High Court saves sellers' solicitor from negligence in drafting planning conditionality

High Court saves sellers' solicitor from negligence in drafting planning conditionality

In what circumstances will a firm of solicitors be liable where a contract conditional on planning fails to complete? The High Court confirmed that a firm's retainer does not extend to advising on planning or commercial issues.

Original news

Rentokil Initial 1927 plc v Goodman Derrick LLP [2014] EWHC 2994 (Ch)

Goodman Derrick (GD) was retained by Rentokil to act on its behalf in the sale of commercial office premises to Taylor Wimpey. The purchase was to be subject to the grant of planning consent for development for residential purposes. Planning consent was to be sought after exchange of contracts. Completion was to be dependent on the grant of planning consent with acceptable conditions.

Rentokil asserted that:

  •  GD was negligent in drafting (or approving or agreeing with the purchaser's solicitors) the terms of the contract for sale of the property in such a way that it enabled the purchaser to avoid completing the contract at a time when the property market was falling
  • GD failed to advise the claimant as to the proper meaning and effect of the terms of the contract with the result that it entered into a contract which it would not otherwise have entered into

At the heart of the allegations was the assertion that GD failed to properly draft and advise on the definition of 'Unacceptable Planning Conditions'. Rentokil also asserted that GD was negligent in drafting the definition of 'Costs' payable in respect of obligations to be performed under a Town and Country Planning Act 1990, s 106 agreement between Taylor Wimpey, as buyer, and the local planning authority--with the result that the definition was capable of reducing the purchase price when it ought not to have been.

Taylor Wimpey had argued that the planning conditions that were ultimately imposed were unacceptable and refused to complete the purchase. The parties started arbitration proceedings on the issue, which were compromised a few days before the hearing was due to take place. The compromise provided for completion of the sale to Taylor Wimpey but at a lower price than had been agreed under the contract. Steps had also been taken to determine the question of the s 106 agreement 'Costs' and that dispute was also compromised. Rentokil's primary claim was for the difference in value between the original contract price and the renegotiated price, estimating its loss at approximately £1.88m, alternatively for the loss of a chance of obtaining the original price. In addition it claimed the wasted costs of the arbitration (£600,000).

What were the issues involved?

Rentokil argued GD owed a duty in contract and at common law to exercise reasonable care and skill in:

  • drafting or approving the drafting of the agreement for sale
  • drawing attention to any provisions which Rentokil might reasonably consider to be unusual or disadvantageous and in giving advice as to the effects of such provisions, so that Rentokil would be able to make an informed decision as to whether to accept such provisions

GD admitted that it owed Rentokil a duty to exercise reasonable care and skill, but argued that the scope of its retainer was to advise the claimant on legal issues arising, or potentially arising, from the agreement and not on planning or commercial issues, whether or not unusual or disadvantageous. Such matters fell within the scope of Rentokil's surveyors's retainer. Rentokil accepted it was not GD's duty to advise on commercial risks.

What did the High Court decide?

The court dismissed Rentokil's claim.

Drafting/agreeing the contract

The definition of 'Unacceptable Planning Conditions' did not expose Rentokil to the risks they asserted as the foundation of their claim against GD. Rentokil would have been successful at arbitration against Taylor Wimpey.

As an example, Taylor Wimpey argued that a planning condition that the development should commence no later than three years from the date of the decision (a very common planning condition) was unacceptable as it was caught by one of the definitions of 'Unacceptable Planning Conditions'--'limiting the planning permission to a set period of time' (a commonly used definition). The court disagreed with this literal interpretation by Rentokil.

GD had drafted, negotiated or approved terms which reflected the heads of terms and the commercial deal which had been struck and achieved the balance which the parties intended. They were not terms which no reasonably competent practitioner could, in the circumstances, have drafted or agreed to. Nor did they expose Rentokil to unnecessary risks. There was no obvious danger of a damaging alternative construction. That Taylor Wimpey chose to advance a different (incorrect and implausible) construction to the true construction was not good evidence, nor a good reason, for concluding that the drafting was defective. GD did not act in breach of its retainer or negligently in this respect.

Nor was GD negligent in drafting the definition of 'Planning Agreement' and its advice in respect of it:

  • the drafting reflected the parties' intentions and the proper understanding of the heads of terms
  • the wording and proper meaning of the definition was clear on its face, was not difficult to understand and did not need specific separate explanation to Rentokil

Advice on the contract

County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 All ER 289

The court confirmed that 'If in the exercise of a reasonable professional judgement a solicitor is or should be alerted to risks which might elude even an intelligent layman, then plainly it is his duty to advise the client of these risks or explore the matter further'.

However, the precise scope of the duty to advise depends, among other matters, on the extent to which the client appears to need advice:

'An inexperienced client will need and will be entitled to expect the solicitor to take a much broader view of the scope of his retainer and of his duties then will be the case with an experienced client.' (Carradine Properties Ltd v DJ Freeman and Co [1999] Lloyd's Rep 48--not available in LexisLibrary)

At all material times, and in particular at the date when he instructed GD to exchange contracts, Mr Brown--Rentokil's representative in instructing GD--had a proper understanding of the risks inherent in the transaction and the detail and effect of the terms of the contract which were designed to achieve a balance between the buyer and seller's respective interests. He was a qualified solicitor and company secretary with worldwide responsibility for the Rentokil group.

The absence of a formal seller's report and specific evidence of a line-by-line explanation of the contract did not detract from this finding about Mr Brown's knowledge and understanding, nor from the court's conclusion that GD did not fail in its duty to advise Rentokil.

Midland Bank v Hett Stubbs and Kemp [1978] 3 All ER 571

The court highlighted the confirmation in Midland that:

'[...]the court must be aware of imposing upon solicitors [...] duties which go beyond the scope of what they are requested and undertake to do [...] the duty is directly related to the confines of the retainer.'

Rentokil was a highly sophisticated commercial client acting through highly experienced personnel, including Mr Brown, a solicitor of considerable commercial experience. It was not necessary for GD to undertake a line-by-line analysis of the contract. GD properly discharged its duties to the claimant at all material times.

The practical effect of the various clauses was a matter for the surveyors to advise on, not GD, and it was entirely appropriate that GD should assume that the surveyors could provide such advice--which they did.

What are the lessons for lawyers?

The decision will be welcomed by solicitors responsible for drafting contracts which include planning conditionality. The court was not impressed with the client's reliance on the buyer's implausible interpretation of the planning conditionality to found its negligence claim.

Nonetheless, best practice must be to provide a full report to the seller client on the terms of the contract - albeit summarised in an executive summary - and to advise the client to seek specialist planning surveyor's advice on the effect of the drafting.

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About the author:
Joanna is a commercial property specialist. Prior to joining the LexisPSL Property team, she was a transactional lawyer. She qualified in 1995 at Shoosmiths and subsequently worked at Nabarro, Charles Russell, Bircham Dyson Bell and Pemberton Greenish. She has wide-ranging experience of all non-contentious property transactions, with a particular emphasis on landlord and tenant work.