Running the rule over professional advice

Key points Manchester Building Society sets out the analysis required to establish the scope of duty and extent of liability Hindsight does not alter the factual matrix at the relevant time The High Court has dismissed a claim for professional negligence against a firm of solicitors in Aurium Real Estate London Ultra Prime Ltd v Mishcon de Reya LLP [2022] EWHC 1253 (Ch); [2022] PLSCS 88, a decision which provides useful guidance on the legal principles for determining liability. The facts of the case will resonate with transactional lawyers and litigators alike.  The background The claimant sought damages of £48m for the loss of opportunity to exchange contracts to sell its interest in a substantial development project near Hyde Park in London. The project, which commenced in 2014, required the claimant to acquire the freehold titles of the site, obtain vacant possession and secure planning permission for 55 high-end apartments with ancillary retail, restaurant and other accommodation.   The dispute arose from negotiations to secure vacant possession of a shop at 125 Bayswater Road, which was part of a larger building. In 2015, the lease had six years left to run and the tenant rebuffed the claimant’s offers to surrender it. There was a question as to whether the landlord’s repairing obligation under the shop lease – which required it to keep the main structure of the building and the roof void in good and tenantable repair and condition – meant that demolition of the upper parts of the building and their replacement with new residential units would be a breach of covenant. The claimant considered building around the shop to obviate the need for a surrender of the shop lease.  The project collapsed in October 2018 when the claimant’s lenders called in sums due after a prospective buyer of the claimant’s interest in the project withdrew following the issue of proceedings, in June 2017, by the shop tenant for a declaration that a “build around” scheme would be a breach of the shop lease.   The advice  The claimant argued that in January 2016 the defendant had failed, negligently, to advise that a “build around” strategy carried a risk of infringement of the shop lease. Had it received non-negligent advice, it would have behaved differently in negotiations with the shop tenant, who would have accepted an inducement to surrender the lease, there would have been no proceedings, the purchaser would not have withdrawn and the sale would have proceeded to completion.   The law  The parties had agreed a list of questions – based on the approach set by the Supreme Court in Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20; [2021] EGLR 34 – to determine the scope of the defendant’s professional duty and the extent of its liability: 1. Did the defendant owe the claimant any duty or obligation either in contract or tort? 2. If so, what was the scope of the duty? 3. In providing its advice, did the defendant fail to exercise the standard of skill and care to be expected of reasonably competent solicitors? If so, what should the advice have been? 4. Did the claimant rely on the advice? 5. If the advice had been as the claimant contended, would it have acted differently? If so, how, and was there a real and substantial chance that the outcome would have been as it claimed? The analysis At the time the advice was given, the defendant was not instructed under a general retainer to successfully conclude the project but engaged on a matter-by-matter basis. A terms of engagement letter of July 2015 instructed the defendant “to act in relation to producing and negotiating vacant possession agreements”. The purpose of the advice was to perform a legal analysis of rights and obligations under the shop lease on the assumption that the lease was not surrendered, so it did not fall within that engagement.  The court decided that the contract to provide the advice was not made between the claimant and the defendant but between a sub-holding company of the claimant and the defendant. The company was invoiced for the advice and paid for it. Consequently, the claim failed.   Even if the defendant had owed a duty to the claimant, no specific advice was sought on whether a “build around” scheme to demolish and rebuild the upper parts of the building would be a breach of the shop lease. Nor was the defendant told that the claimant had in mind such a plan, because it was not clear at the time what type of scheme would be viable from a construction perspective. The defendant was asked to provide a high-level, preliminary view of the shop tenant’s rights and obligations under the lease and that was what it provided.  The claimant genuinely believed it had a good prospect of implementing a “build around” scheme without breaching the shop tenant’s rights under the shop lease. However, the advice expressed no view on the issue, nor on litigation risk, and so could not reasonably have supported that belief. Equally, the claimant had not relied on the advice when seeking a revised planning permission for a “build around” scheme or in negotiations with the shop tenant. Had the alternative advice for which the claimant contended been provided, it would have been that there was a 50:50 chance that a “build around” scheme would breach the shop lease. However, financial difficulties with the project and the need to secure planning permission – obtained in March 2017 – before seeking revisions for a “build around” scheme, meant that there was no real or substantial chance that an agreement with the shop tenant would have been possible prior to the issue of proceedings in June 2017. Consequently, the proceedings would have had precisely the same effect in derailing the sale transaction. Louise Clark is a property law consultant and mediator