UK: Property Professionals’ Liability Briefing -Case Summaries

Last Updated: 28 November 2006
Article by Simon Konsta

Professionals Cannot Escape By Blaming The Next In Line

Vision Golf Ltd V Weightmans (2005)

In Vision Golf Ltd v Weightmans (2005) the court was not prepared to let the defendant solicitors firm escape the consequences of its wrongdoing by blaming the errors of the firm who was retained by the claimant at a later date.

Here, the defendant solicitors who had been instructed by the claimant in May 2000, failed to apply to the claimant’s landlords for relief from forfeiture. In December 2000, the claimant instructed a new firm of solicitors who advised that an application for forfeiture was likely to fail. The application was eventually made in December 2001 and was dismissed on the grounds of delay. Although the defendant solicitors admitted negligence in failing to apply promptly for relief, they argued that their negligence had not caused any loss because had the second set of solicitors applied for relief in a timely manner, it would have been granted.

The court rejected this argument, concluding that causation was established: but for the defendant solicitors’ negligence, relief from forfeiture would have been obtained. Even if relief could have been obtained by the second solicitors, this did not absolve the first from responsibility. The remedy for the defendants was to claim a contribution from the solicitors instructed second.

The court has recently (21 July 2006) published its judgment on the contribution and damages issues and concluded that the correct test for damages in this case required assessment by reference to the value of a lease with vacant possession rather than by reference to the fact that on the day on which it was lost, its market value would have been depressed by a temporary difficulty which could in due course have been cleared up. The court also held that a lease with a period of some 43 years left to run would in the circumstances of this case, which concerned the acquisition of and investment in a golf course, have a "substantial value". Contribution was assessed at 67.5 per cent of the value of the whole, a percentage that was accepted to be without scientific reference but based upon the expert’s experience.

Court Looks At Blameworthiness In Assessing Contribution

Brian Warwicker Partnership V HOK International Ltd (2005)

The decision in Brian Warwicker Partnership v HOK International Ltd (2005) concerned the issue of whether engineers could claim a contribution from architects to damages they had paid to the claimant for a negligently constructed building. The test for claiming a contribution involves a combination of the causative potency and relative blameworthiness of each party. However, here the Court of Appeal concluded that the engineers were entitled to a contribution from the architects even though their actions, although negligent, had not actually caused any loss. The Court was at pains to point out that non-causative factors must be given less weight than causative ones and that there must be a limit on the matters the court should take into account to avoid contribution trials becoming unworkably long and costly. Nonetheless, even though blameworthiness will pack less of a punch than causative factors, as the law currently stands it appears that there is an uneven playing field: whilst defendants to a claim can escape liability if causation cannot be proven, there is a chance that a professional against whom a contribution claim is brought may not be so lucky.

Courts Grapple With Assumption Of Responsibility

Riyad Bank & Ors V Ahli United Bank (UK) Plc (2006) And HM Customs & Excise V Barclays Bank (2006)

Two recent decisions illustrate that it can be extremely difficult for professionals and those insuring them to anticipate where the courts will draw the line when considering whether a professional owes a third party a duty of care in tort.

In Riyad Bank & Ors v Ahli United Bank (UK) Plc (2006), the Court of Appeal found a duty of care was owed to a third party even though the defendant and its client had entered into a contractual agreement intended to set out the responsibilities of the parties. The Court concluded that the defendant investment bank, who had entered into an agreement with a bank to provide advice in relation to the setting up of a Sharia law compliant investment fund (the Fund), had assumed a responsibility to the Fund in relation to investment decisions despite the existence of the agreement which distanced the defendant from the Fund and included an express term which provided that the Fund’s directors were to be responsible for investment decisions.

In a more defendant-friendly decision, the House of Lords in HM Customs & Excise v Barclays Bank (2006), took a restrictive approach to the question of assumption of responsibility, concluding that a professional who has been ordered by the court to carry out an act cannot have voluntarily assumed responsibility to the party who was to benefit from that act. Here, Barclays Bank had failed to comply with the terms of a freezing order obtained by the claimant in relation to two companies whose accounts it held and the claimants sought as damages the amounts paid out of the companies’ accounts by the bank.

House Of Lords Tests Limits Of Limitation Rules: Part One

Haward V Fawcetts (2006)

In the last few months, the House of Lords has handed down two landmark decisions on limitation. The first, Haward v Fawcetts (2006), went in favour of the defendant, whereas the claimant won the Law Society v Sephton & Co decision in May.

The issue before the House of Lords in Haward was when, for limitation purposes, a claimant first has the knowledge required to sue his professional advisers under section 14A Limitation Act 1980. This section provides for a three-year limitation period from the date of knowledge (which will in some cases mean that claimants have longer than the primary six-year period in which to bring a claim).

In Haward, the defendant accountants were retained by Mr Haward to advise in relation to both the acquisition in 1994 of a controlling interest in a company and then over the years 1995 to 1997, the investment of substantial further sums in it. When the company continued to perform much worse than expected, Mr Haward sued the accountants, alleging that their advice had led to his losses. When Mr Haward started the action in December 2001, the primary six-year limitation period had expired, but Mr Haward relied on section 14A, saying that he had not acquired the requisite knowledge until after December 1998, within three years of the start of the action.

The House of Lords concluded that, in order for the claimant to have the requisite knowledge to start time running, the claimant needed to know not only of his loss, but that "something had gone wrong of which he was prima facie entitled to complain". Here, the performance of the company had missed the original financial predictions by such a massive margin that, in their Lordships’ opinion, the claimant must have known (before the December 1998 cut-off) that "something had gone wrong" in the making of those predictions in the first place - even if he did not know of any specific allegations of negligence that might be made against the defendants. Their Lordships accordingly overturned the conclusion of the Court of Appeal and held that the claim was statute-barred.

House Of Lords Tests Limits Of Limitation Rules: Part Two

Law Society V Sephton & Co (2006)

In Sephton, proceedings which were commenced up to 14 years after the negligence were held not to infringe the sixyear limitation period. Here, Sephtons prepared "accountants’ reports" in respect of the years 1988 to 1995 about a solicitor’s client accounts for submission to the Law Society, but failed to spot that the solicitor had been stealing his clients’ money throughout.

This finally came to light in April 1996 when a client complained to the Law Society, which was then required to compensate the defrauded clients. The Law Society sought to recover those payments from Sephtons as damages for the negligent reports. Proceedings were issued in May 2002 – within six years of the Law Society’s first compensation payment, but much more than six years after Sephtons’ first negligent report.

It was common ground that the primary six year limitation period started to run when the Law Society suffered ‘damage’ – the issue for the House of Lords was what ‘damage’ meant. The House of Lords ruled that time only started to run against the Law Society from (at the earliest) the date on which a defrauded client first presented them with a valid claim. Although the Law Society was exposed to the risk of such claims as soon as the solicitor stole further money following each of Sephtons’ negligently clean reports, this was a mere ‘contingency’ that did not count as ‘damage’ and did not start time running. Consequently, the claim was not statute-barred.

Costs Benefits For Defendants Who Have Not Paid Money Into Court

The Trustees Of Stokes Pension Fund V Western Power Distribution (South West) Plc (2005)

Where, at trial, a claimant fails to better a defendant’s settlement offer but the defendant has not backed up its offer with a payment into court, should the court be equally as generous in awarding the defendant its costs as if it had made the payment in? This was the dilemma before the Court of Appeal in The Trustees of Stokes Pension Fund v Western Power Distribution (South West) Plc (2005). The Court emphasised that so long as the offer follows the requirements of Part 36 of the Civil Procedure Rules, is clear, genuine, not a sham and the defendant is "good for the money", it should attract just the same costs consequences as if it had been supported by a payment into court. The Court did not think it mattered that the defendant was not a public body (such as the NHS) which may assert that it needs the money for other, more pressing expenditure. Nor do defendants have to show some compelling reason why they cannot put the cash together. Even if a defendant withdraws its offer after the 21-day period during which it is open for acceptance, this was not a reason not to award the defendant its costs from the last date the offer could have been accepted.

Court Departs From The ‘Diminution In Value’ Rule

Keydon Estates Ltd V Eversheds LLP (2005)

In Keydon Estates Ltd v Eversheds LLP (2005) the court departed from the ‘diminution in value’ rule well established in solicitor negligence actions by the case of Livingstone v Rawyards Coal Co (1880) and held that the assessment of damages was essentially meant to compensate a claimant for a civil wrong and as such previously held legal rules might have to give way to the particular facts of a case.

The claimant purchased for £870,000 a commercial property as an investment with a view to earning from it rental income, a point made known to the defendant solicitors advising on the purchase.

The claimant argued that the defendant firm was negligent in giving advice relating to a sub lease that reduced the value of the property to an agreed figure of £760,000 and claimed that had they been properly advised they would not have proceeded with the purchase and invested elsewhere.

The claimant sued for damages in negligence and, in the alternative, in breach of contract, submitting that his losses went to loss of rental income and accumulated interest thereon which substantially exceeded the £110,000 (the difference between the purchase price of £870,000 and the agreed valuation of £760,000) that would be awarded if his claim were successful under the established diminution rule. The defendant solicitors argued that the correct assessment of damages in cases of solicitor negligence should be in accordance with the diminution rule and as such argued that the losses should be capped at £110,000.

The court agreed with the claimant and ordered a departure from the ‘diminution rule’ on the basis that the rule in this case would be an injustice to the claimant and would not place him in the position he would have been in were it not for the negligent advice of the defendant solicitors.

Court Clarifies A Time For Seeking A Contribution

Aer Lingus V Gildacroft (2006)

Overturning a decision of the High Court reported in our last briefing, the Court of Appeal in Aer Lingus v Gildacroft (2006) has clarified that a party has two years from the date on which quantum is established to issue a claim for contribution from a third party. Section 10 of the Limitation Act 1980 requires that a contribution claim is commenced before the expiry of "two years from the date on which the right [of contribution] accrued". Unhelpfully, this date had never before been clarified. In Aer Lingus, the claimant had trapped his hand in a malfunctioning lift at Heathrow Airport which had been supplied to Aer Lingus by independent contractors. On 9 May 2001, judgment was entered against Aer Lingus for damages to be assessed and it was not until 3 October 2003 that the judgment was quantified. Aer Lingus issued contribution proceedings against the contractors on 4 February 2004. The judge at first instance agreed with the contractors that the date of the judgment on liability was the relevant date and therefore the contribution claim was too late. However, the Court of Appeal found in Aer Lingus’ favour, concluding that the judgment described in section 10 "is a judgment which ascertains the quantum, and not merely the existence, of the tortfeasor’s liability."

Valuers

When Hindsight Is Not A Good Thing

Preferred Mortgages Ltd V Countrywide Surveyors Ltd (2005)

The court in upholding the valuation given by the defendant surveyors in Preferred Mortgages Ltd v Countrywide Surveyors Ltd ( 2005), made two important comments in connection with the practice of ‘de-valuation’ arguments and the matters to be considered by valuers when giving retrospective valuations.

The claimant lender sued the valuation surveyors following repossession of the property in question, the subsequent shortfall in the price lent for the purchase of the property (£55,432 as against a valuation of £64,000 (£65,000 once minor repairs had been carried out)) and the need for the claimant lender to spend £26,071 on repairs in order to put the property on the market and recover the amounts outstanding under the defaulted mortgage loan.

Firstly, the court held in relation to ‘de-valuation’ arguments (prices falling in real terms despite an overall increase), that these would require clear and cogent evidence as to house price increases in the local area and which, in this case, it found were lacking, and that in any event ‘de-valuation’ was nonprobative and contrary to authority. Secondly, the court held that where a retrospective valuation was given, the valuer so giving was not able to refer to later prices and matters which the court referred to as the misapplication of hindsight, but was required to put himself in the place of the original valuer. The court found the retrospective valuation to be £57,000 and therefore within the 15 per cent tolerance bracket applied to the original valuation of £64,000 and as such rejected the claim against the defendant surveyors.

Engineers

Court Clarifies When An Assignment To Litigation Can Be Given

Gordon Offer-Hoar & Ors V Larkstore Ltd & Ors (2005)

In determining a preliminary issue in (1) Gordon Offer-Hoar & ors v Larkstore Ltd & ors (2005) the court gave guidance on two relevant issues, firstly whether an assignment to litigate can be given and, secondly, if it can, what is the assignee’s position in damages.

The Part 20 defendant, an engineer, was instructed by the owner of a development site to undertake a geo-technical site investigation and produce a report. The report did not prohibit assignment. The site was then sold to the Part 20 claimant with planning consent which included a requirement that a soil consultant’s report on the suitability of the land for development be produced. The Part 20 claimant relied upon the Part 20 defendant’s report for these purposes.

During the course of development, a landslip caused damage to the neighbouring land, the owners of which then sued the defendant /Part 20 claimant and their builders. Some years later, the Part 20 claimant entered into an assignment with the seller of the land which provided that the seller would transfer all its rights and benefits under the report (to include the right to sue for breach of duty) to him and that he would pay to the seller half of any sums received from any subsequent claim against the Part 20 defendant.

The Part 20 defendant argued that; (1) the assignment was not valid as it was remote from the transfer of the land and had as its sole purposes the facilitation of legal proceedings for a share of any sums awarded against him and could not therefore be considered as incidental to the contract; (2) the assignment was, in view of the separate consideration, champertous and unenforceable; and (3) the claim was misguided as an assignee could not recover more than an assignor (the seller) who in this case had not suffered any losses as the landslide occurred some years after the sale, the site was transferred at full market value, and no relevant indemnities were contained in the sale agreement.

On the question of whether an assignment to litigate is valid, the court held that the Part 20 claimant could recover loss under the assignment as it had a genuine commercial interest in the enforcement of a claim against the Part 20 defendant and had simply overlooked the matter of an assignment at the time of contracting with the seller. On the question of the amount of any recoverable damages, the court followed the Court of Appeal dicta of Staughton LJ in Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd (1992) and held that were it not for the sale and the assignment the seller would have been liable for significant losses as he would have been the owner of the land at the time of the landslide.

On the facts of the case, the court held that the Part 20 claimant had a right to sue the Part 20 defendant engineer in contract based upon his breach of contract at the time of writing his report; the damages would however be minimal. No right of action, however arose under tort as the essential element of damage was missing; damage, necessary to complete the cause of action, occurred after transfer.

Engineers

Court Confirms Degree Of Knowledge Required In Verifying A Design Assumption

Ove Arup & Partners International Ltd & Anor V Mirant Asia-Pacific Construction (Hong Kong) Ltd & Anor (2005)

In Ove Arup & Partners International Ltd & anor v Mirant Asia-Pacific Construction (Hong Kong) Ltd & anor (2005) the Court of Appeal was asked to determine: whether the first instance judge was wrong to find that engineers Ove Arup had a duty under a design agreement to verify design assumption and that they were in breach of their duty.

The design agreement concerned the design and construction of boiler foundations for a power station in the Philippines. Two of the main foundations of the boiler house failed during construction of the super structure when the load was significantly less than the eventual weight.

The Court of Appeal held that Ove Arup should have verified the design assumptions, and that this required more than could be achieved by a surface examination of the foundations; it required sufficient knowledge of the ground to determine the safe bearing capacity for the foundations. An assumption, whilst able to be worked upon initially, needed to be verified and there remained an obligation to ensure that the relevant information to verify that assumption was obtained. Ove Arup failed in their obligation to ensure that the work to verify the design assumption was undertaken by someone, not necessarily themselves, and were consequently in breach of the design agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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