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Solicitors’ PI – scope of duty of care

Background

The claimant property developer instructed his solicitors,VMH LLP (“VMH”), in 2004 in connection with the acquisition of a site for aproposed development of townhouses and apartments in Edinburgh. Planningconsent had been granted on the condition that a new ventilation duct beinstalled to an adjacent fish and chip shop (“the Codfather”). Missives wereconcluded in April 2005 after the sellers of the site entered into an agreementwith the owners of the Codfather regarding the ventilation duct. In July 2005,the Codfather was sold and the new owner disputed the enforceability of theagreement regarding the ventilation duct. Marketing of the development, whichhad begun in January 2007, was suspended pending resolution of that dispute. Itwas not resolved until December 2007.

The Edinburgh residential property market was at its heightin 2006 but by 2008 had begun to slump due to the global economic crisis. Theclaimant alleged that had VMH secured an enforceable right to install aventilation duct, there would have been no dispute and therefore no delay inmarketing the properties.

Decision

VMH admitted breach of duty. The question for the Court waswhether the scope of VMH’s duty to the claimant was sufficiently wide to enablethe claimant to recover the various heads of loss claimed. The Court held that,in principal, all of the heads of loss were recoverable:

1.Cost of settling the dispute regarding the ventilation duct;

 2.Additional borrowing costs associated with funding thedevelopment for longer than planned; and

3.Loss of sales revenue stemming from both lower volume ofsales and lower sales prices.

The additional borrowing costs and loss of sales revenuewere assessed on a loss of a chance basis, with the Court accepting a middleground between the parties’ respective positions.

Comment

This could be a worrying case in the realms of solicitors’PI. The Court had absolutely no hesitation in finding that it was fair, justand reasonable for the solicitors, rather than their property developer client,to assume the risk of the vagaries of the housing market.

This article first appeared in Law-Now, CMS CameronMcKenna's free online information service, and has been reproduced with theirpermission. For more information about Law-Now, click here.

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