Moda International Brands Ltd v Gateley LLP & Anor

In a professional negligence claim concerning a property transaction, a solicitor must take reasonable steps to ensure that the documents implement the client’s agreed objective. Where the documents materially depart from that objective, the solicitor must give clear advice and warnings and obtain instructions.

For causation, the client’s own hypothetical conduct is ordinarily proved on the balance of probabilities. The hypothetical conduct of a negotiating third party is assessed as a loss of a chance, even where that third party gives evidence. The court must evaluate the real and substantial possibilities by reference to the objective commercial circumstances, without conducting a trial within a trial.

Moda held an interest connected with a proposed property development in Nottingham. Its solicitors, Gateley LLP, drafted a Participation Agreement intended to replace a 35 per cent shareholding with a 35 per cent share of development profits.

The executed arrangements excluded Moda from profits attributable to an Angel Row unit. Moda alleged that it had not agreed to that exclusion and that Gateley had failed to provide the relevant documents or advise about their effect. The issues included breach of contract and negligence, mitigation by rectification, causation, and whether damages were to be assessed on a balance-of-probabilities or loss-of-chance basis.

1. Liability. Gateley’s retainer included advising Moda on the meaning and effect of the Participation Agreement and Development Agreement. It was required to take reasonable steps to preserve Moda’s intended 35 per cent entitlement to profits from the Site as a whole, subject to agreed priority payments.
2. Gateley failed to provide relevant drafts and failed to warn that the agreements excluded the Angel Row profits. The court rejected the contention that Gateley had merely an executory function. The exclusion was a substantial departure from the agreed objective. Gateley was therefore in breach of contract and negligent.
3. Mitigation. Moda was not required to commence rectification proceedings. Rectification had no good prospect of success and would have been hazardous. A claimant is not generally required to undertake hazardous litigation as mitigation, particularly where the proposed claim would not mirror the professional negligence claim and no indemnity was offered.
4. Causation and loss of chance. Moda proved on the balance of probabilities that, if properly advised, it would have rejected the exclusion and insisted on sharing the Angel Row profits. Whether Mortar would have accepted that position depended on the hypothetical conduct of a third party. That issue was therefore governed by loss-of-chance principles, notwithstanding that Mr Monk gave evidence.
5. The court assessed three possibilities: a 50 per cent chance of a 65/35 sharing arrangement covering the whole Site; a 30 per cent chance of a compromise producing a 17.5 per cent share; and a 20 per cent chance of no agreement. The recoverable loss was therefore 22.75 per cent of the Angel Row profits. On profits of £901,942.11, damages were £205,191.83, increased with agreed interest to £221,209.22.
6. Judgment was entered for Moda against Gateley in the sum of £221,209.22.

First-instance judgment in the High Court. No appellate history was stated in the judgment.