In the case Oxford Property Investments Ltd v Peter Lynn and Partners (A Firm) from February 2023, the English High Court has applied the guidance set out in Manchester Building Society v Grant Thornton in a judgment which considers the scope of the duty of care owed by solicitors to their clients and the consequent losses that fall within that scope.
£1m Finder's Fee
The second claimant, Sapphire Developments Solihull Limited ("Sapphire"), had entered into a contract to purchase a development property in Solihull but rather than develop the property itself, Sapphire agreed to sell on its share to another developer in exchange for a finder's fee of £1m plus VAT.
Sapphire alleges that the defendant, Peter Lynn & Partners, was instructed to procure a binding agreement with the other developer for payment of that finder's fee. Alternatively, Sapphire alleges that the defendant was required to advise it to obtain development finance to allow it to develop the property itself if the other developer pulled out.
Sapphire has raised a claim against the defendant for the loss of the finder's fee, with an alternative claim for loss of profits on the property development.
Sapphire also alleges that it planned to use the finder's fee to fund deposits for the purchase of two further developments.
Scope of Duty Arguments
In this judgment, Sapphire was seeking permission to amend its claim to allow it to recover loss of profits on the two additional property developments.
The defendant objected to the proposed amendments on several bases, including that any loss of profits on these further developments fell outside the scope of the duty of care that was owed by the defendant to Sapphire.
The defendant also sought summary judgment to dismiss Sapphire's claim for loss of profits on the original property development, arguing that this also fell outside the scope of its duty of care.
The defendant maintained that the purpose of the defendant's duty was to protect Sapphire in its dealings regarding the finder's fee and the loss of profits claims fell outside the scope of that duty.
Sapphire 'valiant' but unsuccessful on further development losses
Sapphire argued, among other things, that the loss of profits on the future developments could be recoverable because the duty owed by the defendant to Sapphire extended to ensuring the finder's fee was received and available for the additional property purchases.
Despite describing this as a 'valiant attempt at an ingenious alternative plea', the court noted "there was no clear factual or legal basis to allege that even if a solicitor is not retained in respect of an additional transaction, it owes a duty of care as if it were retained because the additional transaction is intimately connected."
The court concluded that "the Defendant's duty did not extend to every kind of harm that might be suffered as a result of the Defendant's breach of that duty." The purpose of the defendant's instruction was to protect Sapphire if the third-party developer failed to honour the agreement to pay the finder's fee and there was no real link between that and the loss of opportunity for profits on the possible further developments.
Losses on original development could be within Scope of Duty
While Sapphire's claim for losses regarding the possible further developments failed, it was allowed to continue with its loss of profits claim on the original property transaction because those losses could fall within the scope of the defendant's duty of care.
On the facts, the court considered it was arguable that the defendant was under a duty to advise Sapphire on the intended purchase of the original property if the other developer reneged on the deal to pay the finder's fee. Accordingly, the court agreed that it was arguable that 'the risk against which the advice was sought extended not only to protecting the finder's fee (…) but also the stronger position that Sapphire would have been in if it had access to development finance'.
Conclusion
This case highlights how a professional's potential liabilities for negligence can be defined by the scope of their duty of care and the services provided. How this applies will depend on the individual facts of each case. Professionals should take great care when setting out the terms of their retainers and the scope of their services.
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