Breach of duty of care – Negligent misrepresentation – Solicitors

Cabvision Ltd v (1) Leonard Paul Feetum (2) Stephen Richard Marsden (3) Simon Alan Smith (4) Dean & Dean: ChD (Mr Justice Norris): 21 December 2009

The claimant company (C) sought damages from the first to third defendants (F) on the basis of their alleged misrepresentation or negligence, and from the fourth defendant firm of solicitors (D) on the basis of its negligence.

C had been formed by a former cabdriver to exploit and develop his idea to provide audiovisual entertainment to passengers in taxis by means of video screens. F were members of a partnership (X) whose business was to acquire and exploit IT. They established a further company (T) to develop C’s idea, and a number of agreements, including one for the purchase of the relevant software, were entered into. An information memorandum was issued, directed at certain investors, which stated that a minimum level of subscriptions was required by T for the acquisition of the software. X and T had each engaged solicitors to act for them in relation to the scheme. X subsequently declared a first closing on the scheme, and that a minimum level had been achieved. The minimum level finally included subscriptions from each of F. By the time of the final closing, X and T had fallen out with their solicitors and engaged D. Part of D’s retainer concerned the conduct of a costs dispute which had arisen with the former solicitors. By the time of the final closing, more than half of the minimum subscriptions remained ‘receivable’. C took the view that, had that been drawn to its attention, then it would have abandoned the scheme by the time of the final closing, withdrawn from the software purchase agreement and gone into the market to find alternative funding to develop its idea. C issued proceedings seeking to recover the costs it alleged had arisen as a result of negotiating new arrangements, lost profits which it would have made out of the scheme, and costs it was exposed to through being joined as a party to litigation. C contended that when F had found themselves faced with a possible failure of the scheme, and thereby liable for the entire costs of promoting it, they had either lied about the amount that had been raised or were reckless as to the truth of the representations made by them to that effect, and that F’s purported subscription was a complete sham. Alternatively, if it could not make out dishonesty, C alleged negligence in that F had assumed responsibility for ensuring that they had reasonable grounds for asserting the truth of all the representations on which C relied as having been made. In respect of its case against D, C submitted that it had become a party to the costs litigation because D had acted negligently in only taking instructions from and acting in the interests of F individually, not in C’s interests, and concealing from C that it had done so until the court had granted the former solicitors’ application for permission to join C as a party to the proceedings. C contended that, but for that breach of duty, it would not have been added as a defendant to the costs proceedings and that all of the costs which it had incurred in defending them were recoverable as damages from D.

Held: (1) No actionable dishonest misrepresentation had been made out against F. By completion, the minimum level had probably been achieved, and the major participants had honestly believed that it was.

(2) F had not been personally responsible for the truth of any representation expressly or implicitly made and, even if they were, C had failed to establish a negligent breach of duty. Accordingly, whichever way C put its case against F, on the evidence it had failed to establish liability. In any event, C had failed to prove the loss claimed.

(3) D was liable for breach of a duty of care owed towards C in respect of the costs proceedings. That duty had required it either to act in accordance with the instructions of its client or to make clear to the client that it declined so to act. D had been retained by C to act in resisting claims on invoices arising out of the scheme, and C had told D that it did not wish to become involved in the costs dispute. D’s breach of duty had caused loss to C. However, there was not sufficient evidence for C to prove that but for its joinder it would not have had to spend anything in relation to the costs proceedings. It was unlikely that C would have escaped involvement entirely, and even if it had avoided becoming a defendant it was still likely to have spent a certain sum. Damages for D’s negligence in breach of the costs retainer would, accordingly, be awarded on the basis of the difference between that sum and the actual amount spent.

Judgment for claimant in part.

David Oliver QC, James Couser (instructed by Jens Hills) for the claimant; Mr Faryab (instructed by Ashton Rowe) for the first to third defendants; Michael Pooles QC, Matthew Jackson (instructed by Henmans) for the fourth defendant.