Professional negligence – Loss of chance – Damages – Claimant seeking damages against defendant firm of solicitors alleging professional negligence in connection with property transaction – Whether defendant being negligent and/or in breach of contract – Whether claimant suffering loss – Whether claimant entitled to damages for loss of chance of share of profits – Claim allowed
The claimant was a company registered in the British Virgin Islands (BVI). W was an experienced property dealer and developer. He had no interest in the claimant but acted as its agent, giving instructions on its behalf. M was a director of an English company (the company). In 2010, M contacted W proposing a joint venture residential development at a former Odeon cinema site in Nottingham to provide 440 beds for Nottingham Trent University between the claimant and the company. The site comprised two adjoining pieces of land. Under the proposed agreement, the company offered to buy the land, with the profit after development to be apportioned. The parties subsequently entered into development and participation agreements under which the claimant was to receive 35% of net profits from the project. However, W was unaware that during negotiations, the agreement had been amended to indicate that the claimant would not share the profits in relation to one part of the site (the Angel Row unit).
The claimant had instructed the defendant solicitors to act on its behalf in connection with the restructuring of the original agreement whereby the parties opted to enter into a participation agreement in substitution for the declaration of trust, under which M had agreed with the claimant that 35 of the shares in the company, held by M, would be held on behalf of the claimant. The claimant was to receive 35% of the profits of the site as a whole.
The claimant brought an action for damages against the defendant alleging professional negligence in failing to advise the claimant that the definition of “developer’s profit” in the participation agreement had been amended to exclude its entitlement to a profit share in respect of the Angel Row unit. The defendant summonsed M to give evidence at the trial to establish that the company would not have agreed to share the profits in the Angel Row unit with the claimant.
Held: The claim was allowed.
(1) The defendant had been negligent in failing to advise the claimant that it would be deprived of the profits earned from the Angel Row unit. The defendant had advised that the 35% share in the declaration of trust was turning into a sharing of 35% of profits of the development and that the development agreement was normal. With the exercise of reasonable skill and care, the defendant would have seen that it was far from normal in excluding the profits referable to the Angel Row unit. The defendant was clearly in breach of contract and negligent in connection with the agreements, in particular, in failing to take reasonable steps to procure that the participation agreement was drafted in such a manner as to maintain the entitlement of the claimant to 35% of the profits in the site as a whole in accordance with the objective of the participation agreement. Absent a prior agreement to exclude the profits from the Angel Row unit, there was an obligation to take reasonable steps to procure that that was reflected in the participation agreement. The defendant had a duty to establish that the claimant understood and agreed to the precise wording and effect of the documents as executed.
(2) Having concluded that there had been a breach of contract and/or negligence, the court had to consider what damages, if any, had come from the liability. It was necessary to consider when a claim could be established for loss of opportunity, that was a claim for a percentage loss as opposed to an all or nothing claim. Issues of causation which depended on what the claimant would have done absent negligence, were to be resolved on the balance of probabilities. Issues of causation which depended on what a third party would have done absent negligence, were generally to be assessed on the loss of a chance basis. On the basis of loss of a chance, the claimant was required only to prove that the lost claim had a real and substantial, rather than merely negligible, prospect of success, following which the court was obliged to conduct an evaluation of the prospect of success, rather than a trial within a trial of the underlying claim.
In the present case, in relation to causation the issues were whether, if the claimant had discovered the true terms of the participation agreement, it would have proceeded on the same terms in any event; and if not, whether the company would have agreed to grant the claimant a share in the profits from the Angel Row unit. The first of those issues was to be determined on the balance of probabilities. Applying that test, the claimant would not have proceeded on the same terms. As regards the second issue, in the light of the authorities and applying legal principle, even where, as here, a third party (M) had given evidence, the issue of what the company would have done was to be assessed on the loss of chance basis. There was an important distinction between the level of engagement of a third party and a party in litigation: only the latter had to give disclosure. Although disclosure might be sought against a third party, the court was usually much more restrictive about applications against third parties. As in the present case, the third party’s involvement generally might be far more reluctant and less committed than that of a party. The notion that the court had all the evidence that it could expect in the event that the third party had been a party to the action was usually not correct. If the distinction depended upon the third party evidence being provided, the same distinction should be made where the third party would be expected to have given evidence and did not: that would be very difficult to appraise. Accordingly, the decision should not depend on whether a third party had given evidence, although the fact that he had done so might be relevant in assessing the chance: Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 and Perry v Raleys [2019] 2 WLR 636 applied.
(3) On the facts, there was a real and substantial possibility that the claimant would have received some part of the 35% profit in respect of the Angel Row unit if it had been properly advised. The lost chance of obtaining a share of those profits equated to 22.75%, totalling £221,209.22 including interest.
Francis Bacon (instructed by Ashteds Solicitors, of Leicester) appeared for the claimant; Sonia Nolten (instructed by BLM) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read a transcript of Moda International Brands Ltd v Gateley LLP and another
