Reliance on legal advice

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

The Custodian May Consult with Counsel

The Custodian will be entitled to rely on, and may act upon the advice of professional advisers in relation to matters of law, regulation or market practice, and shall not be deemed to have been negligent with respect to any action taken or omitted pursuant to such advice.

Have no truck with this nonsense.

No one is stopping you getting whatever advice you want to, on your dime. It’s a free country. And no one is stopping you relying on whatever advice you get. That’s a custodian’s prerogative. Factually, that you did get advice may even be (weak) evidence to suggest you have discharged your duty of care. But on your head be it.

Folks, it’s like this: If you choose to get legal advice, but it’s wrong, and you rely on it, and you end up breaching your contract causing your client a loss, the answer is not to disclaim your liability to your client. It is to sue the arse off your lawyer. That’s what you pay the blighters for: so they, and that juicy professional indemnity insurance policy they never seem to claim on, will cover your poor, huddled self. By paying your lawyer’s bill you are paying your little portion of that insurance premium.

Think about it from your client’s perspective. If you let your lawyer off their negligence and ask the client to wear it, then:

1. You will still have a pissed off client. Make no mistake about that. This undermines the commercial imperative.
2. You really aren’t getting good value out of that indemnity insurance you just bought, are you?
3. You are letting the actually delinquent party – the lawyer – off scot-free: your client can hardly sue your lawyer for advice it gave you.
4. You are therefore leaving your beloved client – who is also, let us not forget, the actual, innocent party – high and dry and without any legal recourse against anyone.

Furthermore, this incentivises you to get (cheapest to deliver) legal advice all the time, since every email, file note or memo, however misconceived or dunder-headed, functions like some kind of cloak of mithril, protecting you from all pecuniary harm, at the same time 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 understood 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. The lawyer!

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

See also

• The commercial imperative. Never forget the commercial imperative.
• All our other counterparties have agreed this
• Legal eagle