Reliance Upon Legal Advice
Reliance Upon Legal Advice is an interesting proposition given “lawyers rarely give unequivocal advice” as everyone knows, said Lord Justice Lewison in the case of Allen t/a David Allen Chartered Accountants v Dodd & Co Ltd  EWCA Civ 258 (“David Allen v Dodd”).
I am going to compare and contrast the reliance upon legal advice in David Allen v Dodd with the incredibly fascinating case of Top Brands Ltd & Ors v Sharma & Ors  EWHC 2753 (Ch).
In David Allen v Dodd an interesting battle sprouted between two accountancy firms over the services of Mr Pollock. Mr Pollock appears to have been employed to prepare tax returns. He left David Allen and joined a competitor, Dodd & Co (“Dodd”).
His employment contract had restrictive covenants. Dodd took legal advice on them and was informed some of them were unlikely to be enforceable. A contested hearing of the matter led to the Court suggesting otherwise.
The Court of Appeal had to consider if Dodd had a liability in tort for procuring a breach of Mr Pollock’s contract.
The question it would seem is whether Dodd knew it was inducing a breach of contract. Dodd took legal advice so the matter at large was certainly considered; it had not entered into the matter blindly.
What is interesting is when reliance upon legal advice can be ever so helpful and when it cannot be quite such a saviour, such as in the matter of Top Brands Ltd & Ors v Sharma & Ors  EWHC 2753 (Ch).
In David Allen v Dodd, Lord Justice Lewison said about reliance upon legal advice:
” It must, I think, also be borne in mind that part of the policy underlying the restricted version of the tort as explained both in OBG and Meretz is that people should be able to act on legal advice, responsibly sought, even if the advice turns out to be wrong. As everyone knows, lawyers rarely give unequivocal advice; and even if they do the client must appreciate that there is always a risk (or in Mr Stubbs’ word, “a chance”) that the advice will turn out to be wrong. Although this case arises in the context of restrictive covenants in contracts of employment, it is important to remember that the tort of inducing a breach of contract applies to all sorts of contracts across the whole spectrum of commercial endeavour. While there may be relatively clear guidelines about the enforceability of restrictive covenants, those guidelines are absent in other fields of commercial activity. It is also important to bear in mind that the knowledge in question is not simply knowledge of a fact; but knowledge of a legal outcome. That is often hard to predict, as the constant diet of contested breach of contract cases in our courts demonstrates. To insist on definitive advice that no breach will be committed would have a chilling effect on legitimate commercial activity.“
“Mr Stubbs argues that this will encourage people to obtain bad advice, and unfairly disadvantages a person who obtains correct advice; or unfairly advantages a person who is advised that there is a risk of breach, but nevertheless ignores the risk or decides to take it. As far as the first part of this argument is concerned, I consider that it has already been answered by OBG. If the defendant honestly believes that the act that he procures will not amount to a breach of contract, he is not liable in tort even if his belief is mistaken in law. I cannot see that it matters whether a defendant’s erroneous belief is caused by his own ignorance or by the incorrect advice he receives from his lawyers. As far as the second part of the argument is concerned, I do not consider that it adds to the argument that I have already rejected.“
This led to the Appeal being dismissed.
Top Brands v Sharma
That position was subsequently upheld by the Court of Appeal in Sharma v Top Brands Ltd & Ors  EWCA Civ 1140.
Mrs Sharma was the party held to be liable for loss that she was deemed to have caused when she made various payments of liquidation monies (“the Payments”). She took legal advice with regard to the Payments. Her reliance upon legal advice argument was summarised by His Honour Judge Simon Barker QC:
“Put shortly, GS’s defence is that, at the time, she believed (1) based on legal advice from an experienced insolvency lawyer at Gateley LLP (respectively “KT” and “Gateley”), that the Sum was subject to a Quistclose trust in favour of a customer of MML, SERT-MST PLC (“SERT”), and (2) that the transferees were nominees of SERT. GS maintains that, at the time, it was reasonable for her so to believe.”
However, compared to the David Allen v Dodd case in which Lord Justice Lewison referred to legal advice “responsibility sought“, in Top Brands v Sharma it might be troublesome to suggest that such a concept could be readily applied.
His Honour Judge Simon Barker QC considered the way that Mrs Sharma had ascertained the legal advice upon which she was seemingly placing some reliance concerning the making of the Payments and he characterised it in what might reasonably be considered somewhat colourful terms as follows:
“Both of the above statements by GS were untrue. At this point, GS was at the helm of a vessel holed below the waterline; she had several times radioed the coastguard for directions to the nearest harbour but had not checked and had repeatedly misstated her position and her bearing, in consequence the course given was a course further out to sea; and, she was unaware of the state of the vessel because she had not looked below deck or noticed that it had ever decreasing freeboard, rather she continued to rely on the assurance of an owner, who had lately taken to a lifeboat, that the vessel was seaworthy.”
“On my findings, the Sum, which should have been available for distribution to creditors, was paid out in two tranches by GS to third parties in circumstances where, (1) inadequate steps were taken by GS to ascertain MML’s state of affairs at liquidation, (2) inadequate, if any, consideration was given by GS to the material available as to MML’s trading, assets and liabilities, (3) no attempt was made by GS to obtain important missing information, (4) inadequate instructions were given by GS to the solicitor, KT, who advised that repayment could be made, (5) inadequate thought was given by GS to new circumstances and evidence as they presented themselves to GS, (6) inadequate enquiries were made by GS as to the payees of the Sum before payment, and (7) GS failed to notice, before making payments out, that the indemnity in fact obtained was not in the required form“
Consequently it does not appear that the legal advice assisted Mrs Sharma’s defence.
It would appear that reliance upon legal advice seems to require that it must be ‘responsibly sought’ to be relied upon in a defence.
Disclaimer: The comments in this post are not legal advice and ought not be relied upon as such. No liability is accepted by the author for any reliance placed upon the same. You should seek independent legal advice to consider the discrete facts of your scenario.