Claimants instructing solicitors in relation to purchase of inn – Claimants subsequently informing solicitors of wish to abandon purchase – Solicitors suggesting claimants buy into partnership in hotel business – Solicitors themselves partners in hotel business – Whether solicitors negligent for failing to advise claimants to seek independent advice – Judge dismissing claim – Appeal allowed
The claimants wished to purchase a pub called the Moorcock Inn at Egglestone, County Durham, for £150,000. They instructed the defendant solicitors who had not previously represented the claimants. The claimants were not aware that the solicitors were in partnership with two others in a hotel business at Castle Hotel, Brough. At a meeting on 24 February 1988 (the meeting), the claimants told the solicitors that they had decided not to proceed with the purchase of the inn. The negotiations were ended by a letter sent by the solicitors the following day, and the papers were returned.
The solicitors had told the claimants about the hotel business and had suggested that they might like to buy into the partnership. The claimants visited the hotel, and, in February and March 1988, four further meetings took place. The solicitors drafted a partnership deed, but did not insist that the claimants obtain independent advice. On 22 April 1988 the deed was signed, and it was agreed that the claimants would: introduce £40,000 into the partnership for a half-share in it; manage the business; live on the premises; draw a combined weekly gross salary of £250; and receive half of the profits. However, by the winter of 1989/1990, trade at the hotel had decreased and the business began to run into trouble. The partnership was dissolved with effect from 9 December 1990.
The claimants issued proceedings claiming damages, on the basis that they had entered into an oral contract with the solicitors “to provide advice over the purchase of an hotel business and specific advice over the purchase of a business at the Moorcock Inn”, and that, in breach of that retainer the solicitors had negligently failed to advise them to seek independent advice. The judge held that: (i) the solicitors’ retainer was for a specific piece of business, the purchase of the inn, which came to an end during the course of the meeting; (ii) by the time the discussion turned to the hotel, all that was left of the retainer was the duty to write a letter to the vendors of the inn and to return the papers; (iii) the discussion of the hotel partnership was a fresh and independent piece of business, introduced by the solicitors in circumstances that were not those of a solicitor/client relationship in which the solicitors owed duties to the claimants; and (iv) there was no assumption of responsibility so as to lead to a duty of care in tort. The claimants appealed.
Held: The appeal was allowed.
The judge had erred in holding that no duty was owed by the solicitors. A relationship of trust and confidence had existed between the claimants and the solicitors and that relationship had not ceased upon the termination of the retainer in respect of the intended purchase of the inn. During the course of that relationship a personal business opportunity had presented itself to the solicitors, and they had taken advantage of that opportunity to propose the hotel partnership to the claimants. The proposal had given rise to a situation in which the duty of the solicitors conflicted with their personal interest. In continuing to deal with the claimants in a situation of conflict between duty and interest, and failing to insist that the claimants obtain independent advice, the solicitors had acted in breach of their fiduciary duty. It was clear that the claimants had suffered substantial loss as a result of this breach, and that, if the solicitors had not acted in breach of duty, the claimants would have taken independent advice, and, on balance, would have withdrawn from the partnership proposal. Accordingly, the matter was to be remitted for the amount of compensation to be assessed.
Gregory Pipe (instructed by Suttons, of Durham) appeared for the appellants; Christopher Gibson QC and Ulick Staunton (instructed by Crutes, of Newcastle-upon-Tyne) appeared for the respondents.
Thomas Elliott, barrister
