Defendant solicitor failing to inform claimants’ solicitor of contract race in breach of r 6A(2) of Solicitors’ Practice Rules 1990 – Claimants losing opportunity to buy property for development – Measure of damages – Whether claimants entitled to damages for lost profits – Whether claimants only entitled to wasted expenses – Judge awarding damages of wasted expenses – Appeal dismissed
In 1995 Bildestan Parish Council instructed C, a solicitor working in the defendant’s Sudbury office, in connection with the planned sale of Dukes Hall, Bildestan. In October 1995 C issued a contract of sale to H, who had expressed an interest in purchasing the property, but the matter did not proceed further.
In early March 1996 the claimants became interested in purchasing the property for development purposes. They instructed S, of the defendant’s Braintree office, to act in any conveyancing transaction that might ensue. On 3 May 1996 the claimants delivered to S a signed contract and three personal cheques for the 10% deposit on the purchase price, agreed at £67,500. On 9 May, however, H telephoned C to inform him that contracts could be exchanged immediately with a very quick completion date. C then spoke to the council and was instructed to “go ahead with the first purchaser who could exchange”. The following day C inquired of S whether his clients were ready to exchange contracts, but did not mention to S that there was now a “contract race”. S told C that the bank had not yet confirmed that the claimants’ deposit monies had cleared. C exchanged contracts with H later that day, and the transaction duly proceeded to completion.
The claimants issued proceedings claiming damages for loss of profit in the sum of £95,000, on the ground that the defendant had acted in breach of r 6A(2) of the Solicitors’ Practice Rules 1990 (as amended) in failing to inform them about the contract race. The judge found that if the claimants had been informed of the contract race, they would have won it and succeeded in acquiring the property. He held that C was in breach of r 6A(2) and that he was thereby in breach of a duty of care owed to the claimants. The claimants’ action in negligence accordingly succeeded. In assessing damages, the judge considered Lord Hoffman’s judgment in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 and rejected the claim for lost profits, holding that the claimants were only entitled to recover their wasted expenses as defeated purchasers, namely the conveyancing fees retained by the defendant. The claimants appealed on the damages issue.
Held: The appeal was dismissed.
1. The purpose of r 6A(2) was to alleviate the risk that a prospective purchaser, who had agreed a price subject to contract, would proceed towards an exchange of contracts in the belief that there was no other prospective purchaser in competition with him and with whom the vendor was dealing. If he was informed of another prospective purchaser under the rule, he would then be able to take an informed decision in the knowledge that the solicitors were dealing with another purchaser. In those circumstances, any loss that could be claimed by the prospective purchaser as a result of a breach of the rule would have to be attributable to his inability to take a decision that he would have made had he known of the second prospective purchaser.
2. Had the claimants known of the contract race, they would have been able to exchange contracts to purchase the property at £67,500. That opportunity had been lost as a result of a breach of the rule. The development value was something that a valuer would take into account when fixing the market value of a property. Unless the claimants could show that the price they would have paid was less than the open market value, they had not suffered any loss. They had simply missed the opportunity to purchase a property at open market value, and they could have used the money intended for that purchase in acquiring another development property instead.
Since there was no evidence that the open market value was anything greater that £67,500, the claimants were not entitled in law to damages for lost profits: Thames v Rice unreported 21 December 1999 distinguished.
Geraint Jones (instructed by Stonehams, of Saffron Walden) appeared for the claimants; William Flenley (instructed by Mills & Reeve, of Norwich) appeared for the defendant.
Thomas Elliott, barrister
