Milford Investments Limited v Lanyon Bowdler LLP

A solicitor may be liable for creating an unnecessary risk that contractual documents will be challenged, even where the underlying legal issue is uncertain and the documents might ultimately prove enforceable. A reasonably competent solicitor should arrange execution in a logical order or warn the client of the risk created by departing from it.

In a solicitors’ negligence claim involving loss of a chance, the claimant proves its own hypothetical conduct on the balance of probabilities. The hypothetical conduct of third parties is assessed by evaluating the chance of the relevant outcome. Independent contingencies may be multiplied to arrive at the overall chance of success.

The claimant property developer sued its solicitors for negligence in connection with a proposed joint venture to develop land. The solicitors prepared agreements for an LLP, including a development agreement, but the agreements were executed before the LLP was incorporated.

The landowners later relied on the timing of execution to contend that the agreements were invalid or unenforceable. They declined to proceed with the joint venture and ultimately sold the land to a third party. The claimant alleged that the solicitors’ failure to incorporate the LLP first caused loss of development profit.

The issues included pleading, the effect of section 5(2) of the Limited Liability Partnerships Act 2000, breach of duty, causation, mitigation and quantum.

1. Disposition. Judgment was given for the claimant. The recoverable loss was assessed as 32% of the profit that would have been made if the development had proceeded. Further consequential matters, including permission to appeal, were listed for determination.
2. Pleading. The claimant was entitled to argue that the solicitors had created a situation in which the agreements were arguably unenforceable. That was not a new claim introduced by the Reply, and the defendant had sufficient notice and opportunity to address it.
3. Section 5(2). The proper construction of section 5(2) was a legitimate area of dispute. The judge’s conclusions on construction were expressly obiter. If necessary, the provision could give an LLP both rights and obligations under a pre-incorporation agreement made by all subscribers to the incorporation document. It did not apply where the claimant, although a subscriber, was not a party or signatory to the relevant agreements.
4. Breach. The failure to incorporate the LLP before executing the other agreements created an obvious and unnecessary risk that their validity would be challenged. A competent solicitor should have ensured incorporation first or advised the claimant of the consequent risk. The defendant’s conduct therefore fell below the required standard.
5. Causation and legal responsibility. The claimant’s loss was within the scope of the retainer and had a sufficient nexus with the breach. The risk for which the defendant was responsible included the loss caused by a contracting party arguing that the agreement was unenforceable. The claimant was not required to pursue enforcement of an agreement which was in fact unenforceable.
6. Loss of a chance. The claimant’s own conduct was assessed on the balance of probabilities, while the landowners’ conduct and third-party funding were assessed as chances. The chance of obtaining funding was 80%; the chance of the joint venture proceeding, assuming funding and no breach, was 40%. Those independent chances produced an overall chance of 32%.
7. Mitigation and quantum. The claimant did not act unreasonably in declining to purchase the land outright. The court assessed development costs at £3,921,244.16 and gross development value at £6,336,500 after a 5% discount reflecting development uncertainty and competition with the neighbouring site. Administrative costs and legal fees were neither added nor deducted.

This was a first-instance decision. The court directed that outstanding consequential matters, including the claimant’s application for permission to appeal, be listed for a further hearing.