Solicitor — Duty of care — Respondent solicitor acting for both parties on property transaction — Solicitor knowing of purchaser’s previous fraud convictions — Whether breach of duty not to disclose this to appellant — Whether duty confined to advising appellant to instruct alternative solicitor — Appeal allowed
The appellant retained the respondent firm of solicitors in connection with his business as a developer. He was contacted by B about a potential property deal, and, following several meetings at the respondent’s offices, the parties reached an agreement under which the appellant would purchase and construct flats on a site, and B would purchase the developed property. The appellant was not aware that B had recently been released from prison, where he had been serving a sentence for the offences of participating in company management while an undischarged bankrupt, obtaining credit while an undischarged bankrupt, and fraudulent trading. The appellant was also unaware that the respondent, which had acted for B in the criminal proceedings, was acting for both him and B in the property transaction.
The appellant took out a large bank loan in order to finance the venture. Ultimately, B failed to complete on the purchase of the finished flats, and subsequently refused to vacate a caution placed upon the title. The appellant then decided to rescind the contract. In the following years, the appellant’s business collapsed. The bank proceeded to enforce its securities and both sites were sold, resulting in a large deficit.
The appellant brought proceedings against the respondent. The judge found that the appellant would not have proceeded with the transaction had he known of B’s past. However, he held that the respondent’s breach of duty lay only in continuing to act for both the appellant and B, and not in failing to inform the appellant about B’s past, since it would have been a breach of its duty to B to disclose that information. The judge concluded that the breach had caused no loss, since, if the appellant had instructed an independent solicitor, he would have remained unaware of B’s conviction. Upholding that decision, the appeal court held that the appellant’s retainer of the respondent impliedly excluded, from any general duty of disclosure, information that the respondent was legally obliged to treat as confidential. The appellant appealed.
Held: The appeal was allowed.
It was common ground that the respondent could not properly act for both the appellant and B on the transaction. Its duty was to inform the appellant on two counts. First, that it could not act for him; and, second, that he should seek legal advice from other solicitors, starting afresh and not relying upon any advice that he might already have received from the respondent. A bare refusal to act, without clear advice concerning the necessity for new solicitors, would not have been sufficient to discharge the respondent’s duty.
Disclosure of B’s past to the appellant would have been a breach of the respondent’s duty to B. However, the respondent’s duty of disclosure to the appellant was not subject to any implied exclusion. The term suggested by the Court of Appeal did not meet the normal test for implication of terms, whether formulated by reference to the officious bystander or business efficacy. It would have amounted to the appellant agreeing that, because his solicitor had failed in its duty to tell him to take separate advice and had instead proceeded to act for both him and B, its duty to the appellant must be curtailed in some way, in order to accommodate its first breach of duty. The notion that one breach of duty by the respondent should exonerate it in respect of a subsequent and more serious breach was contrary to common sense and justice. In a case of two irreconcilable duties, a solicitor could not act in preference of one duty over another, but had to perform both to the best of its abilities. This might involve performing one duty to the letter of the law and paying compensation for its failure to perform the other. The fact that a solicitor had chosen to put itself in an impossible position did not exonerate it from liability: Moody v Cox [1917] 2 Ch 71 applied; Mortgage Express Ltd v Bowerman & Partners (No 1) [1996] 1 EGLR 126; [1995] 04 EG 126 considered.
Timothy Dutton QC and Chloe Carpenter (instructed by John Budd & Co, of Blackpool) appeared for the appellant; Christopher Gibson QC and Ian Wood (instructed by James Chapman & Co, of Manchester) appeared for the respondent.
Sally Dobson, barrister
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