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Are your insureds exposed to greater risks by ill-defined retainers?

We discuss a recent case, which explored whether the professional was under a continuing duty to detect a pre-existing error.

The scope and duration of retainers are recurring themes in professional negligence claims. The stakes are often high - where a claimant establishes that a duty of care spanned several years, it can operate to defeat a limitation defence. We consider the recent case of Honda Group-UK Pension Scheme Trustee Ltd v Mercer Ltd [2022] EWHC 3197 (Ch), which explored whether the professional was under a continuing duty to detect a pre-existing error and which serves as a helpful reminder of the importance of firms effectively delineating the boundaries of retainers.

Continuing duty of care: a recap

The general position adopted by the courts is that, ordinarily, professionals have no continuing duty to review their completed work for latent errors.

Honda Group-UK: an overview

In Honda Group-UK, the Claimants were the trustee, current principal, and participating employers of the Honda Group-UK Pension Scheme (“the Scheme”). The Defendants were pension advisers tasked with providing consultancy services to the Claimants. The Defendants recommended the drafting of a consolidating deed, to replace a deed drafted in 1986 by the Claimants’ previous advisers (“the 1986 Deed”). The Claimants accepted the Defendants’ proposed fixed fee of £12,000, for producing a first draft of the consolidating deed and having it checked by their in-house barrister. By a letter dated 29 April 1994, the Defendants attempted to limit the scope of their retainer, by specifically excluding the production of further drafts, attendance at meetings or lengthy negotiations but acknowledged that “.. a reasonable amount of negotiation...” would be included. 

The first draft of the deed was sent to the Claimants in October 1994 and considered at a meeting of the Scheme’s trustees in March 1995. The Defendants were asked to make a number of amendments, for which a time cost could be charged. The drafting then continued at a leisurely pace until ultimately, the third draft of the deed was executed on 10 December 1998.

The Claimants alleged that, during the course of drafting, the Defendants failed to notice an error in the 1986 Deed, which resulted in certain Scheme members receiving more generous benefits than intended (“the Error”).

The primary limitation periods in contract and tort had expired by the time that the Claimants issued proceedings. Therefore, the parties turned their attention to whether the Claimants could rely on a later date of knowledge, pursuant to Section 14A of the Limitation Act 1980, or whether the negligence claim would be statute-barred by reason of the 15 year long-stop in Section 14B. The relevant Claim Form was issued on 21 December 2009, more than 15 years after the first draft of the deed was sent to the Claimants but less than 15 years after the deed was eventually executed.

The Defendants applied to strike out the claim, on the basis that any operative act of negligence in relation to the Error occurred on or before 21 October 1994 i.e. when the first draft of the deed was submitted to the Claimants. Ergo, they argued that the claim would be defeated by the long-stop limitation period in Section 14B.

The matter came before The Honourable Mr Justice Trower, who dismissed the Defendants’ application. Setting out the critical basis of his decision, he observed,

“The case against them is not that they failed to revisit an issue. The case against them is that they had never considered it in the first place and that, until they did so, they were in continuing breach anyway to the extent that they were still engaged in the drafting process.”

The Defendants had also argued that the fixed fee work was a discrete part of the drafting exercise as their retainer contained a division between fixed fee work and work for which a time cost or other fee could be charged. The High Court rejected the Defendants’ submission, citing two predominant reasons. Firstly, the agreement was not clear as to the extent of work covered by the fixed fee element, in that it “..may well have..” allowed for some discussion and negotiation to take place before and after the first draft. Secondly, the fee-related issue did not deflect from the overarching task covered by the retainer, which was to produce a new consolidating deed, as opposed to simply a first draft. Consequently, Mr Justice Trower opined,

“I do not consider that such work as the defendants carried out on designing the structure of the 1998 Deed for the purposes of preparing its first draft ought to be treated as the completion of a task for these purposes. In my view, the claimants have a real prospect of success in their argument to the contrary.”

Take away points

Albeit in the context of an interlocutory decision, the Honda Group-UK case is a salutary reminder that, when considering whether there has been a continuing breach of duty,

“…the Court must determine objectively on the evidence when the task is completed depending on what the task is, viewed in the context of the parameters of the retainer.”

The critical point in Honda Group-UK was the distinction made between tasks that were completed and tasks that were in the course of being completed. Here, Mr Justice Trower distinguished the attempt in Capita (Banstead 2011) Ltd v RFIB Group Ltd [2015] EWCA Civ 1310, to impose liability on professionals for errors made in circumstances where they had completed a task, from the situation in Honda Group-UK, where failures occurred while the task was still being performed.

As the Court reaffirmed, each case is highly fact-specific and will be considered accordingly. Therefore, professionals ought to clarify any ambiguity in the scope of their retainer at the outset of a contractual relationship. This could be achieved by introducing a narrower wording into the retainer’s framework, alongside treating it as a live document for the purpose of responding to any case developments. By making small yet meaningful changes to the wording of a retainer, such as clearly outlining the circumstances and/or time frame that would constitute a task’s completion, this may help to diminish the prospects of a continuing duty of care being successfully made out.

Honda Group-UK also illustrates that professionals and their insurers should be especially cautious when relying on previously drafted documents, as any inherent errors could be costly if left unconsidered. Again, insurers would be well-advised to enquire of potential insureds as to their processes upon taking over an existing matter from previous advisers.

For further information on this case or guidance on professional negligence claims, contact our professional negligence solicitors.