In order to establish a claim in professional negligence, you need to show that a solicitor owed a duty of care to the client, that the duty was breached and that the breach caused a loss. To demonstrate that crucial first step, duty, you can usually point to the contract (or ‘retainer’) between the solicitor and client.
Luffeorm Ltd v Kitsons LLP
The recent case of Luffeorm Ltd v Kitsons LLP held that a solicitor was negligent and in breach of contract because they failed to advise the client of the absence of a restrictive covenant in the contract for the clients’ purchase of a business. Causation was more difficult to establish which ultimately resulted in the dismissal of the claim, but the case shows how the scope of solicitors’ duties will be interpreted.
The case involved the purchase of a leasehold pub business by the claimants. The claimants were experienced in hospitality and were confident in their ability to take over the business, retain the existing clientele and also attract more business. Within 5 days of visiting the property, they had made an offer which was accepted. The purchase price was mostly for the goodwill of the business, with only a small sum paid for the lease and fixtures and fittings. However, three months after completion of the sale, one of the sellers took over a pub only three miles away which resulted in a downturn in the business.
The claimants sought to blame the solicitor who had, it was accepted, failed to explain that there was no restrictive covenant in the sale agreement preventing the sellers from competing locally. He failed to advise the purchasers of the risk that the trade of the acquired business might be diverted.
It is clear from the retainer that Kitsons' instructions were “to act on your behalf in connection with your purchase of the above leasehold business as per our telephone conversation yesterday”. Thus the retainer went beyond mere conveyancing in respect of the lease. The retainer was to act in respect of the purchase of the leasehold business.
It is generally the case that, absent a clear retainer to do so, a solicitor has no general duty to advise on the commercial risks inherent in a transaction. Nevertheless, a solicitor who becomes aware of a risk or a potential risk to the client is under a duty to inform the client of it. The court therefore found that the solicitor should have noticed the absence of any covenant in restraint of competition and drawn that absence to the attention of his client. He failed to do so and was negligent and in breach of contract.
Despite finding the solicitors negligent, the court ruled that this had ultimately made no difference because the breach had not caused the clients’ loss. In order to establish causation, it had to be shown that the client would not have proceeded with the sale, had the advice been given. In other words, the client would have acted on the solicitor’s advice and not gone ahead. The Judge decided that the clients were experienced in the hospitality industry, knew their market and were determined to proceed as quickly as possible with the sale.
The scope of a solicitor’s duty to advise is therefore not strictly limited to the contract of retainer. Although the claim did not succeed on causation grounds, this case highlights the importance of solicitors being vigilant to limit their duties if they wish to avoid liability for their failures.
We will shortly be publishing another update on this topic because the Court of Appeal has handed down a judgment on the same issue in the last week or so. In this later case they found that a solicitor can limit the scope of their work, and hence liability, by acting on a limited retainer in some circumstances (Minkin v Landsberg).