Xenakis & Anor v Birkett Long LLP

A solicitor advising personal sureties must explain a material risk that the guarantee period may begin on completion rather than when the lease term commences. Telling clients that a guarantee lasts three years from the date of the lease is insufficient where they may enter into occupation before completion and the completion date is outside their control. Reasonable expenditure in mitigation does not necessarily constitute recoverable personal loss where clients use companies and repayable directors’ loans. Recovery is ordinarily confined to the loss personally sustained, including the loss of use of money.

The claim was brought in professional negligence by two individuals who had guaranteed the obligations of a limited liability partnership under a commercial restaurant lease. Their solicitors advised that the guarantees lasted three years from the date of the lease, but did not explain that completion by the landlords would determine that date. The claimants entered occupation before completion, which was delayed for many months and extended their exposure.

The claimants later funded associated companies so that the business could continue trading until the guarantees expired. The issues were whether the solicitors had been negligent, whether later failures caused loss, and whether the sums advanced were recoverable by the claimants personally.

1. Liability. The claimants established negligence. The applicable standard was that of the reasonably competent practitioner, assessed by reference to the information and circumstances existing at the time and without hindsight.
2. The solicitor should have explained that the guarantee would begin on completion by the landlords, over which the clients had no control, and that delay could extend their exposure beyond the lease-term commencement date. The advice given was inadequate. The claimants would probably have waited before occupying, sought revised terms, or walked away.
3. After the delay became apparent, a reasonable solicitor should have explained the problem and actively sought renegotiation or prompt completion. The court found a substantial chance of revised terms and a higher chance of earlier completion.
4. The claimants acted reasonably in keeping the business trading until the guarantees expired. However, they lent money to an associated company on repayable terms. They could not recover the company’s trading expenditure as their own loss.
5. The recoverable loss was the loss of use of the interest-free loans until repayment or judgment, together with relevant interest paid by the first claimant under his personal guarantee. Judgment was entered for the claimants for damages in that amount.