Watson Farley & Williams (A Firm) v Ostrovizky

A professional negligence claim against solicitors requires proof of the duty and advice that should have been given, the action the claimant would probably have taken on receiving it, and loss caused by the failure. A claimant cannot recover for consequences of independent commercial decisions that break the chain of causation. Where contractual protections were available but deliberately unused, alleged defects in drafting may cause no loss. Claims for wasted expenditure and loss of expected profits are alternatives. A partner claiming damage to jointly owned property generally recovers only the share personally sustained unless the other joint owner is properly joined or represented.

The claimant solicitors drafted three agreements for investments in Greek photovoltaic projects. The defendant counterclaimed for professional negligence and breach of retainer, alleging that the agreements lacked adequate minority-shareholding, corporate-structure and security protections and that insufficient advice had been given.

The defendant claimed loss of profits and wasted expenditure. The claimant denied breach, causation and loss. The court considered the scope of the retainer, Greek-law standards applicable to drafting and advice, causation, quantum, and the defendant’s failure to join or represent a co-investor with a 25% interest.

1. Counterclaim dismissed. The claimant had not acted negligently or in breach of its retainer. The agreements were competently drafted in accordance with the instructions received and contained substantial protections, including conditions precedent, rescission rights, monitoring rights, pledges of proceeds and a right to acquire a minority interest.
2. The retainer required the claimant to develop the agreed commercial framework, seek instructions on unresolved matters, explain significant risks and incorporate appropriate protective provisions. The claimant did not owe a duty to redesign the transaction from first principles where the client’s authorised agent had selected the structure and instructed that an agreement prepared for another investor be used as the model. The defendant’s position was materially the same as that investor’s.
3. The clause providing for appointment of an additional party to acquire up to 1% of the shareholding was not limited to completion. Its ordinary meaning permitted earlier use. Alternatively, an injunction could have restrained a threatened sale. The defendant and his agent knew of the protection but failed to use it. Similar complaints concerning the second and third agreements therefore failed.
4. The late allegation that EE entities should have been required, and the allegation that the pledge should have secured the totality of the defendant’s claim, were insufficiently pleaded. In any event, the defendant had not shown that he would have acted differently or enforced the protections if advised.
5. Applying Boateng v Hughmans [2002] EWCA Civ 593, the defendant failed to establish the required advice, the counterfactual action, and causation. Even assuming negligence and a different response, the loss resulted from the defendant’s voluntary assumption of Mr Rinis’s financing obligations, subsequent default, the credit crisis and later variations. The alleged negligence did not cause the failed sales or the claimed loss of profits.
6. The wasted-expenditure claim also failed for lack of causal proof and inadequate evidence that the sums had been paid. The court’s preliminary view was that loss of profits and reliance expenditure were alternative remedies, not cumulative claims, following Cullinane v British “Rema” Manufacturing Co Ltd [1954] 1 QB 292.
7. Any recoverable loss relating to the joint venture would have been limited to the defendant’s 75% interest. The co-investor was not joined and the defendant did not claim to represent him.