Professional Negligence and appreciating your limitations

The recent case of Fryatt v Preston Mellor Harrison [2015] EWHC 1683 highlights the level of care needed to be taken by solicitors when faced with areas outside of their own expertise. In the words of the trial judge, it is necessary to appreciate your own limitations.

The claimant property developer brought an action against the defendant firm of solicitors in relation to advice given by a legal executive at the firm. The claimant was in the process of negotiations to purchase Metal Valley Holdings Ltd (MVH), in which he agreed to take an option over the shares for a price of £900,000. The legal executive had questioned the claimant’s choice in taking an option over the shares in MVH, rather than an option over the land itself which he pointed out would be sufficient. However, the difference between the two was not fully appreciated or explained to the claimant.

The legal executive had pointed out in writing to the claimant that he, as a property lawyer, did not have the expertise in company sales transactions and that the claimant may want to appoint a specialist corporate lawyer. However, he subsequently failed to respond to the claimant’s query of needing to involve a specialist partner. As a result the judge concluded that the defendant had not appreciated his limitations in experience and had not been explicit enough in explaining this to the claimant.

The legal executive also incorrectly advised the claimant in regards to the outcome of his proprietary interest if MVH went into liquidation. He advised the claimant that if such a situation arose the option agreement would remain valid. However he failed to take into account s.88 of the Insolvency Act 1986, which effectively states that if shares are transferred without the sanction of the liquidator and after the commencement of a voluntary winding up, the transfer will be void.

At trial, the High Court found that the defendant had fallen below the applicable standard and acted negligently. Whilst the claim was in the end unsuccessful because causation and loss were not established, this case highlights the danger of attempting to act in areas outside of a practitioner’s expertise.