£1.9m Professional Negligence Claim Fails on Causation and Commercial Reality

The recent case of Rentokill Initial 1927 plc v Goodman Derrick llp [2014] demonstrates how courts will not impose liability for professional negligence where, amongst other things, causation has not been fully satisfied.

This claim against a firm of solicitors arose out of a property transaction in which the claimants, Rentokill, sought to sell a commercial building to developers Taylor Wimpey in 2009 at the height of the commercial property slump.

A clause in the sale contract relating to planning conditions enabled Taylor Wimpey to pay a significantly reduced price in arbitration after initially refusing to complete on the sale contract.

The Facts in Rentokill Initial 1927 plc v Goodman Derrick llp [2014]

The claimant, Rentokill, had instructed the defendant solicitors, Goodman Derrick, to act on its behalf, selling commercial office premises in East Grimstead, Sussex to Taylor Wimpey at a time of notable decline in the commercial property market. Taylor Wimpey’s purchase of the premises was subject to the granting of planning consent for residential development with acceptable conditions. A £4.4.m purchase price was agreed.

Taylor Wimpey subsequently refused to complete the purchase of the property, as the planning conditions eventually imposed were unacceptable. Arbitration proceedings commenced which enabled the claimants to complete the sale but only at a compromised price of £2.5m.

Rentokill consequently brought claims against Goodman Derrick for professional negligence and/or breach of retainer in drafting the planning condition clause too widely.

Why the Professional Negligence Claim was Dismissed

Judge Dight dismissed the claim that the defendant was negligent its drafting of the terms of the contract of sale.

Several elements of the judge’s reasoning stood out. Firstly the contract had enabled the claimants to sell the property at a time of falling commercial property values. Secondly, he did not accept the claim that the claimants were not sufficiently advised as to the proper meanings of the terms of the contract. Further, the contract was held to have achieved the correct balance between the possibly conflicting aims of all parties, including the commercial viability of the project.

As such, the risks were inherent in the marketplace and the claimant had not been exposed to them simply via negligent representation. Furthermore, the wording and meaning of the material clauses including the crucial definition of “unacceptable planning conditions” – that which enabled the developer to avoid the contract – were held to have been fully understood by the claimants, of whose active personnel, in the matter, included a solicitor of considerable commercial experience.

In any case, Judge Dight made clear that it was for the claimant to prove on the balance of probabilities what would have occurred, hypothetically, had non-negligent advice been given. The evidence pointed towards Taylor Wimpey not agreeing to any other terms, and further that the claimant would have won (what was held to be) inevitable arbitration.

Comment

An interesting side issue arose from this case because the Judge criticised the claimant for failing to reveal the privileged advice it was given by its legal team in relation to the prospects of success at arbitration with Taylor Wimpey. This failure to waive privilege resulted in the Judge being unable to determine whether or not the claimant had acted reasonably in settling the arbitration and thus incurring the losses claimed in the current case.

For specialist advice about making or defending professional negligence claims contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.