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An avalanche of claims against solicitors 15 July 2015

In the last few weeks we have seen a surprising number of cases in which conveyancing solicitors have been alleged to have been negligent.  I have summarised six such cases below.

What can we learn from them?  As seems so often to be the case, it is difficult to see any trend, and equally difficult to establish any simple system to ensure that errors of the kind demonstrated by these cases are eliminated.  Checklists help, of course, as does robust supervision.  Both are easier to talk about than to implement.  And the use of checklists throws up its own problem: people assume that conveyancing can be dumbed down into box-ticking, which is assuredly not the case.

Fryatt v Preston Mellor Harrison [2015] EWHC 1683 (Ch)

F, a developer, was negotiating for an option over a piece of land owned by a company.  For reasons that are unclear, the transaction was restructured into an option over the shares in the company.  The buyer’s lawyer (an experienced legal executive) did not alert the buyer to the additional risk this would entail, as he (the lawyer) did not appreciate that this would give the buyer no interest in the land during the option period (in fact he registered a notice against the property at the Land Registry). The company went into liquidation so the option over the shares was valueless and the liquidator sold the land to a third party.

The court held that the solicitors had been negligent.  However, the claim failed on the issue of causation, for two reasons.  First, the buyer could not show that he would have restructured the transaction if he had understood the risks of taking an option over the shares rather than over the property; secondly he could not show that he would have exercised the option as the development appraisal figures showed that he could not have carried out the development at a profit.

Lawtel transcript (subscription needed)

 

Orientfield Holdings Ltd v Bird & Bird LLP [2015] EWHC 1963 (Ch)

Solicitors acting for a buyer of a very high value property (£25m) in St John’s Wood, London NW8 obtained a “Plansearch” report, which revealed details of proposed transactions in the vicinity including the development of a school nearby.  Inexplicably the firm did not mention this proposed development to the buyer, or provide a copy of the report to the buyer.  This was held to be negligent.

In the event, on discovering the existence of the development the clients failed to complete the purchase, and then sought to recover the half of the deposit that had been forfeited from their solicitors.  They were successful.  The judge said that there had been no requirement to obtain the Plansearch report but, once it had been obtained, there was an obligation to reveal its contents to the client.  Failure to do so constituted negligence —

“… if in fact a solicitor acquires information that may be of importance to a client, then it is the duty of the solicitor to bring that information to the attention of the client.”

BAILII transcript (free)

 

LSC Finance Ltd v Abensons Law Ltd [2015] EWHC 1163 (Ch)

This was a mortgage fraud case.  The solicitor who acted for the borrower failed to spot that she was not who she claimed to be.  The lender was left with a forged mortgage and claimed against the solicitor on the basis that he had undertaken (in standard form) to obtain a first legal charge over the property.  One of the key issues in the case was whether this was sufficient to pass the risk of forgery from the lender to the solicitor.  The court held that it was sufficient – on the facts of the case, which included the particular wording in the lender’s form of undertaking.

In addition, the solicitor was held liable for breach of warranty of authority, in that he was saying that he was acting for the real borrower when he was not.  Again, this was decided on the particular facts in this case.

Obviously, verifying a person’s genuine identity can be very tricky, especially where – as in this case – it appears that the scam involved a man passing off as his wife someone who looked very much like the photograph of his wife in her passport.  No-one likes to enquire in too much detail.  But in this case the solicitor had the opportunity also to check the signature on the mortgage against previous signatures, which he either did not do, or was wilfully blind to the difference.  In the end the fraud was picked up by the Land Registry, which did spot the difference between signatures on the mortgage and on an earlier transfer.

BAILII transcript (free)

 

Luffeorm Ltd v Kitsons LLP  (2 July 2015, Queen’s Bench Division)

Kitsons were acting for the buyer of a public house as a going concern.  The contract proffered by the seller’s solicitors contained no provision restricting the sellers from carrying on a competing business in the neighbourhood after the sale, which the conveyancing partner failed to point out to the client.  Astonishingly, the court held that this constituted negligence, with no explanation as to why this should be the case (particularly as the clients were experienced business people).  In the event, fortunately for the solicitors, the court was not convinced that the buyer would have acted any differently had the advice been given, so no damages were payable.

BAILII transcript (free)

 

Royal Mail Estates Ltd v Maples Teesdale [2015] EWHC 1890 (Ch)

This is a very curious case in which Royal Mail Estates entered into a contract to dispose of land to a company that had not yet been created.  Maples Teesdale, which was purporting to act for the company, signed the contract as agents.  The effect of section 36C Companies Act 1985 (relevant at the time) was that the agents became liable under the contract, “subject to any agreement to the contrary”.  The contract contained the normal provision “The benefit of this contract is personal to the buyer.”  Maples Teesdale argued that this was an agreement to the contrary for the purpose of section 36C.

The court disagreed.  For the exception to apply, there has to be an agreement between the parties by which they intended to avoid the effect of section 36C.  This was not the effect of the wording in the contract in this case.

BAILII transcript (free)

 

Giambrone & Law group action case [2015] EWHC 1946 (QB)

This judgment was handed down last week.  It is 152 pages long and far too long to summarise here.  In brief, it concerns the failure of an Italian law firm (with an office in London) adequately to protect the interests of UK buyers of properties in a proposed development in Southern Italy.  Either the due diligence, or the contractual protections negotiated, or both, proved to be insufficient and the buyers lost their 50% deposits when building work ceased.  The solicitors were held to be liable in relation to certain matters, although claimants will still need to prove their cases individually – and the solicitors say they will be appealing.

You can read about it in this article from the Lawyer (which will require registration first) —

Giambrone claimants win case but face fight for damages payout

The reference to the fight for damages relates to the indemnity insurer taking the view that all the separate claims relating to the sale of properties in this development are to be treated as one event under the insurance policy, which is limited to £3 million.  Virtually all of this amount has already been paid out to claimants in an earlier action who have already settled, so there is no money left to settle the claimants in this action.

BAILII summary (free)

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