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Riley v Pickersgill [2004] UKPC 14, [2004] WL 62226 P.C

In an action for professional negligence brought against any professional advisor the first question to be asked is what precisely was the advisor required to do? This question is normally answered first by looking at the precise terms of the instructions given by the client. However, sometimes a client who has suffered loss as a result of entering into some transaction may argue that the advisor should have gone beyond the explicit instructions and warned of risks that the client does not appear to have noticed. The problem is that clients often assume that the solicitor can be relied on for advice on the overall advisability of a proposed transaction even if this has not been specifically asked for. In such situations, the courts have traditionally drawn a distinction between advice as to the legal consequences of a particular course of action and general advice on the wider commercial risks. The solicitor is responsible for the first type of advice but not for the second, although the boundary between them may sometimes be difficult to draw.

In the present case the claimant owned the whole of the share capital of a company that published free business newspapers. The company had taken a 28-year lease of premises in Jersey and the lessor had insisted upon the claimant giving a personal guarantee for the rent. Later, when the claimant disposed of his shares to an English company, the lessor refused to release the claimant from the guarantee. On advice from the defendant solicitor, the claimant accepted a promise from the company that purchased his shares to indemnify him against any liability on his guarantee.

Neither the claimant nor his solicitor had checked the financial status of the purchasing company because they were under the impression that it was a substantial company. In fact, it was only a shell holding company without assets of its own. A few years later the purchasing company became insolvent, the rent fell into arrears and the lessor held the claimant liable on his guarantee. The claimant thereupon sued his solicitor for failing to check the company's financial status or to advise him of the risk he was running.

The court in Jersey held the solicitor liable. However, the Privy Council reversed this decision. Their Lordships emphasised that the solicitor had advised the claimant as to the danger of accepting an indemnity from a limited company which might become insolvent and that was the extent of his duty. The decision as to whether or not to investigate the financial status of the company before accepting its indemnity was essentially a business decision that could be reasonably left to the client who was an experienced business man. The Jersey court had treated the solicitor as an “homme d'affaires” but, their Lordships stated, this could not extend his role from that of a solicitor acting on his client's instructions to that of a commercial advisor or an insurer of commercial risks the client might choose to take.

Montlake & Otrs (as trustees of Wasps Football Club) v Lambert W Smith Hampton Group Ltd & antr. [2004] WL 074156, EWHC 938 (Com), 20 EG 167 (CS)

In this case, the claimants were the trustees of Wasps, a leading rugby club which wanted to be in the premier division of the sport after professionalisation in the 1990s.

To achieve this they needed more capital in order to be able to offer attractive contracts to players and coaches and to provide a ground suitable for play at this level. The club decided that the best way forward was flotation on the AIM market and they asked the defendants in 1996 to prepare a valuation of the club's ground in Wembley to be used in the flotation documents.

The defendants had actually carried out a valuation two years previously for“accounting purposes” and concluded that because of the specialised nature of the ground this should be on a depreciated replacement cost basis. In 1996, the defendants were instructed orally to prepare a current valuation focussing on potential capital gains tax liability, when the ground was transferred to a new company. The defendants updated their valuation to £832,500 based on their belief that possible redevelopment of the site was blocked by a restrictive covenant and that even if that could be removed there was no possibility of obtaining planning permission. However, no further investigations were made.

The ground and all of the assets of Wasps were transferred to a new company which in turn sold them to Loftus Road Plc. During negotiations for the sale,the new owner had a new valuation prepared by DTZ which valued it on an open market basis at £5.7m on the basis of its potential for residential development.

Eventually the new owners obtained planning permission and sold the ground to a developer for £8.9m. The claimants brought proceedings against the defendants alleging that they had been negligent in failing to make proper planning enquiries and to appreciate the possibility of obtaining planning permission for residential development and that as a result the defendant had substantially under valued the property.

Shortly before the trial, the defendants admitted that they had been negligent because the valuation should have been an open market and not a depreciated replacement cost valuation. The claimant's main argument was that if they had been properly advised about the value of the ground and the possibility of planning permission they would have held onto it and sold it for a higher price later. At this point the defendant joined the claimant's solicitor as a defendant claiming a contribution to any liability to the claimant. The only remaining dispute was as to the amount of the claimant's loss.

The defendants claimed that the only purpose of the 1996 valuation was to provide figures for possible capital gains tax liability and as there was no such liability the claimants had suffered no loss.

The claimants argued that they had been deprived by the inaccurate valuation of the opportunity of holding onto the ground and realizing the redevelopment profits. The judge decided that an accurate valuation would have been £3.25m.

Langley J. held that neither of these arguments was correct. He held that the defendants should have realised that the valuation might be used in deciding on the sale of the ground. On the other hand, however, the claimants would not have taken the risk of keeping the ground and seeking planning permission. Thus, the claimant's damages should be the difference between the £832,500 valuation and its true value of £3.25m.

The defendants then tried to reduce their liability by arguing that the claimant had been contributorily negligent in failing to consider whether they could retain the ground while selling their other assets.

Langley J. rejected this argument and also that against the claimant's solicitor. The claimant had based its decision on the assumption that the valuation and the advice as to the possibility of obtaining planning permission were correct, and this they were entitled to do. The defendant could hardly criticise the claimant for making a decisions based on their own negligent advice. The solicitor had not been retained to advise on commercial matters and expert evidence did not suggest that it was normal conveyancing practice to seek to ensure that its client would share in the benefit of any future sale of the land being disposed of. Thus, the solicitor was not negligent.

Thomson v Christie Manson and Woods Ltd and others [2004] EWCH 1101 (QB) [2004] All ER (D) 267

This case illustrates the need to ensure that any doubts about advice given to clients are made clear.

Christies, the famous auctioneers of fine arts and antiques, held a sale of items which included two vases described in the catalogue as “A pair of Louis IV porphyry and gilt-bronze two handled vases”. The claimant was a keen private collector who had no expert knowledge. However, she was regarded by Christies as a “special client”, a designation that gave her access to a special advisor whose role was to give the client as much information as possible to enable the client to make an informed judgement. The claimant received the catalogue and made a request for more information. She was shown the urns by the special advisor who reassured her as to their quality. The claimant subsequently made a successful bid for the urns which together with charges came to just under £2m.

Some time later doubts arose as to whether the urns were in fact 19th century copies rather than Louis XV as stated in the catalogue. The claimant issued proceedings against Christies and the vendors alleging misrepresentation and breach of duty of care.

On the evidence it was accepted that there are always difficulties with dating such objects and that there was a 70 per cent chance that the urns were of the Louis XV period. The first defendants, Christies, were therefore not in breach of their duty of care in reaching the conclusion that they were of that period.

However, their cataloguing of the items fell below the standard to be expected, as did their advice to the claimant. The difficulties of dating such objects and consequently, the risks of the purchase were not passed on to the claimant nor were they mentioned in the catalogue. Consequently, this gave rise to an unjustified feeling of confidence and certainty about the urns. Given the relationship which existed between the client and the defendants, she should have been made aware of the inherent risks and difficulties.

Trespass

Severn Trent Water Ltd v Barnes [2004] EWCA Civ 570, 26 EG 194

In this case, the claimant brought action for trespass against Severn Trent Water because they had laid 20m of a 28km long new water main over one corner of his property without serving the statutory notice as required by s159 of the Water Industry Act 1991. Severn Trent's mistake was an honest one as the boundaries of the land in question were unmarked and it appeared to form part of land belonging to another person upon whom notice had been served.

The claimant claimed damages for loss of development value based on the loss of two development plots at £50,000 each and additional development costs. In the alternative he claimed restitutionary damages representing the value to Severn Trent of the water main on the basis of a fair price for the benefit obtained from its wrongful use of the claimant's land; namely 5 per cent of£210,527 being the annual charging rate in respect of the main.

Severn Trent contended that the appropriate measure of damages was the compensation that would have been payable under Schedule 12 of the 1991 Act, a sum agreed at £110.

In the High Court the claimant was awarded £110 compensation that would have been payable, £500 for loss of an opportunity to negotiate a higher sum and £1,560 as restitutionary damages, based on £520 p.a. for three years from the date upon which the trespass commenced to the date at which the matter ought to have been compromised. The claim for damages based on the development value of the land was dismissed on the ground that Mr Barnes'chances or those of his successors in title of obtaining planning permission were so remote as to be valueless and in any case such value would not have been in any way diminished by the minimal trespass.

Although the sums of money awarded in this case were not substantial, Severn Trent appealed against the second and third elements of the award. It felt that there were issues of principle in relation to claims of this kind and it feared that if the judge's decision was not corrected it could serve as a precedent in other cases.

The appeal was unanimously allowed in part. The claimant was entitled to the£110 as it was agreed i.e. what he was entitled to as compensation under the Act. However, the court felt that if notice had been served in advance of the works being carried out, the claimant would have negotiated to obtain a greater payment. Thus, he was entitled to £500 as representing the loss of a bargaining opportunity. The court felt that this represented the likely reasonable outcome of any negotiations that would have taken place.

However, their Lordships unanimously agreed that there was no basis for awarding any further damages or for the figure of £1,560. Potter L.J. stated that the judge may have awarded the additional sum of £1,560 because he felt that a total of £610 was too low to award as damages. However, this was based on a misunderstanding of the authorities on damages based on the “user” principle in the tort of interference with land and in trespass in which substantial amounts had been awarded. (See: Stoke on Trent City Council v W & J. Wass Ltd (No 1) [1988] 1 WLR 1406, Martin v Porter (1839) 5 M & W 351, Jegon v Vivian (1871) LR 6 Ch App 742, Whitwam v Westminster Brymbo Coal Co. [1896] 2 Ch 538, A.G. v Blake [1998] Ch 439, Bracewell v Appleby [1975] Ch 408, Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, Car-Saunders v Dick McNeil Associates Ltd [1986] 1 WLR 922, Jagard v Sawyer [1995] 1 WLR 269).

There were two reasons why the principles decided in those cases did not apply here. First, in the cases cited on trespass to land, if the parties had negotiated prior to the trespass they would have been constrained only by market forces as the defendant would have been unable to proceed at all without the owner's permission. In Severn Trent's case however, it was a statutory undertaker and was therefore entitled to enter the land and to do work subject only to service of notice and payment of compensation as assessed by the Lands Tribunal in the absence of agreement. The parties agreed that such an assessment would have yielded no more than £110. Second, whether damages were assessed by reference to “benefits wrongly obtained” by Severn Trent's use of Mr Barnes' land or by reference to loss or detriment suffered by Mr Barnes they were insignificant. Mr Barnes had lost no opportunity to develop or exploit his land, nor did Mr Barnes have the power to stop the works from being done. Thus, his only loss was the loss of the opportunity to negotiate a higher price than that which would have been granted by the Lands Tribunal.

Their Lordships held that the additional award of £1,560 was unjustified and based on a misunderstanding of the authorities. The judge had taken the view that the claimant was entitled to “some barely appreciable percentage of the defendant's profits” which they were liable, as trespassers, to pay. This view was mistaken as the only relevance of the defendant's profit lay in helping the court to fix a fair price for any notional licence over the claimant's land that the court may grant retrospectively. There is however, no obligation on the court to pay attention to the defendant's profits and it may be inappropriate in some cases to do so, for example, where profits made are negligible or are impossible to assess. That was the position in this case. There was no sensible way of assessing the profits Severn Trent might make from the use of 20m of water main that ran over the claimant's land out of the 28km of its entire length. The figure of £1,560 “appeared to have been plucked from the air” with no explanation as to the manner in which it had been calculated. Thus, it was disallowed.

Drury v Secretary of State for the Environment, Food and Rural Affairs [2004] EWCA Civ 200, [2004] 37 EG 142

In this case, the question was whether a landowner whose land is occupied by trespassers may not only obtain a possession order in respect of the land currently occupied but also in respect of other land which he fears may be occupied by the trespassers when they are moved on.

In April 2003, a group of travellers, including the appellant, wrongfully occupied some land which was managed by the Forestry Commission on behalf of the Secretary of State. The Secretary of State issued a claim for possession against“persons unknown” within the meaning of rr55.1(b) and 55.3(4) of the Civil Procedure Rules 1998 in respect of the land currently occupied and also for 30 other named areas of woodland within a 20 mile radius. This was based on the Forestry Commission's previous experience that the travellers would simply move to another piece of land. The county court judge granted the possession order in respect of all of the woodlands. The appellant, who became a named defendant, appealed on the ground that the possession order should not have been granted in respect of woodland not currently occupied.

As Ward L.J. remarked the problem in cases such as these is that “...the court must be sensitive to both interests and must sensibly extend the ambit of its jurisdiction or control its exercise in a way that not only does justice between the parties but also ensures that its own procedures are not made a mockery by those intent on evading them”. There was no doubt that the Secretary of State was entitled to a possession order in respect of the land currently unlawfully occupied by the travellers. The question was whether this should extend to the areas not currently occupied.

The normal remedy for a threatened wrong is a quia timet (because he fears)prohibitory injunction. After an examination of the cases, Attorney General for the Dominion of Canada v Richie Contracting & Supply Co Ltd [1919] AC 999,White v Mellin [1895] AC 134, Redland Bricks Ltd v Morris[1970] AC 652 their Lordships held that such an injunction will only be granted where the claimant can establish that there is a very strong probability or grave danger of the wrong being done to him.

The question in this case was whether the court could use the same principles to give an effective remedy through a possession order to cover several separate parcels of land each of which could have been made the subject of a separate injunction. The desire to make such an effective order must be balanced against the potentially unfair effect of it operating so as to eject travellers who are occupying other land but who played no part in the original trespass. There is authority for the proposition that once a trespass has been established on one part of the claimant's land the tort is complete with respect to the whole of it(University of Essex v Djemal [1980] 1 WLR 1301). However, this only gives the court the jurisdiction to make an order for possession of some or all of the claimant's land. Whether or not such an order is made is a matter for the judgement of the court and in this case the court held that the claimants had not established a real danger of the defendants moving on to any of the thirty areas of woodland. The appeal was therefore allowed.

Landlords' consent to alterations

Iqbal v Thakrar [2004] EWCA Civ 592; [2004} 36 EG 122

In this case, the Court of Appeal was concerned with the question of whether the landlords had unreasonably refused consent to alterations. The building in question comprised ground floor commercial premises let to the respondents on a long lease with a permitted Class A3 user, i.e. permitting use of the demised premises for the sale of hot food for consumption on or off the premises; the upper storey(s) of the building comprised newly converted or refurbished flats which were apparently intended to be let off for residential purposes by the landlords. As regards the ground floor demised premises, there was no express restriction either absolute or qualified on any future change of use, but there was a specific albeit qualified restriction on the tenant making any structural alterations or additions to the demised premises “either internally or externally without the approval in writing of the landlord (such approval not to be unreasonably withheld) to the plans and specifications”.

The tenants requested the landlords' consent to carry out certain structural alterations to the ground floor demised premises with a view to converting those premises into an Indian restaurant. The landlord refused consent on the grounds(inter alia) that the proposed alterations included works which could weaken the load-bearing walls and thus, might tend to destabilise the upper floor(s) of the building since although there were various notes on the architects' drawings to the effect that the builder should investigate the situation before executing the works, there was no indication as to how any structural problems which might be revealed by such an investigation should then actually be dealt with.

In the County Court, the Recorder held that the landlords' objections were unreasonable on a variety of grounds but including the ground that in her opinion the landlords' real basis of objection to the proposed alterations was that the subsequent use of the ground floor premises which were the subject of the demise as an Indian restaurant would reduce the rental income accruing to the landlords from the letting of the flats on the floor(s) above, and that such a ground of objection was unreasonable because the ground floor premises had been leased to then respondents with a user clause permitting an A3 use.

The landlords appealed. Interestingly, despite the fact that the case did not on the face of it turn about the issue of the proposed change of use as such,still less to any application by the tenant for the landlords' consent to assign the lease, the Court of Appeal did refer in some considerable detail to the case of International Drilling Fluids Ltd. v Louisville Investments (Uxbridge) Ltd. [1986] Ch 513; [1986] 1EGLR 39; (1986) 277 EG 62 which was concerned almost exclusively with the question of the reasonableness or unreasonableness of the landlord's refusal of consent to assign, and adapted the reasoning of the court in that case to apply to the questions at issue in the instant case, in the words of Peter Gibson L.J., as follows.

• 1.

  The purpose of the covenant is to protect the landlord from the tenant effecting alterations and additions that could damage the property interests of the landlord.

• 2.

  A landlord is not entitled to refuse consent on grounds that have nothing to do with its property interests.

• 3.

  It is for the tenant to show that the landlord has unreasonably withheld its consent to the proposals that the tenant has put forward. Implicit in this is the necessity for the tenant to make sufficiently clear what its proposals are,so that the landlord knows whether it should refuse or give consent to the[proposed] alterations or additions.

• 4.

  It is not necessary for the landlord to prove that the conclusions that led it to refuse consent were justified, if they were conclusions that might have been reached by a reasonable landlord in the particular circumstances.

• 5.

  It might be reasonable for the landlord to refuse consent to an alteration or addition to be made for the purpose of converting the premises for a proposed use even if not forbidden by the lease. But whether such refusal would be reasonable or unreasonable will depend upon all the circumstances. For example,it might be unreasonable if the proposed use was a permitted use and the intention of the tenant in acquiring the premises to use them for that purpose was known to the freeholder when the freeholder acquired the freehold.

• 6.

  Although a landlord will usually need to consider only its own interests,there might be cases where it would be disproportionate for a landlord to refuse consent, having regard to the effects upon it and the tenant, respectively.

• 7.

  Consent cannot be refused on grounds of pecuniary loss alone. The proper course for the landlord to adopt in such circumstances is to ask for a compensatory payment.

• 8.

  In each case it will be a question of fact, dependant upon all the circumstances, as to whether the landlord, having regard to the reasons that impelled it to refuse consent, had acted unreasonably.

Finally, said the court, speaking with approval of the judgment of May L.J. in Tollbench Ltd. v Plymouth City Council [1988] 1EGLR 79; [1988] 23 EG 132:

• It is also clear from the authorities...that the court should consider two questions. First, what was the actual reason for refusing consent, which...is a subjective enquiry to find out what was in the mind of the landlord at the time of the refusal of consent. The second question is an objective enquiry as to whether the reason in the landlord's mind was reasonable or unreasonable...

Applying these tests to the landlords' refusal in the instant case, the Court of Appeal felt that this was not unreasonable: counsel for the respondent tenants had suggested that the landlord could have dealt with any theoretical structural problems by granting a conditional consent. However, this was not a matter for the landlords to deal with: it was for the tenants to put forward the proposals for the alterations or additions and it was for the tenants to specify how they proposed to deal with any structural problems which might arise from their execution.

Longmore L.J. agreed, but added that this did not preclude the tenants from now making a fresh application for consent which was in such a form that it did deal with the possible problems involving the load-bearing part of the premises.

Business tenancies

Hawkesbrook Leisure Ltd. v The Reece-Jones Partnership [2003] EWHC 3333 (Ch); [2004] 25 EG 172

Briefly, in this case, the claimant tenant was a non-profit making company,limited by guarantee, which had been set up to take leases of and to manage two sports grounds which were owned by London Transport. The claimants had appointed the defendant solicitors to obtain renewals of the two leases in question under Part II of the Landlord and Tenant Act 1954. The defendants had served the requisites. 26 notices, but had failed to make the necessary application to the court within the prescribed time limits which would have been necessary to safeguard the claimant's position in the event that they were unable to reach very early agreement on the terms of renewal.

In due course the claimant tenant sued the defendants for damages for negligence. On a preliminary issue the defendants sought to avoid liability on the ground that the claimant was a non-profit making company and was therefore not in occupation of the playing fields for the purpose of a business. Not surprisingly, the court did not accept this argument: without going into the details of the company's memorandum of association, the way in which it carried on its various activities, membership arrangements, staffing, financial turnover, etc., all of which are dealt with at some modest length in the law report, s.23(2) of the 1954 Act defines the term “business” to include “a trade, profession or employment and [also] includes any activity carried on by a body of persons, whether corporate or unincorporated”and the latter phraseology was certainly wide enough to embrace the claimant tenant's activities.

The court referred to a number of authorities in support of this view, and distinguished the earlier case of (2000) 79 P&CR 118 which had involved the Secretary of State for Transport v Jenkins use of land as a community free farm to which members of the public had free access, and in respect of which the Court of Appeal had said “Not only is the enterprise not carried on with a view of profit, it is not carried on as a trading activity, but rather in a spirit of public benevolence. As such it is not a trade, profession or employment, nor is it any kind of business...”. In the instant case, on the other hand, the activities carried on by the claimant were carried out with a view to making a profit or surplus, albeit not distributable to members, and it was carried on as a trading activity.

Brighton and Hove City Council v Collinson and Another. [2004] EWCA Civ 678; [2004] 28 EG 178

This case concerned the effectiveness or otherwise of the parties' efforts to“contract out” of the provisions of ss. 24-28 of the Landlord and Tenant Act 1954 under the provisions of s. 38 of the Act in relation to a lease of part of certain Leisure Centre premises owned by the Council.

Briefly, a joint application had been made to the county court by the Council(as the prospective landlord), by a company named Galaxi 3 Ltd. (as the prospective lessee) and by the two respondents (as the prospective guarantors of the company's liabilities under the proposed lease). The actual wording of the court order however, referred to the company and the two respondents as the prospective lessees. In the event the lease was actually granted to the two respondents (apparently for tax reasons) rather than, as had originally been intended, to the company Galaxi 3 Ltd.

The two respondents claimed that, in consequence, the attempt of “contract out” of the relevant provisions of the 1954 Act had been ineffective, and the judge at first instance agreed. The Court of Appeal came to a different conclusion, however.

Referring to the earlier decision in Receiver for the Metropolitan PoliceDistrict v Palacegate Properties Ltd. [2001] Ch. 131; [2000] 1 EGLR 63;[2000] 13 EG 187, Jacob L.J. said:

• There is no need to construe the Act or indeed lease in an over-technical way when a perfectly sensible business reading can provide a more sensible result...[and continued]...it seems to me apparent that the change [of parties to the lease] should be regarded as no more than a technical change for tax purposes, which is exactly the way the parties thought of it. There is a substantial similarity. Did the prospective tenant know that there was exclusion? The answer is yes, the [respondents] knew that. Did the court have power to make an order excluding the provisions of the Act for a lease to be granted to the [respondents]? Yes, it did. In my judgement any other conclusion[than a finding that the court order had been effective to exclude the relevant provisions of the 1954 Act] would be turning the necessary technical parts of landlord and tenant law into unnecessary technicality...

On that basis, said the court, the appeal by the Council should be allowed.

Norfolk Capital Group v Cadogan Estates Ltd. [2004] EWHC 384 (Ch); [2004] 32 EG 64

Briefly, in this case the tenant had requested consent of the landlord to carry out works to the demised premises pursuant to s.3 of the Landlord and Tenant Act 1927, and the landlord had responded (as it was entitled to do, in reliance on the proviso to s. 3(1) of the Act) by offering instead to carry out the proposed works itself in consideration of a substantial increase in the annual rental. The tenant subsequently withdrew its request for consent to the proposed works, and the question then arose as to whether the landlord was entitled to insist upon carrying out the proposed works itself against the wishes of the tenant. No, said the court: the natural and ordinary meaning of the proviso to s.3(1) was merely to preclude the court from giving a certificate authorising the tenant to carry out the works where the landlord had offered to execute them itself in accordance with the terms of the proviso; there was not any discernible policy reason for compelling the tenant to accept an improvement by the landlord, even if the tenant no longer wished to proceed with such an improvement. On the contrary, said the court, any such interpretation, far from encouraging and facilitating improvements by the tenant in accordance with the policy of Part I of the 1927 Act would be likely to act as a positive disincentive to tenants ever using the procedure set out in s.3. Accordingly,the tenant was entitled to a declaration that the landlord was not entitled to enter the demised premises to carry out the works.

The law is stated as it is understood to be as at 11 September 2004

G. Waterson and Rosalind Lee