National firm Bircham Dyson Bell has avoided paying any more than nominal damages after a partner admitted giving wrong advice on a loan guarantee. 

The ruling appears in the judgment in Harding Homes (East Street Ltd) & Ors v Bircham Dyson Bell, which otherwise finds for the law firm.  

The firm, through its property partner Michael Parker, admitted breach of duty after including an all-monies clause in the loan guarantee. It should have been limited to interest shortfall and cost overruns.

The claimants, property developers who had borrowed almost £9.5m from GMAC-RFC Property Finance Limited to sell homes in Colchester, said the lender would have acted differently if the contract had been drawn up as intended.

During a 10-day trial at the High Court in July, they said they could have agreed a full and final settlement of £2m with GMAC were it not for the mistake.

As it was, after defaulting on one of the milestones under the terms of the facility, the claimants received a demand from GMAC for the full sum owed based on the all-monies guarantee clause.

The claimants said they lost a ‘real and substantial’ chance of obtaining funding from third parties because of the mistake. 

They also claimed that Parker waited at least six months before telling them about the problem, saying they had not questioned him previously ‘possibly out of respect as they put [him] on a pedestal’.

In the judgment, Mrs Justice Proudman said Parker was ‘ashamed of his mistake’ and ‘plainly cut corners all the time’ in his practice.

She added: ‘I suspect, although there was no evidence about this, that he regarded himself as a man of commerce rather than a typical solicitor. He did not take full notes of meetings. He was sloppy in dating documents.’

But the judge did not accept that Parker concealed his mistake for so long. Parker himself described as ‘nonsensical’ the idea of him fobbing off the claimants for six months.

Proudman saw ‘little doubt’ that GMAC used the demand it served under the guarantee as a ‘negotiating tool’ in relation to a deed of forbearance to delay payments.

But she said the true cause of the change in the claimants’ negotiations was not the guarantee but the failure to secure a further loan from RBS.

‘I do not think that they have succeeded in demonstrating that they have lost a real and substantial chance to negotiate a different resolution with GMAC which would have resulted in more profit for the claimants,’ she added.