The company took in a new director and shareholder, and relied upon their solicitors to draft a covenant to restrain him competing within a set time of leaving the company. The covenant turned out to be ineffective. The defendant solicitors replied that the action was out of time.
Held: The purpose of the covenant was to protect the plaintiff’s goodwill. That goodwill was damaged as soon as the agreements were executed, since the company lost its protection immediately. The action was out of time and failed. the cause of action against the solicitors accrued when the contract was entered into: ‘[S]o long as there was any risk that one of the first plaintiff’s two directors might leave . . to establish a competing business, there must necessarily have been a depressive effect on the value of the first plaintiff’s business.’ Whether any action later arose went as to quantification of the damage, and did not go as to the existence of the cause of action: ‘it is a question of fact in each case whether actual damage has been suffered.’
Bingham LJ said: ‘On the plaintiffs’ case, which for the purposes of this issue may be assumed to be wholly correct, the covenants against competition were intended, and said by the defendants, to be effective but were in truth wholly ineffective. It seems to me clear beyond argument that from the moment of executing each agreement the plaintiffs suffered damage because instead of receiving a potentially valuable chose in action they received one that was valueless.’
Judges:
Neill LJ, Bingham LJ
Citations:
[1988] 1 WLR 267, [1988] 1 All ER 400
Jurisdiction:
England and Wales
Citing:
Cited – Forster v Outred and Co CA 1981
A mother signed a mortgage deed charging her property to H as security for a loan to her son. She claimed the solicitor had been negligent in his advice. The solicitor replied that the claim was out of time. The loss accrued not when demand for . .
Followed – Forster v Outred and Co CA 1981
A mother signed a mortgage deed charging her property to H as security for a loan to her son. She claimed the solicitor had been negligent in his advice. The solicitor replied that the claim was out of time. The loss accrued not when demand for . .
Applied – Baker v Ollard and Bentley CA 12-May-1982
The plaintiff and a Mr and Mrs Bodman agreed to buy a house. The plaintiff intended to live on the first floor and the Bodmans on the ground floor. The solicitor should have advised them to convey the freehold into their joint names and then to . .
Considered – Pirelli General Cable Works v Oscar Faber and Partners HL 2-Jan-1983
The plaintiff asked the defendant consulting engineer to design an extension to their factory in 1969. Not later than in April 1970, cracks developed in the chimney. In 1977 the cause of the damage was discovered. It arose from design faults in the . .
Considered – Dove v Banhams Patent Locks 1983
The defendants installed a security gate. The plaintiff, a subsequent purchaser of the property claimed damages when the property was burgled and a defect in the security gate was revealed.
Held: The defendant owed a duty of to the subsequent . .
Cited by:
Approved – Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) HL 27-Nov-1997
A surveyor’s negligent valuation had led to the plaintiff obtaining what turned out to be inadequate security for his loan. A cause of action against a valuer for his negligent valuation arises when a relevant and measurable loss is first recorded. . .
Cited – Daniels v Thompson CA 18-Mar-2004
The executor brought an action against the solicitor who had advised his client in connection with the transfer of her house in which she was to continue to live, saying he should have advised her that the gift would not protect her from Inheritance . .
Cited – The Law Society v Sephton and Co and others CA 13-Dec-2004
The Society appealed dismissal for limitation of its claim against the defendant firm of accountants arising from alleged fraud in approval of a solicitor’s accounts.
Held: The liability did not arise until the Society decided to make . .
Cited – Robert Mark Gordon v J B Wheatley and Co (a Firm) CA 24-May-2000
The defendant solicitors had negligently advised the claimant in connection with a mortgage scheme he operated for customers. His case was that the defendants had negligently failed to advise him to register under s3 of the 1986 Act. The claimant . .
Cited – Law Society v Sephton and Co (a Firm) and Others HL 10-May-2006
A firm of solicitors had a member involved in a substantial fraud. The defendant firm of accountants certified the firm’s accounts. There were later many calls upon the compensation fund operated by the claimants, who sought recovery in turn from . .
Cited – Watkins and Another v Jones Maidment Wilson (A Firm) CA 4-Mar-2008
The claimants alleged professional negligence by the defendant solicitors in advising them to agree to a postponment of a completion. The defendants raised as a preliminary issue the question of limitation. The claimant said that the limitation . .
Lists of cited by and citing cases may be incomplete.
Professional Negligence, Damages, Limitation
Updated: 29 April 2022; Ref: scu.183433