Paying the forfeit—the importance of mitigating losses (LSREF III Wight Ltd v Gateley LLP)

Paying the forfeit—the importance of mitigating losses (LSREF III Wight Ltd v Gateley LLP)

The Court of Appeal has handed down judgment in LSREF III Wight Ltd v Gateley LLP, a case which concerned a forfeiture clause in a lease and whether the claimant had unreasonably failed to mitigate its loss. John de Waal QC, barrister at Hardwicke Chambers, says the case shows that judges want to achieve a fair result.

Original news

LSREF III Wight Ltd v Gateley LLP [2016] EWCA Civ 359, [2016] All ER (D) 145 (Apr)

The Court of Appeal, Civil Division, allowed the defendant solicitors’ firm’s appeal and allowed the claimant’s cross appeal from an order made after the quantum only trial of a professional negligence claim against the defendant. The judge had made an error of principle in having confined his assessment of loss to the transaction date, rather than the trial date and none of the judge’s reasons justified the conclusion that the claimant had not unreasonably failed to mitigate its loss. Nonetheless, the defendant was liable for the full cost which the claimant had incurred in curing a defect in a lease, albeit after trial, in the sum of £157,100.

What was the background to the application, briefly?

In 2007 Gateley provided a report on title to a subsidiary of AIB who were considering lending £1.1m to a special purposed vehicle (SPV), Method Investments Ltd, against the security of various properties including a 199-year lease of a mixed use development in Leicester. Gateley negligently (as it admitted) failed to advise the bank about the forfeiture clause in the lease which provided for the lease to be forfeited in an insolvency event—in passing, it is surprising both that Gateley missed the point and that the bank was not aware that this is a standard provision in commercial leases. This reduced the value of the legal charge as security, as the bank appreciated when it came to enforce its security in 2012.

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.