Outer House case concerning the damages payable as a result of a solicitor's professional negligence. VMH LLP advised Kirkton in relation to the purchase of a site at 144 to 148 Slateford Road in Edinburgh in 2005 from HBJ 590. The site had the benefit of conditional planning permission for 19 terraced townhouses and 8 apartments.
Two of the conditions related to a requirement for the installation of a ventilation system to a fish and chip shop (the Codfather) situated adjacent to the site to ensure that odours from the shop exited at a suitable level.
In March 2005, the owner of the Codfather, Slateford Developments entered into an agreement with HBJ 590 allowing HBJ 590 to carry out the works to install the ventilation system.
Kirkton [1] concluded missives for the sale of the site from HBJ 590 in April 2005 and in July 2005 Slateford Developments sold the Codfather to Ian McDonald Enterprises.
Kirkton began construction of the Development in autumn 2005. However, Ian McDonald disputed Kirkton's entitlement to install the ventilation system and requested a payment of £75k in return for allowing the installation. Kirkton refused this offer on advice from VMH to the effect that they had a legal right to install the system. However, it was subsequently found that Kirkton did not have a real right enforceable against the new owner of the Codfather.
In November 2007, having sought and failed to obtain a variation of the planning permission, Kirkton agreed to pay Ian McDonald £324k in return for the grant of a right to install the vent. In the meantime Kirkton had postponed active marketing and the launch of the development. Unfortunately for Kirkton the events also coincided with the onset of the property slump.
Kirkton argued that, as a result of VMH's breach of duty, marketing and sales were delayed and VMH were liable for the consequences of the delay including the additional bank borrowing costs and lower sales prices as obtained a result of their increased exposure to the vagaries of the property market.
Having initially argued otherwise, VMH accepted that an enforceable right could have been constituted against the shop owner, it was their duty to advise Kirkton of that and take the required steps to constitute the right and that, by failing to do so, they were in breach of their duties to Kirkton. However, they contended that the losses claimed in respect of additional bank charges and diminution in sales proceeds were not within the scope of their duties. VMH had not assumed the risk of such losses and it would not be fair and reasonable to impose it on them.
Lord Doherty disagreed:
“In my opinion the scope of the [VMH's] duties to [Kirkton] was sufficiently wide to include the duty to avoid causing them each of the kinds of loss and damage they say were sustained…
They were not merely providing information to [Kirkton]. Their duties were more exacting. They were under a duty to take the necessary legal steps to protect the position of the [Kirkton] in relation to the ventilation issue at the time they concluded missives; and they were under a duty to advise them correctly of their legal position at the time of the proposal by [Ian McDonald] so that a properly informed decision could be made then as to what action to take…
Having regard to the nature and content of [VMH's] duties to [Kirkton], and to the whole circumstances in which they arose and were breached, it appears to me to be fair, just and reasonable that the scope of [VMH's] duties should extend to the kinds of loss and damage claimed… It was reasonably forseeable that [VMH's] breach of duty might result in interruption to the planned progress of the development and sale of the properties, and might occasion delay and expense. [VMH] were aware that the development was being financed by bank borrowing. It was reasonably foreseeable that delay would result in additional borrowing costs. It was reasonably foreseeable that delay in achieving sales might result in longer exposure to the vagaries of the property market.”
After discussion as to causation and valuation of the loss, Lord Doherty awarded damages of more than £1.1m broken down as follows:
the settlement payment paid to Ian McDonald- £324,000
the other extrication costs- £55,812
diminution in sales proceeds- £545,818
additional bank borrowing costs- £209,742
_______________________________________________
[1] The missives were in fact entered by Kirkton Developments Limited (a related company working in conjunction with Kirkton Investments Limited on the development).
