The dangers of being helpful with evidence…

Developers' fraud proceedings against Chartered Surveyors struck out as "unjust harassment"

Gladman Commercial Properties contracted unconditionally to buy an old fire station in 2006 from Nottingham City Council and Nottingham Fire Authority for £4.2m, expecting to secure planning permission for student accommodation.

Gladman never applied for planning permission alleging that the sales particulars fraudulently misrepresented the prospect of securing planning for a profitable number of accommodation units because they failed to draw attention to a Supplementary Planning Document ("SPD") approved by the City Council which applied a presumption against more student accommodation on the fire station site.  The Fire Authority sued and Gladman counter-claimed over £30m damages and lost profit from the City Council and Fire Authority.

The sales particulars had been drafted by the joint agents (Fisher Hargreaves Proctor and HEB – "The Chartered Surveyors") and approved by the City Council and Fire Authority. At the trial in 2011 the Chartered Surveyors gave evidence as witnesses, denying they were aware of the SPD. The judge (Peter Smith J) took a very interventionist approach to their evidence. The case went part heard and was settled in September 2011 with the Council paying £2.7m. The settlement agreement made no specific reference to the Chartered Surveyors, despite Gladman having threatened to sue them separately before the trial began, if they failed against the City Council and Fire Authority.

In 2012 Gladman brought proceedings for £30m against both firms of Chartered Surveyor firms alleging fraudulent and negligent misrepresentation in the sales particulars. They alleged the original settlement was only a fraction of the compensation they were entitled to.

In a Judgment handed down on 18 January 2013 Mr Justice Arnold struck out these proceedings. He found that - even though the Chartered Surveyors were not included in the settlement agreement - they were still automatically released as joint (rather than concurrent) tortfeasors with the City Council and Fire Authority. The Judge also held the proceedings to be "re-litigation amounting to unjust harassment" of the Chartered Surveyors under the Henderson v Henderson abuse of process principle.

This is a cautionary tale for agents assisting their client principals with litigation and not insisting on a specific settlement release provision. Fortunately the protections of the underlying law and Court procedure came to the rescue.

See the full judgment here...