PBF Investments Limited v Ewan & Co LLP

A solicitor retained in relation to a lending transaction may owe a duty extending beyond answering specific questions. The scope of the duty is determined by the purpose for which the adviser was instructed. Where the adviser assumed responsibility for protecting the client’s overall decision, the adviser must consider all relevant matters, including whether proposed security provides the protection represented. A claimant does not fail to mitigate loss merely because it declines to pursue a risky and expensive claim under a personal guarantee.

The claimant lent more than £2 million to a property development company, relying on its former solicitors’ assurance that it would obtain first charges over two public houses. The title documents disclosed earlier charges and priority arrangements, but the solicitors confirmed that all necessary searches and enquiries had been completed and that the claimant would have clear first charges.

The claimant sued in contract and negligence for the shortfall after recovering part of the loan. The defendants did not attend the hearing or provide evidence. The issues were whether the solicitors had failed to discharge the assumed duty, whether the claimant had established causation and loss, and whether it had failed to mitigate by not suing the guarantor.

1. The claim succeeded. The claimant established each pleaded breach of contract and negligence and was entitled to judgment for the claimed balance, with consequential matters including interest to be dealt with on hand down.
2. The court applied the approach in Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20, [2021] 3 WLR 81. The distinction between advice and information cases is not the starting point. The relevant question is the purpose served by the duty of care assumed by the defendant.
3. The claimant had instructed the defendants to ensure that it was adequately protected by first charges. In that context, the defendants assumed a duty to consider all relevant matters regarding the loan. Their failure to identify and advise on the existing charges and the deed of priority breached that duty.
4. The claimant’s directors gave accepted evidence that they would not have made the loan had they known that it would not be secured by first charges. The claimant therefore established the relevant causal connection. The defendants’ allegations of fraud, personal profit and a different lending purpose were rejected on the evidence.
5. The claimant had not failed to mitigate its loss. The correspondence concerning the personal guarantee showed that proceedings against the guarantor would have been risky and expensive. Declining to pursue that claim was reasonable in the circumstances.