Hirtenstein & Anor v Hill Dickinson LLP

A solicitor who is instructed to obtain contractual protection must exercise judgment in deciding what protection to seek, having regard to the transaction, the client’s instructions and the available time. A failure to obtain a personal guarantee is not necessarily negligent where the client did not require one and the transaction was urgent. However, if the solicitor obtains only a company warranty which is likely to be worthless, the client must be told that no effective security has been obtained before contracts are exchanged.

In professional-negligence loss-of-chance cases, the claimant’s and defendant’s hypothetical conduct is determined on the balance of probabilities. A third party’s hypothetical conduct is assessed as a chance. Damages for defective non-fungible property should reflect the compensatory principle and reasonable repair costs, rather than mechanically applying diminution in value. A contractual limitation of liability is ineffective where its reasonableness has not been established.

The claimants purchased a luxury motor yacht from a special-purpose company without a survey or sea trial. The sale was on an “as is, where is” basis, but the sale agreement included a warranty that the yacht was in good condition and ready for use. The defendant solicitor mistakenly advised that this warranty was backed by the beneficial owner’s personal guarantee.

The yacht’s engine failed shortly after completion. The claimants alleged that the solicitor had negligently failed to secure effective contractual protection and that, had they known the guarantee was absent, they would not have purchased the yacht. The issues included breach of duty, causation, the likely value of a hypothetical warranty claim, damages, and the effectiveness of a contractual limitation clause.

1. Liability and instructions. The claimant instructed the solicitor to use his best efforts to obtain contractual protection concerning the yacht’s condition and readiness for immediate use. He did not make obtaining a personal guarantee a condition of the transaction. The solicitor was negligent in believing that the documents had extended the personal guarantee to the condition warranty and in advising the claimant that such cover had been obtained.
2. A reasonably competent solicitor could, in the circumstances, have decided not to seek a personal guarantee. The sale had to be completed within three days, the buyer was committed to the transaction, and the seller had previously negotiated the guarantee wording. But a solicitor who obtained only a warranty from the selling company, without effective security, would have had to tell the client that this was the position before exchange of contracts.
3. Causation. The solicitor would probably have sought a personal guarantee if he had understood the effect of his drafting. There was no real or substantial chance that the seller’s beneficial owner would have given a personal guarantee of the yacht’s condition. The claimant would nevertheless have proceeded with the purchase. The negligence therefore did not cause the purchase without the guarantee, and no recoverable loss resulted from that negligence.
4. Alternative damages findings. If a personal guarantee had existed, the likely recovery for breach of warranty would have been approximately US$700,000, taking account of the prospects of settlement and litigation risks. The engines were not in good mechanical condition and the yacht was not ready for immediate use. The proper measure of contractual damages was the reasonable cost of repairs, not a mechanical difference-in-value calculation. Reasonable repairs were estimated at €550,000, with €250,000 for wasted ownership expenditure. The claimants’ decision to install new engines and undertake a major refit involved betterment and additional expenditure that was not recoverable.
5. On the alternative withdrawal basis, the loss was assessed at €450,000. The limitation clause in the retainer was incorporated by implication, but the defendant failed to prove that limiting liability to £3 million was reasonable under Unfair Contract Terms Act 1977, sections 2(2) and 11. The claimants therefore succeeded on liability but recovered only nominal damages because causation and loss were not established.