Solicitor – Duty of care – Extent of duty – First defendant acting as interface between claimant vendors and solicitor defendants in property transaction – Balance of sale proceeds paid to first defendant’s client account – Claimants not receiving balance of proceeds – Claimants claiming damages against solicitor defendants – Whether solicitors under duty to investigate status and background of first defendant – Claim dismissed
By his will, the first claimant’s father left his entire estate to his wife, the second claimant. The deceased’s estate included a leasehold property known as flat 24, Aria House, Newton Street, London WC2. The second claimant was introduced to the first defendant who assisted her in applying for probate. She said she believed that the first defendant was a solicitor and she placed her trust and confidence in him. In fact, the first defendant had been struck off the Roll of Solicitors in 1991 for stealing £900,000 from his firm’s client account. He was convicted of theft and served a six-year prison sentence.
The first defendant agreed to assist in the sale of the property and act as a “sort of interface” between the claimants and the third defendant firm of solicitors which was handling the conveyancing. A sale was negotiated for £1,250,000. The third defendant took the money for its fees, the estate agent’s fees and other expenses, and transferred £1, 218,519.39 to the second defendant, a company through which the first defendant ran his business. The claimants received £216,259.69 but were never paid the balance. They applied for summary judgment against the first and second defendants which was granted by consent in the sum of £2,124,009.30 inclusive of interest but nothing was paid.
The claimants then brought proceedings against five defendants. The claim against the first and second defendants was settled but proceeded against the third to fifth defendants (the solicitor defendants) in negligence. The claimants argued that the solicitor defendants should have investigated the status and background of the first defendant and advised that, by transferring the money to him, they were acting to their own disadvantage. The defendants argued that their duties were limited to the conveyancing of the property.
Held: The claim was dismissed.
(1) A solicitor’s contractual duty was to carry out the tasks which the client had instructed and the solicitor had agreed to undertake. It was implicit in the solicitor’s retainer that he or she would proffer advice which was reasonably incidental to the work that he or she was carrying out. In determining what was reasonably incidental, it was necessary to have regard to all the circumstances of the case, including the character and experience of the client.
It was clear from the first defendant’s letter head that he was a legal adviser and facilitator rather than a solicitor and the solicitor defendants were not under a duty to investigate him further. It would not be obvious from that document that he was a former solicitor who had been struck off for fraud. The defendants were entitled to accept that the client was entitled to choose her own facilitator. The investigation of the first defendant was not reasonably incidental to the work she was carrying out.
(2) In most conveyancing transactions where a solicitor acted for the vendor, the proceeds of sale were used on a concurrent purchase. Where there was no concurrent purchase, the proceeds were disbursed to the order of the vendor, often to their own bank account. If the vendor’s solicitor was instructed to pay the proceeds to a third party and was given clear instructions where to send them, it was not part of their retainer to proffer advice to the client about the commercial wisdom of the step they had instructed them to take.
The probable knowledge of the solicitor defendants that the second defendant’s client account was unlikely to have the same security as a solicitor’s client account, including the potential cover available through professional indemnity insurance, did not trigger a duty to advise their client of that fact. It was unfair to invest the solicitor defendants with the hindsight of what happened after the money was paid where it was directed to be paid. For the same reason, the solicitor defendants were not under a duty to investigate the second defendant: Clark Boyce v Mouat [1994] 1 AC 173.
(3) The traditional “but for” test of causation did not apply unfettered in cases involving negligent advice or information. A professional adviser contributed a limited part of the material on which his client would rely in deciding whether to enter into a prospective transaction, but the process of identifying the other relevant considerations and the overall assessment of the commercial merits of the transaction were exclusively matters for the client. Even if the material which the defendant supplied was known to be critical to the decision to enter into the transaction, he was liable only for the financial consequences of its being wrong and not for the financial consequences of the claimant entering into the transaction so far as those were greater: Hughes-Holland v BPE Solicitors [2017] UKSC 21; [2017] EGLR 23 applied.
(4) In the present case, the claimant complained that the solicitor defendants failed to give advice about the first defendant’s status as a non-solicitor, the fact that his client account was not regulated and the financial status of the second defendant. That was clearly factual information which the claimant in hindsight felt she was entitled to receive in helping her decide whether to place the proceeds of sale with the first defendant. The solicitor defendants did not advise her whether or not to enter into the transaction in the sense of generally advising what she should do with regard to the proceeds of sale. Their retainer clearly involved dealing with the conveyancing aspects of the sale. The fact that the claimants said they would not have placed the money with the first defendant had they known about him did not change the principle that the loss sought to be recovered had to fall within the professional’s scope of duty.
Even if the first defendant had been a solicitor with indemnity insurance, fraud and dishonesty were permitted to be excluded under Solicitors Regulation Authority minimum terms and conditions and usually were. Even if the claimant had succeeded on liability, the court would have had to find that the loss incurred fell outside the scope of the solicitors’ duty.
Francis Bacon (instructed by Levi Solicitors LLP, of Leeds) appeared for the claimants; Ben Patten QC (instructed by Reynolds Porter Chamberlain LLP) appeared for the third to fifth defendants; the first defendant did not appear and was not represented.
Eileen O’Grady, barrister
Click here to read a transcript of Lennon and another v Englefield and others
