Il Sole. Hard Candy.

The High Court heard recently a dispute between Mr Hirtenstein and the law firm Hill Dickinson over a 47m luxury yacht called Il Sole. Mr Hirtenstein, who had purchased the yacht in 2010, had brought a claim against the firm after Il Sole's starboard engine suffered a failure 12 miles at sea. He sued Hill Dickinson for professional negligence in handling the purchase of the yacht, alleging the law firm failed to obtain a personal guarantee under which a claim could be made for loss.
A warranty of the yacht's condition had been given by the seller Candyscape. Mr Hirtenstein had thought this was backed by a personal guarantee from property tycoon Christian Candy, the beneficial owner of the selling company and developer of London's One Hyde Park building.

Mr Hirtenstein believed this as he had been told so by his lawyer at Hill Dickinson. But no such personal guarantee existed. In July the judge ruled in favour of Mr Hirtenstein against the law firm but said he had suffered no loss and was awarded nominal damages.

There is a detailed article written by Robert Scrivener of 4 Pump Court, published in Lexology on the legal basis of this case of minimal negligence, where the case was fought on the grounds of causation and quantum:

"Often, the real dispute in a professional negligence action is not whether the defendant was negligent. Instead, cases are regularly fought on the grounds of causation and quantum. One recent example is Hirtenstein & Il Sole Ltd. v Hill Dickinson LLP [2014] EWHC 2711 (Comm).

Facts

The yacht the Il Sole had been sold to a company of which Mr Hirtenstein (a successful businessman) was the beneficial owner. The transaction was arranged in a short space of time: it had only been on 12 July 2010 that the yacht was offered to Mr Hirtenstein. He instructed the defendant solicitors to act for him on 13 July, requesting that the sale be complete by 16 July.   

Notwithstanding the short time scale, the transaction was successfully completed by 1414 on 16 July. An hour or so afterwards, there was a major failure of the yacht’s starboard engine. Substantial repair works were needed.

Mr Hirtenstein sought to recover his losses from the seller. The Il Sole had been purchased from its previous owner, Candyscape Ltd., a special purpose company in turn owned by a Mr Candy. Although the yacht had been sold on an “as is, where is” basis, the defendants had been able to negotiate a limited warranty from Candyscape Ltd., promising that the yacht was in “good” mechanical condition. However, Mr Hirtenstein’s potential claim for breach of warranty against Candyscape Ltd. was, in reality, worthless. The yacht had been the company’s only major asset, and it was now in liquidation.

However, Mr Hirtenstein had been told by the defendants not long after contractually committing himself to buy the yacht that a personal guarantee from Mr Candy had been obtained. It was said that this guarantee covered Candyscape Ltd.’s warranty that the yacht was in good mechanical condition.

And so it was that Mr Hirtenstein intimated proceedings against Mr Candy, claiming under the guarantee. However, in preparing that claim, the defendants realised that they had made a mistake. Contrary to what they had previously believed, it transpired that the guarantee did not cover Candyscape Ltd.’s warranty. Any claim against Mr Candy under the guarantee because that warranty had been breached would fail. Mr Hirtenstein accordingly started proceedings against the defendants, arguing that they had negligently failed to obtain a guarantee which was wide enough to apply to breaches of the warranty.

The defendants, represented by Nigel Tozzi QC and James Leabeater of 4 Pump Court, accepted that they were negligent in having thought that there was a personal guarantee from Mr Candy wide enough to cover Candyscape Ltd.’s warranty. But they denied that Mr Hirtenstein had suffered any loss. They argued that, even if they had asked for a guarantee which covered the warranty, Mr Candy would not have provided one.

In giving judgment, Leggatt J. agreed that the defendants had been negligent in thinking there was a guarantee which applied to the warranty. Whilst a reasonably competent solicitor could have decided to not seek a guarantee from Mr Candy so as to ensure the transaction successfully went ahead, such a solicitor would also have told Mr Hirtenstein of this decision. That had not happened here, and a breach of duty was established.

This conclusion was, however, only a pyrrhic victory for Mr Hirtenstein. Leggatt J. went onto find that, even if the defendants had asked for a guarantee which covered the warranty, Mr Candy would not have given one. Since Mr Hirtenstein would have gone ahead with the transaction even had he known there was no such guarantee, the defendants’ negligence had not caused any loss.

Consequences

The judgment considers how to approach causation in professional negligence cases. In addition, despite his conclusions on liability, Leggatt J. went onto discuss obiter the questions of quantum raised. Some of the more important issues considered were as follows.

First, Leggatt J.’s decision is a useful reminder of the standard of proof to be applied in professional negligence actions. Where the court has to determine what a third party would have done but for the defendant’s negligence, it will ask whether there was a real or substantial chance they would (or would not) have acted in a particular way. In contrast, questions of what a party to the litigation would (or would not) have done have to be assessed on a balance of probabilities. Therefore, whether Mr Hirtenstein would have pulled out of the transaction had he known about the lack of a guarantee was assessed on the basis of whether this was more likely than not. On the other hand, in determining whether Mr Candy would have provided a guarantee if asked, the test was whether there was a real or substantial chance of him agreeing to this.

Secondly, Leggatt J. also discussed what the appropriate measure of damages would have been if he had found for Mr Hirtenstein on liability. He said that, in professional negligence actions, the court must determine what the amount of quantum or settlement would have been in the claim which has been lost because of the defendant’s negligence. In order to calculate the amount of the defendant’s liability, the court should then make a reduction to the quantum or settlement which would have been recovered to reflect relevant uncertainties. However, if the claimant’s prospects of success in the lost claim were “tolerably clear” it could be appropriate to make no such reduction. Although a court might well want to assess the prospects of the lost claim on a “broad brush” basis, that will not always be so. It might well look at the prospects “in greater detail” where (for instance) the evidence in the negligence action is significantly the same as that which would have been adduced in the lost claim. In this case, the evidence had been adduced as if “this was the trial of [the]…issues rather than just an inquiry into the likely outcome of such a trial”. A detailed assessment of the prospects of success was, therefore, appropriate. Parties who wish the court to look closely into the merits of the lost claim would do well to try and place the court in the position it would have been in as if it was actually trying that claim.

Thirdly, Leggatt J. considered what he would have calculated the value of Mr Hirtenstein’s lost claim under the guarantee as being if he had not found in favour of the defendants on causation. He said that the quantum of Mr Hirtenstein’s claim would not have been assessed by reference to s.50(3) of the Sale of Goods Act 1973. That rule assumed there was a market in which the claimant could dispose of the defective goods he had been provided with. There was no such market for luxury yachts. The cost of repairs would be used to calculate the value of the claim instead. In that regard, Mr Hirtenstein had failed to mitigate his losses. He chose to replace both the engines, when he could have instead rebuilt the starboard engine alone for less money. The principle of mitigation required that, where more than one option was reasonably available to a claimant, he must choose the least expensive one. If the claimant chooses a more expensive option, the additional costs will not be recoverable. 

Finally, Leggatt J. also remarked about the amount of quantum which Mr Hirtenstein claimed from the defendants. In particular, his claim included expenses which could not be classed as engine repair works (such as, for example, a complete refit of the galley). Mr Justice Leggatt was unimpressed by such an approach, describing it as “unattractive”. He was also unimpressed by the fact that Mr Hirtenstein’s expert was unable to explain why he had classified some of the works as being for repair purposes when, clearly, they were not. Claimants must, therefore, be careful to ensure that they are seeking damages only for such expenses as they are entitled to, and where appropriate their experts are able to justify the sums claimed."