Pickersgill and Le Cornu v Riley

CourtCourt of Appeal
JudgeSouthwell, Nutting and Tugendhat, JJ.A.
Judgment Date13 September 2002
Neutral Citation[2002] J.Unrep 169
Date13 September 2002
Southwell, Nutting and Tugendhat, JJ.A.

A.D. Robinson for the appellants;

M.J. Thompson for the respondent.

Cases cited:

(1) Allied Maples Group Ltd. v. Simmons & Simmons, [1995] 1 W.L.R. 1602; [1995] 4 All E.R. 907, followed.

(2) Carradine Properties Ltd. v. D.J. Freeman & Co. (1982), 5 Const. L.J. 267, distinguished.

(3) Nykredit Mortgage Bank PLC v. Edward Erdman Group Ltd. (No. 2), [1997] 1 W.L.R. 1627, considered.

Additional cases cited by counsel:

Boyd v. Pickersgill & Le Cornu, 1999 JLR 284.

Legislation construed:

Interest on Debts and Damages (Jersey) Law 1996, art 2: The relevant terms of this article are set out at para. 38.

Texts cited:

Halsbury's Laws of England, 4th ed. (1998 Reissue), vol. 12(1), para. 1042, at 457.

Solicitors—duties to client—duty to act in client's interests—solicitor not general business adviser but has duty to advise of heightened risk of specific transaction—to ensure client has sufficient information, knows he has it and what it means—not to act prejudicially to client's interests if client fails to appreciate problem

Solicitors—professional negligence—investigation of agreement to indemnify—negligent to fail to investigate financial viability of proposed indemnity for client's sole guarantee of lease—time runs from making indemnity agreement not guarantee of lease

Contract—damages—remoteness—loss of chance—plaintiff to show on balance of probabilities that would have taken action required to avoid loss—court may infer action if clearly beneficial, even if precise method of avoidance unknown

Contract—damages—remoteness—loss of chance—when avoidance of loss dependent on action of hypothetical third party, plaintiff to show substantial, and not merely speculative, chance that third party would also have taken required action—substantial chance then quantified as damages

The respondent brought an action in the Royal Court against the appellant firm for damages for their alleged negligence in preparing a contract for the sale of shares.

The respondent wished to sell the entire issued share capital of his publishing company for £125,000 with the benefit of a 28-year lease. The respondent agreed to act as guarantor of the lease on being advised by his advocates and solicitors (the appellants) that the purchaser had agreed to indemnify him against all claims under the guarantee. Unknown to both the respondent and the appellants, at the time of the passing of the contract lease, the purchaser had transferred all its business and assets to another company for purely commercial reasons, and was therefore a shell company of no financial value.

The purchaser sold on the publishing company and the leasehold property was vacated. The respondent was reassured by the appellants that although he remained liable under the guarantee, he would be protected by the indemnity. When the landlord then sued the publishing company and the respondent, as guarantor, for arrears of rent, the respondent borrowed a substantial sum to settle the claim and obtained a release from his continuing liability under the guarantee. It was only at this stage that the respondent and the appellants realized that the indemnity from the purchaser was worthless. The landlord allowed the lease to be cancelled and took an assignment of the respondent's claim against the publishing company. The respondent brought legal proceedings in England against the purchaser. He rejected a settlement offer of £10,000, to reduce at a rate of £1,000 a week. The purchaser was subsequently wound up and the respondent received nothing. The respondent then brought the present proceedings against the appellant for negligence.

The Royal Court held that (a) the appellants' assumption of responsibility as advocates and solicitors and the respondent's concomitant reliance gave rise to a duty of care in tort and an implied duty to use reasonable skill and care in contract; (b) the appellants breached these duties by failing to investigate the financial standing of the purchaser and by failing to explain the dangers of being sole guarantor of a 28-year lease for a company over which the respondent had no control, without a satisfactory indemnity; (c) the respondent's loss was caused by the failure of the indemnity, not the guarantee; (d) the action was not prescribed in contract, as the Order of Justice was served within 10 years of the indemnity agreement; (e) the respondent had successfully fulfilled his duty to mitigate his loss by taking the steps he did; and (f) the respondent could recover from the appellants the arrears of rental, water rates, insurance, interest and taxed costs paid to the landlord under the guarantee, in reliance on the appellants' advice that he could claim reimbursement under the indemnity. These proceedings are reported at 2001 JLR 471.

On appeal, the appellants submitted that (a) they had no duty to advise the respondent on the prudence of the indemnity as he was an experienced man of business and he had not instructed them to investigate the purchaser's financial standing; (b) the respondent had not established causation as he had not proved that he would have acted differently if he had received different advice; (c) alternatively, if he would have acted differently, he would not have avoided the loss; (d) the respondent failed to mitigate his loss by declining the settlement offer of £10,000; and (e) in any event, the action was prescribed as the respondent's cause of action, his entry into the guarantee on May 27th, 1988, arose more than 10 years prior to the service of the Order of Justice on June 12th, 1998.

The respondent submitted that (a) the Royal Court's assessment of the duty owed to him by the appellants was correct; (b) his loss was caused by entering into a sale agreement with a worthless indemnity as a consequence of the appellant's breach of duty; (c) the quantum of his loss was the difference between his position as it would have been had the advice been given and his position in fact, i.e. his loss of a chance to take alternative action; (d) he had sufficiently mitigated his loss by allowing the landlord to cancel the lease and take an assignment of his claim against the publishing company; and (e) his claim arose on his entry into the indemnity agreement on June 16th, 1988 and the service of the Order of Justice was therefore within the 10-year prescription period.

Held, allowing the appeal in part:

(1) The Royal Court had correctly decided that the appellants' assumption of responsibility as advocates and solicitors and the plaintiff's concomitant reliance gave rise to both a duty of care in tort and an implied duty to use reasonable skill and care in contract to ensure that the plaintiff appreciated that the particular transaction in this case exposed him to a greater risk than was ordinarily attached to such dealings. In cases of doubt, the duty of the practitioner was to ensure his client had sufficient information, knew that he had it and what it meant. Moreover, when a practitioner was unsure whether his client appreciated the problem, he was not to act in such a way as to prejudice the client's interests. The appellants had negligently breached these duties by failing to (a) investigate, or advise the respondent of the risk of not investigating, the financial standing of the purchaser; and (b) explain the dangers of being sole guarantor of a 28-year lease for a company over which the plaintiff had no control, without a satisfactory indemnity ( paras. 16-18).

(2) Moreover, the Royal Court had correctly decided that (a) the cause of the loss was the failure of the indemnity, not the giving of the guarantee; and (b) as a matter of causation, and on the balance of probability, the respondent would have taken the action required to avoid loss. Although it was not clear how he would have done so, it could be inferred that he would have done so as it was clearly for his benefit ( para. 21; para. 23; para. 27).

(3) However, as the respondent's avoidance of the loss was also dependent on the action of a hypothetical third party, i.e. a substitute indemnifier, purchaser or lessee, he had to show that there was a substantial, and not merely a speculative, chance that they would have appeared and taken the action required. This substantial chance was then to be quantified as damages. In the present case, as the purchaser had been willing to negotiate and there had been no suggestion of foul play, the respondent would have had a very good chance of obtaining a substitute indemnity or purchaser from another company. Failing that, as the respondent was not under urgent pressure to sell, the lease of the premises was sufficiently valuable to have been assigned to a new lessee so as to release the respondent from liability or risk of loss. Accordingly, no discount was to be applied to the loss claimed on this ground ( para. 22; para. 24; paras. 28-32).

(4) The burden of proof was on the appellant to show that the respondent had failed to take all reasonable steps to mitigate his loss. Moreover, the steps which the respondent had taken were not to be dismissed lightly as the appellants' breach of contract had occasioned the difficulty. Nevertheless, in rejecting the compromise offer...

To continue reading

Request your trial
4 cases

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT