Claims against professional advisors in which the client alleges that the advisor’s negligence has caused him to lose an opportunity have become commonplace. This case1 is notable for its consideration of who bears the burden of proof in the context of a claim for a lost opportunity to obtain a more favourable outcome from a commercial negotiation.
The claimants were property developers who borrowed £9.458 million from GMAC-RFC Property Finance Limited (GMAC) to finance construction of a development in Colchester. They instructed a solicitor at Bircham Dyson Bell, the defendant, to prepare the loan agreement.
Two of the claimant’s shareholders agreed to give limited personal guarantees of the loan to GMAC. However the defendant solicitor mistakenly failed to spot that the version of the document which was signed contained a much wider clause than was intended. The effect was that, instead of being limited to overrun costs and interest, the guarantee was an “all monies” guarantee which covered the full sum owed to GMAC.
Due to the credit crunch the claimant company fell into default under the loan agreement. The claimant and GMAC commenced negotiations with a view to finding a solution which would enable the development to be completed and the claimants to buy out GMAC. During the negotiations, GMAC decided to invoke the guarantee and served a demand for the full sum owed.
The final settlement achieved with GMAC was approximately £5.922 million. However the claimants alleged that they could have settled for around £2-3 million, and achieved higher profits on the development, had the all monies clause not been included.
The defendant admitted breach of duty, which left the court to decide whether the claimants had suffered a real loss and, if so, whether there was a causal link between the breach and the damages alleged to have been suffered.
In loss of opportunity cases the court has to consider the probability of success and other contingencies and determine on the balance of probabilities the value of what has been lost.
There is ample developed case law on how to approach a claim where a solicitor’s mistake (such as missing a time bar) has resulted in the loss of an opportunity to bring or pursue legal proceedings. The claimants argued that the same principles, derived from the leading case of Mount v Barker Austin2, should be applied here.
The first step is for the claimant to prove that the claim had a real and substantial chance of success. Anything above 10% is generally considered to be “real and substantial”.
The next stage is to consider whether the solicitor’s mistake caused the litigation to fail. In a claim for loss of chance to pursue litigation, the burden of proof shifts to the defendant because there is a presumption that, in acting for the client, the defendant solicitors consider that litigation has value. Therefore it is right that the evidential burden should be on the solicitors to prove that it would have failed anyway, regardless of their mistake. It also follows that the client should be given the benefit of the doubt.
Here, the defendants argued that the same analysis should not be applied to a lawyer acting for a client in a commercial negotiation. Nothing about the merits of the negotiating position can be inferred from the simple fact that the solicitor is representing the client; both the solicitor and client may be well aware all along that the client is in a weak bargaining position. Accordingly, it is not appropriate to shift the burden of proof on to the solicitor. Rather, the claimants should have to prove that they could have achieved a better outcome but for the solicitor’s mistake.
Mrs Justice Proudman rejected this argument but found on the evidence that the claimants had failed at the first hurdle. Even when given the benefit of the doubt according to the Mount principles, they had not succeeded in demonstrating they had lost a real and substantial change to negotiate a different resolution, which would have resulted in higher profits. Therefore Bircham Dyson Bell were not ultimately required to prove that the negotiation would have failed anyway.
The case turned on a very detailed examination of the documentary and witness evidence and much was made of the credibility of the claimants. There was little doubt that the demand served under the guarantee was used by GMAC as a negotiating tool, and that the claimants would have conducted the negotiation differently if the mistake had not been made. Crucially this decision was because GMAC’s offer did not vary substantially when uninfluenced by the all monies clause. GMAC were also in a weak position even with the all monies clause as they would have incurred the risks of appointing a receiver, they wished to leave the UK unrestricted by the development, and GMAC never intended to rely on it but use it to apply pressure.
Therefore, despite Bircham Dyson Bell’s unequivocal admission of negligence, the claimants recovered only nominal damages.
This case suggests that the principles in Mount are applicable to all scenarios where a solicitor’s mistake results in a loss of opportunity, including those concerning commercial negotiations. It also demonstrates that although the claimants had the benefit of doubt, if the evidence is clear, and the claimants are unable to prove a real and substantial prospect of success, this type of claim will fail.
It is unfortunate that the judgment does not address in any detail the question of whether litigation and commercial negotiation should be considered separate concepts in the context of loss of chance claims. It is hard to dispute that it is not easy to apply the principles in Mount to a case concerning negotiations. In particular, the presumption that the burden of proof is on the defendant solicitor to prove the negotiations had no value and would be unaffected by the breach of duty implies that the defendant solicitor thought they did. This cannot always be the case. The solicitor’s file will doubtless contain evidence as to his opinion of the strength of his client’s position, but is it right that the burden of proof should be reversed so readily?
It remains to be seen whether these principles can really be applied effectively considering that there may be a wide range of reasons for commercial negotiations, and not all may be expected to succeed, and that the defendant solicitor may have little involvement in the negotiations.
Link to the case: http://www.bailii.org/ew/cases/EWHC/Ch/2015/3329.html