A recent Scottish case provides guidance on the scope of a
solicitor's duty of care against the background of the fall in
the housing market.
Background
The claimant property developer instructed his solicitors, VMH
LLP ("VMH"), in 2004 in connection with the acquisition
of a site for a proposed development of townhouses and apartments
in Edinburgh. Planning consent had been granted on the condition
that a new ventilation duct be installed to an adjacent fish and
chip shop ("the Codfather"). Missives were concluded in
April 2005 after the sellers of the site entered into an agreement
with the owners of the Codfather regarding the ventilation duct. In
July 2005, the Codfather was sold and the new owner disputed the
enforceability of the agreement regarding the ventilation duct.
Marketing of the development, which had begun in January 2007, was
suspended pending resolution of that dispute. It was not resolved
until December 2007.
The Edinburgh residential property market was at its height in 2006
but by 2008 had begun to slump due to the global economic crisis.
The claimant alleged that had VMH secured an enforceable right to
install a ventilation duct, there would have been no dispute and
therefore no delay in marketing the properties.
Decision
VMH admitted breach of duty. The question for the Court was
whether the scope of VMH's duty to the claimant was
sufficiently wide to enable the claimant to recover the various
heads of loss claimed. The Court held that, in principal, all of
the heads of loss were recoverable:
1. Cost of settling the dispute regarding the ventilation
duct;
2. Additional borrowing costs associated with funding the
development for longer than planned; and
3. Loss of sales revenue stemming from both lower volume of sales
and lower sales prices.
The additional borrowing costs and loss of sales revenue were
assessed on a loss of a chance basis, with the Court accepting a
middle ground between the parties' respective positions.
Comment
This could be a worrying case in the realms of solicitors'
PI. The Court had absolutely no hesitation in finding that it was
fair, just and reasonable for the solicitors, rather than their
property developer client, to assume the risk of the vagaries of
the housing market.
Further reading: Kirkton Investments Ltd v VMH LLP [2011]
CSOH 200
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The original publication date for this article was 19/01/2012.