Solicitor Negligence Proves Costly for Client

Whatever situation you find yourself in following negligent solicitor advice or conduct, it is vital that you take all reasonable steps to improve your position and keep all losses and disruption to a minimum. This is known as mitigation. Just what constitutes reasonable steps will vary in each individual case, as will the appropriate action to be taken. However, the consequences of successfully mitigating your losses may not be quite what was expected. This has recently been considered by the courts in the case of Xenakis and another v Birkett Long LLP [2014] All ER (D) 38.

Background to the case

The two Claimants in this case were both directors of a company called P&L Ltd. They decided to open up a new bar and restaurant and set up a limited liability partnership called B&G for this purpose. The Claimants found suitable commercial premises and negotiated terms with the Landlord. The Defendant solicitors were instructed to act for them in relation to the Lease. It was a requirement of the Landlords that each of the Claimants personally guaranteed B&G’s obligations under the Lease on standard terms, which required them to take on the Lease for the remainder of the lease term in the event of disclaimer or forfeiture of the Lease during the Guarantee Period, which was for a period of 3 years.

The Claimants signed the Lease in January 2006 and were permitted to enter the premises, but due to delays on the part of the Landlord, completion did not take place until December 2006. The Claimant’s business was not successful and they sought advice in relation to their liabilities if they were to close down the restaurant in November 2008. It was at this point it came to light that the 3 year guarantee did not expire in January 2009 as they had thought, but in December 2009. Faced with the liabilities associated with the personal guarantee, the Claimants were left with little option but to keep the business trading at a loss until December 2009, with further cash investments from P&L.

This was done in an attempt to minimise their exposure to claims under the guarantee. Proceedings were brought against the Defendant Solicitor in negligence for failing to provide adequate advice in relation to the Lease and their potential exposure to personal liability under the terms of the lease.

The Test

In determining whether there has been negligence on the part of the solicitor, the courts will consider the circumstances and the information available at the relevant time, and not with the benefit of hindsight. The standard to be applied is that of the reasonably competent practitioner, having regard to the standards normally adopted in his profession. The fact that something may have gone wrong with the transaction does not automatically mean that the solicitor has been negligent, as a reasonably competent solicitor may have acted in the same way. Similarly, the fact that another solicitor may have given clearer or better advice, does not mean that the solicitor has failed to act as a reasonably competent solicitor would have done.

The Court’s Findings

In this instance the court found that the defendant solicitor had clearly been negligent in failing to advise the Claimants of the personal risks they were running by releasing the lease to the landlord’s solicitors and entering the premises before the Landlords had completed. The solicitor had failed to meet the minimum standard required of a reasonable solicitor in her position. She should have made it clear to the Claimants that the 3 year guarantee would run from the date the Landlord signed the lease.

Damages

The judge agreed that the actions taken by the Claimants were reasonable and that they managed to successfully mitigate their losses and minimised their exposure to substantial costs risks, as without the additional financial support B&G would not have been able to continue trading for another year. The difficulty however was establishing whether the Claimants had suffered a loss as a result of taking those steps in mitigation, or whether, as the defence alleged, the loss had been suffered by P&L, through which the Claimants had provided the funds.

The Judge found that the only financial loss personally suffered by the Claimants as a result of the steps they took in mitigation was the loss of use of the money which they loaned to P&L on an interest free basis, namely a sum equivalent to the interest on those sums from the date on which the money was transferred to P&L until either the date of repayment or the date of judgement.

This case was one where the proper application of legal principles was described by the judge as producing a result which was “morally unjust.” The judge was unable to award the Claimants what they actually spent, purely because they decided to lend the funds to P&L.

This case highlights the complexities and difficulties involved in mitigation. Here at Redress Law Solicitors we are experts at dealing with solicitor negligence claims as a result of poor advice and can advise of the appropriate steps to be taken to mitigate your losses and ensure that you are in the best possible position. If your solicitor failed to adequately protect your position or provide you with a reasonable standard of service, then contact us without delay to seek redress for solicitor negligence.