Causation: Clack v Wrigleys Solicitors LLP
In Clack v Wrigleys Solicitors LLP [2013] EWHC 413 (Ch) the Claimant Mr Clack, was acquainted with a Mr B. He agreed to lend B £600,000 for a period of 6 months at a gross rate of 33% per annum. Mr Clack’s security for the loan was to be a charge over 30 of the 100 issued shares in the company.
Mr Clack instructed his solicitors to prepare the paperwork to ensure that he would have a charge over the shares following the transfer to B.
The Loan was completed and the money was transferred to B. B failed however to produce a share certificate or a copy of the Register of Members which would show that he was a shareholder.
In fact, the registered shareholder was an individual and a company which was wholly owned by B. Unfortunately, only £66,665 of the money lent was then repaid, and B was made bankrupt. The Claimant brought an action against his solicitors. The solicitors had been put under considerable pressure to complete, but they should have advised Mr Clack that he should obtain and check the share certificates or register of members as to ownership before advancing the loan. If he had, and Mr B wouldn’t have been able to produce them, Mr Clack would not have proceeded with the loan the judge thought and he wouldn’t have lost the amount that he did.
However, the court then went on to consider what loss Mr Clack could recover. The solicitor’s negligence related to advice concerning a particular feature of the transaction. The court assessed quantum on the basis that Mr Clack had made the loan with an effective charge. He could therefore only recover the losses that resulted from the ineffectiveness of the security.
The court ruled that Mr Clack’s loss was attributable to the risks inherent in the transaction, which he took on himself, and not to the breach of duty; because the loss would have arisen even if the security had been effective, the loss was his to bear.
- “They were not liable for the consequences of risks that Mr Clack would have taken upon himself even if they had performed their duty.”
When it came to assessing quantum he reviewed the case law and the distinction between giving advice or information as to a particular feature of a proposed transaction and giving advice or information as to whether to take the overall decision to proceed with it.
Finding that this case fell into the first category the judge went on to consider what loss the Claimant had suffered as a result of having no security over the company shares, and held that the assessment must proceed on the fictional basis that he would have made the loan with an effective charge. Unfortunately the shares had no value anyway as the company was in a poor financial position so the Claimant would have suffered the entirety of his loss even with a charge and that to find otherwise would have been to impose upon them
- “responsibility for losses which would have occurred even if the information or advice had been correct”.
The Claimant was awarded the sum of £30,000 which which would have been paid as a director of the company had there been an effective charge over the shares.
As is often the case, even where there is a clear breach of duty, it is important to consider very carefully whether the breach has caused loss or the extent of the loss as a consequence of the breach. Causation is often the downfall of many professional negligence claims.