the professional negligence blog

A collaboration between Rebmark Legal Solutions and 1 Chancery Lane

No dual test for remoteness, says the Court of Appeal

The test for remoteness in tort is damage that is reasonably foreseeable. However the test for remoteness in contract is damage that ought to be in the reasonable contemplation of the parties. There are differences between the two. Damage can be reasonably foreseeable (in which case it satisfies the remoteness test in tort) but also highly unusual or unlikely, such as a particularly lucrative contract (in which case it does not satisfy the remoteness test in contract). So where there are two concurrent causes of action, such when a professional is sued, which test should be applied to the damages claimed?   In Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146 a three-judge Court of Appeal has held that, where the claimant has concurrent causes of action in both negligence and breach of contract against the defendant, it is the more restrictive contractual test for remoteness that will apply to any losses.     The facts concerned negligence in the drafting of a partnership agreement. The Defendant was supposed to draw up the agreement to provide for the investors’ capital to be locked in to the partnership for at least 42 months, to give the partnership time to work. In fact the agreement provided that investors could withdraw capital at any time during the first 42 months. An important investor withdrew a large sum of money during that time. The claim was that but for the negligence that allowed the investor to withdraw capital, there would have been enough money to enable the partnership to open a New York trading office which would have generated lucrative profits. At first instance, Nugee J held that the losses claimed were not recoverable under the contractual test for remoteness but were recoverable under the more generous tortious test, and that the Claimant was entitled to choose which test to apply when bringing the claim. Accordingly the claim succeeded. The Court of Appeal upheld the judgment but on different grounds. It held that when there are concurrent causes of action in contract and in tort, the contractual test for remoteness applies and the tortious test does not. However it also found that on the facts, the losses claimed ought to have been within the reasonable contemplation of the parties and so were recoverable notwithstanding that the more generous test of remoteness did not apply. The Court recognised that the decision might throw up some anomalies. It may give a client who receives free legal advice from a solicitor (who therefore does not have a contract with the solicitor) a more generous right to damages than someone who does have a contract. It may also mean that a client who sues a solicitor and a barrister for negligence may have a more generous claim against the barrister (with whom he does not have a contract) than he does against the solicitor (with whom he does have a contract). Roth J stated that he imagined that in such a situation, the contractual test for remoteness would apply but that this would have to be left to another case to be decided. In any event the case is a welcome clarification of the law.            

No duty owed by conveyancing solicitors to investigate the solvency of a vendor

No duty owed by conveyancing solicitors to investigate the solvency of a vendor: Karmjeet Singh Kandola v Mirza Solicitors LLP [2015] EWHC 460 (Ch) The High Court has recently dismissed a negligence claim brought against solicitors for the alleged failure to investigate the solvency of a party in the context of a property transaction.  The claimant, a businessman and owner of several buy to let properties, instructed the defendant firm in 2010 in relation to the purchase of a property.  The circumstances of the transaction were unusual, with the claimant paying the deposit of £96,000 to be held by the vendor’s solicitors as agents of the vendor (rather than as stakeholder).  Unknown to the defendant, the arrangement was intended to facilitate a loan by the claimant to the vendor.The defendant advised the claimant against proceeding in any event (on the basis that a former client of theirs had lost money in similar circumstances), although did not undertake further investigations into the vendor’s credit status.  Such searches would have revealed, prior to exchange, that a bankruptcy petition was outstanding against the vendor.  The claimant ignored the defendant’s advice and paid the deposit.  The vendor was subsequently made bankrupt and his solicitors struck off by the SRA for fraudulent missuse of client money.The key issue to be determined at trial was whether the defendant had owed a duty to (1) provide the claimant with specific advice as to the risk of a vendor becoming insolvent and (2) further investigate such risk by conducting bankruptcy and/or Land Registry priority searches on the vendor prior to exchange. HHJ David Cooke, sitting in the High Court, held that the defendant had not owed a duty in either respect: (1) The fact that the transaction had taken an unusual form did not justify the imposition of duties beyond the recommendations contained in the Law Society’s Conveyancing Handbook (which referred only to the need to advise a client as to general risks associated with the release of a deposit).  (2) The duty of a conveyancing solicitor is to “advise of the unusual risk, but not to seek to evaluate it unless specifically instructed to do so” [at 51].  Over and above this the scope of a solicitor’s duty does not include pursuing all lines of investigation that are open to him, merely those that he has been instructed to. (3) The above is particularly pertinent where, as in this case, advice is provided to a businessman with significant experience of property and/or financial transactions.  In this respect: “…the solicitor is not a guarantor of his client's subjective understanding, and will have fulfilled his duty if he gives an explanation in terms the client reasonably appears to him to be able to understand, and to have understood, even if the client later alleges that he did not in fact understand what was said” [at 47]. The judgement provides a succinct restatement of established principles. A solicitor owes a “nuanced” duty to advise on transactional risks based on an objective assessment of his client’s experience and understanding. Conveyancing practitioners in particular will be reassured to hear that, absent specific instruction, following guidance provided in the Conveyancing Handbook will usually suffice to fulfil their professional obligations.

Mortgage valuations and reliance

More on Phimister v DM Hall LLP [2012] CSOH 169 (see earlier posting), which concerned a valuation of a residential property in Scotland. The Claimant’s criticism is that the Defendant ought to have checked the Property’s acreage and, had he done so, he would have realised that it was 0.46 acres smaller. Lord Glennie dismissed the claim on the primary basis that the Defendant did not owe any duty to check as alleged (see earlier posting). However, he rejected the claim on a number of alternative bases including causation. Having found that the Defendant was unaware of the Claimant’s plans to develop the Property, he decided in terms that it was unreasonable for the Claimant to rely upon the report, which had valued the Property for residential purpose, when deciding whether to buy the Property’s purchase for development purposes. Thus, had the Claimant been able to establish any material loss, it would not have been caused by the Defendant’s tortious breach of duty. Further, since the Defendant was unaware of the Claimant’s development plans, any loss connected with the Claimant’s failure to redevelop the Property was too remote and thus irrecoverable in contract. Finally Lord Glennie considered the issue of contributory negligence. He agreed that the Claimant’s conduct was “unwise” or “shoddy”. Had he needed to make an award of damages, the judge would have found the Claimant contributorily negligent to the extent of 75% for proceeding to purchase the Property, with a view to its development, without first measuring it or obtaining a development appraisal.