Xenakis v Birkett Long LLP

Abstract
Negligence – Information or advice. The claimants brought an action in negligence against the defendant solicitors. The Queen’s Bench Division held that the claimants had a justifiable grievance about the service that they received from the defendant. Moreover, they had taken reasonable steps to respond to the situation in which they found themselves by expending money which was intended to, and in the event did, ameliorate their position. However, because of the way in which they went about their mitigation, the law was unable to offer them anything substantial by way of redress for the defendant’s negligence.

Summary
The judgment is available at: [2014] EWHC 171 (QB)

The claimants, who were in the hospitality business under the name of a company called P&L, decided to open a new bar and restaurant. For that purpose, they formed a limited liability partnership called B&G. The claimants negotiated terms of a lease for a suitable commercial premises with the landlords. The landlords required each of the claimants to personally guarantee B&G’s obligations under the lease on standard terms which required them to take on the lease for the remainder of the lease term in the event of disclaimer or forfeiture of the lease during the guarantee period (three years). The claimants instructed M, a conveyancing partner in the defendant solicitor’s firm to act for them and B&G in connection with the lease.

What actually transpired was that the business was not successful and the claimants, as sureties for B&G’s rental payments and certain of its other obligations, were obliged to guarantee B&G’s obligations for longer than three years. Perhaps more significantly, the period during which they were exposed to the risk of being required to enter into leases for the remainder of the lease term if B&G defaulted and the lease was forfeited or disclaimed would not end on 23 January 2009, as they expected, but on 15 December 2009. They did not realise that, and M did not tell them. Faced with that situation, the first and second claimants felt that they had no choice but to keep B&G alive and trading from the premises until after the guarantee had expired. The only reason for doing that was to minimize (and hopefully eliminate) their exposure to claims under the guarantee. The claimants brought a claim for professional negligence against the defendants in respect of their alleged failure to give adequate advice to the claimants regarding their potential exposure to personal liability under the suretyship covenants in the lease.

The primary case on negligence was that the advice given by M in the report and in conference in January 2006 was inadequate and fell short of the standard of care required of a reasonably competent solicitor. She had failed to give sufficiently comprehensive advice on the risks involved for the claimants as sureties. The first issue was: (i) whether the risk to them as guarantors was an obvious risk that a reasonable solicitor in the position of M would have foreseen at the time; (ii) what at a bare minimum, a reasonable solicitor alive to that risk, and knowing that it was now going to be unprotected, would have done in the circumstances facing M; and (iii) whether the claimants had suffered a loss in consequence of taking those steps in mitigation. The defendant’s primary submission in relation to (iii) was that they had not, any loss was sustained by P&L, not by the claimants personally.

The court ruled:

The key issue for the court to determine was whether a solicitor’s behaviour was within the range of behaviour open to a reasonable solicitor in the circumstances. The fact that another solicitor might have responded differently or given better, more helpful or clearer advice did not make that particular solicitor negligent unless what she had said or done was obviously outside that range (see [36] of the judgment).

In the instant case, on the facts, in failing to give any advice that would have alerted the clients to the risk they were running, M had plainly been negligent. What M had said in the report and at the conference had been insufficient to meet the minimum standard required of a reasonable solicitor in her position. At the very least, M should have told the first and second claimant, in terms, that their guarantee would not incept until the date on which the landlords completed the transaction, which was something over which she (and they) would have no control and that consequently there was a risk that if B&G went into occupation before the landlords completed, their guarantee would start later than the commencement date of the term of the lease. Moreover, the claimants had taken reasonable steps to respond to the situation in which they found themselves by expending money which was intended to, and in the event did, ameliorate their position. However, because of the way in which they went about their mitigation, the law was unable to offer them anything substantial by way of redress for the defendant’s negligence. Thus the position remained that the claimants could look to P&L to repay them the balance of the money they loaned it, and could demand that money at any time (see [1], [46], [72] of the judgment).

There would be judgment for the claimants, however, the court was unable to award the claimants what they actually expended, because they decided to lend the funds to P&L (see [73], [74] of the judgment).

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