Professional negligence – Solicitor – Causation – Claimant bringing claim for damages against defendant solicitors for professional negligence relating to advice regarding option agreement – Whether defendant failing to advise claimant as to legal implications of taking option to purchase shared in company owning land rather than option to purchase land itself – Whether claimant showing causation – Claim dismissed
The defendant solicitor acted for the claimant property developer in relation to an option agreement concluded between the claimant and the trustees of a company pension scheme in relation to the acquisition of land adjacent to the High Street in Dartford, Kent. The option land comprised a parcel owned by a holding company and a neighbouring house owned by the parents of one of the trustees. As finally concluded, the option took effect as a right to acquire the house and to acquire the entire share capital in the holding company of the other parcel of land.
Before the claimant could exercise the option, the holding company went into liquidation and its shares were sold to a third party by the liquidator. The claimant developer brought a claim against the defendant for professional negligence, contending that the defendant should have advised him of the significance of taking an option over the shares in the holding company rather than over the parcel of land itself. He argued that, had he been properly advised, he would have insisted on an option over the parcel of land itself, which would have given rise to a proprietary interest in the land which he could have enforced against the liquidator, rather than taking an option in the shares, which, by virtue of section 88 of the Insolvency Act 1986, was liable to be defeated by the insolvency of the holding company. The claimant sought to recover damages for loss of the profit that he would otherwise have made from an onward sale of the land or from developing it himself. Although he had managed to negotiate compensation of £100,000 with the liquidator, he alleged that his actual losses were substantially greater. The defendant disputed liability and further argued that, even if it had acted negligently, its actions had caused no loss to the claimant.
Held: The claim was dismissed.
(1) The legal executive at the defendant firm who had conducted the transaction on the claimant’s behalf had fallen below the applicable standard by failing to appreciate both the difference between the two types of option and that he did not have the requisite experience to continue acting in the transaction. It was incumbent on a reasonably competent solicitor to ascertain whether the claimant understood the true nature of the transaction and its effect and, if not, to correct any misunderstanding. Although the claimant was an experienced and sophisticated property developer, it was clear from the correspondence that he had not appreciated that the option agreement did not extend to, or confer any interest in, the land itself. The legal executive had failed to remedy his misunderstanding. It followed that the defendant firm had acted in breach of its retainer and had been negligent.
(2) It was incumbent on the claimant to show what action he would have taken to avoid the loss if the proper advice had been given. On the evidence, even if the legal executive had not acted negligently in giving advice, the claimant would still not have taken an option to acquire the parcel of land at the specified price instead of entering into the option to acquire the shares. Nor was there any reason to believe that the sellers would have agreed to such an arrangement. Moreover, the claimant had sought and failed to obtain a reduction in price and he had decided that proceeding with the transaction might not be commercially viable for commercial reasons that were independent of the difficulties created by the holding company’s liquidation or the fact that his option was over the shares rather than the land itself. Accordingly, the claimant’s claim on causation failed.
(3) In any event, the claimant had not established that he had lost any profit from a possible resale of the parcel of land. His alternative claim, for loss of profits based on an ability to develop, was too speculative to provide a basis for a claim to damages, particularly in a situation where the cost of exercising the option was more than the value of the land to be acquired. It was difficult to see any reasonable commercial developer purchasing the parcel for development in those circumstances. The claimant had therefore failed to prove that he had suffered any loss or damage.
Thomas Williams and James Hannant (instructed by Foot Anstey LLP) appeared for the claimant; Joshua Munro (instructed by Caytons Law) appeared for the defendant.
Eileen O’Grady, barrister
