Riley v Pickersgill and Le Cornu (Practising as Pickersgill)

JurisdictionJersey
CourtRoyal Court
JudgeHamon, Commr. and Jurats Rumfitt and Georgelin
Judgment Date26 July 2001
Neutral Citation[2001] J.Unrep 161
Date26 July 2001
ROYAL COURT
Hamon, Commr. and Jurats Rumfitt and Georgelin

M.J. Thompson for the plaintiff;

A.D. Robinson for the defendants.

Cases cited:

(1) Blacklock v. Perrier & Labesse, 1980 J.J. 197, followed.

(2) Boyd v. Pickersgill & Le Cornu, 1999 JLR 284, followed.

(3) Henderson v. Merret Syndicates Ltd., [1995] 2 A.C. 145; [1994] 3 All E.R. 506, followed.

(4) Midland Bank Trust Ltd. v. Hett, Stubbs & Kemp, [1979] Ch. 384; [1978] 3 All E.R. 571, applied.

(5) Torrell v. Pickersgill & Le Cornu, 1987-88 JLR 702, followed.

Text cited:

Jackson & Powell on Professional Negligence, 4th ed., para. 4-03, at 409-410; para. 4-116, at 486-487; para. 4-133, at 497-498; para. 4-139, at 500-501 (1997).

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

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

The plaintiff brought an action against the defendant firm for damages for their alleged negligence in preparing a contract for the sale of shares.

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

The purchaser sold on the publishing company and the leasehold property was vacated. The plaintiff was reassured by the defendants 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 plaintiff, as guarantor, for arrears of rent, the plaintiff 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 plaintiff and the defendants realized that the indemnity from the purchaser was worthless. The landlord allowed the lease to be cancelled and took an assignment of the plaintiff's claim against the publishing company. The plaintiff then brought the present proceedings against the defendant for negligence.

The plaintiff submitted that (a) the defendants had an implied duty to use reasonable skill and care in contract and a duty of care in tort towards him; (b) they had acted negligently by (i) not investigating the purchaser's financial standing or advising the plaintiff to do so, and (ii) not cautioning against acting as sole guarantor for a company over which he would have no control, without adequate indemnity; and (c) the cause of his loss was the failure of the indemnity, not the guarantee, and the cause of action therefore arose on his entry into the indemnity agreement on June 16th, 1988 (when the defendants' professional duties were no longer capable of performance) and the service of the Order of Justice on June 12th, 1998 was thus within the 10-year prescription period.

The defendants submitted in reply that (a) their role as the plaintiff's solicitors was not one of general business adviser and did not extend to making commercial decisions on his behalf; (b) they had properly discharged their duty as (i) the responsibility to investigate the financial standing of the purchaser was the plaintiff's alone, and (ii) the plaintiff was aware of his obligations under the guarantee when he chose to enter that agreement; (c) even if they had been negligent with regard to the indemnity, the plaintiff's loss was caused by the guarantee, as the failure of the indemnity merely deprived the plaintiff of the opportunity to regain control of an already hopeless situation; and (d) in that event the action was prescribed, since the plaintiff's cause of action, his entry into the guarantee on May 27th, 1988, arose more than 10 years earlier.

Held, giving judgment for the plaintiff:

(1) The defendants' 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. The defendants negligently breached these duties by failing to investigate, or advising the plaintiff of the risk of not himself investigating, 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 plaintiff had no control, without a satisfactory indemnity ( para. 20; para. 25; para. 27).

(2) The cause of the plaintiff's loss was not the guarantee but the failure of the indemnity as, had the plaintiff known the true position of the purchaser, he would not have sold the company. Alternatively, he could have delayed the contract while obtaining a satisfactory indemnity, or refused the lease and attempted to find another purchaser. The effect of the negligence was to deprive him of that opportunity ( para. 32).

(3) Furthermore, the action was not prescribed in contract, as the serving of the Order of Justice was within the 10-year prescription period in contract. The cause of action arose when the plaintiff entered into the indemnity agreement, not when he entered into the lease containing the guarantee, as the lease could have been postponed without penalty or consequence until the financial standing of the purchaser had been investigated. Until that date, therefore, the defendants were under a continuing duty to advise how the plaintiff could be best protected from the financial inadequacy of the purchaser ( paras. 28-31).

(4) The plaintiff could therefore recover from the defendants the arrears of rental, water rates, insurance, interest and taxed costs paid to the landlord under the guarantee, in reliance on the defendants' advice that he could claim reimbursement under the indemnity. Furthermore, the plaintiff had successfully fulfilled his duty to mitigate his loss by explaining his continuing liability under the guarantee to the landlord, who allowed the lease to be cancelled, and took an assignment of the plaintiff's claim against the publishing company. The plaintiff would also be awarded costs to be agreed in relation to sums paid to the defendants for legal costs ( para. 34).

1 HAMON, COMMR.: The plaintiff in this action is Mr. Michael Adrian Riley. It concerns the alleged professional negligence of Mr. Barry Keith Pickersgill (who is named with his partner in the...

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