Perkin & Anor v Lupton Fawcett (a firm)

Where negligent professional advice causes loss depending on a third party’s hypothetical conduct, the claimant must establish a real or substantial chance that the third party would have acted so as to confer a benefit or avoid a risk. The court must assess the ultimate chance of the claimant being financially better off, taking account of the likely terms, the parties’ hypothetical conduct and probable costs. A real but modest chance may justify percentage-based damages.

The appellants sold shares in Indec’or Ltd to Arrowblade Ltd. Their solicitors advised on warranty provisions concerning debts owed to the company. The appellants alleged that the advice was negligent and that, had they understood the warranty’s true construction, they would have secured better protection or declined to proceed.

After completion, Arrowblade claimed under the warranty. The appellants brought proceedings, which were compromised after substantial legal costs. The deputy High Court judge dismissed the claim, although finding that the advice had been erroneous. The central issue on appeal was whether the appellants had lost a real chance of being financially better off.

1. Appeal allowed. Lord Justice Waller held that the advice on paragraph 7.1 was erroneous and that giving it was negligent. Paragraph 7.1 could not impose an obligation to commence proceedings when clause 5.4.1 expressly imposed such an obligation.
2. The claim required assessment of what the appellants would have done if correctly advised and, because loss depended on third-party conduct, whether they had lost a real or substantial rather than speculative chance. The court applied Allied Maples Group Ltd v Simmons and Simmons [1995] 1 WLR 1602.
3. The relevant question was not merely whether a contractual variation would have been obtained, but whether the appellants had a real chance of being financially better off. The court considered the likely scope of any variation, the prospects of negotiation and the likelihood of legal costs.
4. The chance of a financially better outcome was assessed at 20 per cent. The decision below was reversed and judgment was entered for the appellants in the sum of £10,333. Lord Justice Rix and Sir Robin Auld agreed.

• Deputy High Court Judge: James H Allen QC dismissed the claim on 18 May 2007, holding that the proposed contractual protection would not have been obtained and that the appellants would have proceeded on the existing terms.
• Court of Appeal (Civil Division): The appeal was allowed. The appellants had lost a real chance of being financially better off, assessed at 20 per cent, and judgment was entered for £10,333.