17 Mar 2012

Professional Negligence Case Report: Scope of Solicitor's Duties - Kirkton Investments Ltd -v- VMH LLP

Professional Negligence Case Report: Scope of Solicitor's Duties - Kirkton Investments Ltd -v- VMH LLP

This recent Court of Session case examined the scope of duties owed by solicitors and the extent of damages payable as a result of their professional negligence.

This recent Court of Session case examined the scope of duties owed by solicitors and the extent of damages payable as a result of their professional negligence.

Background

Kirkton Investments Limited (“Kirkton”), a property development company, instructed VMH LLP solicitors (“VMH”) to act on their behalf in connection with the acquisition of a site benefiting from planning permission for the construction of townhouses. Funded by bank borrowing, Kirkton purchased the site with the intention of launching the development in April 2007.

The existing planning permission was conditional upon the installation of a ventilation duct in a nearby chip shop. VMH advised Kirkton that they had a legal right to installation enforceable against the chip shop’s new owners, Ian McDonald Enterprises (“Ian McDonald”). Kirkton began construction of the site in late 2005, however, Ian McDonald subsequently disputed Kirkton’s entitlement and sought payment of £75k. On the advice of VMH, Kirkton refused to pay. However, it was subsequently established that Kirkton did not have rights capable of enforcement against Ian McDonald and they ultimately paid £324k in exchange for installation.

In the meantime marketing of the development had stalled. Kirkton were unable to launch the development until early 2008 by which time the property market slump had begun to take hold.

Losses Claimed

Kirkton argued that VMH were liable for the costs incurred in rectifying the position with regard to the vent and in funding the development for longer than would have otherwise been the case. Further, they claimed that, but for VMH’s breach, they would have paid off bank indebtedness by March 2008. On that basis they sought to recover bank charges and related professional fees arising after that date. Finally, they claimed for losses incurred as a consequence of the lower sale prices ultimately achieved due to the fall in the property market.

VMH admitted their breach of duty and conceded that Kirkton were entitled to recover costs reasonably expended in obtaining installation permission. They argued, however, that losses claimed in respect of additional charges and diminished sale proceeds did not fall within the scope of their duties. Those losses, in their view, had not been in contemplation and therefore it would not be fair and reasonable to impose related duties upon them. Further they contended that Kirkton ought to bear the risk of changes in the property market.

The Court’s Decision

The Court sided with the Pursuer. Lord Doherty distinguished this case from the facts of those in South Australia Asset Management Company Ltd v York Montague Ltd [1997]. In that case the House of Lords had decided that a valuer was not liable for all the foreseeable consequences of their negligence, but only for the consequences of duties which they had assumed. The valuer’s sole duty was to provide information about the value of a property and the recoverable loss was limited to the difference between the amount lent based on the negligently made valuation and the amount that would have been lent if the correct value had been provided to the lender.

Lord Doherty took the view that, in contrast to a valuer, VMH owed duties to protect their client’s position at all times. It was reasonably foreseeable that a breach of that duty may cause delay and add expense to the transaction, in turn exposing Kirkton to variation in the property market and additional bank charges. Accordingly, he held that in these circumstances it was “fair, just and reasonable that the scope of the defenders’ duties should extend to the kinds of loss and damage claimed” and ordered VMH to pay around £1.1 million in damages.

Ryan Openshaw, Solicitor


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