Solicitor’s negligence – has loss been caused by the breach?

Wright Hassall
September 24, 2014

The Court has recently given judgment in Hirtenstein v Hill Dickinson, a case which considered whether a solicitor had been negligent when acting on the purchase of a super yacht. The case provides another example of the need for bad advice to have actually caused loss. In this case the solicitor was unprotected by the limit of liability that he thought applied, so his escape based on causation was particularly fortunate.

Facts

In July 2010, an America businessman Michael Hirtenstein (“MH”) agreed to purchase a yacht from Candyscape Ltd for E4.5m. It was a 46.76m luxury motor yacht launched in 1994 with accommodation for 12 guests and 10 crew. MH’s broker for the purchase telephoned Hill Dickinson solicitors (“HD”) on a Sunday afternoon and instructed a Mr Lawson to act on the urgent purchase, since the yacht was being sold at a rock bottom price on an “as is, where is” basis. No notes were taken of this call. MH and HD had two telephone conversations at the early stages of the purchase after which their communications were by email.

After contracts were exchanged, but before completion, HD informed MH that the yacht came with a warranty of its condition that was backed by a personal guarantee from Mr Christian Candy, the beneficial owner of the selling company.

The purchase completed on 16 July 2010. An hour later, and 12 miles out to sea, the yacht’s engine failed. It was not such a super yacht. The costs of repair were around $2.5m and MH sought to recover this through a breach of warranty claim against Candyscape. Candyscape went into liquidation in March 2011 and so MH claimed against Mr Candy under the personal guarantee. Mr Candy then pointed out that there was not, after all, a personal guarantee for the yacht’s condition.

Professional negligence claim

MH claimed for professional negligence against HD for negligently failing to obtain a personal guarantee under which a successful claim could have been made. HD admitted the error in drafting, but argued they were not instructed to seek a personal guarantee and only told MH that he had one after exchange of contracts when MH was already committed to buy the yacht. Their case was that even if MH had been told that there was not a personal guarantee he would have gone ahead with the purchase in any event: or, their breach of duty did not cause the loss.

There was substantial conflict between the parties over two early telephone conversations when instructions were given. The solicitors did not have attendance notes for these two conversations and so it was for the judge to consider whose recollection of events he preferred. The judge did not accept that MH had instructed HD to obtain a personal guarantee.

Was loss caused?

The judge then assessed on the balance of probabilities what would have happened if HD had been aware that the guarantee was not in place. He found that, if they had noticed the deficiencies in the purported guarantee before exchange of contracts, they would have tried to amend it. However, Mr Candy would not have agreed to a suitable guarantee and, as a third crucial step, MD would have gone ahead anyway, such was the deal on offer. Thus MH had suffered no loss for which he was entitled to recover damages other than a very small sum.

Limit of Liability

The solicitors argued that their liability was limited to £3m by their standard terms of business. The judge considered the course of events very carefully when assessing their ability to do this.

The instruction for HD to act was received on a Sunday afternoon. The terms of business were sent to the client’s accountant the following Wednesday. HD had not brought the limit of liability to the client’s attention prior to sending the terms in the retainer letter.

Section 2(2) of the Unfair Contract Terms Act 1977 states that liability for negligence cannot be excluded or restricted by a contractual term except insofar as that term satisfies the requirement of reasonableness. The burden of proving reasonableness is on the party seeking to exclude or limit its liability.

The judge found that, by the time MH had received the solicitor’s retainer letter, he was already committed to working with them and a great deal of urgent work had been done. There was no realistic possibility of the client switching solicitors if he did not want to lose the deal. Thus had damages been awarded, the clause limiting liability to £3m would have been ineffective as unreasonable.

Conclusion

A number of typical issues were rolled up in this case. The unusual feature, possibly, is that on this occasion a wealthy individual was making the claim whereas so often a professional’s negligence has caused loss to those least able to bear it (not that that is any comfort to Mr Hirtenstein whose enjoyment of the beautiful yacht will have been significantly impaired).

Nonetheless this decision is another example of, however gross the professional negligence, unless a claimant can show that the negligence caused loss the claim will fail.

It also highlights the importance of professional advisers and clients making contemporaneous notes of conversations and instructions since these can be crucial to proving or defending a claim.

And finally, limits on liability may not be effective unless reasonable in the circumstances.

About the author

Susan Hopcraft is a Commercial Disputes and Professional Negligence Solicitor with Wright Hassall