In the recent case of Andrew Fryatt v Preston Mellor Harrison (a firm)¹, the high court decided in favour of the defendant solicitors (the Defendant) in a claim for damages by Mr Fryatt (the Claimant), for failing to advise him as to the significance of taking an option over a company who owned land compared to an option over the land itself.

The court's judgment examines the standard of proof required for the Claimant to establish causation in order to succeed in his claim against the Defendant.

Background

The Claimant instructed the Defendant to act for him in the purchase of a parcel of land (the Land) owned by Metal Valley Holdings Limited (MVH) and which was adjacent to another property owned by a Mr and Mrs Shand. The Claimant also intended to buy part of the land owned by the Shands (the Shands' Land).

The entire share capital of MVH was owned by the Shands' son and daughter-in-law and trustees of the Metal Valley Pension Scheme (the Sellers). The Claimant originally agreed to take an option over the Land and the Shands' Land for £1.7 million (£900,000 for the former and £800,000 for the latter) but as negotiations progressed it was decided that he would instead take an option over the Sellers' shares in MVH so as to avoid having to pay stamp duty. On 7 February 2011, the Claimant paid £1 in exchange for an option agreement allowing him to buy all of MVH's shares for £900,000 subject to various deductions and exercisable within 12 months (the Option).

Before the Claimant could exercise the Option, MVH went into liquidation. As the Option related to MVH and not the Land, it was not enforceable once MVH went into liquidation. The Land was sold to a third party for £725,000.The liquidators paid £100,000 to the Claimant in exchange for him waiving any claim against them or MVH.

The Claimant sued the Defendant for allegedly failing to advise him adequately or at all as to the risks of not taking an option over the Land. The Claimant claimed that he could have either re-sold or developed the Land himself and made a profit of at least £353,000.

Court's Findings

The court found that the Defendant had not appreciated that there was a significant difference between the Claimant having an option over the Land and him having an option over MVH's shares.The former, if exercised, would have provided the Claimant with a proprietary interest over the Land whereas the latter would not. Had the Claimant had such a right it could have been enforced against the liquidator but instead the liquidator could prevent the Claimant from exercising the Option once MVH was insolvent.

The Court found that the Defendant had not gone far enough in advising the Claimant as to the risks of the Option should MVH become insolvent and had failed to advise the Claimant to instruct a specialist given that the transaction was outside the competency of the fee earner who had conduct of it.  Accordingly, breach of duty was established.

Causation

For the Claimant's claim to succeed,  he had to satisfy the court that, had the Insured advised him adequately, then it was more likely than not that he would have:

  1. sought the option to acquire the Land rather than MVH's shares;
  2. obtained an option to acquire the Land;
  3. exercised that option.

The Court did not consider the Claimant to be a reliable witness and determined that the Claimant would not have sought an option to acquire the Land had he been properly advised. At the time the Claimant entered into the Option, the evidence suggested that he was happy to proceed on the basis of an option over the shares and did not appear to be concerned about MVH going into liquidation. In addition, the court accepted that the Claimant's actions regarding the potential purchase of the Land and the Shand's Land contributed to the insolvency of MVH.

The Claimant failed at the first hurdle in relation to causation but the court considered the next hurdles as well. In relation to the second, the court concluded that if the Claimant had sought an option to acquire the Land rather than MVH's shares then the Sellers would have likely agreed to it.

It was important for the Claimant to be able to acquire the Land along with the Shands' Land and also neighboring land (the Development Site) in order for the Claimant to turn a respectable profit on re-sale or development. However, he had not yet concluded a deal with the owner of the neighboring land and had fallen out with the Shands. In addition, there were significant outstanding planning issues in relation to the Land which were unlikely to have been resolved in the 12 months allowed for the Claimant to exercise the option. In addition, it was accepted that if the Claimant had the option to acquire the Land the purchase price required by the liquidator would have been at such a high level as to mean that the transaction was not commercially viable for him.

The court concluded that the liquidator had, de facto, offered the Claimant the opportunity to purchase the Land on similar terms to those that would have been available under an option over the Land but he declined to do so because the purchase price did not make it commercially viable for development. Therefore, the Claimant had not proved that the Defendant's breach of duty made any difference to his current situation and the claim failed on this basis.

Loss

The court did not agree that the Land was worth in excess of the likely option price and, therefore, the Claimant had not lost any profit from a re-sale of the same.

The court also considered that a claim that the Property could have been purchased and sold on was too speculative to provide a basis to claim damages.

Comment

The court found the Claimant's evidence to be unsatisfactory. It was not persuaded by the Claimant's contention that he would have made different decisions if he had been properly advised. Causation is determined by the Court and its determination can be heavily influenced by witness evidence given that the Court must consider the hypothetical response of a claimant. This case reminds us that it is for a claimant to convince a court that he would have, in fact, been in a different position and/or made difference choices had the defendant fulfilled its duty.