Allied Maples Group Ltd v Simmons & Simmons (a firm)

Factual and Procedural Background

The Plaintiffs, a subsidiary of Company A retailing carpets, furniture, and soft furnishings, initiated proceedings against the Defendants, a well-known firm of solicitors experienced in company takeovers and mergers. The dispute arose from the Plaintiffs’ acquisition of assets and businesses within the Gillow Group of Companies. The Plaintiffs alleged that the Defendants negligently advised them during the takeover negotiations and agreement, particularly concerning liabilities arising from leases originally held by a company within the Gillow Group, Kingsbury Warehouses Limited ("Kingsbury"). These liabilities, known as "first tenant liability," related to leases assigned by Kingsbury prior to the takeover agreement, which subsequently resulted in claims against Kingsbury and thus the Plaintiffs.

The Plaintiffs initially intended to acquire only selected properties and businesses ("cherry picking"), but restrictions on alienation and planning consents meant they had to acquire Kingsbury shares and transfer out unwanted properties and liabilities. The Defendants devised this mechanism, which was not objected to in theory. However, the Plaintiffs suffered substantial losses from first tenant liabilities that arose after completion.

The Plaintiffs made a formal bid in February 1989, with negotiations continuing through April 1989. During these negotiations, a key warranty (Warranty No. 29) providing protection against the first tenant liabilities was deleted from the draft agreement. Instead, a price adjustment mechanism based on completion accounts was included, which did not protect against the first tenant liabilities due to accounting practices.

Contracts were exchanged in April 1989, and completion occurred in May 1989. Claims relating to first tenant liabilities emerged in 1990, leading the Plaintiffs to issue proceedings in May 1991, alleging negligence by the Defendants in their advice. A preliminary issue as to liability was tried in 1993, with the court finding breach of duty by the Defendants and ruling in favor of the Plaintiffs on causation. The Defendants appealed, challenging the findings on causation.

Legal Issues Presented

1. Whether the Defendants were negligent in failing to advise the Plaintiffs adequately about first tenant liabilities and the deletion of Warranty No. 29.
2. Whether the Plaintiffs proved causation, specifically whether, if properly advised, they would have sought and had a realistic or substantial chance of obtaining protection against first tenant liabilities from the vendors.
3. What is the appropriate legal test for causation and quantification of damages where loss depends on the hypothetical actions of a third party.
4. Whether the Plaintiffs’ loss of chance to negotiate better terms with the vendors can be compensated and how to assess that loss.

Arguments of the Parties

Appellants' Arguments

• The Plaintiffs could not establish on the balance of probabilities that the vendors (Gillow) would have agreed to reinstate Warranty No. 29 or provide alternative protection.
• The findings that the Plaintiffs had a substantial chance of success in renegotiating protection were against the weight of the evidence.
• The Plaintiffs had no real evidence from the vendors or their solicitors to support the likelihood of successful negotiation.
• The Plaintiffs’ loss depends on the actions of an independent third party; therefore, causation requires proof that the third party would have acted favorably on a balance of probabilities.

Respondents' Arguments

• The Plaintiffs would have sought to negotiate for protection if properly advised and had a substantial, not merely speculative, chance of success.
• The absence of direct evidence from the vendors should not preclude inference of a substantial chance based on the circumstances and conduct of negotiations.
• The legal principle permits recovery for loss of a substantial chance, evaluated as part of damages, without requiring proof on balance of probabilities that the third party would have acted favorably.
• The Plaintiffs’ losses were not nominal; they had a measurable chance of negotiating better terms, entitling them to damages assessment.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analyzed the distinction between causation and quantification of damages, emphasizing that causation requires proof on the balance of probabilities that the plaintiff would have acted differently if properly advised. In cases involving loss of chance dependent on third-party actions, the plaintiff must show a real or substantial, not merely speculative, chance. If established, the evaluation of that chance's value is a matter of quantification of damages rather than causation.

The court accepted the trial judge’s finding that the Plaintiffs would have sought to negotiate protection against first tenant liabilities had they been properly advised. The Defendants’ contention that the Plaintiffs must prove on a balance of probabilities that the vendors would have agreed to reinstate Warranty No. 29 or provide alternative protection was rejected in law. Instead, the Plaintiffs needed to show a substantial chance of success, which would then be evaluated for damages.

However, the court noted that the trial judge had gone further than necessary by holding that the Plaintiffs would have succeeded in negotiations on a balance of probabilities. The absence of evidence from the vendors or their solicitors made such a finding speculative. The court allowed that further evidence might be adduced at the damages stage to assess the realistic chance of success.

The court also considered the commercial context and standard conveyancing practices, finding that certain indemnities and guarantees in related agreements did not necessarily imply that vendors would have agreed to the sought-after protections. The court highlighted the procedural difficulties caused by the trial’s limited scope and the lack of clear issue definition, which complicated the assessment of causation and damages.

Overall, the court upheld the principle that damages for loss of chance are recoverable where a substantial chance existed, but clarified that the extent of that chance and resulting damages must be assessed with evidence, particularly when dependent on third-party negotiations.

Holding and Implications

The court DISMISSED THE APPEAL, affirming the trial judge's findings that the Defendants breached their duty and that the Plaintiffs would have sought to negotiate protection against first tenant liabilities if properly advised.

The court modified certain findings related to the probability of successful negotiation with the vendors, substituting a finding that there was a realistic (substantial) chance of success rather than a probability on the balance of chances. It allowed the Plaintiffs the opportunity to adduce further evidence from the vendors or their solicitors concerning the likelihood of obtaining such protection.

The direct effect is that the Plaintiffs are entitled to proceed to an assessment of damages based on the value of the lost chance to negotiate better terms. No new legal precedent was established beyond clarification of the application of loss of chance principles in solicitor negligence and commercial negotiation contexts.