Professional negligence – Solicitor – Duty of care – Claimant seeking damages for loss of opportunity to sell interest in development because of defendant’s alleged negligent advice – Defendant counterclaiming for unpaid fees – Whether defendant owing duty of care to claimant – Whether loss within scope of defendant’s duty – Claim dismissed – Counterclaim allowed
The claimant was a Jersey holding company involved in a substantial development project on a site on Bayswater Road, London, for 55 high-end residential apartments and ancillary retail, restaurant and other accommodation. It incorporated a Jersey sub-holding company (BRHL). Vacant possession of the site was to be secured, where necessary, by offering tenants of leasehold premises inducements to surrender their leases.
A dispute arose in connection with negotiations to secure vacant possession of a shop at 125 Bayswater Road, which was part of a larger building. The lease had six years to run and the tenant rejected the claimant’s inducements. A question arose whether the landlord’s repairing obligation under the shop lease (which required the main structure, in particular the roof void, to be kept in good and tenantable repair and condition) meant that demolition and replacement of the upper parts of the building with residential units would involve a breach of covenant.
Consideration was given to building around the shop to obviate the need to surrender the lease. When the tenant sought a declaration that a “build around” scheme would be a breach of its lease, a prospective purchaser of the claimant’s interest in the project withdrew. The claimant’s lenders then enforced their security, causing it to suffer a loss of £48m invested in the project.
The claimant claimed damages against the defendant firm of solicitors for loss of the opportunity to sell its interest in the development as a result of the defendant’s alleged negligent failure to advise it that a “build around” strategy carried a risk of infringing the shop lease. The claimant argued that the defendant had failed to exercise the standard of skill and care expected of reasonably competent solicitors. The defendant counterclaimed for unpaid fees.
Held: The claim was dismissed. The counterclaim was allowed.
(1) In determining the scope of duty and the extent of liability of professional advisers, where it was said that negligent advice was given pursuant to a contract between a solicitor and client for the provision of legal advice, the claimant had to ask: (i) whether the harm which was the subject matter of the claim was actionable in negligence; (ii) what were the risks of harm to the claimant against which the law imposed on the defendant a duty to take care; (iii) whether the defendant breached his or her duty by his or her act or omission; (iv) whether the loss for which the claimant sought damages was the consequence of the defendant’s act or omission; (v) whether there was a sufficient nexus between a particular element of the harm for which the claimant sought damages and the subject matter of the defendant’s duty of care; (vi) whether a particular element of the harm for which the claimant sought damages was irrecoverable because it was too remote, or because there was a different effective cause in relation to it or because the claimant had mitigated his or her loss or had failed to avoid loss which he or she could reasonably have been expected to avoid: Manchester Building Society v Grant Thornton LLP [2021] UKSC 20; [2021] PLSCS 108 and Meadows v Khan [2021] UKSC 21 applied.
(2) In a general sense, the advice in question arose out of unsuccessful attempts to persuade the shop tenant to surrender the lease. However, that did not mean that the advice was given “in relation to producing and negotiating vacant possession agreements”. Read fairly and objectively, and having due regard to the circumstances within which the engagement letter was agreed, that phrase envisaged a continuum of drafting and negotiation between the defendant and a tenant, or its lawyers, with a view to documenting an agreed surrender of a lease. The engagement was transactional.
The provision of the advice in question did not fall within that letter. The contract for the provision of the advice was constituted by means of a series of email exchanges and telephone calls and was between BRHL and the defendant, not the claimant. Even though it would have been preferable for the defendant to have a written engagement letter in place before providing the advice, for whatever reason, the desirability of the advice being given under a written engagement letter, or an oral variation of a written engagement letter, was simply overlooked at the time.
That conclusion was not altered by the fact that the defendant was aware that the shop tenant might be difficult. Producing and negotiating a vacant possession agreement with a difficult tenant fell within the scope of the engagement letter. However, providing advice when a difficult tenant indicated that it was unwilling to give vacant possession did not. Accordingly, the defendant owed contractual duties to BRHL, but not to the claimant in relation to the advice.
(3) Even if the defendant did owe such a duty to the claimant, it did not negligently breach any duty so owed. The defendant was to be judged by reference to the objective standard of a reasonably competent practitioner, not by reference to the standards of a particularly meticulous or conscientious practitioner. Since the defendant held itself out as having expertise in the specialist area of property litigation, it had to be judged by reference to the standard of a reasonable firm of solicitors with a department specialising in real estate litigation: Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] 384 (Ch) and Agouman v Leigh Day [2016] EWHC 1324 (QB) considered.
However, lawyers were not property developers. The defendant’s evidence that its understanding of a “build around” scheme, as a general concept, was as something that might or might not involve some element of demolition of the property being built around was a reasonable view for a specialist real estate lawyer to hold. While a property developer might have concluded that a successful “build around” would have to involve some element of demolition, at least of the roof of the building, the court was not satisfied that that would be obvious to a property lawyer.
(4) The claimant’s sole defence to the counterclaim relied on its argument that the defendant was negligent in the provision of advice. Since that argument failed, the defendant’s counterclaim succeeded.
Rupert Reed QC and Michael Walsh (instructed by Fieldfisher LLP) appeared for the claimant; Ian Croxford QC, Jamie Smith QC and Michael Bowmer (instructed by DWF Law LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Aurium Real Estate London Ultra Prime Ltd v Mishcon de Reya LLP
