Insurance Post

Digital relief

Professional indemnity insurers have been spared a multi-million pound bill following a High Court decision in The Football League v Edge Ellison. Sarah Clover and Bob Beauchamp explain

The High Court decision of Mr Justice Rimer handed down last Friday in the case of The Football League v Edge Ellison is good news for professional advisers and their insurers.

The importance of the decision is that it deals with the difficult question of the scope of professional duty, if any, outside the express terms of retainers.

While determination of this issue is intensely fact specific, the Court upheld the principles that there is no such thing as a general retainer and it is only in limited circumstances that a solicitor's duties go beyond the express terms of their retainer.

The question here is whether in the particular circumstances it was necessary to imply the relevant duty in order to give effect to the presumed intention of the parties.

Football League tender

In the beginning of 2000, the Football League put out to tender its broadcasting rights. This process was conducted by the League's Commercial Committee, which is a group of professionals chosen for their business acumen.

The Football League appointed various external advisers to assist in the tender process, including Edge Ellison to provide legal advice and Active Rights Management to conduct the commercial negotiations via its owner and principal, Stephen Townley.

Several broadcasters were interested in bidding for the rights, and in particular Sky, the BBC and ITV Digital (then known as Ondigital).

ITV Digital was a relatively new company and a joint venture between its ultimate parents Carlton and Granada, and it was their flagship venture into the field of digital broadcasting.

The market for the rights was complicated because many of the broadcasters were also bidding for the Premier League rights and there were several rounds of bidding.

The "auction" came to a head on 14 June 2000 when the rights for Premier League matches were sold and Mr Townley gave the four broadcasters still interested in the Football League's rights 24 hours to submit their final bids.

Only ITV Digital submitted the bid by the deadline, so a deal had to be closed immediately before it realised that it had no competition and the market collapsed.

The final negotiations took place in an evening meeting on 15 June 2000. Mr Townley negotiated a fee from ITV Digital of £315m for a three-year contact despite the fact that at that time ITV Digital was - unbeknown to itself - the only remaining bidder.

The short-form contract was signed, having been approved and in part drafted by Edge Ellison. It did not include Carlton or Granada as parties and there was no separate agreement with Carlton and Granada guaranteeing ITV Digital's obligations.

Although the subsequent negotiations intended to lead to a long-form agreement, no such agreement was signed.

The bid document submitted by ITV Digital on 7 June 2000 contained the following sentence: "Ondigital and its shareholders will guarantee all funding to the Football League outlined in this document."

In subsequent litigation, the Court heard the Football League's argument that Carlton and Granada had guaranteed Ondigital's obligations under the contract. ITV Digital's evidence, however, was that this sentence was not intended to be a formal offer of guarantees.

As is well-known, ITV Digital got into financial difficulty and went into administration in March 2002, owing £178.5m under the broadcast rights contract.

Legal action launched

In September 2004, having failed in its action against Carlton and Granada, the Football League launched a £140m action against Edge Ellison, which had merged with Hammond Suddards - now Hammonds.

There were several allegations outlined by the Football League. Firstly, that Edge Ellison owed a duty to the Football League to obtain its instructions as to whether it wanted parent company guarantees as part of the contract.

Secondly, it was alleged that Edge Ellison was expressly instructed that the commercial committee considered that financial security was an essential part of the transaction.

Finally, it said that Edge Ellison should have raised the issue of parent company guarantees on or after 7 June 2000 on the basis of the wording in the bid document, which suggested that Carlton and Granada might be prepared to provide parent company guarantees.

As such, Mr Justice Rimer ruled that the Football League's claim failed. As to the first allegation, he held that the solicitor in this case had no duty to point out to the Football League matters of which they were already aware.

This ruling was despite the fact that - following the principle set out in the case of Pickersgill v Riley [2004] PNLR 31 - a solicitor has a duty to point out to their client any "legal obscurities" or "hidden pitfalls" they come across in the course of their work.

The commercial committee members were experienced in matters of business and were well aware of the potential risks of corporate insolvency and the benefit of parent company guarantees. It was not part of Edge Ellison's duty to prompt the commercial committee to consider the question of bidder solvency.

The judge rejected the evidence of Football League witnesses that the committee intended that guarantees should be sought. He found that the Football League took the commercial view that it was content to deal with ITV Digital and that it was apparent that at no time was Edge Ellison instructed to obtain security of the parent company guarantees.

The judge did, however, find that although Edge Ellison had not been provided with a copy of the bid document until after the short-form contract was signed, the solicitors should have asked for a copy on the evening of 15 June because the document was referred to in the short-form agreement upon which the solicitor was advising.

Having seen the document, he should have picked up the possible suggestion that Carlton and Granada would give parent company guarantees but had he done so, the Football League would not have insisted on guarantees, which would have delayed the signing of the contract.

Further, the judge found the solicitor should have picked up the bid document reference during the course of the negotiation of the long-form agreement. However, had he done so this would not have resulted in Carlton and Granada providing parent company guarantees. He awarded £4 nominal damage in respect of these breaches of duty.

The decision makes it clear that the Court will keep the implied duties of solicitors within narrow bounds.

Had the case succeeded, it would have been open to argument by claimants that a solicitor is obliged - in the judge's words - to "review the whole range of commercial considerations that underlie a particular deal, work out which ones he is concerned the client may not have given sufficient thought to and remind him about them".

The judge emphatically held that the solicitor had no such duty. Similar principles will apply to the professional activities of others, such as accountants, actuaries and property professionals.

- Sarah Clover is head of solicitors' liability and Bob Beauchamp an associate at City law firm Barlow Lyde and Gilbert. Both represented Hammonds.

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