Luffeorm Limited v Kitsons LLP

08 Oct 2015

Luffeorm Limited v Kitsons LLP

Queen’s Bench Division, Bristol District Registry

(Mr. Recorder Acton Davis QC, sitting as a Deputy Judge of the High Court)

2 July 2015 (Unreported)

 

Subject: Professional Negligence- Solicitors- Scope of Duty- Advice as to commercial wisdom of transaction- Causation- Evidential Burden- Legal Advice.

Summary:

The Claimant brought professional negligence proceedings against a firm of solicitors who had acted on its behalf in a transaction involving the purchase of a pub business. The case contains an unorthodox analysis of the burden of proof, and considers once again the challenging boundary line between commercial and legal advice.

Abstract:

Mr and Mrs Coles instructed the Defendant firm to act on their behalf in connection with the purchase of a pub business (“The Highwayman’s Haunt”) in Devon. They incorporated the Claimant company for the purpose of acquiring the business.

The Coles were eager to complete the sale as soon as possible in order to take advantage of the trading opportunities presented by Easter, Mothers’ Day and the May Bank holidays.

Completion took place in April 2011. The Coles paid £130,000 for the business. In July 2011, one of the vendors (who had been the chef in the Highwayman’s Haunt) took over a neighbouring pub (The Claycutter’s Arms) in the next village some three miles away. Mr Cole gave evidence that the chef had a loyal following in the area and drew many of the former clientele of the Highwayman’s Haunt to the Claycutter’s Arms. As a result, the turnover of the Highwayman’s Haunt was not the £740,000 forecast, but was instead approximately £430,000.

Both Mr and Mrs Coles said that the downturn in the pub business (necessitating its sale at a price of £69,950 in July 2015) was caused by competition from the Claycutter’s Arms. They alleged that the defendant solicitors had negligently failed to advise them to seek a covenant in the contract of sale to restrain the vendors from operating a competing public house within a five mile radius for a period of two years. Their case was that a non-compete clause would have prevented the failure of their business.

The Defendant denied that such advice was within the scope of its duty to the Claimant, contending that it was not required to advise on the business component of the transaction.

The Judge held (at paragraph 11) that the defendant’s retainer went beyond “mere conveyancing” and “was to act in respect of the purchase of the leasehold business”. He went on (at paragraphs 23 to 24) to consider the principles to be applied in determining the extent of a solicitor’s duty to advise on the commercial wisdom of a transaction. Applying those principles to the facts of the case, he held (at paragraph 25) that:

“I accept that [the firm] had no duty to advise the Coles, or the Claimant of the commercial risks inherent in the transaction. Nevertheless, he should have noticed the absence of any covenant in restraint of competition and drawn that absence to the attention of [the Claimant’s officers]… It follows that the Defendants were negligent and in breach of contract.”

The Judge went on to consider causation. Counsel for the Defendant said that it was for the Claimant to establish, on the balance of probability, that had the advice been given, they would not have proceeded with the sale. However, the Judge referred to Levicom International Holdings BV v. Linklaters [2010] EWCA Civ 494, in which Jacob LJ appeared to approach the burden of proof differently in a negligent litigation case, holding (at paragraph 284) that:

“When a solicitor gives advice that his client has a strong case to start litigation rather than settle and the client then does just that, the normal inference is that the advice is causative.”

Whilst the Judge acknowledged that the case was not factually on all fours with Levicom (where the mistake by the firm of solicitors was to give positive advice as to the prospects of success) he nonetheless approached the issue on the basis that the evidential burden had shifted to the Defendant to show that its failure to draw attention to the absence of any covenant was not causative of loss.

However, even with that evidential shift, the Judge was “driven to the conclusion” that Mr and Mrs Coles were determined to proceed with the transaction as quickly as possible. The Judge therefore found as a fact that even if the Defendant had drawn the Coles’ attention to the absence of any covenant they would have nevertheless proceeded with the acquisition at the same pace. They would neither have tried to negotiate for a covenant nor withdrawn from the purchase. Thus the Judge concluded that the Defendant had discharged the evidential burden upon it, and dismissed the claim.

The Judge also found that the Highwayman’s Haunt had failed under the Coles’ ownership because the old clientele did not like the new menu or the prices and the Coles did not attract the new clientele which they hoped would use the premises. It is not clear from the judgment, but it may therefore be that even if the Judge had found for the Coles on the primary question of their reaction to the notional advice, he would have still held that the breach of duty was not causative of the downturn in the Coles’ business.

Comment

This case illustrates the familiar but difficult dividing line between imposing a duty on a solicitor to inform the client of a potential risk of which the solicitor is or ought to be aware, and recognising an obligation to advise on the commercial wisdom of a transaction.

On causation, it is difficult to see how the Judge’s analysis fits with the orthodox approach in solicitors’ negligence cases. Ordinarily, it is necessary for a client who sues his solicitor for negligently failing to give him proper advice to show (on the balance of probabilities) that if proper advice had been given he would have acted differently. The evidential burden rests on the claimant.

However, a distinction is sometimes drawn between:

  1. A claim based on a negligent omission (e.g. where a client sues his solicitor for failing to give advice or information that was required); and
  2. A claim based on a positive act (e.g. where a client sues his solicitor for negligently giving incorrect advice or information).

In situation b), it has been said (e.g. in Bristol and West Building Society v Mothew [1998] Ch 1 per Millett LJ at 11E) that a client only needs to show that he relied on the advice or information, (i.e. he would not have acted as he did if he had not been given such advice). In contrast, in situation a), the client must also show that if proper advice had been given he would have acted differently.

That distinction is itself open to doubt. However, Levicom appeared to add a gloss to situation b), to the effect that where a client seeks advice from a solicitor, and the client appears to act in accordance with that advice, there is a rebuttable inference (which it is for the Defendant to displace) that the advice is causative of the client’s actions or decisions.

The Judge in Luffeorm has gone a step yet further and applied the approach taken in Levicom to situation a). But it is difficult to see how the application of Levicom to the facts of the present case can be reconciled with ordinary principles of causation. It will be interesting to see whether the Judge’s approach is followed in the future. If it is, the implications for solicitors and other professionals could be wide ranging.

Mark Cullen

4 New Square

 

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