The Court of Appeal finding in the case of Gabriel v Little & others in late 2013 provided some welcome good news for solicitors and their insurers regarding the scope of losses claimable. It also contains some risk management pointers for firms to observe.

Background to the case

Gabriel, a businessman and friend of Little, had lent him £200,000, in an informal deal agreed in a lunchtime meeting. A dispute arose between the parties as to the agreed purpose of the loan - whether solely for the redevelopment of a building owned by Little, or, as Little argued, also for the purchase of the site by a new company, and discharge of an existing bank charge.

Gabriel instructed BPE to obtain a first legal charge over the property. They were instructed not to do any additional searches, and also were not advising on the commercial aspects of the transaction. The scheme failed, and Gabriel lost the full £200,000 investment.

At first instance Gabriel's claim was successful: BPE was found negligent in having failed adequately to clarify the nature of the transaction and Gabriel was awarded a sum equivalent to his entire losses (Gabriel had argued that had he known how his loan was going to be used, he would never have made the loan).

The Appeal

The question at appeal was whether BPE had a duty "in respect of the kind of loss which [Gabriel] had suffered" and was claiming. This gave rise to a question as to whether the firm had a duty to advise, notwithstanding the restricted nature of the instruction. The Court of Appeal held that the commercial aspects of the deal were, as per the restricted engagement, NOT part of BPE's remit. The client had not requested any advice, and given the highly speculative nature of the deal, there was always a high risk that Gabriel would not have got his money back, even had BPE adequately clarified the nature of the transaction.

Risk Management pointers

The Appeal Court findings demonstrate that for a loss to be claimable, it has to be arise from a breach of duty in respect of the kind of loss suffered. While the findings are to an extent case-specific, the case does re-emphasise the importance of:

• clarifying the client's understanding of the scope at the outset, and managing their expectations;
• setting out clearly within your Letter of Engagement, exactly what is being advised on and what is not;
• as a precaution, making it clear to the client where particular risk issues arise, that you are not advising on these risks, that you advise he does seek advice on these risks, where appropriate, and that any additional charges payable should you be instructed to advise on the matter.

In extreme cases, you may decide not to act, rather than have to negotiate a fine line between advising and not advising, particularly where a deal is complex or high risk. The fees involved may not justify the risk of a potential claim.  And, even if ultimately unsuccessful, a claim can cost in time, defence costs, and potential lost business.

How Lockton can help

For further advice on practical risk management issues, clients can log in to the guidance section of our website.

Our series of Property Risks seminars also includes practical case-study based workshops. You can sign up to our events in Birmingham, Leeds and Manchester via our Events page.

For more information on Risk Management, you can also contact Calum MacLean.