Manchester High Court: Firm created an “obvious danger”
A well-known Shropshire law firm was negligent in the order agreements for a property development joint venture were signed, allowing one side to pull out, the High Court has found.
The decision of His Honour Judge Pearce, sitting as a High Court judge in Manchester, indicates that Lanyon Bowdler will have to pay damages of more than £750,000.
The claimant, Milford Investments, is a property development company owned, which formed a joint venture with the three owners of land in Oswestry, Shropshire, to develop houses on the land.
Both sides were established clients of Lanyon Bowdler and agreed to instruct the firm. They decided to form an LLP to develop the land; the LLP and what were called in the ruling the ‘other agreements’ – a development agreement, development management agreement, legal charge, and guarantee – were signed on 11 March 2016. The LLP was incorporated soon after.
However, the relationship broke down in summer 2017 just as a long-awaited section 106 agreement was finalised; under the development agreement, the owners had to enter into it at the request of the LLP.
One of the owners said he did not want to continue with the joint venture, preferring instead simply to sell the land, and Lanyon Bowlder ceased acting for them because of the conflict of interest with Milford.
The owners’ new solicitors, DTM Legal, said the other agreements were invalid and unenforceable because the LLP had not been incorporated at the time they were executed.
The owners did not execute the section 106 agreement prior to deadline in the development agreement and declined to proceed with the joint venture.
Milford’s claim against Lanyon Bowdler was that the failure to ensure the LLP was incorporated prior to the other agreements being signed breached its duty of care. This enabled the owners to withdraw from the agreements and sell the development land to a third party, causing Milford loss.
In its defence, the firm argued that “a timing mistake made by a solicitor on the particular facts of this case does not amount to a breach of the reasonable skill and care expected of a competent transactional solicitor”.
It doubted that the risk of the agreements being unenforceable as a result of the later signing of the LLP agreement was foreseeable.
However, HHJ Pearce did not agree, finding this “an obvious danger”. The order of executing documents was, as one of the Lanyon Bowdler partners involved had admitted, “not the logical sequence of events”.
He went on: “This is a classic example of the conduct of the solicitor creating a risk that the validity of the other agreements might be challenged.
“Further, it was foreseeable that, if a technical point could be taken about the validity of the other agreements, it might be. The very point of entering into a written contract, rather than simply acting on trust, was to ensure that the parties were committed to a particular course of action…
“A reasonably competent solicitor would have sought to ensure that the LLP was incorporated first and were it to appear that this was not going to happen, would have advised of the consequent risk of unenforceability.”
There was no evidence to suggest Milford would have run the risk of not following this sequence had it been advised.
On causation, HHJ Pearce assessed the chance of the joint venture being followed through, had the law firm not been in breach of duty and had Milford been able to raise the necessary finance, at 40%.
The chance of raising the finance was 80%, meaning the overall chance of Milford making the expected profit was 32% (40% x 80%).
HHJ Pearce held that the gross development value of land, had it been completed, was £6.3m. The development costs would have been £3.9m. Though the final figure was not stated in the ruling, this indicates that the loss of chance amounted to £768,000.
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