Purchase of property on sale and leaseback basis – Lease guaranteed by French company – Guarantee not authorised and invalid – Defendant solicitors failing to advise about validity of guarantee – Negligence admitted and special damages agreed – Measure of general damages – Loss to be valued at time negligence came to light
The defendants, then a firm of solicitors, acted for the plaintiff in connection with its purchase of property at Station Road, Ecclesfield, Sheffield, for £1.135m. The purchase proceeded on a sale and leaseback basis. The leaseback was effected by a lease dated June 24 1991 under which the plaintiff demised the property to Degrenne, D, for a term of 23 years from June 24 1991 at an initial rent of £140,000 pa. D was an English company making cutlery and was owned by a French company, Table de France. The lease named Table de France as the guarantor of D’s obligations, but the guarantee had not been properly authorised by the board of directors of Table de France and was, therefore, invalid. D ceased trading in the property on July 10 1994. By that time the ultimate holding company of D had, with the exception of the lease, disposed of all the group’s assets, including D’s business, in the UK. On July 14 1994 the property was sold at auction to S for £1.015m. On September 30 S rescinded the contract on the ground of a misrepresentation in the auction particulars as to the validity of the guarantee, the possibility that the guarantee might not be valid not having come to light at all until August 2 1994. On April 13 1995 the plaintiff entered into a compromise with S and also accepted a surrender of the lease. The property was eventually sold on November 15 1996 for £515,000. The defendants admitted liability accepting that they failed to advise about the validity of the guarantee and had failed to advise that the guarantee was “neither valid nor effective nor enforceable against Table de France under French law”. The sum due by way of special damages was agreed, but there was a wide discrepancy between the parties as to calculation of general damages, the plaintiff contending for diminution in value as at June 1991 plus loss of rental income totalling £973,000 before credits were given and interest added. The defendants contended primarily for what they submitted was the actual and precisely ascertainable loss sustained by the plaintiff as at August 1994 totalling £181,749.28.
Held The plaintiff was entitled to a sum by way of general damages of £181,749.28.
1. If the invalidity of the guarantee had come to light at the time of the leaseback, Table de France, which had acted at all times in good faith, would have rectified the situation and the transaction would have gone ahead. There was therefore no basis for assessing the diminution of value as at June 1991 upon hypothetical valuations.
2. The offer of £1.015m on July 14 1994 represented the open market value at that time. In awarding damages the plaintiff was entitled to be put in the same position as if it had received that sum on August 11 1994, the contractual completion date. The loss was to be valued at the time the negligence came to light: see County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1986] 2 EGLR 246 per Bingham LJ applied. There was no recoverable claim for loss of rent from September 29 1994 to November 15 1996
Simon Berry QC and Nicholas Taggart (instructed by D J Freeman) appeared for the plaintiff; Iain Hughes QC and Simon Russen (instructed by Reynolds Porter Chamberlain) appeared for the defendants
