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29.08.2017 01:49 Age: 2 days

Law firm must compensate British investors in failed Calabrian property project


Nearly 200 British and Irish investors in a failed Italian property development project have been awarded damages against the law firm that handled the transaction.

In the case, the development company planned to build a luxury holiday complex called the 'Jewel of the Sea' in Calabria, Italy. The properties were marketed off-plan by means of glossy brochures provided to English and Irish purchasers. Willing purchasers were referred to a law firm called Giambrone to act for them in the conveyancing process: a firm with representatives in both London and Italy, describing itself as a leading Italian law firm specialising in Italian real estate and off-plan property acquisitions. It assured investors it would conduct due diligence on the developers and make sure they provided the bank guarantee required by Italian law to provide security for purchasers if the developer became insolvent.

When contracts were signed the purchasers paid their deposits to Giambrone, who then released them to the developers and their agents - without having received the guarantee from the developers.

The project failed when the police moved in to close it down amid allegations of money laundering and organised crime involvement. The purchasers rescinded their contracts but could not recover their deposits without the bank guarantees, and so sued Giambrone in the England & Wales High Court, where Foskett LJ upheld their claim on the basis of Giambrone's breach of its duty of care. Giambrone's s.61 Trustee Act 1925 defence of acting 'honestly and reasonably' was dismissed.

Giambrone appealed, arguing that the purchasers would have lost their deposits even if it had obtained fully compliant guarantees, because these were only triggered if the development companies became insolvent or in crisis, which had not happened. Thus, it said, there was no causal link between its own actions and the loss of the deposits.

The England & Wales Court of Appeal disagreed and upheld the first instance decision. The court applied the UK Supreme Court's judgment in BPE Solicitors & Hughes-Holland earlier this year to hold the firm in breach of their fiduciary duty of trust by wrongfully paying out monies that should have been kept safe. As Giambrone never received proper guarantees, it should have retained the deposits indefinitely, which could then have been returned to the purchasers, meaning they would not have suffered loss. The equitable and contractual loss suffered by the claimants therefore ran in tandem and comprised the loss of the deposit.

Moreover, Jackson LJ said, Giambrone knew about the risk of Mafia activities affecting the construction sector in Calabria, whereas the clients knew nothing beyond what was in the glossy brochure and 'inspection visits', and should have been warned of the risks.

Judgment was duly given in the investors' favour and Giambrone was ordered to repay the lost deposits (Main & Others v Giambrone & Law, 2017 EWCA Civ 1193).

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Law firm must compensate British investors in failed Calabrian property project