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Divorce can be painful.

Shepherd Construction Ltd v Pinsent Masons LLP is a salutary reminder to all that when relationships break down, the resulting mess can be very expensive to sort out. Shepherd and Masons had worked together for over 20 years before this dispute.

Shepherd sustained losses whilst working on the Trinity Walk shopping centre when The Employer, Trinity Walk Wakefield Ltd went into administration in 2009. Shepherd elected to rely on its non-standard pay-when-paid clause in the various sub-contracts entered on the project to try to avoid making payments to it sub-contractors.

The pay-when-paid provision had been drafted some time in 1998 by Masons on the DOM/1 and DOM/2 forms of sub-contract, to address the effects of The Housing Grants Construction and Regeneration Act 1996. The relevant amendment drafted by Masons provided that Shepherd would be entitled to operate a pay-when-paid provision in circumstances where Shepherd’s Employer became insolvent. The clause stated “a company becomes insolvent (a) on the making of an administration order against it under part II of The Insolvency Act 1986”

Long before Shepherd commenced work on the project in 2007, The Enterprise Act 2002 came into effect. It introduced a new method of allowing a company to enter into administration by its directors passing a resolution to do so and it was this route that Trinity used  in 2009.

The result was that Shepherd was unable to rely on its pay-when-paid provision with several of its sub-contractors. The route of entry into administration by Trinity was not addressed in Shepherd’s pay-when-paid provisions and Shepherd was ordered to pay out over £10,000,000 to its sub-contractors.

Shepherd sued Pinsent Mason LLP arguing that it, and/or its predecessors, negligently failed to advise of the need to update its standard amendments in order to address the effects of the Enterprise Act. Shepherd effectively alleged Pinsent Masons LLP was under an ongoing duty to advise Shepherd where subsequent changes in legislation affected earlier advice Masons and/or Pinsent Masons had given.

Akenhead J found no evidence of “some overarching general retainer” requiring Pinsent Mason LLP to continually review all of its previous advice. I am sure I am not the only adviser that breathed a sigh of relief on reading this judgement. But this is only just the first round. The war continues and both parties will continue to incur considerable legal costs in the continuing battles ahead.

I understand that the Parties followed the pre-action protocol and met to narrow the issues in dispute but I cannot help but wonder if these old friends truly tried to talk this through before retreating to their corners? Had they done so, perhaps this long-standing friendship could have been saved and this very public, painful and expensive divorce could have been avoided.