Practising
surveyors and valuers, facing another rise in their professional indemnity
insurance premiums, may be forgiven for casting some envious glances towards
their neighbouring professionals. Quite apart from the anomalous immunity of
barristers in their conduct of litigation — an unfortunate anachronism which
will surely one day be swept away — there are more subtle ways in which the
judicial treatment of other groups seems rather more lenient than that handed
out to the professions of the land.
Take, for
instance, the case of solicitors. There is no doubt whatsoever that every
solicitor owes a duty to his client to exercise reasonable care and skill in
the conduct of his affairs. However, one of the features of a solicitor’s
negligence is that it can often lie for a long time undiscovered, surfacing
only when some subsequent transaction is carried out, and a series of decisions
on the limitation issues which this raises have greatly reduced the protection
offered to clients.
The latest
of these decisions is that of the Court of Appeal in Lee v Thompson
[1989] 40 EG 89. The plaintiffs in that case had in 1975, when they were living
as tenants in a particular house, retained the defendant solicitor to arrange
the purchase of the freehold. Whatever was done (and exactly what was done is
not clear, for the case was fought on a preliminary issue), the plaintiffs did
not get the freehold; unfortunately, however, this was not discovered until
1984, and in 1986 the plaintiffs started legal proceedings against the
solicitor, claiming that his negligence constituted both a breach of contract
and a tort.
The Court of
Appeal, not surprisingly, agreed with the trial judge that any contract claim
was long since barred by time (six years from the date of breach, which must
have been long before 1980). As for tort, the relevant six-year period began
when loss was suffered, and the trial judge had held that no such loss could be
quantified until 1984, when the truth finally emerged.
With this
conclusion the Court of Appeal disagreed, no doubt to the great relief of
solicitors everywhere. Relying on Forster v Outred & Co
[1982] 1 WLR 86 and Baker v Ollard & Bentley (1982) 126 SJ
593, the court held that the plaintiffs’ loss was suffered at the moment when
they failed to secure the freehold. At that moment their interest was less
valuable than it should have been (although they did not know this); time
accordingly began to run and had thus expired when their writ was issued.
Of course,
this case fell to be decided on the law as it stood prior to the Latent Damage
Act 1986, which now provides for a limitation period to begin only when the
plaintiff has actual or constructive knowledge of his loss. However, the Court
of Appeal also cast some doubt on whether even this would help a future
plaintiff in Mr Lee’s position, by resurrecting the old query as to whether a
client may choose to sue his solicitor in tort (doubts based on a decision of
the Court of Appeal which pre-dated Hedley Byrno & Co Ltd v Heller
& Partners Ltd [1964] AC 465 by a quarter-century!)
If
solicitors seem somewhat favoured, what are we to make of accountants? The Court of Appeal held in Caparo
industries plc v Dickman [1989] 1 All ER 798 that, where they are
responsible for auditing the accounts of a public company, they owe no duty of
care to persons who are not already shareholders but who invest in the company
in reliance on what those accounts contain. (If such an investor already held a
single share in the company, however, he would be owed a duty of care!) Caparo
is on its way to the House of Lords. However, whatever happens to it there, it
has already led to the conclusion that creditors of the company are unprotected
(Al Saudi Banque v Clarke Pixley (1989) 139 NLJ 1341) and sired a
decision by Popplewell J which must leave mortgage valuers, who are at risk
from house-buyers as well as from the lending bodies who instruct them, feeling
somewhat hard done by.
The
plaintiffs in Huxford v Stoy Hayward & Co (1989) The Times,
January 11, were directors, guarantors and shareholders of a company which had
been in sufficient trouble that its bankers had insisted that the defendants be
called in to investigate and report on its financial condition. Although this
report was both requested and paid for by the company (with copies to the
bank), it was held that the defendants’ only contract was with the bank and
that they owed no duty of care in tort to either the company or the plaintiffs.
Moreover, even when the company employed the defendants to continue to monitor
its activities, this did not establish any duty of care to the directors as
guarantors. Floreant accountants!
— length of term
One of the
very obvious factors which will affect open market rental value is the length
of the lease on offer. Where this is to be determined in the context of a rent
review it has to be borne in mind that, in reality, the tenant has the benefit
of only the unexpired term of his lease. Thus, at the final review, this
unexpired residue may well be only five years. However, if the unexpired
residue is the assumed length of term for the purposes of the review, then this
is sometimes perceived as having an unduly depreciating effect on rental value,
even though the valuer must take account, where appropriate, of the tenant’s
renewal prospects under Part II of the 1954 Act. Thus, many rent review clauses
seek to provide that it is to be assumed that the tenant has the benefit of a
new lease, equal in length to that originally granted. (Whether or not many of
the standard form rent review clauses achieve this objective is debatable in
the light of Ritz Hotel (London) Ltd v Ritz Casino Ltd — see
Legal Notes [1989] 14 EG 85.) Of course,
it is arguable that such an assumption is unfair on the tenant and there are
now clauses which endeavour to strike a balance by introducing the idea of a
notional length of term at the final review.
Whatever the
arguments, it is clear that a rent review clause should contain specific
provision as to the length of term. Unfortunately, a number of recent cases
have introduced uncertainty into this particular area. We have already alluded
to the Ritz case; there it was decided that a provision under which the
hypothetical lease was to be for ‘a term equal in length to the term hereby
granted’ did not mean for a new term of 21 years commencing at the
review date but meant a 21 year term commencing at the date on which the
original term was granted; a slightly different concept from a new term equal
in length to the unexpired residue, but obviously involving the same
prospective length of term. We have already expressed the view that, whatever
its merits, this is most unlikely to be what the parties intended.*
*On October 23, following a
settlement between the parties, both an appeal and a cross-appeal from the
decision of Vinclott J in the Ritz case were dismissed by the Court of
Appeal. Accordingly, Vinclott J’s view on the points of law remain undisturbed
and his judgment is published in Estates Gazette Law Reports [1989] 2 EGLR 135.
A recent
ruling by the Court of Appeal has added to the problems. In Toyota (GB) Ltd
v Legal & General Assurance (Pensions Management) Ltd [1989] 42 EG
104 the parties had negotiated two leases; one for a 16-year term commencing in
1973 and expiring in 1989, and the other for a 34-year term commencing on the
expiry of the first lease. It was accepted by both the trial judge and the
Court of Appeal that this lease structure was almost certainly adopted in order
to avoid stamp duty. The rent reviews in both leases were linked in that each
clause took the same basic form and were arranged so as to fall at five-yearly
intervals throughout the combined terms. Thus the final review under the first
lease was due in the penultimate year and the first review in the second lease
was scheduled for the fourth year of that term and every five years thereafter.
The problem
was caused by the fact that each review clause provided that the length of the
hypothetical lease was to be ‘equivalent in length to the residue unexpired at
the review date of the term of years hereby granted’.
Thus, at the
final review under the first lease, the tenant was able to argue that the rent
was to be determined on the basis of a one-year term, an advantage further
enhanced by another provision which required that any statutory provisions
conferring security of tenure were to be disregarded and by the fact that the
resultant rent was to be payable for the first four years of the second lease.
The trial
judge took the view that, however unjustly this provision might appear to
operate, the wording of the lease was so clear that the tenant’s contention
must be upheld. This has just been overturned on appeal. Although Nicholls LJ
accepted that the wording of the first lease was clear, he was prepared to
accept the landlord’s argument that it produced a sufficiently capricious
result for it to be justifiable to imply a further provision in the lease in
order to avoid this.
He was
satisfied that the overall context in which the two leases were negotiated was
such that, stamp duty advantages apart (and even these were aimed at benefiting
the tenant), they were intended to function as a single lease for a 50-year
term with five-yearly reviews. The parties must have intended that the rent
should be determined on the basis of the unexpired residue of the overall term
and it was not necessary to produce this result by requiring the parties to
seek rectification; it should be achieved by implying the necessary amendment.
Irrespective
of the merits of the case, this is not a decision which can be unequivocally
welcomed. Not so very long ago we were criticising the courts for taking too
literal a view of rent review clauses and of ignoring commercial realities, the
Arthur Young case being the classic example. To carp now at what can be
described as a robustly sensible approach may appear doubly unfair.
Nevertheless, there is something disturbing about the sight of judges rewording
contracts which are abundantly clear, other than through the more rigorous
process of rectification.