arranging the advice, such as “was the legal advice negligent, or were you negligent, in the way you chose to frame it, implement it, or even understand it?

Cui bono?

Ask yourself who, principally benefits from this provision? Certainly not the client, and not really you either, since you enforce it on pain of sacrificing the commercial imperative to save your lawyer’s hide. Your lawy — ahhhh, that’s it! That’s who benefits from this nutty clause. Your lawyer!

And whose idea was this nutty clause, in the first place?

Let the record reflect a certain Mr L. Eagle, Esq. stepped forward at this point.

See also

• Allocation of legal fees
• Agency problem
• The commercial imperative. Never forget the commercial imperative.
• All our other counterparties have agreed this
• Legal eagle