Breach of duty of care
The recent case of Clack v Wrigleys Solicitors is a reminder to claimants that just because a professional’s breach of duty of care is clear does not necessarily mean that the breach is what caused the claimant’s loss.
In this case the High Court found breach of duty of care in that the defendants failed to advise their client that to proceed with a loan on the security of shares in a company, without having seen the share certificate or register of members, would run the risk of the security being ineffective. However, the court found that the loss would have arisen even if the security had been effective and the claimant was not entitled to recover the full loss claimed.
In November 2008, Mr Clack entered into an agreement with an acquaintance, Mr Brudenell, to lend £600,000 for a period of six months on the security of 30 shares in a company (CPDL), which Mr Brudenell claimed to wholly own. Mr Clack retained Wrigleys to draft the loan and security documents and the loan was completed in late November 2008. Wrigleys did not advise Mr Clack to either check that the share certificate was in Mr Brudenall’s name or that the register of members showed that he was the shareholder.
Mr Brudenell paid back around £66,000 of the loan. In October 2009, he was made bankrupt. It then transpired that Mr Brudenell did not own the shares. The charge provided by Mr Brudenell was unenforceable and Mr Clack had no means of recovering his loan. Mr Clack brought proceedings against Wrigleys, alleging that had they conducted adequate checks on the financial standing of the company, he would never have lent the money. Once the case was at trial Mr Clack also contended that had he had an effective charge over the shares, he would have been in a position to become a director of CPDL when Mr Brudenell’s finances collapsed, and would have earned director's fees from that position of around £30,000.
Duty of care negligence
The court ruled that Wrigleys had been negligent; had Wrigleys advised Mr Clack that he should obtain the documents before advancing the loan, Mr Clack would have insisted on seeing them. When it came to assessing quantum the judge noted that previous case-law made a distinction between giving advice as to a particular feature of a proposed transaction and giving advice as to whether to take the overall decision to proceed with the transaction.
Wrigley’s negligence related to the former, so the court had to proceed on the assumption that had Wrigleys advised him properly on this feature, Mr Clack would have still made the loan, albeit with an effective charge. Consequently Mr Clack would only be entitled to recover such part of his loss as resulted from the ineffectiveness of the security.
As the shares in CPDL turned out to be worthless, in the event that Wrigleys had succeeded in creating an effective charge over the shares, Mr Clack would still be able to recover nothing. The sum that Mr Clack was entitled to was therefore limited to the £30,000 of directors' fees that he would have earned.
This case is a useful reminder to claimants in negligence claims that it is essential to fully consider whether it is the professional’s breach of duty that directly caused the loss.