Council-owned airport business fails in negligence claim against Eversheds

An airport operator that is majority-owned by seven local authorities in the North East of England has failed in a negligence claim against Eversheds.

Newcastle International Airport Limited (NIAL) – which is 51% owned by councils in the region – sued the law firm for alleged negligence in relation to new service contracts between the company and its two executive directors entered into in 2006.

The executive directors – CEO John Parkin and finance director Lars Friis – received more than £8m for securing a £377m refinancing deal with the Royal Bank of Scotland the same year. The bonus payments were subsequently lowered.

NIAL argued that Eversheds should not have accepted instructions from the executive directors.

However, the judge, Mrs Justice Proudman, concluded that the company suffered loss because of failings on the part of its non-executive directors. Members of the remuneration committee did not read papers sufficiently carefully, she found.

Mrs Justice Proudman criticised the chair of the committee in particular. “Although she is an honest person, she plainly has what the defendant has rightly termed ‘a blindspot of massive proportions’ as to her role as chair of the remuneration committee and its significance,” the judge said.

“An important part of that role was to ensure that new contractual provisions affecting executive directors were subject to independent scrutiny by the remuneration committee.”

Mrs Justice Proudman said she accepted Eversheds' submissions that it had acted in good faith on the basis of instructions which it was entitled to accept.

“I accept that this was not a case where Eversheds treated Mr Parkin in his personal capacity as the client,” the judge added. “It followed his instructions because he was clothed with apparent authority and Eversheds had no reason to believe that any of his instructions were unauthorised.”

The judge also concluded that even on NIAL’s case as to duty of care, any advice which Eversheds might reasonably have been expected to give the chair of the remuneration committee would not have been heeded as she did not read legal advice.

According to Mrs Justice Proudman, “the real reason that NIAL suffered loss was because its non-executive directors failed to carry out their obligations to NIAL”.

The company told The Journal in Newcastle that it respected, but was disappointed with, the ruling. It is considering an appeal.

Eversheds welcomed the ruling. A spokeswoman for the firm said: “The judgment clearly states that Eversheds acted in good faith on the basis of instructions which it was entitled to accept. Furthermore it adds that the real reason Newcastle Airport suffered loss was because its non-executive directors failed to carry out their obligations to the company.

“All of our lawyers are trained to and do deliver work of the highest quality. We hope that this now concludes this matter.”