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Conflicts of interest and limitations of liability

23/04/10

Mr Justice Vos considered an interesting question concerning conflicts of interest and determined the reasonableness of a limitation of liability in Dennard and others v PricewaterhouseCoopers [2010] EWHC 812 (Ch).

The case concerned a valuation of shares which the claimant vendors alleged was too low, leading them to sell their shares at an undervalue. The Judge found that the valuation was slightly too low and awarded damages for the loss of a chance to negotiate a higher sale price. The damages were a small fraction of those claimed and were less than the Part 36 offer made by the defendant accountants.

The claimants also alleged that the defendant was affected by a conflict of interest because it hoped to gain work from the buyer of the shares after the transaction and therefore had an incentive to ensure that the buyer obtained the shares at a favourable price. The Judge pointed out that professionals frequently attract future work from parties on the other side of a transaction, but they do so by doing a good job, not by breaching their duties to their existing client. Nonetheless, if the buyer had positively promised the defendant future work if the sale went ahead, this could have amounted to a conflict of interest. The question was whether there was "perverse incentive to achieve a result that may be at odds with the interests of their client". On the facts of the case, there was no perverse incentive and therefore no conflict existed.

Mr Justice Vos also concluded that the accountants' limitation of liability to the greater of £1 million or five times fees met the requirement of reasonableness under the Unfair Contract Terms Act 1977. In fact, the limitation did not bite because the liability for loss of a chance was in any event below the limit.

The judgment is here.

Simon Salzedo was junior counsel for the defendant accountants at the trial and argued the conflict of interest issues.