A recent property professional negligence case [1] highlights the importance, even for experienced clients and lawyers, of getting specialist advice and why a team of lawyers can often be more effective than a single solicitor.

Mr Fryatt issued a claim against his former solicitors, Preston Mellor Harrison, in respect of an Option Agreement (the Option Agreement). It was claimed that, had he been properly advised as to the legal implications, he would have proceeded on an alternative basis and not lost out on a lucrative property development scheme.

Background

Mr Fryatt was an experienced property developer and architect. He became interested in purchasing a plot of land as a development opportunity, which first needed planning permission. Initially, Mr Fryatt intended to acquire the land by taking an option over the land itself. However he then decided, instead, to proceed by taking an option against the share capital of the vendor company.

The solicitor he instructed, Mr. Huffey, was a property lawyer with over 40 years’ experience. He advised Mr. Fryatt that an option over the shares carried more risks than an option against the land itself. Though Mr. Huffey was an experienced conveyancer, he professed to not having ‘the expertise of a corporate/mergers and acquisitions lawyer’. Mr. Fryatt responded by asking whether it was necessary to involve one of Mr Huffey’s partners. There was no evidence of Mr. Huffey replying to this enquiry.

The Option Agreement was entered into in respect of the company’s shares, but before Mr. Fryatt was able to exercise the option, the company entered into liquidation.

Professional Negligence Claim

It then became apparent that the Option Agreement gave no security to the client as it involved an option against the shares of the company only. Unbeknown to Mr. Huffey, section 88 of the Insolvency Act 1986 meant that the company’s liquidator needed to agree to the exercise of the option, and he refused to do so as a better offer had been received for the land. Had Mr. Fryatt obtained an option over the land instead, he could have protected his interest by a Unilateral Notice and therefore compelled the liquidator to comply with the Option Agreement. This distinction and its significance fell outside of Mr. Huffey’s skill set.

Despite Mr Huffey’s bringing to Mr Fryatt’s attention his lack of expertise in corporate matters, the court held that Mr. Huffey should have advised on the distinction. In failing to do so, he had failed to act as a reasonably skilled and competent solicitor

Clarifying the scope of a conveyancing solicitor’s duty, the court found that Mr Huffey had fallen below the applicable standard by failing to either appreciate the significance of taking an option over the shares as opposed to an option over the land itself, or to appreciate that the transaction had become one in which he did not have the requisite experience to continue to act without being more explicit to the claimant as to his lack of experience. The court stated that it was then incumbent on a reasonably competent solicitor acting in accordance with his retainer and his duty of care to ascertain whether the client actually understood the true nature and effect of the proposed transaction and, if not, to remedy that.

As it turned out, in the circumstances of the particular case, Mr. Fryatt’s case ultimately failed because, for wider reasons, he could not establish causation between Mr Huffey’s negligence and any loss suffered. The case remains, however, a cautionary tale, for clients and lawyers alike, as to the extent of a real estate lawyer’s duty in transactions which (as so many do) have a corporate, tax or other element to them.

WM Comment

This case shows the importance of getting specialist legal advice – and, where appropriate, from a team of expert lawyers. Mr. Huffey was an experienced conveyancer with over 40 years’ experience in dealing with property transactions. Regrettably, he found himself advising on matters outside of his knowledge base and negligently exposing his client to the risk of losing out on a potentially lucrative redevelopment opportunity.