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JCP's Professional Negligence Team Win Landmark Case
- AuthorKevin OBrien
JCP’s Professional Negligence team has been in the news recently following its landmark success in the case of Turpin & Phillips v Brabners Chaffe Street LLP.
Philip and Dorothy Turpin and Peter and Anne Phillips, the former shareholders of a successful regional construction company, TPT Construction, were awarded substantial seven-figure damages against leading North-West firm Brabners, who acted on their behalf in the sale of the company to Gareth Darbyshire of Darbyshire Holdings Ltd, in February 2009.
The case went to a 16 day trial in the High Court in Bristol, and judgment was given in the case on 15th September 2014 by HHJ McCahill Q.C.
In this article Kevin O’Brien,Director at JCP, reflects on the case and its implications for commercial clients and solicitors.
Gareth Darbyshire was a young student when the deal was completed in February 2009 for the sale of TPT by Mr and Mrs Turpin and Mr and Mrs Phillips, to Darbyshire’s newly formed company Darbyshire Holdings Ltd.
Although the agreed sale price was £7 million, under the terms of the deal only £2.5m was paid to the sellers on the date of the sale, with £4.5m deferred to be paid at various instalments from 5 weeks through to 5 months after completion.
The £2.5m completion payment was raised by Darbyshire using money already in the company, together with loans which had been arranged against the company’s assets on his behalf. Darbyshire and his company failed to pay the deferred payments due to the sellers, and within 15 months of taking over TPT, had driven a previously successful, profitable, asset-rich and debt-free family business into liquidation. [See the BBC Wales news item here ]
Both the sellers and Darbyshire had been represented by experienced commercial solicitors during the transaction.
Under normal circumstances, the disastrous consequences of the deal, and the substantial losses which the sellers suffered, would not have been likely to have given rise to a claim against their solicitors. That is because, ordinarily, solicitors are not expected to owe duties to advise clients upon the wisdom or the commercial merits of a business transaction.
However the circumstances of this case were far from ordinary.
On the facts of the case the Judge found that the seller’s solicitor, Ruth Jones, a partner in Brabners:-
1. Negotiated many of the key terms of the final deal with Darbyshire directly, and then recommended them to the clients;
2. Gave misleadingly favourable advice to the clients about the terms of the transaction and Darbyshire’s financial arrangements;
3. Deliberately withheld from the clients important information which she was aware of relating to Darbyshire and the proposed sale; and
4. Acted in a position of conflict of interests, in which she placed the interests of other parties ahead of those of her own clients, the sellers.
The Judge duly found Brabners liable to Mr and Mrs Turpin and Mr and Mrs Phillips for all losses which they suffered as a result of the transaction, on the basis that had Ruth Jones properly advised the clients and faithfully acted in their interests, they would have withdrawn from the sale.
The Judge’s 273 page judgment contained a number of interesting and, on the facts of the case entirely justified, findings on the key legal arguments at stake in the case.
A major part of Brabners’ defence to the claim was based upon the principle that solicitors would not ordinarly owe duties to their clients to advise upon the commercial merits of a business transaction. In its terms of business Brabners had purported to exclude liability to the clients in respect of any such advice.
However, the Judge found that the attempted exclusion of liability was ineffective because Ruth Jones had taken it upon herself to give commercial advice to the clients, and that Brabners were properly held to owe duties to the clients in respect of all of the advice (legal and/ or commercial) which they gave, or worngly failed to give, during the transaction.
The judgment highlighted that a contractual exclusion of liability cannot exclude liability for breaches of fiduciary duties owed by a solicitor, and that a solicitor is under a duty to pass on to his or her client any material information which comes to the solicitor’s attention, whether or not that information was directly within the scope of the work which the solicitor has undertaken to perform.
The case also included some important features upon which the Judge based his assessment of the proper measure of damages to be awarded.
In reaching his findings on the true value of the company the Judge rejected Brabners’ argument that he was bound to exclusively adopt either an asset based valuation or an earnings based one.
Before the sale the company had been very profitable and also owned substantial unencumbered assets, including “surplus” assets which were not directly required for its day-to-day business operations. The Judge held that an exclusively asset based valuation was inappropriate because it took no account of the profitability and goodwill of the company, whilst an exclusively earnings based valuation ignored the value of the “surplus” assets.
Instead, the Judge adopted a “hybrid” method of valuation in which the value of the “surplus assets” was added to the net earnings based valuation of the business. Quite rightly the Judge determined that this was the only approach which would do justice to the real value of the business.
Unusually in a professional negligence claim arising from a commercial transaction, the Judge also awarded the clients general damages for the mental distress and stigma caused by the consequences of the sale, and damages for Brabners’ breaches of confidentiality.
What lessons can be taken from the case?
Firstly, usual principles and presumptions will not automatically apply in every case. Every claim depends on its own facts and circumstances. The usual presumption that a solicitor would not be expected to owe a duty in relation to giving commercial advice holds good, but correctly the Judge determined that it did not fit the circumstances of this case.
Secondly, solicitors should not assume that written exclusions or limitations of liability will protect them if, in fact, they voluntarily provide advice relevant to matters which are outside the scope of the client’s original instructions to the solicitor.
Thirdly, solicitors will always be under a duty to pass on to their clients significant information which they become aware of and which they know, or ought to realise, may be of importance to the client. Again, it does not matter whether that information falls within the scope of the original instructions or not.
Kevin O’Brien is a Director at JCP Solicitors, and the Head of the Dispute Resolution Practice Group which incorporates the Professional Negligence team. He led the team acting for the Turpins and Phillips in the claim against Brabners, assisted by Associate Solicitor Sophie Thomas.
Kevin is recognised by industry bible the Legal 500 as one of the leading commercial dispute solicitors in Wales.
Kevin specialises in complicated litigation in the areas of professional negligence and mortgage fraud claims. His expertise and high standards of client service has attracted a number of large commercial and banking clients across the country.
Kevin is the Chairman and co-founder of Commercial Mediation West Wales, the only Civil Mediation Council accredited mediation provider in Wales.