Hot on the heels of the decision in Purrunsing v A'Court & Co (in which the High Court found conveyancers on both sides of a property fraud to be liable for the loss suffered by the buyer) comes another blow for property solicitors in the High Court decision in Chief Land Registrar v Caffrey & Co.
The case relates to yet another mortgage fraud. The Defendant firm of solicitors were retained by Mr and Mrs Turner in 2009 to act for them in the discharge of a mortgage over their property in favour of a lender, DB UK Bank Ltd. The Turners said that the mortgage had been discharged, but it hadn't. They told the Solicitors that the Bank was represented by another firm of solicitors, but it wasn't. They also provided the Solicitors with a Form DS1 which they said had been signed by the Bank, but it hadn't. The Solicitors didn't contact either the Bank or its 'solicitors' but simply took the Turners' word for it and submitted the Form DS1 to the Land Registry together with a Form AP1 to apply to alter the register and delete the charge. This, it transpired, was a big mistake.
The Land Registry smelled a rat and raised a requisition seeking evidence that the signatory of the Form DS1 was appropriately authorised by the Bank. The Turners gave the Solicitors a Power of Attorney which it said gave the signatory appropriate authority to sign, but it didn’t. The Power of Attorney was a fake. The Solicitors didn't spot this and sent it to the Land Registry who removed the mortgage from the title. This, it transpired, was another big mistake.
In 2011, Mr Turner attempted to buy Mrs Turner (who had by then gone bankrupt) out of the property. At this point, the Bank discovered that its charge had been removed and that Santander had in the meantime obtained a (real) first charge over the property. Following an adjudication, the Bank's charge was reinstated but it ranked after Santander's charge. The Bank was, understandably, less than impressed and sought and obtained an indemnity from the Chief Land Registrar who was equally unimpressed with the predicament he found himself in.
The Bank was indemnified by the Registrar under a statutory scheme pursuant to the Land Registration Act 2002 therefore the Registrar was entitled to exercise any cause of action which the Bank could have exercised if the indemnity had not been paid. The Registrar brought the claim on that basis. It said that if no indemnity had been paid, the Bank would have been entitled to bring a claim against the Solicitors for negligence arising out of its failure to verify the documents where it had assumed a duty to the Bank to do so. Further, he said that he was entitled to bring a claim in his own right as the Solicitors had made misrepresentations in submitting documents to the Land Registry.
Due to the statutory scheme, the question for the court to decide was whether the Solicitors owed a duty of care to the Bank. Master Matthews found that the Solicitors had been advised that the Bank had its own lawyers. They weren't asked to act for the Bank, didn't think that they were acting for it and had no reason to assume that the Bank was relying on them in any way. The Bank and the Turners' interests were diametrically opposed in any event and the Turners were only giving instructions to the Solicitors on their own behalf. The Solicitors' contractual duty was to present the documents provided to it by the Turners to the correct person, which it had done. It did not have any duty to check the genuineness of those documents, because it would have meant not acting for their clients or causing them to incur more costs.
If anything, the Registrar owed a duty to the Bank to avoid wrongfully removing its charge from the register on the basis of a forged document. It was in control of the register, not the Solicitors. Further, the act which caused the loss was the Registrar removing the charge, not the Solicitors supplying the information to him. In addition, Master Matthews found that the Land Registry system was inherently risky in respect of fraud and that it was unfair and unreasonable to make the Solicitors liable to the Bank for the risk of fraud within that system. Master Matthews therefore considered that the Solicitors did not owe a duty to the Bank and therefore could not be liable in negligence.
In respect of this allegation, the question was whether the Solicitors owed a duty of care to the Land Registry. Master Matthews found that the Solicitors knew or ought to have known that the Registrar would rely on the documents. The Registrar had not blindly accepted what the Solicitors had told him and had raised a requisition which had apparently been satisfied. Master Matthews considered that there therefore was a duty of care in relation to the representations and granted default judgment in the Registrar's favour. Unfortunately, he did not give much reasoning for his decision.
This is therefore yet another case where the lawyers were the victim of their clients' fraud.
On this occasion, the Solicitors were not represented (having been intervened in 2012) and it remains to be seen whether this will be appealed, or whether the court might choose a different path if the solicitor is represented in similar matters. It's good law for the time being either way. In any event, there are a few handy takeaways for solicitors:
- Don't fall into the trap of assuming you only owe duties to your own client (see again Purrunsing and Caliendo);
- You can and should act on your client's instructions if they are proper and lawful – even if doing so might harm the interests of another party (as long as you don't know that your instructions are bogus);
- You are not obliged to be a detective;
- A belt and braces approach can never hurt - had the Solicitors checked that the Bank was represented, this might have proved to be a storm in a teacup.
This blog is a summary of recent developments. It should not be regarded as a substitute for advice in any particular case. RPC is not responsible for the content of external websites.