EWJ Dec 2023 - Journal - Page 12
Focus on ‘Real Link’ Between Loss
of Profits and Nature of Duty of Care:
Manchester BS Decision Applied
This case review was authored by Laura Hurst, Partner and Amy Childs, Solicitor Apprentice
at Kennedys Law LLP?
Due to the cost of living crisis, high inflation and interest rates, and increasing hardship, we
anticipate that we will see increased litigation as claimants seek to recoup their losses. Here we
look at a recent example of the court’s approach to scope of duty and remoteness of loss, and the need
for there to be a link between the damages claimed and the nature of the duty of care, following the
decision in Manchester Building Society v Grant Thornton [2021].
Background facts
The defendant solicitors were engaged by the
claimants in relation to a property purchase (the Property). The second claimant is a wholly owned subsidiary of the first claimant. In April 2018, the second
claimant verbally agreed that the sale of the Property
would be transferred to a developer (the developer).
In return, the second claimant would be paid a
finder’s fee of £1 million plus VAT. The defendant was
allegedly instructed to draft documentation putting
this agreement into effect.
The second claimant sought:
l Loss of profits totalling c.£15 million from the
development of the Property and the other two
properties.
l Alternatively, the difference between the finder’s fee
originally proposed and the fee actually paid to the
second claimant, namely £500,000.
The defendant sought to strike out the loss of profit
claim on the following bases:
l The purported claim for loss of profits of both the
Property and the two other properties was outside the
scope of its duty.
On completion, the developer only offered a reduced
finder’s fee of £500,000, denying it agreed to pay a fee
of £1 million. As there was no written agreement between them, the second claimant alleges it had no
choice but to accept the reduced finder’s fee. The second claimant had also not sourced development finance because it had intended to sell it on to the
developer.
l The purported claim concerning the two
other properties was too remote and therefore not
recoverable.
Scope of duty
In reaching its decision, the Court referred to
Manchester BS v Grant Thornton [2021] which stated
that:
Procedural background and amended claim
A professional negligence claim was issued on 26 April
2022 by both claimants seeking alleged loss of profits
from the failed onward sale to the developer. The first
claimant subsequently discontinued its claims in
November 2022.
The fact that the defendant owes the claimant
a duty to take reasonable care in carrying out its (the
defendant’s) activities, does not mean that
the duty extends to every kind of harm which might be
suffered by the claimant as a result of
the breach of that duty.
The second claimant then applied to amend its claim in
December 2022, to add a claim for loss of anticipated
profits on the residential development of two additional
properties. The second claimant asserted that it had intended to use the £1 million finder’s fee to fund the
purchase of these two additional properties.
Applying this, the court concluded that the scope of
duty is judged on an objective basis, taking into
account the reason why the advice is given.
Bearing in mind the second claimant’s pleaded case
on the scope of the defendant’s duty, the court found
that the defendant’s duty did not extend to every potential damage arising from a breach of its duty. The
potential damage suffered, arising from the scope of
the defendant’s duty, was limited to the risk of losing
the finder’s fee, or the opportunity to purchase the
Property using development finance.
The second claimant alleged that:
l The defendant negligently assured the second
claimant that it would be “protected in its dealings”
with the developer and failed to advise the second
claimant to procure a legally binding agreement on
the terms agreed with the developer (i.e. the £1
million finder’s fee).
l The defendant negligently and wrongly assured the
The court therefore held there was no real link
between this potential damage and the potential
second claimant that it would not require development finance.
EXPERT WITNESS JOURNAL
10
DECEMBER 2023