Court more than halves €11m LK Shields ordered to pay

The Supreme Court has more than halved an €11 million sum a law firm was ordered to pay to a company over negligent failure to properly register a property for which the company had in 2007 received a €10 million purchase offer, which did not go ahead.

In allowing an appeal by LK Shields, the five-judge Supreme Court ruled it must instead pay Rosbeg Partners €5,246,500, with liberty to apply concerning calculation of interest and Capital Gains Tax "should that be necessary".

Giving the court’s judgment, Mr Justice Donal O’Donnell directed reduction of the €11 million sum on the basis of findings including LK Shields could not be held liable for losses after October 2008, when it obtained actual registration of the title to the property.

While the value of the property may have continued to fall after that, that could not be attributed to the law firm’s negligence, at least not without particular evidence and agreement, he said. Like all other property owners at that time, Rosbeg was experiencing loss of value due to market conditions.

Rosbeg, he said, had not had an agreement, “still less a binding contract”, to sell in 2007 and did not sell thereafter.

The case raised the complex question whether the law firm’s negligence made it responsible for some or all of the losses suffered by Rosbeg due to the decline of the property market and Rosbeg’s own market decisions.

The nature of the negligence here was a failure to do something which could be done and was eventually done. The measure of damages was the cost of substitute performance of the duty and any foreseeable loss of value caused by the delay in doing so.

Paper profits

Earlier, the judge said, when dealing with calculations of loss, it was important for courts to recognise it was “a lot easier to make profits on paper than in real life” and particularly when the exercise was being carried out in retrospect.

While it was difficult to get a clear view of negotiations between business people, and the courts often had to sift through differing accounts at some remove in time from the facts, the courts should approach claims such as this by applying “common sense and some degree of scepticism”.

The law firm had appealed after the Court of Appeal upheld a 2013 High Court decision it was liable to Rosbeg for some €11 million in losses.

Rosbeg, owned by businessman Bob Stewart, wanted to sell the 2½ acre site, comprising five lots, at unit 520 Western Industrial Estate, Naas Road, Dublin. Truck importer Pino Harris, who owns a site adjoining the Rosbeg lands, made an offer of €10 million at the height of the property bubble in 2007.

Rosbeg claimed, as a result of losing out on the Harris offer, it was unable to pay off an €8 million loan from AIB.

LK Shields accepted the property had not been properly registered in time but argued that was not why the sale did not go ahead. There was no evidence the €10 million offer had ever been accepted because Rosbeg was holding out for more money, it argued.

The High Court held, after Rosbeg bought the property in 1994, there remained a mapping problem related to one of the lots which LK Shields, acting for Rosbeg, tried to sort out with the previous owners.

Mr Harris initially offered €6.5 million for the property in 2006 but this was refused as prices were still rising and Mr Stewart believed he could get up to €15 million, though his selling agent advised the “back stop figure” was at €10 million. In September 2007, Mr Harris offered €10 million but on condition it was open only for a limited period.

Mr Stewart signalled acceptance of the offer to Mr Harris’s agents but Mr Harris then learned of the mapping problem. By mid-February 2008, the Harris offer had dropped to €8 million. By the following August it was €6 million and by October 2009 Mr Harris was no longer interested.

The High Court found the sequence of events in 2008 did not demonstrate any culpability on behalf of Rosbeg in relation to LK Shields’s claim of failure to mitigate loss.