Professional Negligence and appreciating your limitations

17 December, 2015

In the recent case of Fryatt v Preston Mellor Harrison [2015] EWHC 1683, the court was required to consider the level of care that solicitors need to take when they are faced with questions that fall outside their own area of expertise. In Fryatt, the Claimant property developer brought an action against Preston Mellor Harrison, the Defendant firm of solicitors, regarding advice given by a legal executive at the firm. The Claimant had instructed the Defendant firm to act for them in the purchase of derelict land owned by Metal Valley Holding (MVH). It was originally decided that the Claimant would take an option over the land for £900,000 but, as negotiations proceeded, the Claimant was advised to take an option over MVH’s shares instead, as this would result in no SDLT being payable. However, before the Claimant was able to exercise their option, MVH entered liquidation.

 

The legal executive had originally said to the Claimant that if MVH were to enter liquidation, the Claimant would still be able to exercise the option agreement. However, the legal executive failed to take into account s.88 of the Insolvency Act 1986 which states that if shares are transferred without the sanction of the liquidator and after the commencement of a voluntary winding up, the transfer will be void. This prevented the Claimant from being able to acquire the land.

 

In response the Claimant sued the Defendant firm for failing to advise him on the practical effects of taking an option over the shares rather than an option over the land itself. At trial the legal executive said that he had told the Claimant that he did not have expertise in company sales transactions. He also claimed that he suggested that the Claimant should have instructed a specialist corporate lawyer to advise him on the issue. However, the Claimant contended that he had asked the Defendant about instructing a specialist solicitor to provide advice on the potential risks but had received no response.

 

The High Court found that the Defendant had fallen below the applicable standard and that he had acted negligently. The judge concluded that the legal executive had failed to appreciate his limitations in experience and had not been explicit enough in explaining this to the Claimant.

 

Whilst the claim was, in the end, unsuccessful because causation and loss were not established, this case demonstrates the risks of acting, or attempting to act, in areas outside of a practitioner’s expertise.