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Property professionals still in the firing line

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18/05/2017

For a long time following the 2007/8 economic downturn, lenders and lawyers were kept busy recouping losses caused by surveyors’ overvaluation negligence.  Now that the bulk of those claims have been resolved, other property professionals are finding themselves in the firing line, as claimants find new ways to mitigate projects that have not lived up to expectations.

Beware ‘frenemies’

One recent example has made the legal and wider press headlines and is likely to ring alarm bells with all property professionals and their indemnity insurers.  In Basia Lejonvarn v Burgess [1], Mrs Lejonvarn had been friends with Mr and Mrs Burgess for many years when they mentioned to her their plans to undertake a high level landscape garden project.  Mrs Lejonvarn, an architect and project manager, agreed that her team would carry out the project and that, because of her long-standing friendship with the couple, she would provide her project management services for free.  The project went badly, costs overran and the relationship soured.  Mr and Mrs Burgess sued Mrs Lejonvarn for some £265,000 (in circumstances where she had no PI cover) and the case reached the Court of Appeal.  The court held:

  • The absence of both any intention to create legal relations and any consideration meant that there was no contract under which Mrs Lejonvarn owed liability to the couple…
  • …however the absence of a contract did not mean that the parties’ relationship could not be akin to a contractual one.
  • Professionals expect others to act in reliance on them, often with financial or other economic consequences.  In this case Mrs Lejonvarn had assumed certain responsibilities over the project whereby a professional skill was being exercised.  It was reasonable in the circumstances for Mr and Mrs Burgess to rely on Mrs Lejonvarn’s exercise of professional skill and they did so.  Mrs Lejonvarn did therefore owe a duty of care in tort.
  • The duty was to exercise reasonable care and skill in providing the professional services [2] (which, the judge noted in the earlier High Court decision, could extend to negligent omissions as well as the performance of negligent acts).

The court did acknowledge that this case did not concern mere ad-hoc, informal advice in a social context.  Property professionals therefore perhaps do not need to be concerned that they can no longer offer any advice or services at all to friends without incurring liability, but they do need to be more careful than ever before to properly distinguish between the truly social, or potentially professional, footing of any relationship whenever advice or services are provided in an informal context.  It is crucial to note that whether or not any money changes hands may be irrelevant.

The case is also another example of the risks that can arise in any professional services arrangement which is not properly framed in a contractual retainer [3].

If you’re going to do something, do it right

In Basia Lejonvarn v Burgess, Mrs Lejonvarn was never obliged to carry out professional services for her friends, but once she had agreed to do so, she was under a legal duty to provide those services properly.  In Crestsign and Thomas v Tridon Bank NV (the lenders cases discussed in Richard Sandford’s article earlier in this issue of Banking Matters [4]), the courts found that, once a bank had chosen to offer some explanation about a product, it owed a duty to explain fully and accurately the nature and effect of that product.  The recent case of Orientfield Holdings Ltd v Bird & Bird [5] also exemplifies the principle that, if you’re going to do something, do it right.

The defendant law firm (“the solicitors”) had been engaged to deal with the conveyancing of a high value property in London.  It considered that the seller’s responses to the pre-contract enquiries were insufficient, and so it obtained a Plansearch Plus report (“the Report”), which provided details of planning applications in the vicinity of the property.  The solicitors skim-read the Report, formed the view that it did not contain anything which adversely affected the property (despite its mention of a large application which, as further straightforward investigations would reveal, was a proposed school development within 250 metres of the property) and failed to summarise the content of the Report in the report on title for the client.  The client then exchanged contracts but became aware, a few days before completion, of the proposed major development.  The client decided not to proceed with the purchase, and lost a substantial deposit.  The client issued proceedings against the solicitors.

  • The High Court found that, whilst the solicitors had not been duty-bound to obtain the Report, once they had done so, they were under a duty to explain the effect of the Report to the client.
  • The solicitors were in breach of that duty by failing to include in the report on title a summary of the Report and the further investigations that could be undertaken without undue difficulty, cost or delay; and by failing to invite instructions in the light of that summary. Had the solicitors provided a summary and sought instructions, that would have given the client the opportunity to decide whether to proceed, withdraw or obtain further information before deciding.

Although the solicitors launched an appeal [6] which was unsuccessful overall, it is noteworthy that the principle that, having obtained the Report the solicitors were under a duty to explain it, did not form the basis of any of the grounds of appeal.

WM Comment

In a climate where claimants are looking for ever-more ingenious ways to recoup losses when property purchases and projects go awry, the key implication to come out of recent case law is that, if a professional is going to something – whether or not they get paid for it; whether or not there is a contract in place; and whether they are providing information, advice or services – they must do it right!  From the professional’s perspective, the best advice remains to always exercise reasonable care and skill to the appropriate standard and to ensure that your delivery of services is properly delineated in a retainer and fully covered by indemnity insurance.

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[1] [2017] EWCA Civ 254
[2] and the relevant standard, in this case, was that of a reasonably competent architect and project manager
[3] see our earlier article for further practical advice on this subject
[4] see our article Beware the middle ground: Bank in breach of intermediate duty to explain
[5] [2017] EWCA Civ 348
[6] arguing that the judge had erred by finding negligence but failing to make a detailed finding as to what the summary of the Report should have covered; and that a summary of the Report would not have revealed the proposed development and that the client would not, therefore, have declined to complete

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