Property development company sues legal firm for £2.7m over ‘negligence’

A judge in the Court of Session ruled that the legal firm was “negligent” in its failure to ensure that the company complied with the terms of two revolving credit facility (RCF) agreements it had made with the Royal Bank of Scotland (RBS).

Lord Tyre heard that the pursuer Dunvale Investments – the holding company of a group of companies whose business consists principally of investment in commercial property and whose sole owner and managing director is Douglas Wheatley – sought reparation for losses which it claimed to have sustained as a consequence of the negligence of the defenders Burness Paull & Williamsons LLP, which acted on behalf of Dunvale and its subsidiaries, as well as Mr Wheatley as an individual, in connection with various matters including the financing of property acquisitions.

Under one of the agreements – referred to by parties as “RCF 2” – the bank agreed to make a revolving loan of a maximum of £3.5m available to Dunvale in June 2007 “to assist with the acquisition of the property”, a development site at Osborne Street in Glasgow. The parties also agreed another £1.5m revolving credit facility around March 2008, referred to as “RCF 3”.

Lord Tyre said it was “self-evident” that something had gone wrong.

He explained that Dunvale Investments was found to be in breach of the bank’s loan-to-value (LTV) covenant at a time when the company’s total indebtedness to RBS had not in fact risen above the specified percentage of the aggregate value of properties held by entities within the control of Mr Wheatley.

“Putting the matter bluntly, the breach called in March 2008 ought not to have occurred,” he said.

In a written opinion, Lord Tyre said: “In my opinion the bank could not rationally have refused to accept one or other of those alternatives, given that the former at least had no discernible downside for the bank and that the consequence of accepting neither would have been to put the pursuer actually or potentially in default by triggering a breach of the covenant. That would not have been a commercially sensible course of action.

“I therefore find that it is likely that one or other of those solutions would have been adopted, that the breach called by the bank in March 2008 would not have occurred, and that the loss incurred by the pursuer would not have been sustained.”

The judge granted decree for payment by the defenders to the pursuer of the sum of £2,716,842, with interest at the rate of 4 per cent per annum from the date of citation until the date of decree.