Reliance on legal advice

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

The Agent May Consult with Counsel

The Agent 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 or in breach of contract 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, 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. That you did get advice may even be (weak) evidence that you discharged your duty of care and weren’t, factually, negligent.

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 and in rthe process causing your counterparty a loss, the answer is not to disclaim your liability to your counterparty: it is to sue 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 if the advice they give you makes a bish of things. By paying your lawyer’s bill you are paying your little portion of her insurance premium for doing you wrong. Why let her off?

In any case, think about it from your counterparty’s perspective. If you’ve buggered up, she’s lost money, you are refusing to make her good and letting your own (Q.E.D. negligent) lawyers off the hook then:

• 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 withdraw her business. This undermines the commercial imperative. The commercial imperative is the main thing keeping you in business.
• You really aren’t 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 it gave you, can it?
• You are therefore leaving your counterparty – who is also, let us not forget, the only innocent party here – high and dry and without any legal recourse against anyone and letting your lawyer laugh it all the way to the bank. A grand an hour charge-out rates, right?

Furthermore, this incentivises you to get (cheapest to deliver) legal advice all the time, since every email, file note or memo, however misconceived or dunderheaded, 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 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
• The commercial imperative. Never forget the commercial imperative.
• All our other counterparties have agreed this
• Legal eagle