Just how far must a solicitor go when advising his client? The recent first instance decision in Luffeorm Limited v Kitsons LLP
takes another look at the scope of a solicitor’s duty to advise in a transactional context – in this case the purchase of a pub in Devon and absence of a restraint of trade covenant.
In 2011, Kitsons acted for the claimant (a company incorporated by Mr and Mrs Cole) in its purchase of the Highwayman’s Haunt pub business in Chudleigh, Devon for £130,000. Over the previous five years the sellers had built up a loyal client base and a healthy turnover with their “pile ‘em high, chips with everything” offering. The Coles were certain they could further grow the business by introducing a new head chef and “upmarket” food and drinks.
Just three months after the purchase completed, one of the sellers, Mr Elliott, took over at the Claycutter’s Arms down the road. It was the claimant’s case that this led to a downturn in business at the Highwayman’s Haunt, with many of its customers choosing to patronise Mr Elliott’s business instead. The net result was that the business produced a poor return and, a little over a year after they had bought it, the Coles were forced to sell for £69,950.
The claimant alleged that Kitsons had acted negligently and in breach of contract because it had failed to advise them to ask the sellers to provide a covenant against competing with the Highwayman’s Haunt, and had failed to advise as to the risk that trade might be diverted without one.
Kitsons were found to have acted in breach of duty. A solicitor’s duty to his client is strictly circumscribed by his instructions, which in this case were to act on behalf of the claimant in its purchase of the business. This is a fundamental principle and one that the courts regularly uphold. That said, circumstances can develop during the course of a retainer where the solicitor ascertains knowledge and the question then to consider is whether or not a duty arises to draw such knowledge to the client's attention.
Here the court found that, in the particular circumstances of this case, while Kitsons had no duty to advise the claimant of the commercial risks inherent in the transaction, the absence of the restraint of competition clause should have been noted and drawn to the claimant's attention.
The breach was not, however, causative of the loss. It was found as a fact by Recorder Acton Davis QC (sitting as a deputy High Court judge) that, properly advised, the Coles would nevertheless have proceeded with the transaction without trying to negotiate for a covenant. The evidence was that they were determined to proceed as quickly as possible, utterly certain that they would make a success of the business, and would not have regarded any business run by the sellers as competition to their own.
The case turns, of course, on its particular facts, but it does provide a strong reminder of the importance of causation and how it can often be overlooked by claimants, not least in circumstances where things have gone so badly wrong for them. Sometimes, the last people claimants will ever accept were at fault are themselves. Click here
to read the judgment.