Dibb Lupton Alsop is being sued for £600,000 over accusations it acted for both sides in a multi-million pound property finance deal.
Developer Chapel and London Estates and four private guarantors are alleging in a high court claim that, in 1994, Dibbs' Birmingham office advised both sides of a funding deal and drew up a contract that favoured the funders.
A Dibb spokeswoman says the firm is defending the claim vigorously and is trying to get it struck out.
The company further alleges that Dibbs – then trading as Dibb Lupton Broomhead – did not explain to Chapel what the paperwork really meant.
Dibbs is also accused of not informing Chapel to take independent advice as the law firm was also acting for the other side. As a result, claims Chapel, it was left out of pocket by £597,000.
The claim alleges that Chapel approached private financier, Eric Grove in 1994, to fund the deal, which involved two property sites in Southport.
Chapel had regularly used Dibbs as its lawyers and advised John Booth, a former partner at the firm who left several years ago, to handle the conveyancing.
At the same time, Grove instructed Richard Ollis, also a property partner in Dibbs' Birmingham office, who has also now left the firm, to draw up the loan agreement.
Chapel alleges that the loan agreement drawn up by Dibbs did not correspond to an agreement, previously agreed with Grove, that the latter would be paid up to £1m in the event of the developments producing a profit.
Instead, the contract agreed Grove would be paid £1.25m whether the property produced a profit or not. But the development was not profitable, it is claimed, and Chapel sold the properties to a company controlled by Grove, which made a significant profit.
The claim alleges that Ollis knew or should have known that Dibbs had acted for Chapel on many previous occasions and had never acted for Grove before.
It adds that Dibbs should have known that Chapel and its guarantors would have relied on the law firm to draw up the agreement in a way that “fairly and accurately reflected the terms” they had agreed.