Blame it on the lawyer
By Jerome Veldsman
Hughes-Holland (in substitution for Gabriel) v BPE Solicitors, a decision of the UK Supreme Court on 22 March 2017, dealt with a client suffering loss on failure of a transaction, and suing the firm of solicitors who had acted for him.
In 2007, two men, Mr Gabriel, a fairly wealthy semi-retired businessman, and Mr Little, a cash strapped property developer, met in a pub. Soon, they discussed doing business with each other. Then a comedy of errors preceded a bankruptcy.
Gabriel understood from their discussion in the pub that Little (through a company) owned the relevant property, and that he would lend GBP 200 000 to Little to develop the property (with the latter being obliged to repay GBP 270 000). Gabriel had previously negotiated a similar transaction, and had instructed a junior solicitor to draft the loan agreement, but such transaction had not proceeded.
However, Little planned to use all the money to purchase the property and to settle outstanding tax liabilities.
Gabriel instructed the same solicitor to draft the loan agreement for his loan to Little. The only instructions to the solicitor were in a voicemail message from Little. In the message, Little said that the loan was to fund the purchase of the property. The solicitor used the previous loan agreement as a ‘template’, and failed to ‘update’ the purpose of the loan. So, in the document the loan to Little was stated to be to “assist with the costs of the development of the property“. As Gabriel was under the impression that such purpose of the loan was correct, and as Little remained silent about the ‘error’ (which he had intended), the loan agreement was signed and the money advanced.
No development of the property ever occurred, and the loan was not repaid on the due date. The property was sold by auction for less than the expenses of sale. Gabriel lost all his money and was soon thereafter declared bankrupt. The trustee of Gabriel’s estate sued the firm of solicitors who had drafted the loan agreement for the lost amount on the basis of negligence.
The solicitor had been negligent, and the law firm was liable for his actions. So, the question was whether such negligence had been the cause of the loss. On the facts, the law firm won. The whole project had been so ill-conceived that even if the whole GBP 200 000 had been applied to develop the property, Gabriel would still have lost all his money:
“[The law firm] was not legally responsible for Mr Gabriel’s decision to lend the money, but only for confirming his assumption about one of a number of factors in his assessment of the project … None of the loss which Mr Gabriel suffered was within the scope of [the law firm’s] duty. None of it was loss against which [the law firm] was duty bound to take reasonable care to protect him. It arose from commercial misjudgements which were no concern of theirs.”
It is apparent that one such “commercial misjudgement” was Gabriel’s ‘saving’ on legal fees. Excluding value-added tax, the law firm charged him less than GBP 1 000. The cost of proper legal advice would have been several multiples of such amount.