Jersey Unreported Judgments

2001/161

ROYAL COURT

(Samedi Division)

 

 26^th July 2001 

 

 

 

 

Alleged professional negligence.

 

Advocate M. J. Thompson for the Plaintiff.

Advocate A.D. Robinson for the Defendants

 

 

judgment

THE commissioner:   

1.        The Plaintiff in this action is Mr. Michael Adrian Riley.  It concerns the alleged professional negligence of Mr. Barry Keith Pickersgill (who is named with his partner in the Order of Justice).  Only Mr. Riley and Mr. Pickersgill gave evidence before us.

2.        Mr. Riley is a retired company director.  His business at the relevant time was the publication of "flyers" or free business newspapers.  One of these was "The Jersey Journal".   For a time Mr. Riley had been a joint owner, with Mr. Bruce Deane of the estate agency, Beck & Dean.

3.        Number One, Peter Street was a property owned at the relevant time by Hyams Realty Limited.  The property was let to a company called Travelcare (Europe) Limited ("Travelcare").  Mr. Riley had purchased a company called Magnet Publications Limited ("Magnet").  Magnet wanted to take over the lease at 1 Peter Street from Travelcare.  Mr. Deane (not Mr. Pickersgill) carried out negotiations with Messrs. Bailhache Labesse, who acted for the landlord.  Consents were obtained, Travelcare was paid off, the landlord company agreed to the lease being assigned, cancelled and a new 21 year lease being granted.  The landlords said that they would wish to have the lease guaranteed (Mr. Riley was used to personal guarantees.   He had wide business experience in England).  Bank references were supplied.  Then a problem arose.  A survey had been commissioned and it revealed a catalogue of faults.  In its conclusion it says "the years have passed, and the building has deteriorated with the consequence that if a full repairing lease for a period of twenty eight years is now entered into, the future repair or maintenance could be very high".  The catalogue of the defects leaves no doubt on that point.

4.        Mr. Pickersgill was consulted.  He had known Mr. Riley from about a year earlier and his firm had acted for Mr. Riley in his divorce and in the purchase of property.

5.        On 4^th December, Mr. Pickersgill, on Mr. Riley's behalf, wrote to Bailhache Labesse attempting to resile from the contract lease but undertaking to retain the benefit of the paper lease which had less than two years to run.

6.        The landlord company did not agree.  Mr. Pickersgill was told that while specific performance of the 21 year lease was not possible, his client company was bound to a nine year lease.  Mr. Pickersgill did not and could not disagree. 

7.        Mr. Riley took the assignment of the lease from Travelcare and paid them the agreed consideration of £5,000.

8.        Mr. Riley had approached a firm in Dorset called MRT Consultants Limited.  They were "Newspaper Brokers and Publishing Consultants".  They found a potential purchaser of the shares in Magnet.  Mr. Tidd (a Director of MRT) was negotiating to buy (with a Mr. Doel) for "themselves or their companies" 75% of the share equity in Magnet, subject to terms.

9.        There were discussions in Jersey.   Mr. Pickersgill was involved.  He was also the Secretary of Magnet.  Originally a paper lease of nine years was contemplated.   When Mr. Doel was told that a twenty-eight year lease was available, he was enthusiastic.

10.      That statement given to us by Mr. Riley is not, however, borne out by a letter written to him by Mr. Pickersgill on 11^th April 1998:-

"It may be worth my while to mention that you should bear in mind the fact that you have negotiated a sale of shares in Magnet Publications Limited on the basis that no such long term lease exists so that, if you do decide to proceed, it ought really to be disclosed to the Purchasers".

11.      Mr. Pickersgill prepared an agreement of sale.  It was engrossed after discussions with his client.  The negotiations came to nothing.

12.      On 28^th April 1988 there is a diary note written by Mr. Pickersgill.  It says:-

"Re lease & gntee - discussions - proceed with the lease".

13.      Mr. Doel came back to the table.  He was, according to Mr. Riley, totally in agreement to taking up the guarantee.

14.      On 19^th May 1988, Mr. Pickersgill made a short diary note.  It noted that the purchaser was Mr. Brian Doel and there follows the words "they may wish to substitute him as guarantor". 

15.      Although Mr. Riley specifically pleaded that "the sole reason" for the granting of a new lease of the property was the proposed sale of Magnet, Advocate Thompson asked to substitute the word "main" for "sole".  There was no protest from Advocate Robinson and we allowed the amendment.

16.      We come to an area of dispute.  Mr. Riley stated that Mr. Doel was buying as a "Managing Director of West of England Newspapers" and he was quite certain that he informed Mr. Pickersgill of the fact that Mr. Doel was the Managing Director of the company.  Mr. Pickersgill denied that he was given that information.  Advocate Thompson drew our attention to Jackson & Powell's Professional Negligence (Fourth Edition) 4-03 which deals with the question of a solicitor recording the nature of his retainer in an attendance note.  There is certainly a paucity of recorded information but on this point we accept Mr. Pickersgill's statement that he first heard that a company was involved when he received a letter from a firm called Foot & Bowden, Solicitors in Devon on 20^th May 1988.  In part, the letter says:

"1)                   we understand that our client, West of England Newspapers Limited, has agreed to purchase the entire issued share capital of Magnet Publications Limited in the sum of £125,000.

2)                           We understand that there is a personal guarantee to be given in relation to the lease, a copy of which has been sent to us, on Friday 27^th May.  It is not possible for the transaction to have been completed by then, and it would therefore seem appropriate for Mr. Riley to give the personal guarantee required, and if the transaction then proceeds to completion our client will consider as part of that process adoption of the guarantee from your client".

17.      It is necessary at this point to state that on 31^st March 1987, West of England Newspapers Limited had transferred its business and assets to a company called Independent Publishing and Printing Limited.  That company changed its name to West of England Newspapers Limited and the original West of England Newspapers Limited changed its name to West of England Publications Limited on 1^st November 1988.  The relevance of that is that, on the date that Mr. Pickersgill received the letter from Foot and Bowden, West of England Newspapers was of no financial value.  It was a shell company. It was solvent and the intra group transaction was effected for valid commercial reasons.

18.      On the day that the 28 year contract lease passed before Court (27^th May 1988) Foot and Bowden wrote to Mr. Pickersgill to say that they were putting in hand the drafting of a suitable agreement which they anticipated would be ready for comments by "the middle of the next week".

19.      The contract lease passed with Mr. Riley as guarantor (Mr. Doel lived in England and was unacceptable to the landlord company as a guarantor).

20.      There was no binding obligation to pass the lease on 27^th May.

21.      The agreement for the purchase of the shares in Magnet was entered into on 16^th June 1988 by West of England Newspapers.  They thereby took over the twenty-eight year contract lease of 1 Peter Street and the shell company (for such it was) undertook to procure the release of Mr. Riley from the guarantee or "if it shall using its best endeavours be unable to do so the purchaser will keep Mr. Riley indemnified against all claims, identities and costs arising therefrom".

22.      We shall examine the duties of a solicitor in the course of this judgment.  It suffices only to say that Mr. Pickersgill in evidence told us that the lease was going to pass regardless of what happened and that his duty did not extend to making commercial decisions for clients who are quite capable of making the decisions themselves.

23.      In his pleading, Mr. Riley says this:-

"Prior to the plaintiff entering into the lease on a date the plaintiff cannot now recall, Mr. Pickersgill advised to (sic) the plaintiff that it was his view that the Acquiring Company was "very established" and assured the plaintiff that he did not have to worry or be concerned about giving the guarantee referred to in paragraph 5.  In the premises, the plaintiff avers that Mr. Pickersgill in giving such advice was under a duty to ensure that such advice was accurate.  The plaintiff avers that Mr. Pickersgill was under a duty to advise on the consequences of the guarantee for the plaintiff in view of the possible exposure of the plaintiff under the terms of the guarantee".

   That is denied by Mr. Pickersgill.

24.      There is very little written evidence to support either party's contention.  In Jackson & Powell Professional Negligence (Fourth Edition) there is this passage at 4-139:-

"However admirable and comprehensive the advice which a solicitor gives, it is of no benefit to his defence unless it can be proved what advice was given.  The solicitor is unlikely to recall after a period of several years what advice he gave to his client on a routine matter.  The best he can do is to describe his usual advice in the particular circumstances or to speculate as to what he "must" have said which is unlikely to carry as much weight as the recollection of the plaintiff.  There is no substitute for a proper attendance note, recording the gist of the advice which was given".

25.      Mr. Pickersgill stated that Mr. Riley alone was responsible for checking on the financial standing of West of England Newspapers.  In our judgment, that cannot be right.  Mr. Riley told us that he was aware that he was, as guarantor of a long contract lease, liable to a substantial claim if his guarantee were to be called in.  He told us that he was assured by Mr. Pickersgill that at the time the warranty was given, it was as watertight as it could possibly be.  He was, he said, told that if there was going to be a problem, such as West of England Newspapers Limited becoming bankrupt, he would "suffer the financial consequences just as any other creditor".   He then said this:-

"But that was the only reason that was given to me as a problem because he considered West of England Newspapers to be a company of reasonable stature, and that we really had nothing to worry about other than them going bust, which was a very unlikely scenario".

26.      Mr. Pickersgill told us, in summary, that he had been told by his client that Western Newspapers Limited was a substantial company, that his client knew the newspaper business and in any event he was immersed in the business document and he had assumed that the company was substantial.  He was not at all certain how to set up a company search in England.

27.      Mr. Riley had sold Magnet for health and financial reasons.  He had sold Magnet for £125,000 with the benefit of a twenty-eight year lease.  He had guaranteed that lease.

28.      When, some two years later, Mr. Riley visited the premises, he telephoned Mr. Pickersgill in some alarm.  The secretary's note (she was not called to give evidence) reads:

"Michael  Riley - 55414

           about 4 years ago, Magnet Publications was bought by Jersey Journal, Peter Street lease.

Landlord kept Mr. Riley as guarantor of lease as he was the only Jersey Resident.

Then the company West of England Newspapers gave him a binding guarantee.

He said that the premises are vacant and he wants BKP to check the guarantee because he says he doesn't want to be responsible for paying rental.

19/20 10/92

advised Riley that they do have a claim BUT then the guarantee (he) has from West of England he claims so therefore will be refunded."

29.      Mr. Riley told us that he had spoken to Mr. Doel who told him that he had stripped Jersey Journal from the company and sublet the premises.  Magnet was now apparently owned by an English public company of some standing.  Mr. Riley was able to supplement what the secretary's attendance note shows.  He said that when she returned to him (having spoken to Mr. Pickersgill) he was told that he had nothing to worry about and because of the public company's interest he was "safer than ever" and he "need not lose any sleep over the matter".

30.      It was when the Viscount's officers attended at his home in November 1995 that he realized the extent of the problem for the first time.  A letter from Mr. Pickersgill to "The Manager" of West of England Newspapers Limited dated 15thNovember 1995 expresses the realization.

"Re: Magnet Publications Limited

The above company is being sued by its landlord for arrears of rental, insurance premium and water rates amounting to a total of £32,007.92 and Mr. Michael Riley, as guarantor of the company's lease, has been included in the action as second defendant.  You may be aware that when your company acquired Magnet in 1988, the agreement contained the following provision:-

"The Purchasers shall .... Iv) Procure the release of Mr. Riley from the Guarantee or if it shall after using its best endeavours be unable to do so the Purchaser shall keep Mr. Riley indemnfied against all claims, liabilities and costs arising thereunder".

Accordingly we write to put you on notice that Mr. Riley holds your company responsible for the repayment to him of the whole of any expenses and costs that he may incur in the event that Judgement, which he seems to be unable to resist, is taken and enforced against him."

31.      There was extensive correspondence with English solicitors and with the landlord company.  Eventually, Mr. Riley was able to compromise the landlord company's claims and obtain a release from his guarantee.  It was necessary for him to borrow money in order to pay the £47,204.23 due which would with interest and costs amount to a quantified sum of £50,276.53.  There are additional costs arising from the protracted legal proceedings that followed which included putting Magnet en désastre on 22^nd March 1996.  Eventually lawyers acting for West of England Newspapers Limited made an offer of £10,000 which would reduce at the rate of £1,000 per week if it was not accepted by 3^rd July 1997.  Mr. Riley considered the offer to be an insult and West of England Publications Limited (as it was then called) was made the subject of a Winding Up Order made on 26^th November 1997.  Mr. Riley's English Solicitors were paid but no funds have been received by him from any source.  On 12^th June 1998 the present Order of Justice was served in its original form on Pickersgill and Le Cornu.

32.      In our judgment, Mr. Pickersgill owed a duty to Mr. Riley both in contract and in tort.  In contract, of course, there is an implied duty to use reasonable care and skill;  in tort he has a duty of care.  In essence the duty for solicitors is essentially the same.

33.      In Henderson v. Merret Syndicates Ltd. (1994) 3 All ER 506 at 553 Lord Goff said:-

" ...... liability can, and in my opinion should, be founded squarely on the principle established in Hedley Byrne itself, from which it follows that an assumption of responsibility coupled with the concomitant reliance may give rise to a tortious duty of care irrespective of whether there is a contractual relationship between the parties, and in consequence, unless his contract precludes him from doing so, the plaintiff who has available to him concurrent remedies in contract and tort, may choose that remedy which appears to him to be the most advantageous".

34.      In Jackson v. Powell "Professional Negligence (Fourth Edition) the authors say this at 4-116

"A solicitor is often called upon to give practical advice in which legal considerations are only one factor.  In such a situation, a mere error of judgment by the solicitor is less likely to amount to negligence.  Where, however, the solicitor advises a course of action which is plainly wrong, then he will be liable".

35.      The authors go on to say (at 4-233) that a solicitor is "not a general adviser on matters of business (unless he specifically agrees to act in that capacity).  Thus he is not generally under a duty to advise whether legal considerations apart, the transaction which he is instructed to carry out is a prudent one".

36.      In Blacklock v. Perrier & Labesse (1980) JJ 197 at 206, the Court said:-

"The duty is to give all the relevant information to the client so that he can make up his own mind.  In cases of doubt, the duty of a practitioner is to make sure that the client has sufficient information knows that he has it and what it means.  A corollary to this duty is that when a solicitor is not sure that his client has appreciated the problem he ought not to act in any way so as to prejudice the client's interests".

37.      The Court said as much in Torrell v. Pickersgill & Le Cornu (1987-88) JLR 702 at 708.

"In Stannard v. Ullithorne (1834) 10 Bing at 503-504:

""It may be assumed as a general principle that an attorney, by reason of the emolument he derives from the business in which he is employed, undertakes and is bound to take care, that his client does not enter into any covenant or stipulation that may expose him to a greater degree of responsibility than is ordinarily attached to the business in hand, or at all events, that he does not do so till the consequences have been explained to him".

38.      It is clear that a client may well have high expectations of his solicitor, particularly when, as in Jersey, he is an "homme d'affaires".

39.      In our judgment, Mr. Pickersgill had a duty either to investigate West of England Newspapers Limited or to advise his client of the risk that he was running by not having the financial standing of the company investigated.

40.      On 20^th May 1988, the proposed purchaser was known to be West of England Newspapers Limited.  It was not Mr. Doel.  When Mr. Pickersgill wrote on Wednesday 25^th May to Foot and Bowden (acting for Western Newspapers Limited) he asked that either his client's guarantee be satisfactorily replaced or that an indemnity be given.  The contract lease passed on Friday 27^th May.  There is a diary entry which says "Mr. Riley 10.00 a.m."  and it must be that Mr. Pickersgill saw Mr. Riley at that time.  He would have taken him through the lease.  He will have explained the guarantee to him. 

41.      In our judgment he did not alert Mr. Riley to the potential problems because he did not - as he told us very frankly - consider that the financial standing of West of England Newspapers Limited was his concern.

42.      We are of the opinion that Mr. Pickersgill could have advised his client to delay passing the contract whilst he investigated the standing of the alternate guarantor or found a form of suitable indemnity or advised his client in writing of the dangers that might befall him in guaranteeing a twenty-eight year lease for a company over which he would have no control whatsoever.  He did none of these things.  In our judgment, although he was dealing with a client versed in business, he had a duty towards his client to explain to him the potential consequences of entering into the lease and guarantee with absolutely no alternative guarantor in place and no indemnity agreed.  If his client had told him to proceed in any event, we would not have taken the decision that we have.  Mr. Riley was not given that opportunity.  If, as we have held, Mr. Pickersgill breached his professional duty, does a period of limitation apply?

43.      The prescriptive period in contract is ten years.  The Order of Justice was served on 12^th June 1998.  On 16^th June 1988 the legal duty on the matter of the guarantee and/or the indemnity ceased to be capable of performance.  Once Mr. Riley entered into the contract lease as director of Magnet and where he guaranteed the twenty-eight year fully repairing lease, the cause of action arose and damages were potentially payable.

44.      The Court of Appeal, in Boyd v. Pickersgill & Le Cornu (1999) JLR 284 CofA, Southwell JA said this at 295:-

"Dealing next with the first part of the judgment in Maynard, this court there stated the test of an "empechement de fait" to be whether the potential plaintiff was prevented by a practical impossibility from exercising his right to bring legal proceedings.  I wish only to emphasize two points on this test.  First, the words "practical impossibility" are used in contra distinction to a "theoretical possibility".  The difference is, as Beloff JA has indicated, a substantial one.  Secondly, the test is to be applied objectively to a reasonable person in the particular circumstances in which the plaintiff was placed.  It is not a subjective test".

45.      When Mr. Riley discovered that the property of which lease he was guarantor was not apparently occupied by Magnet, he telephoned Mr. Pickersgill and, through his secretary, received positive comfort and assurance.  Advocate Robinson argued that Mr. Riley should not have stopped there.  He should have gone on to make further enquiries perhaps from his landlord.  That was not put to Mr. Riley in cross-examination.  In our judgment, Mr. Riley relied, reasonably, on his lawyer.  He was put on notice and made enquiries of his lawyer.  He was assured that all was well and that he did not need to concern himself.  We have no doubt that on an objective test the plaintiff behaved reasonably.

46.      In our judgment, Mr. Pickersgill was under a continuing duty to advise on the financial adequacy of Western Newspapers Limited and how best Mr. Riley could be protected until such duty ceased to be capable of performance (Midland Bank Trust Company limited v. Hett Stubbs & Kemp (1978) 3 All ER 571.  Advocate Robinson contends that the cause of action was complete when the plaintiff entered into the guarantee contained in the contract lease of 27^th May 1988. 

47.      We do not accept that contention.  For the reasons we have stated, the contract lease could have been postponed without penalty or consequence until the financial standing of Western Newspapers Limited had been investigated.  We therefore have decided, and we do so decide, that the action is prescribed neither in contract nor in tort.

48.      On 28^th March 1996, there is a handwritten diary sheet of Mr. Pickersgill.  It reads in part:-

"M.A.R. (Mr Riley) - advised of the above position - we discuss status of original guarantee - ? Why not personal - Co. thought to be substantial - covenant as given was considered adequate".

49.      The defendants argue that it was the guarantee that was the cause of the plaintiff's loss.  The plaintiff (and we have upheld his argument) argues that the cause of loss was the failure of the indemnity.  Advocate Robinson says that if Mr. Riley had known the true position about West of England Newspapers Limited he would not have sold Magnet and therefore the effect of the negligence was that it deprived the plaintiff of an opportunity to retain control of a hopeless situation.  It may well be that the plaintiff was, in effect, hoist with his own petard.  Had he been advised on the true position he could have delayed the contract while he ascertained what the possibility was of finding a satisfactory indemnity.  After all, Foot and Bowden, acting for Western Newspapers, had asked for, and obtained, detailed information concerning Magnet.  He could have refused the twenty-eight year lease (to which he was not legally bound) and soldiered on with a paper lease while he attempted to find another purchaser.  We do not know but we cannot accept that the situation would have been as negative as was suggested by counsel. 

50.      What losses has Mr. Riley suffered and has he mitigated such losses?

51.      It is trite law that every plaintiff can recover his actual loss in respect of damage which is not too remote.  He must do what is reasonable to mitigate the loss and he cannot recover any part of it which the defendant can prove to have resulted from a failure to mitigate. 

52.      As we have found that the Defendant has breached his contractual duty and as he has based his claim primarily on that we have to assess the damages that flow from that breach.

53.      There was paid to Hyam Realty Holdings Limited a total of £35,617.40p.   That sum, in essence consisted of £32,007.92 but it included arrears of rental on the lease that Mr. Riley had guaranteed for the quarters from March 25^th 1994 to September 29^th 1995, water rates for the same period, insurance for the same period, less the sum of £5,000 that Mr. Riley had paid in February 1995.  It also included interest and costs on a taxed costs basis.

54.      Mr. Pickersgill had made a diary sheet on 30^th November 1995 which says "Spoke to Mr. Riley.  He said he would agree to pay - as he can then claim and get the money back" and Mr. Pickersgill has written to West of England Newspapers Limited on 15^th November 1995 to put them on notice that the company would be held responsible for that sum under their indemnity which was, as we now know, worthless.

55.      There would have been a continuing liability under the guarantee.  Mr. Riley wrote a letter explaining his predicament to Hyams Realty Limited.  We have not seen that letter but it clearly touched a chord.  The company compromised by allowing the lease to be cancelled and took an assignment of Mr. Riley's claim against Magnet.  A further £11,456.58 was paid to the company.

56.      The plaintiff also claims legal costs in resisting the claim against the landlord, legal costs in pursuing the acquiring company and sums paid to Mr. Pickersgill in satisfaction of various invoices rendered to him in connection with the sale of Magnet and/or the Hyams proceedings.  We find it virtually impossible to quantify these sums.  If the parties cannot agree then they must be submitted to the Judicial Greffier.  We dismiss the counterclaim.  We award interest at the Court ate as set out in Practice Direction 93/1 from the date of judgment and costs at the standard rate.  

 

Authorities

Jackson & Powell Professional Negligence (4th Ed'n): 4-139; 4-116.

Henderson v. Merret Syndicates Ltd. (1994) 3 All ER 506.

Blacklock v. Perrier & Labesse (1980) JJ 197.

Torrell v. Pickersgill & Le Cornu (1987-88) JLR 702.

Boyd v. Pickersgill & Le Cornu (1999) JLR 284 CofA.

Midland Bank Trust Company limited v. Hett Stubbs & Kemp (1978) 3 All ER 571.