A law firm has successfully fought off a former client’s bid to broaden a multi-million-pound negligence claim after the High Court found the losses too remote to be recoverable.
Ms Clare Ambrose, sitting as a deputy High Court judge, also refused the claimant’s bid to offer a guarantee instead of paying £500,000 into court, in a case she said was currently valued at £21.5m.
Swansea firm Peter Lynn & Partners (PLP) was instructed to act on the purchase of a property in Solihull by a special purpose vehicle called Sapphire Developments.
The claimant exchanged on a contract to acquire the property and then agreed to transfer it for a £1m plus VAT ‘finder’s fee’ to another developer, John Downer and his company Streetsbrook.
In the meantime, the claimant was pursuing the two other developments, whose deposits he intended to pay using the finder’s fee.
However, on the day of completion for the first property, Mr Downer decided he would only pay £500,000, and the opportunity to acquire and develop the other two properties was lost as a result.
The claimant’s case was that PLP negligently assured it that it would be protected in its dealings with Mr Downer and “failed timeously to advise it to obtain development finance to purchase [the property] on its own behalf, alternatively by the completion date it failed to procure a legally binding agreement on the terms agreed in principle with Mr Downer or obtain security for the finder’s fee”.
The initial claim was for loss of profits in relation to the property and the part of the finder’s fee not paid. The claimant applied to amend the claim to include loss of profits on the other two developments as well.
But the court held that the claimant did not have a real prospect of showing that the law firm was instructed in relation to them.
Even if, as the claimant insisted, the solicitor at PLP had been told that the finder’s fee was needed to pay the deposits, “it was implausible to suggest that they gave rise to the pleaded retainer (whether express or implied)”.
The judge said that, even if she were wrong on this, the law firm’s duty of care did not extend to the risk of losing profits on the other two properties
“It was not pleaded that the defendant was aware that loss of profits on the Newbury and Oaklands developments would result from its breach of duty.
“The mere fact that [the solicitor] had been told about the developments, that an offer had been accepted and [the claimant] intended to use the finder’s fee for the deposits falls short of establishing the special knowledge required to establish a recoverable loss.”
However, the judge rejected PLP’s application for summary judgment. “Sapphire’s allegation that there was a duty to advise on obtaining development finance had an arguable basis. Whether Sapphire could have obtained development finance or made the profit claimed were matters that could not be decided summarily.
“The defendant fairly maintained that the real issue went to whether the defendant’s duty extended to profits that would be made from developing the property, and in particular whether there was a sufficient nexus between that duty and the loss of profits claimed. Sapphire could show a real prospect of success on that issue.”
Ms Ambrose acknowledged PLP’s argument that “there was something very counterintuitive in Sapphire saying that if the defendant had done its job properly then Sapphire would have been paid £1m, but because it failed to secure the second tranche from Mr Downer it is entitled to recover damages in the sum of £15m”.
But, she said “this point does not negative a duty of care”.
Sapphire accepted that it should provide £500,000 in security for costs and Ms Ambrose rejected its request to do so through a guarantee from related companies.
The judge said there was “very limited reassurance” that such a guarantee would be enforceable and would leave PLP “unfairly exposed to much more significant prejudice” if left to enforce it.
Instead, the judge acceded to PLP’s request for a payment into court.