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.
