A property developer who accused a solicitors’ firm of professional negligence after taking out expensive short-term credit – which saw a £350,000 loan almost double in the space of six months – has lost his High Court case.
NDH Properties Limited alleged that Leeds-based Lupton Fawcett LLP was implicitly retained to act for the company in relation to a loan it took out in 2012. Alternatively, it contended that Lupton Fawcett owed duties of care in tort to give advice about the loan, and that the law firm had breached its contractual or tortious duties by failing to say that the high levels of interest and fees made it ‘manifestly disadvantageous’.
NDH’s sole director, Dashrathbai Nayee, took out a short-term loan of around £350,000 in 2012 from a company known as Amalgamated Finance Limited. The loan was secured by a charge on commercial property owned by NDH, which Nayee hoped to redevelop into student flats.
Three months later, Amalgamated demanded repayment of the loan, which had risen to £390,000. NDH was unable to repay this and Amalgamated appointed receivers over the property. The building was subsequently sold for £751,000, of which NDH received £62,456. The loan itself has risen to £647,459 in six months as a result of default interest and fees.
Lupton Fawcett denied the existence of any implied retainer and said it had not assumed any responsibility to NDH so as to owe duties in tort. The firm stressed that it was known to be acting for Amalgamated and claimed it had had no contact or communications whatsoever with Nayee.
It added that Nayee was an ‘experienced businessman who was perfectly capable of forming his own view’.
In judgment, Mr Justice Snowden said he had ‘no doubt that Lupton Fawcett did not implicitly agree to act as solicitors for NDH in relation to the loan’. He stressed there had been no prior relationship between Lupton Fawcett and NDH, and that the solicitors did not send any letter or email to NDH that might have signified that it had accepted instructions.
Snowden also concluded that Nayee was not actually relying - or could not reasonably have been relying - on Lupton Fawcett for advice on the financial merits and commercial risks of the loan.
‘Nor do I think that Lupton Fawcett could be said to have owed, or breached, any duty not to take unfair advantage of Mr. Nayee's lack of legal knowledge. Lupton Fawcett owed a duty to its own client to draft effective legal documentation for the loan that Amalgamated wished to propose to NDH,’ he said.
The claim was dismissed.
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