Gateley Plc: Poor Advice = Rich Payout

What’s going on here?

The listed law firm Gateley Plc fights a professional negligence claim

What does this mean?

The city firm Gateley has been accused of professional negligence over advice it gave to Moda International Brands Ltd (Moda), a British Virgin Islands-incorporated company. The advice concerned a participation agreement (a contract between all the leaseholders participating together in the joint purchase of a property) in relation to a developing property in Nottingham. Moda was one of two other parties to the agreement. They claim that the advice given by Gateley falls short of the “standard of skill and care reasonably to be expected of solicitors with expertise in corporate law”. They further claim that if Gateley performed its duties correctly, Moda would have been entitled to receive 35% of the overall profits from the development project. As such, they are claiming £378,000 - a claim which Gateley has contested. The case, Moda International Brands Limited v Gateley, is currently before the High Court and awaiting a final judgement from Mr Justice Freedman. 

Why should law firms care?

Should Gateley be found negligent in this case, it could be a severe blow to their so-far untarnished reputation. Gateley was the first legal practice to list on the stock exchange in its own right and is regarded as a success story in the listed law firm sector. Last month alone it reported pre-tax profits of £5 million (up 19%) and a turnover of £46.6 million (up 20%) in the 6 months leading to October last year. Gateley is clearly a firm which continues to rise, but an adverse judgement could affect how the firm is perceived by clients, potentially reducing its rate of improvement.  

Such a tale also serves as a warning to law firms when providing legal services, highlighting the need to maintain a certain standard of advice. Although the actual damages the firms may have to pay to unsatisfied clients may be trivial in relation to its profits, a firm’s reputation is paramount and any threat to that could be much more costly. However, as the facts in the case are currently unclear, it is expected that more detail will emerge once a decision is given. It is important to remember that Gateley may have disposed of its duties adequately. When a client feels they have lost out on potential profits, litigation offers hope of compensation. Whether such litigation is warranted or not may be questionable. For now, we await the decision of Justice Freedman.

Report written by Connor B.

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