A Shropshire-based law firm has been deemed negligent by the High Court in the sequence of agreements for a property development joint venture, resulting in significant financial implications.
The Manchester High Court, under the judgement of His Honour Judge Pearce, has ruled that Lanyon Bowdler, a prominent Shropshire law firm, acted negligently during the processing of agreements for a property development joint venture. This negligence allowed one party to withdraw from the agreement, necessitating damages exceeding £750,000.
The case involved Milford Investments, a property development company, which entered into a joint venture with three landowners in Oswestry, Shropshire, to develop residential properties. Both parties were longstanding clients of Lanyon Bowdler, with mutual consent to engage the firm for the venture. They agreed to create a Limited Liability Partnership (LLP) for the project, and the LLP, along with other crucial agreements such as a development agreement, development management agreement, legal charge, and guarantee, were signed on 11 March 2016. The incorporation of the LLP followed shortly thereafter.
However, as the long-anticipated section 106 agreement was finalised, the relationship between the involved parties deteriorated in the summer of 2017. Under the terms of the development agreement, the landowners were required to execute a section 106 agreement at the LLP’s request. Discontent arose when one landowner expressed a preference for selling the land outright rather than proceeding with the joint venture. This prompted Lanyon Bowdler to withdraw its services due to a conflict of interest with Milford.
Subsequently, the landowners, represented by new solicitors DTM Legal, argued that the agreements were invalid and unenforceable, as the LLP had not been incorporated at the time of execution. They refused to sign the section 106 agreement within the stipulated timeline and ultimately decided against continuing with the joint venture. This move allowed them to sell the development land to a third party, leading to a financial loss for Milford.
Milford’s claim against Lanyon Bowdler centred on the law firm’s failure to ensure the LLP’s incorporation before executing the agreements, constituting a breach of their duty of care. This breach enabled the landowners to retract their commitment to the venture, thereby inflicting economic damage on Milford.
In its defence, Lanyon Bowdler contended that their timing error did not constitute a lack of reasonable skill and care. They argued that the risk of unenforceability due to the delayed LLP incorporation was unforeseeable.
Nevertheless, Judge Pearce disagreed, identifying the sequence of signing as an ‘obvious danger.’ Acknowledging that the firm admitted the signing order was illogical, the judge highlighted the risk of agreement validity being contested. He stated, ‘A reasonably competent solicitor would have ensured the LLP was incorporated first and advised on the risks of unenforceability if this sequence was not followed.’
There was no indication that Milford would have proceeded contrary to this sequence had they been properly advised. On causation, Judge Pearce calculated the likelihood of the joint venture succeeding at 40% if not for the breach and Milford’s potential to secure necessary finance at 80%, culminating in a 32% chance of achieving the forecasted profit.
The estimated gross development value was £6.3 million, with development costs at £3.9 million. Though the final loss figure was omitted, the ruling implied a ‘loss of chance’ valued at £768,000.
The High Court’s decision underscores the crucial importance of adhering to logical procedures in legal agreements. This case exemplifies the potential repercussions of missteps in document execution, serving as a cautionary tale for law firms managing complex transactions.
