Negligent Solicitors Escape Liability!

Background

Messrs Xenakis and Corke appointed the Defendants, a firm of solicitors, to advise them when taking a lease of the new restaurant premises.  The lease was to be for 20 years, and the new company Blue & Ginger was to be the tenant.  The agreement was that Messrs Xenakis and Corke would personally guarantee Blue & Ginger’s liability for the first three years.  That meant if Blue & Ginger became insolvent in that three year period, Messrs Xenakis and Corke would in effect personally take on responsibility for the lease for the rest of the 20 year period.

The negligent act

The Defendant solicitors should have drafted the lease so that the three year guarantee period would begin from the commencement of the tenancy.  Instead it began on the date the lease was finalised, but by then the business had been up and running for 11 months. In effect this meant Messrs Xenakis and Corke had to guarantee the company for 3 years and 11 months instead of the intended 3 years.

The restaurant business did not go well and with just over a year of the guarantee to go, Messrs Xenakis and Corke realised they had to make the business survive for another 13 months, instead of just 2 months, if they were to avoid personally taking on the lease for the rest of the term.  They, therefore, kept the business going by lending money to their healthy company Pink & Lily, which in turn lent the money to Blue & Ginger. Only a small part of these Directors Loans were repaid by Pink & Lily to Messrs Xenakis and Corke.

Court decision

The Court had no hesitation in finding that the Defendants had been negligent in allowing this situation to occur.  They had not advised the Claimants of the risk of starting the business before the lease was completed and nor had they attempted to renegotiate the lease to ensure that the guarantee period commenced on the term commencement date.

However, the court decided the Claimants had suffered no practical loss as all they had done was to make Directors loans to Pink & Lily.  Pink & Lily still existed and was obliged to repay those loans. It was Pink & Lily that would be out of pocket because it was unlikely to recover the money from the failed Blue & Ginger.

Whilst the Court had the greatest of sympathy for the Claimants and considered that the result was morally unjust, it was not possible to order the Defendant solicitors to repay the Claimants the money that they had lent to a different company.

Important factor

Had Messrs Xenakis and Corke lent the money directly to Blue & Ginger the outcome may well have been different.  The case shows that negligence is not enough to succeed in a claim.  You also need to show that the negligence caused your loss.  In this case, because of the way Messrs Xenakis and Corke chose to arrange their finances, they were unable to show the negligence caused them loss.

If you believe you have suffered a loss as a result of negligent solicitors, please contact us now for specialist advice.