City firm Gateley was in breach of contract and negligent in its advice to a property dealer who sought to redevelop land in Nottingham, according to the High Court judgment in Moda International Brands v Gateley LLP & Gateley Plc.
Gateley was acting for Moda, a development company conducting a transaction with Mortar Developments.
Mortar had contacted Moda about the Nottingham site, proposing to build student accommodation on the land. A joint development agreement was suggested.
The judgment states that Richard Wilkinson acted as Moda’s agent, giving instructions on its behalf. He was advised by Austin Moore, a former partner at Gateley and a close personal friend with whom he often went on holiday.
The dispute centres on agreements stating that Wilkinson is not entitled to profit from a particular area of the site, the Angel Row unit.
While Wilkinson expected to receive 35% of the Angel Row profits, the participation agreement and the development agreement that were drawn up said he would not profit from that section of the site.
The participation agreement replaced a declaration of trust, under which Wilkinson would receive 35% of profits from the whole project.
Wilkinson alleged there was no prior agreement or understanding with Mortar to exclude profits from the Angel Row unit.
His Honour Judge Freedman ruled that Gateley failed to inform Wilkinson that he would not share the profits from the Angel Row Unit with Mortar. Freedman identified two failings on the part of the firm.
Firstly, Moore did not provide Wilkinson with the relevant agreements before they were executed. Instead, the judgment states, Moore simply told Wilkinson that the development agreement was ‘normal’. Freedman said: ‘This was misleading (albeit not deliberately so). If, as appears to be the case, he had not mentioned to Mr Wilkinson that the development agreement sought to exclude the Angel Row unit from the profits, it was in fact wholly abnormal.’
Gateley also failed to inform Wilkinson of the change to the agreement. Freedman said: ‘Mr Wilkinson was not advised by Mr Moore and did not otherwise know that [Mortar] had informed Mr Moore that he would not agree to share the profit from the Angel Row unit.’
‘On the contrary, the advice which Mr Moore gave to Mr Wilkinson was that the 35% share in the declaration of trust was turning into a sharing of 35% of profits of the development.’
Freedman J ruled that Gateley was in breach of contract and negligent in connection with the agreements. He also said that Moore’s evidence was ’unreliable’.
He ruled: ‘In particular, I am satisfied that it was in breach of contract and/or negligent in failing to take reasonable steps to procure that the participation agreement was drafted in such a manner as to maintain the entitlement of Moda to 35% of the profits in the site as a whole in accordance with the objective of the participation agreement.’
Following calculations, he ordered Gateley to pay Moda £221,209.22, including interest.
Gateley declined to comment.