Farnhill: Claimant heavily influenced by hindsight
A former Irwin Mitchell (IM) client has “a moral right to feel aggrieved” by negligent advice it admitted giving, but this “is not the same as a legal right to damages”, the High Court has ruled.
Richard Farnhill, sitting as a deputy High Court judge, decided that Jeremy Mark Gordeno would not have made a different decision even if he had been properly advised.
All that he could recover from his negligence claim against IM was some of the costs of instructing a second law firm after IM realised it may have made a mistake and told him to take independent legal advice.
Mr Gordeno owned a property near Basingstoke in Hampshire made up of three distinct areas – the house, the garden and the pasture.
In September 2016, he sold it to Glo Homes, a special purpose vehicle being used to develop housing.
The purchase price was comprised of an initial sum of £2m, an overage on the garden of around £1.5m payable if planning permission were granted to build housing there, and an overage of around £11.5m on the pasture if permission were granted over the whole area.
IM advised Mr Gordeno that the garden overage would potentially be unenforceable if Glo became insolvent, which happened in June 2018, when Glo was placed into administration.
However, it wrongly said the pasture overage would survive such an event, only realising this was wrong in February 2019 when Glo’s mortgagee sought to sell the property.
It then advised Mr Gordeno to take independent legal advice; he instructed London firm Vardags.
IM admitted negligence but denied the breach caused Mr Gordeno any loss.
Judge Farnhill held that Mr Gordeno’s belief that he would not have touched the Glo deal had he known there was risk that it would not pay the pasture overage was “heavily influenced by hindsight”.
He explained: “He has lived through the consequences of the Glo insolvency and they have been deeply unpleasant for him. At the time, however, he had confidence in Glo, confidence in securing planning permission for the garden in short order and confidence that once that was achieved, further funding would not be an issue.
“He firmly believed, perhaps not unreasonably, that the credit risk with Glo was very low. Had he been advised that such credit risk was a live issue with the pasture overage, already a speculative investment, I believe he would have taken it.”
The judge concluded that it was important to resist the temptation to assume that, where breach of duty was established or admitted, it must have been the cause of loss.
“Mr Gordeno has a moral right to feel aggrieved. He paid a significant amount for legal advice and that advice was wrong. A moral right to feel aggrieved is not the same as a legal right to damages, however.
“In my view, even had Mr Gordeno been properly advised of the risk to the pasture overage on a Glo insolvency he would have seen that risk as being a minor one.
“Of course, nobody sensibly likes to be told they will be exposed to greater risk for the same reward. But he had strong financial reasons to favour the Glo deal and his other options for raising funds would have been more difficult.
“Had Irwin Mitchell advised him that he was exposed to a credit risk on Glo I believe he would still have taken the easier option, confident that it would have come good. Put in straightforward legal terms, even on his broader version of the scope of duty, which I also reject, he has not established causation in respect of this part of his claim.”
Mr Gordeno did act reasonably in instructing Vardags and leading counsel. However, within five weeks, the process of Vardags analysing the “tangled” legal position “should have been complete”.
Thereafter, Mr Gordeno acted unreasonably in continuing to defend a claim brought by the mortgagee for a declaration that it could sell the property free of his interests, including the overage. This was made a few months later.
Accordingly, Mr Gordeno was entitled to recover the sums he paid up to that point, a figure not mentioned in the ruling, but nothing thereafter.
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