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, 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 causing your client a loss, the answer is not to disclaim your liability to your client: 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 client’s perspective. If you bugger up, the client loses money, and there you are not only refusing to make your own client good but also giving your own (Q.E.D. negligent) lawyers off their own hook (to you) and then you ask the client to wear it, then:

• You will still have a pissed-off client. Make no mistake about that. They will think you are a moron. They may withdraw their business. This undermines the commercial imperative. The commercial imperative is the main thing in your 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 client can hardly sue your lawyer for (legally privileged) advice it gave you, can it?
• 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 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 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 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?

See also

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