Solicitor’s omission in £5.5m conveyance was breach of contract but did not cause company’s loss

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Two subsidiaries of a Dungannon-based company sought damages from their former solicitors for breach of contract and negligence in relation to the conveyance of lands in 2007. Eden (NI) Ltd and Mallaghan Engineering Ltd are both subsidiaries of Mallaghan Holdings Limited – a family business owned by the Mallaghans.

Prior to 2007, solicitors firm Mills Selig was instructed to assist in a corporate reconstruction of the Mallaghans’ business.

A “good deal”

Amidst the boom in the property market in the years leading up to 2007, the Mallaghans sought to acquire property for resale – setting up the subsidiary company, Eden (NI) Ltd, to do so.

The Mallaghans met with a Mr Martin McWilliams who represented himself as the owner of 8.4 acres of land at Seskinore, County Tyrone.

The land was subsequently conveyed, and Eden (NI) Ltd bought it for £5.4m

Eden was provided with 100% finance by the Bank of Ireland, but was unable to sell on or “flip” the property; it fell behind on payments of interest; receivers were appointed; and the bank ultimately resold the property for £0.5m in 2012.

The involvement of Mallaghan Engineering Ltd was as a guarantor of the borrowings by Eden. On foot of that guarantee, it was sued by the Bank of Ireland and the proceedings were settled by payment of £1.25m.

The Mallaghans case was that they were “persuaded to purchase” these lands, at least in part, because when they put the proposal to Mr William McCann of Mills Selig he told them it was a “good deal”.

Alleging that they relied on this statement, they sought to sue Mr McCann’s former firm for their loss and damage.

According to Justice Deeny, this alleged encouragement or persuasion on the part of Mr McCann “proved not to be the case” – and indeed was not included in the original letter of claim at the outset of these proceedings.

After hearing submissions from members of the Mallaghan family, Justice Deeny stated that their submssions were far from compelling, and stated that Mr McCann was an honest witness when he “denied using such an expression either once or twice”.

Accordingly, Justice Deeny held that “Mr McCann did not either volunteer or answer that the Seskinore proposition was a good deal”.

Failure to inform of previous transaction

The second head of claim was based on an omission.

In 2007 Mr McCann, in his capacity as the conveyancing solicitor to the Mallaghans, sent them a report on title.

He had been sent the title documents in January 2007 from the vendors’ solicitors, Tughans, which included the last transaction with regard to the land – namely a transfer from the Grugans to Freughmore Developments Ltd for £3.3m in December 2006.

The Mallaghans contend that they would never have agreed to purchase the lands for £5.4m if their solicitor had told them of this recent transaction at a much lower figure.

Justice Deeny accepted that Mr McCann did not tell them of the transaction, but what was in dispute was whether that amounted to a breach of his legal duty and, if so, whether it would in fact have deterred the Mallaghans from proceeding with the purchase of the lands.

Justice Deeny believed “that the most recent sale at a price three fifths of the price being paid by the client was of potential significance and they should have been informed of it”, adding that “the passing of information was part of his general duty as an agent and a solicitor”.

The fact that “they were not made aware of the transaction” constituted a breach of the contract between solicitor and client.

Justice Deeny added that it “only constitutes the tort of negligence i.e. based on a breach of the duty to take reasonable care if damage resulted from… breach of duty”. It was therefore appropriate “to consider what would have happened in the hypothetical situation of Mr McCann either sending them a copy of the previous transaction or pointing out the terms of it to them”, but not to go as far as to advise them.

There was clear evidence, including from two expert valuers, that in the excited market of early 2007 the market value of the lands had reached £5.4m or above.

Considering Bonner Properties Limited v McGuran Construction Limited NICh 16 and Mooney v Keys and Others NICh 23 Justice Deeny concluded that, while easy with hindsight to say that the transaction was foolish – on the balance of probabilities, if informed of this price, the Mallaghans “might well have reflected but in the light of valuation evidence available and comparables available showing that this was the market value they would have continued with the transaction”.

For the Mallaghans to establish a loss, necessary to establish the tort of negligence, or to establish more than nominal damages for any breach of contract, they must show that they would not have entered into the contract at all.

Justice Deeny therefore held that the claims against Mills Skelig failed, “save to the extent that the omission to furnish information about the last sale of the property did constitute a breach of contract”.

While this omission did not cause any loss to the Mallaghan’s companies, they were entitled to nominal damages for that breach – Justice Deeny therefore directed counsel to offer submissions on this and on the issue of costs.