England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BRISTOL DISTRICT REGISTRY

		Claim No: 3BS90706
		02 July /2015

Mr Recorder Acton Davis QC:

1. The Highwayman's Haunt is a public house on the Old Exeter Road in Chudleigh, Devon. A public house has stood on the site since the 13^th century: the highwayman concerned was Jack Witherington who used the premises as his hide-out until he was captured on 1^st April 1691 whilst hiding in the main chimney breast of the house. I take that summary of the history of the building from the menu prepared by the Claimant at [Bundle 2/853].
2. In 2011 the then owners of the public house, Mr and Mrs Bowden and Mr and Mrs Elliott, offered for sale the lease on the premises for the sum of £195,000. It was a lease dated 31^st October 2005 from Greene King Brewing and Retail Limited. The leasehold term was 15 years from 31^st October 2005.
3. Mr and Mrs Coles had been working in India, Malaysia and Indonesia in the restaurant business. Mrs Coles told me that she has worked for approximately 30 years in the hospitality industry. Initially she ran a Devonshire beachside Inn from May 1988, then a Wine Bar in Exeter, followed by a restaurant in that city, before becoming General Manager of a resort, bar and restaurant in southern Spain in 2003 before going to the subcontinent in 2008. However she and her husband wished to return to England. They became aware that the Highwayman Haunt was on the market for sale. Mrs Coles said that this would have been their first business venture of that kind and they were attracted to the business because it had a relatively high turnover (approximately £750,000) which had been built up by the vendors over the previous five years.
4. The Coles' first visit to the premises was on the morning of 1^st February 2011. During that meeting they were informed by the vendors that their reason for wishing to sell was that the older couple Mr and Mrs Bowden, who ran the Bar, wished to retire and the younger couple Mr and Mrs Elliott wished to do some travelling. The division of work within the vendors was that Mr Elliott was the chef whilst Mr and Mrs Bowden were front of house.
5. After their first visit to the premises on the morning of the 1^st February 2011 Mr and Mrs Coles made an offer to purchase the business for £100,000 which was refused. Thereafter, they increased the offer to £130,000 on 6^th February 2011. That offer was accepted. Mr and Mrs Coles took no valuation or other advice before making the offers. When giving evidence to me, Mrs Coles struck me as an individual who was sure of her own mind and confident in her knowledge and understanding of the hospitality business.
6. Mrs Coles' evidence was that the Highwayman's Haunt is in a rural area. She said there was no other direct competition within a reasonable travelling distance. It may be that something depends upon the subjective meaning of the word "reasonable", but on the evidence there were, in fact, a number of public houses within a short car journey of the Highwayman's Haunt. In any event, Mrs Coles said that she and her husband believed that the vendors' clientele would remain with the business following their acquisition of the business. She also said that in paying a substantial sum for the value of the goodwill element of the business they would have a reasonable opportunity to keep the existing clientele and to also attract new clientele. Her evidence was that the price was split as to:

(i) A nominal £1.00 for the property representing the residue of the term under the lease;

(ii) £21,000 for fixtures and fittings; and

(iii) The balance of £108,999 for goodwill.

No evidence was put before me as to the negotiations in respect of the component parts of that sum. I am unable to place any reliance upon those component parts. Nevertheless I do accept that Mr and Mrs Coles hoped that they would retain most, if not all, of the existing clientele and that they would be able to attract new customers.

7. Next, the Coles were interviewed by Greene King for approval as assignees of the lease and other training.
8. The Coles incorporated the Claimant Company on 14^th February 2011 for the purpose of acquiring the business. I do not know and it does not matter whether that decision was taken on advice. In this judgment I use the "Coles" and the "Claimant" without reference to the corporate reality, as did both Counsel in argument. The Coles were in touch with their accountants Darnells who suggested to them that the Defendant firm of solicitors act on their behalf in regard to the purchase of the business. Mr Peter Boyne was the partner in that firm dealing with the matter. He says that from looking at the file he had his first telephone conversation with Jane Coles on 9^th February 2011. By then the Coles had already had their interviews with Greene King.
9. It was a theme of Mr Boyne's evidence that the Coles were eager to complete the sale as quickly as possible. Mrs Coles told Mr Boyne by e-mail on 23^rd March 2011 that time was of the essence and that the Coles felt "impotent". There was a meeting on 29^th March 2011 between Mr Boyne and Mr and Mrs Coles for the purpose of going through the pre-contract documentation and the results of pre-contract searches. Mr Coles left that meeting early because of his frustration at the situation. I take that to be an indication that Mr Coles was finding the process unduly cumbersome and slow.
10. I accept that Mr and Mrs Coles wanted the acquisition procedure dealt with as quickly as possible. Mrs Coles told me when she gave evidence that Easter, Mother's Day and the May Bank Holidays lay ahead and she wished to take advantage of those trading opportunities.
11. Kitsons sent the Coles a letter confirming their instruction enclosing Kitsons' terms of business [2/408 - 410]. It is clear from that letter that Kitsons' instructions were "to act on your behalf in connection with your purchase of the above leasehold business as per our telephone conversation yesterday". Thus the retainer went beyond mere conveyancing in respect of the lease. The retainer was to act in respect of the purchase of the leasehold business.
12. Contracts were exchanged on the 6^th April 2011 on which date the Licence to Assign was also granted. The Claimant was registered as owner of the leasehold on 20^th April 2011, completion having occurred on 6^th April 2011. The Completion Statement [2/373] shows a total purchase price of £130,000.
13. The Claimant ran the Highwayman's Haunt until selling the premises to Beesons (Torbay) Limited for £69,950. Exchange of contracts and completion of that sale took place on 31^st July 2012. The premises produced a poor return for the Claimant which resulted in the decision to sell the business at a price less than was paid by the Claimant.
14. On 27^th July 2011 one of the vendors, Mr Elliott, took over at a public house called The Claycutter's Arms in the next village some three miles away. Mr Coles says "Mr Elliott, as a chef had a loyal following in the area and many of our clientele decided to patronise The Claycutter's Arms instead of the Business. From July 2011 we saw a distinct reduction in the turnover of the Business in comparison with the turnover stated by the vendors on the sale of the Business. We saw an average of 50 covers per night compared to the 100 covers we were expecting. We were trading at a level of around £430,000 per year compared to the anticipated £740,000 to £750,000" [1/49 paragraphs 9 and 10]. Mrs Coles gives evidence to the same effect at paragraphs 17 - 20 of her witness statement [1/53].
15. Both Mr and Mrs Coles said that the downturn in the business (necessitating its sale at a price less than was paid for it) was caused by the competition at The Claycutter's Arms which would have been prevented if their Contract of Sale from Mr and Mrs Bowden and Mr and Mrs Elliott had included a covenant from the vendors restraining them from operating a competing public house within a radius of 5 miles for a period of 2 years and would thus have prevented the occurrence of that which caused the downfall of their business at the Highwayman's Haunt.
16. The core of the case against the Defendant is pleaded at paragraph 31 of the Particulars of Claim, in particular at paragraph 31.2, that the firm: "failed to advise Mr and Mrs Coles that they should ask the Sellers to give a covenant against competing with the Business"; and paragraph 31.3 "failed to advise Mr and Mrs Cotes as to the risk that the trade of the Business might be diverted, if there was no covenant by the Sellers not to compete with the Business". It is said that through and by reason of those failures the Defendants were negligent and acted in breach of contract.
17. By the Defence it is denied at paragraph 10 that "it fell within the scope of the duty of commercial conveyancing solicitors to advise on the business component of any transaction and save that the Claimant is required to prove that it was 'in accordance with usual commercial conveyancing practice' for a solicitor acting for a buyer

(a) to point out that there was no covenant in a draft contract profit by the Seller against competing or

(b) to advise that such a covenant should be requested...".

18. It is admitted at paragraph 10 of the Defence that no such advice was given.
19. However, Mr Boyne's witness statement says, at paragraph 16 [1/58]:

"...I ran through the terms of the Sale and Purchase Agreement with Jane Coles. I highlighted to her what was included and what was not included. I explained to her that the Contract had been drafted by the Vendors' solicitors and I believe that I explained to her at the time that it did not contain any restrictive covenant or restraint of trade provisions. My explanation to Jane Coles in this regard was that there were other provisions that might be addressed in a Sale and Purchase Agreement including such a provision but Jane Coles made it clear that in view of the pressures to time and difficulties in dealing with the Sellers she wanted to proceed on the basis of the documentation in front of us and issues relating to dilapidations were not addressing any such matters with the Sellers' solicitors."

20. By letter dated 17^th October 2014 [1/25A] Bond Dickinson who represent the Defendants said "you have recently asked us to prepare an amended Defence to reflect the stance taken in Mr Boyne's witness statement where he makes a positive assertion as to the advice given to Mrs Coles. We accept that paragraph 10 of our Client's Defence simply puts your Client to proof in this regard and therefore needs to be amended if this issue is to be progressed. However, after having further discussions with our Client, our Client has taken the view that it is willing to accept, for the purposes of this case that it is likely it will be found that no such advice was given (sic) the lack of attendance note."
21. When Mr Boyne gave evidence he accepted the case should proceed on the basis that no advice was given despite the contents of his witness statement.
22. In Closing Submissions, Mr de Freitas for the Defendant firm, argued that it is a borderline question whether a solicitor acting carefully would have brought the absence of the covenant to the Clients' attention and that in the circumstances of this case the Defendants were on the right side of that border because of first, the urgency of the situation and second, the different nature of the operation which the Claimants were intending to run. As I explain later in this Judgment I accept as a matter of fact that the Claimants were intending to and did run a different operation. I accept also, as mentioned above that the Claimants through Mr and Mrs Coles were anxious to proceed with all speed. However, the issue is whether those two factors excuse the Defendants from giving the advice.
23. In Gabriel v Little [2013] EWCA Civ 1513 Gloster LJ at paragraph 51 of her Judgment quoted without dissent the following passage from the Judgment at first instance in that case:

"The starting point is, of course, that a solicitor's duty is to be measured against his retainer. This has been well settled at least since Midland Bank Trust Co. v Hett Stubbs & Kemp [1979] Ch.384. Moreover, unless instructed expressly a solicitor does not normally have a duty to advise on the commercial wisdom of a transaction particularly where, as here, the client is an experienced businessman. It was explained in Pickersgill v Riley [2004] PNLR 31:

"8. As to the extent to which a solicitor should make enquiries or investigate matters that he has not been asked to enquire into or investigate, their Lordships think that paragraph 10 — 160 in Jackson & Powell on Professional Negligence (5^th Edⁿ, 2002) correctly states the position 'in the ordinary way a solicitor is not obliged to travel outside his instructions and make investigations which are not expressly or impliedly required by the Client'".

In support of that proposition the text goes on to refer to Clarke Boyce v Mouat [1994] 1 AC 428, a Privy Council decision, where Lord Jauncy of Tullichettle said at page 437:

"When a client in full command of his faculties and apparently aware of what he is doing seeks the assistance of a solicitor in the carrying out of a particular transaction, that solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction";

and in Reeves v Thrings & Long [1996] P&LR 265 Sir Thomas Bingham MR said at page 275 in a dissenting Judgment:-

"It will always be relevant to consider what the solicitor is asked to do, the nature of the transaction and the standing and experience of the client. Thus on the facts here Mr Sheppard was not retained to advise on the wisdom of offering the price Mr Reeves had informally agreed to pay but it was in my view Mr Sheppard's duty to draw Mr Reeves' attention to any pitfall, particularly any hidden pitfall, the contract might contain."

Simon Brown LJ said at page 279:

"I cannot accept that Mr Sheppard was under any further duty to his client, any duty to advise him upon the commercial implications or importance of the access provision or to warn him against the risks that it might pose for the future development, operation or sale of the hotel. These matters are well within the client's competence to appreciate and evaluate for himself, business considerations rather than legal ones."

And at page 285 Hobhouse LJ said:

"Once Mr Reeves was told what the legal position was, he required no further advice from Mr Sheppard in order to evaluate its implications and commercial significance. Mr Reeves was an experienced businessman and under no disability."

Nevertheless the principle that a solicitor's duty is strictly circumscribed by his instructions must not be taken too far. Mr Booth referred me to the observations of Laddie J in Credit Lyonnais v Russell Jones & Walker [2002] PNLR 2 at 28,

"However, if in the course of doing that for which he is retained, he becomes aware of a risk or potential risk to the client, it is his duty to inform the client. In doing that he is neither going beyond the scope of his instructions nor is he doing "extra" work for which he is not to be paid. He is simply reporting back to the client on issues of concern which he learns of as a result of, and in the course of, carrying out his express instructions. In relation to this I was struck by the analogy drawn by Mr Seitler. If a dentist is asked to treat a patient's tooth and, on looking into the latter's mouth, he notices that an adjacent tooth is in need of treatment, it is his duty to warn the patient accordingly. So too, if in the course of carrying out instructions within his area of competence a lawyer notices, or ought to notice a problem or risk to the client of which it is reasonable to assume the client may not be aware, the lawyer must warn him."

24. I was referred also to the summary of the law in the judgment of Arnold J. in Mason v Mills & Reeve [2011] EWHC 410 (Ch) at paragraphs 143 - 156, which is consistent with the extract from the judgment of Gloster LJ., which I have set out in full.
25. Applying those principles to the facts of this case, I accept that Mr Boyne had no duty to advise the Coles, or the Claimant of the commercial risks inherent in the transaction. Nevertheless, he should have noticed the absence of any covenant in restraint of competition and drawn that absence to the attention of Mr and Mrs Coles. He failed to do so. It follows that the Defendants were negligent and in breach of contract.
26. Causation is also in issue. In particular it is said that it is for the Claimants to establish on the balance of probability that had the advice been given they would not have proceeded with the sale. Mr de Freitas in this regard places reliance upon Mr and Mrs Coles' enthusiasm for the project and their wish to complete the acquisition urgently.
27. In Levicom International Holdings BV v. Linklaters [2010] EWCA Civ 494 Jacob LJ said at paragraph 284:

"When a solicitor gives advice that his client has a strong case to start litigation rather than settle and the client then does just that, the normal inference is that the advice is causative. Of course the inference is rebuttable - it may be possible to show that the client would have gone ahead willy-nilly but that was certainly not shown on the evidence here. The Judge should have approached the case on the basis that the evidential burden had shifted to Linklaters to prove that its advice was not causative."

At paragraph 261 Stanley Burton LJ said:

"Lastly, one has to ask why a commercial company should seek expensive City solicitors' advice (and do so repeatedly) if they were not to act on it. I think that the evidence that a client did not act on advice in a case such as the present must be stronger than that which persuaded the Judge. I agree in this connection with the Judgment of Jacob, LJ."

Lloyd LJ said at paragraph 282 "I also agree with paragraph 284 of Jacob LJ's Judgment".

28. This is not a case which is factually on all fours with the Levicom case. There, the mistake by the firm of solicitors was to give positive advice as to the prospects of success. It may be said that it is only in such circumstances that the burden shifts. Nevertheless I approach this issue on the basis that the evidential burden has shifted to the Defendants to show that its failure to draw attention to the absence of any covenant was not causative.
29. Having seen both Mr and Mrs Coles give evidence and considered carefully what they have said both in their witness statements and from the witness box, I am driven to the conclusion that they were determined to proceed with this transaction as quickly as possible. In particular Mrs Coles is an individual who, as I have said above, is sure of her own mind and confident in her knowledge and understanding of the hospitality business. She was utterly certain that she and her husband would make a success of the Highwayman's Haunt. She was confident that the different food and drink which she and her husband were to offer would be an immediate and huge success with the clientele; she was certain of her market. They took no advice from any professional valuer in respect of either the business or the premises before making either of the offers to the vendors. The Coles simply wanted to complete their acquisition as quickly as possible in order to take advantage of the Easter and Mother's Day festivals and the May Bank Holidays. That is the only explanation for the frustration which they display at the delays in the conveyancing process. I find as a fact that if Mr Boynes had drawn the Coles' attention to the absence of any covenant by the Vendors they would nevertheless have proceeded with the acquisition at the same pace. They would neither have tried to negotiate for a covenant nor withdrawn from the purchase. They would not have regarded any business run by the Vendors as competition to the business which they were intending to run at the Highwayman's Haunt. I find that the Defendant firm has discharged the evidential burden upon it.
30. I note that in an email dated 24^th November 2011 [2/811] sent to Mr Johnson of the Defendant firm, the Coles say,

"If this clause had been included in the Sale Contract, this might have invoked a reaction from Mr and Mrs Elliot, they could have requested its removal then Steve and I would have been offered a clear vision of what we could have possibly been up against and possibly pulled out of the arrangement, thus saving us the loss of all our savings..."

That email was part of the internal complaints procedure within Kitsons. Even at that date the Claimants were unable to say that the transaction would not have taken place had the requisite advice been given.

31. The Claimants produced a business plan for Greene King which showed what they hoped to do [1/252 ff]. In particular as opposed to the current clientele which were described by the Claimants as "older people on a day out, local couples, Round Table, families, day-trippers and holidaymakers" they hoped to attract "business people, families, "foodies" and young people" together with "music lovers". They described the Vendors' menu as "boring" and the atmosphere as "drab and boring". They wanted to introduce a new head chef with new ideas, a better thought out wine list, fresh homemade dishes together with what might be generally described as upmarket drinks and food.
32. The menu available at the Highwayman's Haunt under the Claimants' stewardship is at [2/853 and ff], At [2/845 and ff] is the menu available at the Claycutters Arms under the stewardship of the Elliotts. The Highwayman's Haunt offer in respect of both food and drink is broadly considerably upmarket from that at the Claycutters. Mrs Coles accepted that to be so in evidence. It is in any event consistent with what she intended to do.
33. Further evidence of the difference between the food offers, between the Highwayman's Haunt under the Claimant and the Claycutters under Mr and Mrs Elliot, emerges from the Chartered Surveyor's report served on behalf of the Claimants prepared by Mr. David Morgan. At paragraph 5.5.2 [1/71] Mr Morgan says:

"Having had the opportunity of eating at the Clay Cutters on three separate occasions, it is self-evident that the use of over-sized turkey plates and the piling on of cheap vegetables, creates the impression of an extremely large meal. However, the quality of the ingredients can at best be described as 'satisfactory'...

Mr Morgan also offers the view at paragraph 5.5.4,

"It is accepted that 100% retention of the original trade who sought a meal experience of the "pile 'em high, chips with everything" would not have been satisfied with the hot plated food offering that was then prevalent in the Highwayman's Haunt."

34. The causes for the failure of the Highwayman's Haunt under the Claimant are that the old clientele did not like the new offer nor the prices and the Claimant did not attract the new clientele which the Coles hoped would use the premises.
35. Lest I be wrong about my findings on causation, I consider briefly the question of damages.
36. Mr Morgan for the Claimant produced two reports: the first dated 17^th August 2012 which is at [1/62] and the second dated I7^th June 2013 which is at [1/107]. Put shortly, the approach in the first report (see paragraph 7.3.4.2) is to take the continuing value of goodwill, the enhanced value of the in situ asset of the inventory; a total of £139,148, which he rounded up to £140,000 and deduct the sale price in July 2012 of £70,000 (again rounded) so as to produce a loss of £70,000. At paragraph 7.3.1 the justification is given as being the substantial movement of trade or transient goodwill to the Clay Cutters Arms. It thus assumed that in the substantive cause of the loss of profit was due to Mr and Mrs Elliott opening the Claycutters Arms and that the clientele just moved over. There is no factual justification for that assumption. There is no evidence that the customers of one simply moved over en bloc to the second: it may be that some did but that would be no more than surmise.
37. In Mr Morgan's second report he considered two separate instructions namely to provide a valuation of the property as at April 2011 with the benefit of a restraint of trade clause and a valuation of the property as at April 2011 without a restraint of trade clause. The difficulty with the approach which he then takes is that he continues to draw heavily upon the trading success of the Elliotts at the Clay Cutters public house as justification (and the assumption of a transfer of loyalty en bloc) for his conclusions.
38. I was not assisted by Mr Morgan's evidence.
39. Mr Parson's report [1/119] dated 27th May 2004 was prepared on the instructions of the Defendant. He concludes at paragraph 11.11 that the value of the Highwayman's Haunt as a going concern in April 2011 without a restraint trade covenant would have been £100,500 and with a restraint of trade covenant would have been £105,525. Having rejected Mr Morgan's evidence, the only material before me to assess the loss would have been those valuations and had the issue arisen I would therefore have awarded damages of £5,025.00.
40. However, in the event, the Claim is dismissed.