Future proof
Date: 30 October 2009
Authors: James Naylor
Issue: Vol 159, Issue 7391
Categories: Features, Property
In Stoll, Darren Atkins, Brambleridge Management Limited v Wacks Caller (a firm) [2009] EWHC 2299 (Ch) Cs instructed D, a now defunct firm of Manchester solicitors, to purchase development property, for the sum of £400,000.
The purchase contract was conditional upon Cs obtaining planning permission for the conversion of the property into two flats, with a further dwelling at the rear.
Completion was due to take place on the 21st day following the date of planning permission; save that if the planning application was refused, or if the sale and purchase was not completed within six months of exchange, the sale agreement was to lapse.
Contracts were exchanged following the grant of planning permission by Bury Metropolitan Borough Council (the council) on 30 July 2003, and completion took place on 19 August 2003.
However, the proposed development never proceeded because, post-completion, on 9 September 2003, out-of-the-blue, Cs new neighbours applied for judicial review of the council’s decision to grant planning permission. This resulted in the planning consent being quashed, meaning the development could not go ahead. Accordingly, Cs asked that the planning application be re-considered by the council.
However, while the planning application was being re-considered by the council, Cs marketed the property and received an offer (from Mr and Mrs Salisbury) at a price of £480,000. This offer was not conditional upon planning consent being obtained.
Accordingly, Cs withdrew their planning application. Unfortunately, and apparently due to difficulties on the part of Mr and Mrs Salisbury in effecting the sale of their existing property, the sale to them did not proceed to exchange of contracts and completion until April 2005, and then only at a price of £400,000.
This was clearly bad news for Cs, and after allowing for the costs of the original purchase and later resale, and for interest, bank charges, and other outgoings, Cs calculated that they had suffered a loss on the transaction of £72,341.01, as at the date of completion of the sale to Mr and Mrs Salisbury.
Cs were understandably aggrieved, and decided to issue High Court proceedings against D, seeking damages for professional negligence and breach of contract.
Cs claimed that D was negligent in failing to include within the original purchase contract a “call-in” clause directed to preserving the conditionality of the contract in the event of a challenge to the grant of planning permission by way of judicial review. Had this been done, Cs would have invoked the “call-in” clause to withdraw from the purchase prior to completion.
D denied the claim in its entirety, but said that even if they were negligent, the vendor would never have agreed to the insertion of a “call-in” clause, and Cs would have proceeded anyway.
The court rationalised the claim as falling into two parts: (i) whether D was negligent in failing to seek to introduce a “call-in” clause into the original purchase contract, and (ii) the consequences if D had sought to introduce such a clause.
Negligence
Cs made their claim and in doing so, relied upon the commentary in Volume 38 (2) of the Encyclopaedia of Forms & Precedents that states the inclusion of a “call-in” clause should at least be considered in any case other than: “the very simplest cases such as an application for change of use or for the carrying out of relatively minor building operations where…it is unlikely that the grant of planning permission would be challenged by third parties by way of judicial review….”
D accepted that it owed a duty to Cs to ensure that they were not committed to purchasing the property unless and until a satisfactory planning permission was in place; but refused to accept, in terms, that D’s duty extended to ensuring that Cs were not bound to purchase the property until that planning permission was incapable of further challenge.
This argument was somewhat undone, however, by an internal email from the fee earner involved, Mr Harris. It stated that it might have been “a mistake” not to have discussed with Cs at an early stage: “…the question of judicial review and extending the time for confirmation that planning permission had been obtained.”
His Honour Judge Hodge QC referred to County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916 at 922E, in which Bingham LJ said that: “If in the exercise of a reasonable professional judgment a solicitor is or should be alerted to risks which might elude even an intelligent layman, then plainly it is his duty to advise the client of these risks or explore the matter further.”
The judge went on to say that such observation applies to the circumstances of the present case. Cs had no previous experience of property development, and had no conception of the possibility of a third party challenge to the grant of planning permission by way of an application for judicial review. D should have alerted Cs to this fact. However, Cs were not so alerted and were “left in ignorance”.
The judge said that the Mr Harris: “…in the course of discharging his duties as a reasonably competent conveyancing solicitor, should have considered whether it was appropriate to include a ‘call-in’ clause”, and, accordingly, should have amended the draft contract supplied by the vendor, by introducing such a provision. Further, the only excuse for not doing so would be upon the informed consent of Cs.
Failing to propose such an amendment without having raised and discussed the matter with Cs first, meant Mr Harris breached the duties he owed to his clients. A reasonably competent conveyancing solicitor would have considered whether it was appropriate to include a “call-in” clause. Breach of duty was therefore well and truly established.
Causation
The next issue was one of causation. The judge found that had Mr Harris given appropriate advice to Cs they would have instructed Mr Harris to seek to insert a “call-in” clause in the draft contract, no matter how minimal the risk of a third party application for judicial review would be, as there would have been no reason for Cs not to seek to protect themselves against such risk.
Further, given the sale was in a rising market, and that the price was fixed at £400,000, the court did not think the vendor would have agreed to include a “call-in” clause, as this would have prejudiced his interests by delaying the completion of the sale by at least three months and seven days while the period for seeking judicial review ran its course.
At the time, it would have been anticipated by the vendor that the property would increase in value, and, accordingly, the vendor would not have committed himself for more than six months to a fixed-price contract, conditional on the grant of planning permission.
The judge speculated that the overwhelming likelihood is that the vendor would have said to Cs: “Six months is what we agreed. Take it or leave it. If you want to apply for planning permission, go ahead. But I shall continue to market the property in the meantime. The market is buoyant and is still rising. If I receive an offer in excess of £400,000…you will have to beat it or you will lose the property.”
As an aside, it is important to recite that the court heard no evidence from the vendor; from the vendor’s solicitor; from Cs’ architects who advised Cs on planning matters; or the estate agent who had sold the property, as to the likely attitude of the vendor to, for example, any attempt to introduce a “call-in” clause. This being despite Cs confirming that most were available to be called as witnesses. Accordingly, and in line with Wiszniewski v Central Manchester Health Authority [1998] PIQR P324, the judge drew adverse inferences.
The court then had to consider what Cs would have done if the vendor had refused to agree to a “call-in” clause. If they would have withdrawn from the purchase, if correctly advised, then D’s negligence would have been the cause of their loss. Naturally, Cs claimed they would have withdrawn.
The court concluded that Cs would have proceeded as the market was buoyant and they were keen to proceed and they would not have thought the chances of any successful judicial review application were high.
Furthermore, the property was worth around £400,000, even if the development did not proceed, so Cs did not have much, if anything, to lose by proceeding speculatively.
As a result, and as it could not be shown that the vendor would have agreed to the inclusion of a “call-in” clause, or that his refusal would have prevented Cs from proceeding with the purchase, the claim failed for want of sufficient proof of causation. Accordingly, Cs were awarded nominal damages of £1, and ordered to pay D’s agreed costs of the claim in the sum of £135,000.
The lessons are there for all to see. It is not good enough to ensure that a purchaser in a conditional contract is not committed to purchasing unless and until the condition is satisfied.
The duty is much wider than that and involves anticipating what if any attack can be brought to bear upon the condition; for example, as in this case, by making sure a purchaser is not bound to purchase until planning permission has become incapable of challenge.
That remains the position even when dealing with an “intelligent layman”. A property lawyer should always ensure that he advises upon all risks, even those that he may assume his client is aware of, or those that perhaps only a litigation solicitor could anticipate. In addition, informed consent should be obtained before a solicitor refrains from amending a draft contract. Full instructions are not only required on what is added to the contract, but also what is not added, or left alone.
Failure to accept the lessons from Stoll, could result in a finding of negligence, and, unlike the fortunate solicitors in this case, a hefty damages bill.
Hurdles
The other message that burns brightly throughout HHJ Hodge QC’s judgment is that establishing breach of duty is only one hurdle professional negligence litigators have to overcome: failure to prove causation means nominal damages; nominal damages means adverse costs; adverse costs means more pain for the client; and there is no need for a crystal ball to anticipate that inevitable conclusion.
James Naylor is a senior associate in the property litigation team at Lupton Fawcett LLP
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