LAWYERS’ LIABILITY UNDER CROSS-BORDER TRANSACTIONS – BY FRANCOIS TERBLANCHE
It may be a cliché but it is certainly true – the world of commerce is increasingly becoming a global village. Technological advances such as instantly transmitted electronic drafts of agreements have made the commercial practitioner’s world faster and more challenging. Cross-border transactions between entities in different jurisdictions are part of the commercial practitioner’s everyday life. It is an aspect of commercial practice which is both exciting and challenging. It also poses its own unique complications as far as the commercial practitioner’s potential civil liability is concerned.
This article highlights some unique aspects of commercial practitioners’ potential civil liability under cross-border transactions. It does not consider the implications of the relevant rules of professional conduct. It also focuses only on certain Commonwealth common law jurisdictions. For simplicity’s sake, these jurisdictions’ practitioners will be referred to as “solicitors”.
It is an implied contractual term of a solicitor’s retainer that he will perform the client’s legal work with reasonable skill, care and diligence. A solicitor whose performance falls short of this standard could therefore be liable in contract to his prejudiced client. Somewhat confusingly, the courts have held that a solicitor also owes a duty of care to his client and can therefore be concurrently liable to his client for the tort of negligence.
A solicitor who advises on multi-jurisdictional transactions therefore finds himself potentially liable to his own client both in contract and in tort. He is also potentially liable for the tort of negligence to participating third parties on the basis that he may, in certain circumstances, owe a duty of care to other transactional parties.
The cross-border transactional solicitor holds himself out to his clients as having adequate skill and knowledge to properly advise on that transaction. This representation can be problematic. A solicitor should obviously resist the temptation to advise on a cross-border legal system in which he is not qualified. Client-driven cost concerns may, however, place the solicitor under severe pressure to advise on a legal system which “looks” almost indistinguishable from his own but which contains lurking, inconspicuous pitfalls. Obviously this is a position which the solicitor should avoid, if at all possible.
Solicitors normally deal with this predicament by either instructing a locally qualified correspondent or, in case of international firms, by using their local branches, if available. Even then the solicitor is not yet out of the danger zone – he must consider carefully whether he should instruct the correspondent himself or whether he may convey the instruction on behalf of his client. The obvious danger of the solicitor instructing the correspondent himself is that the solicitor can be held to have represented to the client that the correspondent has the required levels of skill and knowledge.
The solicitor may reduce his potential liability exposure by clearly defining the respective areas of responsibility at the outset of the matter. His client care letter or letter of engagement is a convenient medium within which to do so. He should clarify both the identity of the solicitor who advises on each legal system and the exact scope of the requested advice. For example, does a proposed legal due diligence on a target company include an analysis of its tax affairs? It may also be good practice to constantly verify that the nature and scope of the solicitor’s proposed involvement are covered by his professional indemnity insurance policy.
Perhaps the biggest danger of advising on cross-border transactions is for the solicitor to assume that the jurisdictions’ systems have roughly the same concepts and doctrines, even if known by different names. The correspondent’s advice must be considered carefully and the solicitor should constantly confirm the correctness of any underlying assumptions on his part.
Solicitors have been held to owe a duty of care to non-clients under certain circumstances. An interesting question under cross-border transactions is whether a solicitor sometimes owes a duty of care to the solicitor against whom he acts. For example, can the solicitor keep silent when his opponent is qualified in a different jurisdiction and clearly misunderstands a relevant legal principle from the solicitor’s own legal system? This obviously triggers questions of professional conduct.
Regrettably one cannot explore the highlighted aspects, particularly the exposure reducing measures, fully within the scope of this article. Multi-jurisdictional advice remains an interesting and challenging field. It is also one in which participating solicitors should remain mindful to apply good practice, to take appropriate exposure reduction measures and to apply the applicable rules of professional conduct.
Francois Terblanche
Solicitor of England and Wales and Attorney of the High Court of South Africa