Hirtenstein and another v Hill Dickinson LLP [2014] EWHC 2711 (Comm) takes us to the exciting world of purchasing luxury yachts but ultimately provides a useful reminder that a claimant must show that the defendant's negligence caused it to suffer the loss claimed in order to obtain damages.

Background

Mr Hirtenstein is a successful businessman who lives in New York.  In 2001 he decided to buy a yacht owned by Candyscape Ltd ("the Yacht") and, through specialist yacht brokers, he negotiated to buy it for EUR 4.5m.

Mr Hirtenstein instructed Hill Dickinson to act on his behalf in the purchase of the Yacht.  It was to be bought on an "as is, where is" basis and Mr Hirtenstein did not inspect it.  Completion was to take place within an incredibly short timeframe:  Hill Dickinson were instructed on Tuesday 13 July 2010 with the sale completing on Friday 16 July 2010.

The necessary agreements were negotiated between Hill Dickinson and Candyscape Ltd's solicitors, with contracts being exchanged on Thursday 15 July 2010.  On the next day, Hill Dickinson emailed Mr Hirtenstein stating, amongst other things, that a warranty that Candyscape Ltd had given regarding the condition of the Yacht was backed by a personal guarantee from Mr Candy (the owner of Candyscape Ltd).  Completion took place later that day.  About an hour later and 12 miles out to sea, the starboard engine of the Yacht suffered a major failure.

Mr Hirtenstein decided to transport the Yacht to Florida from Europe and have repairs carried out there.  He decided to have two new engines installed and to have some other work done at the same time.  The total costs incurred in doing all this work amounted to over US$2.5million (about EUR1.9m).  Between July 2010 and June 2011, Hill Dickinson prepared claims for Mr Hirtenstein, first of all against Candyscape Ltd and then, after Candyscape Ltd was put into liquidation, against Mr Candy personally.  However in June 2011, Hill Dickinson informed Mr Hirtenstein that they had made a mistake in drafting the contractual documents, that they now recognised that the terms of the personal guarantee from Mr Candy did not cover any breach of the warranty given by Candyscape Ltd regarding the condition of the Yacht and that the proposed claim against Mr Candy had no prospect of success.

The Claim

Mr Hirtenstein sued Hill Dickinson for professional negligence in the handling of the purchase of the Yacht.  He alleged that Hill Dickinson negligently failed to obtain a personal guarantee from Mr Candy under which a successful claim could have been made for the loss resulting from the defective condition of the Yacht.  Mr Hirtenstein further alleged that, had he been told that there was no such personal guarantee, he would not have proceeded with the purchase.

Hill Dickinson admitted that they were negligent in believing and then informing Mr Hirtenstein that they had obtained a personal guarantee from Mr Candy which covered the condition of the Yacht.  However, they denied that they were negligent in any other respect.  They also denied that their admitted negligence had any causative effect.  Their case was that they were not instructed to seek a personal guarantee and they only told Mr Hirtenstein that he had got one after contracts had been exchanged.  By that time, Mr Hirtenstein was contractually committed to buying the Yacht.  Hill Dickinson contended that there was no realistic chance that Mr Candy would have agreed to providing a personal guarantee covering the condition of the Yacht and that, if Mr Hirtenstein had been told this, he would nevertheless have gone ahead with the purchase.

The Judgment

Mr Justice Leggatt gave a very structured and carefully reasoned judgment.  He first dealt with the matter of negligence and noted that, as explained above, a limited admission had been made.  Mr Justice Leggatt then looked at the additional allegations and concluded that, in the circumstances of this case, a reasonably competent and careful solicitor in Hill Dickinson's position could, without negligence, have taken the view that there was no realistic prospect of getting a personal guarantee of the Yacht's condition from Mr Candy and that to seek one would have introduced a risk of disrupting the deal.  However, if they had taken that view, then they should have informed Mr Hirtenstein of this before exchanging contracts.

Mr Justice Leggatt then moved onto the issue of causation.  He held that if Hill Dickinson had not been negligent as they had admitted, they would have drafted contractual documents which did contain a personal guarantee from Mr Candy in relation to the Yacht's condition and readiness for immediate use.  However, in the circumstances of this case, Mr Justice Leggatt found that there was no realistic chance that Mr Candy would have given such a personal guarantee.  Furthermore, if Mr Candy had been asked and had declined to give this personal guarantee, Mr Hirtenstein would still have proceeded with the purchase of the Yacht.  Consequently, Mr Justice Leggatt held that Hill Dickinson's negligence did not cause Mr Hirtenstein to purchase the Yacht without a personal guarantee from Mr Candy of the Yacht's condition.  It followed that Mr Hirtenstein had suffered no loss for which he was entitled to recover damages as Hill Dickinson's negligence had no relevant causative effect.

Comment

This case is a good example of the situation where whilst negligence has been admitted by the defendant, this does not automatically mean that the claimant will receive damages as it has to prove that the negligence caused it to suffer its loss.  In this case, causation was found to be lacking and so Mr Hirtenstein was only entitled to nominal damages.

However, in his judgment, Mr Justice Leggatt also made various interesting comments, some of them obiter, which may prove useful when litigating solicitors' negligence claims.  In particular, he summarised the approach to the assessment of damages in a case where the negligence of a solicitor has deprived the claimant of the opportunity to pursue a claim against a third party, confirming that the correct approach is to assess damages by reference to the prospects that the claim would have had a successful outcome (1).  Mr Justice Leggatt also clarified the principle of mitigation stating that the "true principle is that, where there is more than one option reasonably available to the claimant in responding to the consequences of the defendant's breach of duty, the claimant can only recover as damages the cost of the less (or least) expensive option.  If the claimant in fact chooses a more expensive option, this does not mean that he is acting unreasonably; but the additional cost is regarded as a consequence of the claimant's choice and not of the defendant's wrong" (2).  He also outlined the way of measuring damages where property is acquired as a result of the negligence of a solicitor, often known as the "diminution in value" rule (3).

Mr Justice Leggatt also commented obiter on Hill Dickinson's argument that their liability for Mr Hirtenstein's claim was in any event limited to £3million by a clause in their standard terms of business.  Hill Dickinson had sent Mr Hirtenstein a formal retainer letter just after they were instructed by him and attached to that letter was the firm's standard terms of business.  Mr Justice Leggatt concluded that it was not reasonable (as required by sections 2(2) and 11 of the Unfair Contracts Terms Act 1977) for Hill Dickinson to limit their liability to £3million in this case.  This was because, firstly, Mr Hirtenstein was already committed to retaining Hill Dickinson and there was no realistic possibility of him switching solicitors if he did not want to lose the deal.  Secondly, the limitation had not been brought to Mr Hirtenstein's attention as it was not mentioned in the retainer letter (or the covering letter) and there is no suggestion that Hill Dickinson had mentioned it in their telephone conversations with him the day before sending the letter.  Mr Justice Leggatt also concluded that the fact that the clause limiting liability was not brought to Mr Hirtenstein's attention was a breach of the solicitors' professional code.  Consequently, given the conclusion reached by Mr Justice Leggatt in this case, solicitors would be wise to bring any limitation of liability to their clients' attention, ideally by setting it out very clearly in their engagement letters.

  1. See paragraphs 100 and 101 of the Judgment.
  2. See paragraph 127 of the Judgment.
  3. See paragraphs 153 to 161 of the Judgment.