England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(His Honour Judge Behrens
(sitting as a deputy High Court judge))

		Royal Courts of Justice Strand London WC2 Friday 27th July, 2001

1. LORD JUSTICE ALDOUS: I invite Lady Justice Arden to give the first judgment.
2. LADY JUSTICE ARDEN: This is an appeal against the judgment of His Honour Judge Behrens dated 10th October 2000 in which the judge found against the appellants on issues of liability in its claim for professional negligence against the respondents.
3. The claim arises out of a restrictive covenant which the defendants negotiated with the vendor of a property adjoining the school who was called Mr Choudhry. Mr Choudhry had a nursing home on the adjoining property.
4. The respondents, a firm of solicitors, Banks Wilson, were responsible for the drafting of the transfer for the acquisition of the relevant land. The transfer contained a covenant in these terms:

"The Transferee will not construct any building on the Property which shall be

(a) greater in height than the buildings now existing on the Property and

(b) nearer to number 9 West Park Road, Blackburn above existing ground level than the existing buildings on the Property or the line C D on the Plan."

5. The transfer was duly executed. Thereafter the appellants instructed architects to prepare a scheme for the proposed development.
6. The architects were not advised of the restriction in the transfer to which I have referred. In fact the plans which the architects drew provided for the height of the proposed building to be somewhere between the height of the existing building ridge line and the height of the existing chimney pots of (in each case) the existing properties on the appellant's site.
7. In fact there was no need for the height to be above the ridge line and no reason why it could not have been designed with that in mind. The architects were not informed of the restrictions.
8. The appellants are a school. One of the governors was a Mr Waring. Mr Waring telephoned the partner responsible at the respondents, Mr Erdozain, on or about 3rd October 1994 and asked for advice about the height restriction and about the possible boundary restriction. Mr Erdozain's recollection is that Mr Waring first asked if there was any restriction at all on the height and the building line, and in the event on the same day Mr Erdozain sent Mr Waring by fax a copy of the covenants together with the conveyanced plans.
9. Later the same day Mr Waring and Mr Erdozain spoke on the telephone. Mr Erdozain made a handwritten file note, and he also dictated a note to his partner which read:

"There was a covenant not to build higher than the height of the existing building. I have advised the School that I consider that that includes the chimney pots. The Bursar Stan Waring may come back to you."

10. That this was Mr Erdozain's advice in October 1994 is confirmed by correspondence between Mr Erdozain and Mr Waring at a later date, that is in February 1995.
11. On 16th February 1995 Mr Erdozain wrote to Mr Waring saying, among other things:

"I understood that you had telephoned me on the 3rd October following a visit to the site office by Mr Choudhry during the course of which Mr Choudhry had suggested that your proposed building was too high."

12. He goes on to say:

"My view was then and remains the same, that provided the roof height of the new building did not exceed the height of the chimney pots of the previous buildings then there would be no infringement of the restrictive covenant."

13. Although it may not matter for the purposes of this appeal, Mr Erdozain gave as part of his reasoning for his view the fact that in negotiations between the solicitors a restriction on the roofline of their new building had been substituted by a restriction on the height of the new building.
14. At page 231 of the bundle at a later stage in the same letter Mr Erdozain refers to the correspondence between the solicitors and says this:

"Our view was and remains that the different wording is capable of only one interpretation namely that the school, having declined to accept a restriction to the roof lines of the existing buildings, was prepared to confine the height of the new building to a height greater than the roof line but less than the top most point of the existing buildings."

15. The building work started in late 1994 and the vendor raised an objection in early 1995.
16. There was a meeting on 9th February 1995, at the school, which Mr Erdozain attended. In the course of his file note of this meeting he refers to his view that there was a strong argument against the ridge line being intended by the parties, and went on to advise that the intention was that the highest point of the buildings should be the limit of any new building, and that that would include the top of the chimney pot. The file note also states Mr Erdozain was asked if he could guarantee that his advice was correct. He advised that he had confidence in his advice, but that nothing was certain in litigation and he could give no guarantee as to how the court might view the matter.
17. Shortly thereafter the school approached the vendor direct. The approach was not successful. Accordingly the school, without taking independent or other legal advice, decided to carry out alterations to the roofline to ensure that there was no possibility of any breach of covenant, and instructions were given accordingly to the architects.
18. I now turn to the judgment of His Honour Judge Behrens. The judge held that the first question was the meaning of the clause in the transfer which I have set out above. He held that the principles of construction summarised by Lord Hoffmann in ICS v West Bromwich Building Society [1998] 1 WLR 896 were applicable.
19. The judge decided that the factual matrix which the court takes into account on questions of construction included the following facts: first, the school was buying the property from the vendor for development purposes; second, the vendor was running a residential home from the adjoining property; third, the precise details of the development, including the height of the proposed building, were undecided; fourth, the school wished to maximise their option for development of the new site for a sixth form centre; fifth, the vendor wished to protect against the effect of a large building on the adjoining property.
20. The judge held that the word "height" was an ordinary English word, and that on that basis the word "height" in the restrictive covenant was the maximum height of the existing building. If therefore any part of the existing buildings was higher than the roofline of the existing building, development to that height was permitted. In his view this included the chimneys.
21. The judge considered whether the respondents had been negligent in drafting the transfer. The judge found that Mr Erdozain was expressly instructed to reject the wording which included the word "roofline". The judge did not consider that Mr Erdozain fell below the standards of the reasonably competent conveyancing solicitor in adopting the wording suggested by him in his letter of 12th December 1992 to the vendor's solicitors. The wording was not technical and it was approved by Mr Singleton, Chairman of the Governors. The appellants contended that the covenant should have been in the following terms:

"Not to construct any buildings on the property whose highest point should be greater in height than the highest point of the buildings now existing on the property."

22. The judge held that there was no evidence that the vendor would have agreed to such a wording. The judge held that Mr Erdozain was not in breach of duty in respect of the drafting of the covenant, and there is no appeal on that point.
23. The judge further held that even if he was wrong about that, it was clear that the drafting of the covenant did not cause any immediate loss to the school. The architects were never instructed about the height restriction, and designed a new building on the basis that there was no restriction at all. Thus the height of the new building was not caused by any ambiguity in the drafting of the covenant.
24. The judge then dealt with the allegation that the respondents were negligent in respect of advice given in October 1994. Mr Erdozain had at that stage, on the findings of the judge, given advice in "reasonably robust" terms that the appellants could include the chimney pots in the height restriction. The judge held that Mr Erdozain's advice was correct in law, although he accepted that there was a risk that other courts might have taken a different view, or that the vendor might have mounted a claim for an injunction. When Mr Waring asked for advice it was on the telephone and there was no request for the advice to be confirmed in writing. The vendor had not at that stage threatened litigation. Mr Waring did not ask Mr Erdozain to guarantee that his advice was right, as he did at the meeting in February 1995, and he did not even ask Mr Erdozain to assess the risk that he might be wrong. He did not, for example, say that the school did not want to take any risks over the matter. Furthermore, Mr Erdozain was not informed that Mr Choudhry, the vendor, was particularly litigious or likely to take the matter to court. Furthermore, Mr Waring did not inform Mr Erdozain of the tight timetable for the development, and that if for any reason the building work was held up it would have placed an intolerable burden on the appellants.
25. The appellants argued that the respondents were negligent in giving unqualified advice. The judge rejected this submission. He concluded that Mr Erdozain was not negligent or in breach of duty in failing to give be more circumspect in his advice. He was asked what the covenant meant. In the judge's view he advised correctly what it was meant. He was not asked to guarantee his advice. He was not asked to assess in percentage terms whether the advice was wrong. He was not asked to advise whether this development could be delayed or told about the tight timetable. Accordingly the judge held that the allegation failed.
26. However, he also held that if he was wrong in his conclusion, the question arose as to what the school would have done if Mr Erdozain had advised in more circumspect terms. The judge concluded in October 1994 that the roof could have been redesigned at relatively small cost. In those circumstances, the judge held that if Mr Erdozain had advised that there was a significant risk that his advice was wrong, the school would have lowered the roof in October 1994.
27. As to the advice given in February 1995, the judge held it was correct advice and accordingly not capable of being negligent. There is no appeal against that ruling.
28. In conclusion, the judge held that the respondents were not negligent and he dismissed the action.
29. On this appeal the issue is simply whether as at October 1994 there was real scope for dispute about the meaning of the restrictive covenant. If there was, the respondents accept that Mr Erdozain should have pointed out the risks to his client. In fairness, I should add that this is a matter which Mr Erdozain properly accepted in cross-examination at the trial. The significance of this is that if there was real scope for dispute, then the judge's conclusion that there was no negligence in respect of the advice given in October 1994 is undermined, and on that issue the respondents are fixed with the judge's adverse finding on causation which, to recapitulate, is in these terms (see the judgment at page 15, lines 21 to 24):

"In October the roof could have been redesigned at relatively small cost. In those circumstances it seems to me that if Mr Erdozain had advised that there was a significant risk that his advice was wrong then the school would have lowered the roof in October."

30. I now turn to the submissions which have been made on this appeal. Mr Davis, for the appellants, submits that the restrictive covenant was not free from ambiguity. He submits that the judge's approach to construction was in principle correct, but that the judge failed to take account of factors in the factual matrix which were known to both parties, namely the concern of the planning authority as to the height of the development and to a possible agreement with them that it should not exceed the roofline; secondly, to the fact that the parties could not have known at that stage if the new building would have chimneys; and third, as a matter of common sense approach, what would disturb a neighbour like Mr Choudhry was the volume of a new building, and this meant the roofline not the chimney stacks were the important question.
31. Mr Davis submits that Mr Erdozain should have advised in October 1994 that the meaning of the height covenant was ambiguous and open to question as to the true position. Mr Davis also submits that it was unclear from the judgment whether or not the judge had really intended to acquit Mr Erdozain of negligence, even if Mr Erdozain should have appreciated in October 1994 that the height covenant suffered from real ambiguity. If the judge so found, Mr Davis submits that his conclusion cannot be supported. Mr Erdozain knew that litigation was a possibility. It was immaterial that he had not been asked for written confirmation or asked for a guarantee. He had admitted in cross-examination that it was self-evident that if he had thought there was a real scope for dispute on the meaning of the clause, he had a duty to advise his client accordingly. Mr Davis submits that it does not matter that Mr Erdozain was not informed of the tight timetable for the development or the burden on the school if the development was held up by a dispute over the covenant. He owed a duty to take instructions about such matters if they were material to the gist of his advice about the meaning of the clause which, Mr Davis submits, that they were not.
32. I now turn to the submissions for the respondents. Mr Gordon Nurse, for the respondents, makes the following submissions. He submits that the revised wording put forward by Mr Davis would not produce greater clarity. He rejects the submission that the respondents were negligent, because in giving in his advice Mr Erdozain had had regard to negotiations in 1992 which were in inadmissible on a question of construction. Mr Nurse submits that the judge was not in error concerning the construction of the covenant. If the parties had meant to restrict the new building to the roofline they would have said so and used the word "roofline". A building must sensibly include its chimneys and chimney stacks. The judge was right to acquit the respondents of negligence in respect of the advice in October 1994.
33. In the alternative Mr Nurse submits that the advice given by Mr Erdozain in October 1994 did not fall below the standard of a reasonably competent solicitor. The judge regarded Mr Erdozain as an honest and careful solicitor. Accordingly, even if Mr Erdozain was mistaken, as also would have been the judge, the advice given in October 1994 was not negligent.
34. I now turn to my conclusions in this matter. I will start with a point which has been taken about the context in which the advice was being given. At page 8 of his judgment, line 9, the judge says that Mr Erdozain was not told that Mr Choudhry was litigious or that he was threatening litigation.
35. I have already referred to the letter which Mr Erdozain wrote to Mr Waring in 1995, in which he makes it clear that he knew that the telephone call to him for advice in October 1994 followed a visit to the site office by Mr Choudhry, during the course of Mr Choudhry had suggested that the proposed building was too high. Added to that, it was accepted in cross-examination by Mr Erdozain that he must have known that there was at least potentially a threat of litigation if Mr Choudhry believed that the covenant as he understood it had been infringed by the school.
36. The point which has been taken by Mr Davis is that the judge's findings are not consistent with this evidence. Mr Nurse has not sought to challenge that submission, and in my judgment Mr Davis must be correct to that extent, namely to that extent the judge's findings are inconsistent with the evidence and the admissions in cross-examination and accordingly (to that extent) the findings of the judge cannot stand.
37. Accordingly, it seems clear that Mr Erdozain knew in October 1994 that a point had been raised by Mr Choudhry, who had taken the trouble to go to the site office of the new development, and that he knew that there was a potential threat of litigation if Mr Choudhry believed that his view was correct.
38. I now turn to the question of construction. Oddly there is no authority to which we have been directed on the meaning of a covenant such as this. However, we are not asked to rule what the clause means, only whether there is real scope for dispute about what it means.
39. In my judgment, with great respect to the judge's reasoning, there was real scope for dispute. The purpose of a building restriction such as this is to protect the covenantee. As Mr Davis submits, the covenantee would be concerned about the volume of any new building. Arguably it would be totally irrelevant to parties in the situation of these two parties whether there were chimneys or chimney stacks, or a school clock tower or a school chapel spire. What they would be really concerned about would be the volume of any new development.
40. Accordingly, it seems to me that there was here a real prospect of dispute by the vendor that whatever the word "building" may mean in other contexts, it had a more limited meaning here and that the restriction was effectively the same as a restriction on the height of the roofline of the new development.
41. In fairness to the judge, I should add that while the judge held that the advice given by Mr Erdozain was correct, he also accepted that there was a risk that other courts might have taken a different view, or that the vendor might have mounted a claim for an injunction.
42. Mr Davis has an additional submission (which he only made in reply) that it was not enough simply for Mr Erdozain to give his view. He should also have considered whether there was a risk of litigation. On this he relied on the authority of Dixie v Parsons [1964] 192 EG 197, a decision of Salmon LJ sitting as an additional judge of the High Court, where a solicitor permitted his client to grant a subtenancy in breach of a restrictive covenant in the head lease.
43. Salmon LJ stated, obiter, at the end of his judgment:

"In the present circumstances the solicitor owed a duty to his client to take reasonable care, not only to protect his client against committing a breach of the law, but to protect him against a risk of being involved in litigation. Circumstances varied in every case. The law was not an exact science. There was no topic upon which judges had differed more often than upon the construction of documents. No one was infallible, except the House of Lords, and on many points of construction upon which outstanding learned judges differed. In preparing the lease in the present case the solicitor was presented with what was an obvious danger. It would not do for him to say that in his view it was all right. There was an obvious danger that a different view might be taken. In the present circumstances, the ordinarily careful solicitor in his normal state would have gone to see his clients and advised them not to sign."

44. That was clearly a rather different case, because the question which arose in that case had to be considered by the solicitor at the stage before any subtenancy had been signed, rather than at a point of time, such as here, after the dispute had arisen.
45. What Mr Nurse has argued, and argued powerfully as his alternative argument, that Mr Erdozain did not fall below the standard of a reasonably competent solicitor in giving the advice that he did. But that submission, which is obviously correct in law, does not meet the point which Mr Davis has put forward, namely that it behoves a solicitor to urge caution and to point out risks to a lay client even if they would perhaps have been obvious to a fellow lawyer.
46. The extent to which he has such an obligation must clearly depend upon the facts in any particular case. Indeed, in this particular case it may very well be that another solicitor would have suggested that since he, Mr Erdozain, had drafted the clause perhaps a second view was appropriate. But that point has not been taken, and therefore I express no view upon it.
47. But it is clear, from the facts as I have set them out, that Mr Erdozain knew that a dispute was potentially to emerge with a neighbour over the effect of the clause, and in those circumstances it seems to me that it behoved him to point out that there was a risk about the construction of the clause. In my judgment, the arguments supporting the contrary construction on the clause were of sufficient significance to meet the threshold that they should have been pointed out to the client.
48. In those circumstances, it seems to me that the judge's conclusion that Mr Erdozain was in effect only asked to state his view and was therefore not negligent cannot stand. Accordingly, in my judgment the appeal has to be allowed. There is no need for the court to deal with the question of causation as no point is taken on the finding of the judge on this (adverse to the defendants) in the event that there is liability in respect of the October 1994 advice.
49. LORD JUSTICE SEDLEY: If the meaning of the covenant was, as I too think it was, considerably less clear than Mr Erdozain considered it to be, the principal foundation of the respondents' case crumbles. This was, in my judgment, a covenant which was likely to give quite a lot of trouble to a court called on to construe it. I say so with all due respect to His Honour Judge Behrens, who, to my mind a little unexpectedly, found its meaning quite clear.
50. But even accepting Mr Nurse's submission that Mr Erdozain's and the judge's confident interpretation was entirely defensible, so that there was no way of saying that a competent solicitor could not arrive at it, it could on no defensible view have been so confident as to relieve Mr Erdozain of the need to enter the caveat that a court might construe it differently.
51. Clients, I know, want two inconsistent things. They want confident advice on which they can act, and they want cautionary advice about the risks of doing so. It is a solicitor's unhappy lot to have to try to satisfy both requirements simultaneously.
52. But on either footing, I agree with Arden LJ that in the light of the findings and admissions upon which Mr Davis has been entitled to rely, this appeal must succeed.
53. LORD JUSTICE ALDOUS: I agree with both judgments.
ORDER: Appeal allowed and the order of the judge below set aside; matter remitted to the Chancery Division for damages to be assessed; the costs of the parties before the judge be remitted to the judge deciding the issue of quantum; the defendant will pay the claimants' costs of the appeal assessed at £8,500. (Order not form of approved judgment)