Nawaz and Aziz v Birchfields Solicitors [18.12.19]
Alain Orengo, Partner, of Plexus’ London office acted for the solicitors.
Property developers brought a professional negligence claim against their former solicitors in respect of alleged negligence relating to the purchase of properties in 2006, which, it was alleged, they intended to sell on for residential development. The allegations were that (1) in respect of one of the properties, the intended assignment of an agreement for a lease could not proceed due to a prohibition on assignment, and (2) that the site, or part of it, was zoned for industrial use so it could not be developed for residential purposes. The claimants alleged that they would not have purchased the properties if correctly advised.
The claimants entered into a standstill agreement in 2011 with the solicitors, some five years after purchasing the properties, to preserve their right to bring a claim. However, between completion of the transaction and the date of the standstill agreement, the solicitors’ partnership had converted to a limited company. The claimants served a letter purporting to be a letter of claim in November 2015. However, the claimants then failed to progress the claim or to properly engage in the pre-action process. Plexus served notice in July 2018 to terminate the standstill agreement, forcing the claimants to either abandon or prosecute the claim. The claimants hastily issued proceedings on the cusp of limitation and, erroneously, against the limited company, contending that it, as the successor practice, was liable. Plexus rejected the claimants’ position on the basis that the limited company did not exist at the time of the alleged negligent advice and could not be liable. The claimants eventually applied to add the former partnership to the proceedings, although they (correctly) amended their application to substitute on the morning of the hearing. Plexus cross-applied to strike out the claim against the limited company, and were successful on the basis that it could not be liable for the alleged negligence, as the legal services were provided by the former partnership. However, the court, in exercising fairness between the parties, permitted the claimants to substitute the limited company for the former partnership.
The claimants amended their claim asserting inter alia that as a result of the alleged negligence they lost (1) the ‘diminution in value’ of the properties, as between the price paid and their value without the lease agreement; (2) the anticipated profit of £1.2 million on the re-sale; (3) the costs of finance (the bridging loan), which together with accrued interest amounted to circa £6.8 million; and (4) various costs incurred in connection with the intended development, including clean up works and demolition, stamp duty, legal costs on purchase, and fees for borrowing. The solicitors denied that they had failed to notify the claimants of the existence of a prohibition on assignment in the lease agreement or that the site was zoned. Surprisingly, the claimants failed to adduce any expert evidence to support their allegation of diminution in value, as one would have expected, nor were they ultimately permitted to rely upon any expert evidence, notwithstanding an ill-fated eleventh hour application for permission to do so.
The trial was listed for three days in the High Court in Manchester and was heard before His Honour Judge Hodge QC sitting as a High Court Judge.
The court found that there had been no breach of duty on the part of the solicitors. The court took care to judiciously consider the claimants factual evidence, which was brought to the fore on cross-examination. The court also accepted the solicitor’s evidence that he had properly advised the claimants on all aspects of the transaction, in accordance with his usual practice, and therefore rejected the claimants’ claim. The Judge concluded that the claimants had embarked upon a “speculative gamble” and further held that even if the solicitors had been found to be in breach of duty, so that the question of causation had arisen, correctly advised the claimants would still have proceeded with the purchase in any event, as they were set to make a substantial profit. They had been prepared to take the risk.
The illuminating aspect of this case is that a party should firstly carefully consider the identity of the correct party before embarking upon litigation. Whilst this might seem obvious, it is clearly an issue that still arises, as demonstrated by this case, where parties to a transaction change over time. One must not be side-tracked by the existence of a successor practice, as it is purely a matter of policy coverage and has no bearing on the identity of the correct party. Advancing a claim against the wrong party will not only expose a claimant to an adverse costs order, but may also ultimately lead to limitation difficulties in relation to a claim against the correct party.
The case also serves as a useful reminder of the importance of complying with the pre-action protocols, particularly in circumstances where (as in this case) solicitors’ firms have either ceased or have merged with other firms, and claims are brought many years after the negligent act.
The obiter dicta raised in this case (albeit this must be considered on a case-by-case basis) suggests that the courts will not be afraid to be persuaded to exercise their judicial crystal ball in favour of a defendant in determining hypothetically how a claimant would have acted having received non-negligent advice.
Finally, it is imperative, in cases such as these to adduce expert evidence to substantiate any quantifiable loss where the measure of loss is diminution in value. If not, proceed at your peril!!
To view/download this Case Alert as a PDF please click here. For any further information regarding this matter please speak to your contact at Plexus Law:
Alain Orengo, Partner
T: 020 7220 5861 | M: 07816 073 864 | E: firstname.lastname@example.org