In this recent decision, the High Court considered the scope of the duty of care owed by solicitors advising a client in relation to taking an option over a company who owned land instead of an option over the land itself. The claim ultimately failed because the Claimant could not prove causation or loss, even though the solicitors had breached their retainer and were negligent.
Mr Fryatt (the “Claimant”), a property developer, entered into an agreement with Metal Valley Holdings Limited (“MVH”), that he would take an option to purchase land owned by MVH. The Claimant instructed Preston Mellor Harrison (the “Defendant”), a firm of solicitors, to act on his behalf and Mr Huffey, an experienced legal executive and conveyancer, had conduct of the matter.
In November 2010, the Claimant wrote to MVH’s solicitors, whilst also copying in Mr Huffey, stating “I have agreed that I will take an option to buy MVH not just the land.” In response to this, Mr Huffey queried with the Claimant why he had to take an option to purchase MVH, when an option to purchase the land appeared to be sufficient. When discussing the matter over email, Mr Huffey pointed out to the Claimant that he was a property lawyer and did not have the expertise of a corporate lawyer who specialises in company purchases. He suggested that the Claimant may wish to consider appointing a specialist corporate lawyer. The Claimant acknowledged this and asked in an email, “Do we need to involve one of your partners?” There was no written record stating that Mr Huffey thought this would be necessary.
The Claimant subsequently entered into an agreement that gave him an option to purchase MVH for £900,000 (the “Option Agreement”), subject to deductions relating to planning permission. Upon entering into this, certain associated companies of MVH went into liquidation and Mr Huffey advised the Claimant that the Option Agreement would “remain valid” should MVH do the same. This advice did not take into account section 88 of the Insolvency Act 1986 (“IA 1986”), which provides that any transfer of shares made after the commencement of a voluntary winding up without the liquidator’s sanction is void.
MVH went into liquidation and, whilst the Claimant tried to negotiate the purchase price with the liquidator, it could not be agreed and ultimately the Claimant did not purchase the property. The Claimant sought damages against the Defendant for loss of the profits that he would have received from selling the land once developed. He argued that the Defendant had failed to advise him properly on the difference between an option to acquire the land and an option to purchase MVH and, had it done so, he would have entered into an option to purchase the land.
The claim was dismissed as the Claimant failed to establish causation or loss. However, several comments were made in relation to the scope of the duty of care owed by the Defendant solicitors. The Court found that the Defendant had failed to meet the required standard of care by failing to either appreciate the significance of an option over MVH as opposed to an option over the land itself, or appreciate that Mr Huffey did not have the required level of experience to carry on acting for the Defendant, without notifying him more explicitly that he lacked the experience.
The Court found that the Defendant had breached its retainer and been negligent by (i) not explaining the nature and effect of the Option Agreement, in that the Claimant had no proprietary interest in the land, as well as the fact that the Option Agreement could be unenforceable if MVH were liquidated and (ii) by incorrectly informing the Claimant that the Option Agreement would be valid, in light of Section 88 of the IA 1986. Additionally, the Court stated that the Defendant had not provided the Claimant with enough information for him to reach an informed view to decide whether to instruct a specialist corporate lawyer.
This case demonstrates that legal practitioners undertake a significant risk if they decide to act in a matter that includes issues that fall outside of their expertise and experience. Whilst Mr Huffey informed the Claimant of his lack of experience in corporate purchases, the information provided to the Claimant was insufficient for him to make an informed choice as to whether he needed to seek specialist advice.