This was a claim for professional negligence by a company incorporated to purchase a sea front hotel and adjacent land in Hunstanton, Norfolk, against the solicitors that acted for it on the purchase. The hotel had been purchased subject to three outstanding floating charges on the assets of the seller, another limited company. These charges continue to attach to an asset, instead of to the proceeds of sale, when the asset is sold by administrative receivers, as was the case here. But these charges could have been "overreached" if the seller's mortgage lender had instead taken possession of the property and sold the property itself. The charges only came to light when the Land Registry raised a requisition for releases from them before it would register the title. The claimant was as a result unable to proceed with its planned development of the hotel into flats, as the flats would have been unmarketable with a defective title and the claimant was not in funds to pay for release from the charges. The claimant ultimately had to sell the hotel at a loss to another development company.
A breach of duty was admitted by the solicitors, and the only issues at trial were 1) whether the company would not have completed the purchase but for the solicitors' negligence (causation), and 2) the appropriate measure of damages to compensate the company for its loss.

Reference

The judge decided in favour of the company on causation, but limited the award of damages to the diminution in value of the hotel as a result of the negligent advice, which was in this case the difference in value between the hotel with a clear title and the hotel subject to the charges. The judge accepted that he could award further compensation for losses arising from the existence of the defects in the hotel's title, such as the costs of maintaining the hotel pending their resolution, but found that any such losses in this case were too speculative to be recoverable.

For further information, call Tony Francis or Nicholas Gould on 0207 956 9354

www.fenwick-elliott.co.uk

*Full case details
Greymalkin Ltd vs Copleys (A Firm), 18 May 2004, High Court, Chancery Division, Judgment of Mr Justice Lawrence Collins

Postscript

The result of the judge's decision on the measure of damages to be applied was that the company recovered just £45,000 on a claim for £635,218, which in the early stages it had been led to believe might be worth £1m.

The judge's figure represented the financial consequences of the information on title to the hotel being wrong. He held that the solicitors were not under a duty to advise on the wisdom of the transaction in general, but only to provide the specific information or advice the company needed in order to decide whether or not to proceed.

Had he held otherwise, the solicitors would have been responsible for all the foreseeable loss that was a consequence of that action having been taken. This would also have been more limited than all the consequences which would not have happened but for the negligence.

There is a warning here for claimants who rely upon litigation to recover compensation for situations which they find themselves in as a result of mistakes by advisers. The scope of the advice given needs to be considered against the overall transaction. Fresh advice from a new source should be sought as soon as possible, so that no irrecoverable losses are incurred.