A law firm with offices in Italy and England has lost its appeal against a High Court ruling that it was under a duty to warn British and Irish property investors of the risks of investing in a part of Italy associated with organised crime.
Lord Justice Jackson said that Gabriele Giambrone suggested that everything was above board and the clients were making safe investments in holiday homes when he knew “perfectly well about Mafia activities affecting all sectors in Calabria, including the construction sector”.
He upheld the July 2015 ruling  of Mr Justice Foskett in favour of 185 investors who claimed that the firm Giambrone & Law and its partners had failed to act properly in their interests in the transactions, which involved purchasing off-plan apartments in a development on the coast of Calabria.
Following delays in construction, the claimants pulled out of their purchases, but lost their deposits as Giambrone had already been them paid out, even though certain required guarantees from the developers had not been provided.
The deposits, which ranged from £30,000 to £105,000 each, were paid out to the developers and promoters of the scheme on a 38/62 split. Giambrone did not inform its clients that so much was going to the promoters as commission.
There is no suggestion that any of the defendants were involved in mafia or other criminal activity.
In all, Foskett J held that Giambrone was in breach of duty to the claimants in eight respects, including the failure to tell them about the involvement of the Mafia in the region.
The original intention had been that, after this trial of the generic issues, there would be a second trial of all other issues in the litigation.
However, 101 claimants applied for summary judgment in November 2015, with Foskett J holding that the majority of them should recover as equitable compensation for breach of trust the full amount of their deposits.
The Court of Appeal this week dismissed Giambrone’s appeal against various elements of the two decisions.
Foskett J was correct to award the amount of the lost deposits as equitable compensation, Jackson LJ said, giving the lead judgment .
“In the circumstances which unfolded in the present case, I would characterise the solicitors’ obligation as an obligation to act as custodians of the deposit monies indefinitely.
“Compliant guarantees never appeared. Therefore Giambrone should have remained as custodians of the deposit monies until the preliminary contracts were rescinded, and then paid those monies back to their clients…
“Giambrone’s breach of contract consisted of wrongfully paying out deposit monies which it had undertaken to keep safe. The contractual measure of damages is the amount of the deposits, because those monies have now vanished. This is a case where equitable compensation and contractual damages run in tandem.”
He added that the SAAMCO principles on the measure of damages did not “shut out” the claims.
Jackson LJ also agreed that Giambrone ought to have informed its clients before paying out so much of the deposits to the promoter.
He said: “It was obvious that Giambrone ought to have disclosed the payment of such large and over-generous commissions. Giambrone appreciated this as soon as it gave serious consideration to the matter. Giambrone felt so embarrassed about its conduct that it sought to suppress the truth.”
On the Mafia point, Lord Justice Underhill said: “I was at first dubious whether Giambrone could really be under an obligation to advise clients about the prevalence of organised crime in the construction industry in Calabria, which might be said to go more to the overall wisdom of the purchase than to a matter within the remit of a lawyer, even a lawyer advising on a foreign purchase.
“But it is, again, necessary to bear in mind the very particular circumstances of this case and the width of the role undertaken by Giambrone; and I have come to the conclusion that the judge was entitled to make the finding that he did.”
Mr Giambrone has already faced regulatory action over the events, with the Solicitors Disciplinary Tribunal ordering in 2013 that his name be withdrawn from the Register of European Lawyers .