Solicitor’s negligence – Party purporting to be appellant instructing respondent solicitor to act on transfer of property – Transfer fraudulent – Appellant alleging breach of duty of care by respondent in failing to verify identity of client – Whether claim statute-barred under section 2 of Limitation Act 1980 – Whether cause of action accruing on completion of fraudulent transfer or on later registration of title by fraudulent transferee – Whether respondent owing continuing duty of care after completion – Appeal dismissed
The appellant was the registered owner of a flat. In April 2001, his signature was forged on a fraudulent transfer of the flat to M, who obtained the transfer by purporting to be the appellant and instructing the respondent firm of solicitors to act on the sale. Although the appellant became aware that M had carried out an earlier unauthorised remortgage of the property, he took no steps against him. M obtained registration of the property in his own name in July 2001 and subsequently sold the flat in January 2003 to an unconnected third party. The appellant’s claim for rectification of the register was dismissed on the ground that the registration of title in favour of M and, later, the third-party purchaser had occurred because he had failed to take proper care of his interests: see [2005] EWHC 2996 (Ch); [2006] 1 EGLR 71; [2006] 12 EG 196.
In July 2007, the appellant brought a claim against the respondent for negligence. He contended that, on receipt of the instructions from M in the appellant’s name, it had assumed a responsibility to the appellant to handle the sale in a competent manner, including an obligation to confirm its instructions directly with the client and to satisfy itself of his identity. A preliminary issue was tried as to whether the six-year limitation period under section 2 of the Limitation Act 1980 had expired. The appellant argued that: (i) he had not suffered actual damage, and, therefore, the cause of action had not accrued, until M obtained registration of title in July 2001; alternatively (ii) the respondent had been under a continuing duty of care to take steps to prevent the appellant from losing his registered title.
The judge held that the completion of the sale to M had constituted an immediate blot on the appellant’s title, producing an immediate financial detriment to the appellant owing to the potential cost of taking steps to prevent M’s registration of title. He accordingly held that time had begun to run in April 2001 and that the claim was statute-barred. He found that no continuing duty of care existed. The appellant appealed.
Held: The appeal was dismissed.
(1) Had a potential purchaser of the flat been told of the forged transfer in the period prior to registration of M’s title, it would have led to a diminution in the price that he would have been willing to pay for the flat. The forged transfer to M, although of no legal effect, exposed any purchaser from the appellant to the risk of possible litigation even if that risk were more apparent than real. On that basis, there had been a diminution in the open market value of the flat following completion in April 2001. The appellant had therefore suffered actual damage in April 2001 and his cause of action had accrued at that date: Bell v Peter Browne & Co [1990] 2 QB 495 and Law Society v Sephton & Co [2006] UKHL 22; [2006] 2 AC 543 applied.
It was irrelevant for the purposes of section 2 whether the appellant could realistically have discovered the fraud before registration in July 2001. Time would start to run under section 2 even if the claimant was unaware of the circumstances that had led to the cause of action; the existence of actual damage depended, not on the claimant’s state of knowledge with regard to the breach of duty but on whether the breach had caused loss. The issue was whether the appellant could have maintained an action for damages against the respondent following completion of the sale to M, and for that purpose it had to be assumed that the appellant was aware of the breach at that date. Any diminution in the value of the flat that could be attributed to the breach had to be determined on the basis that the appellant was aware of the forged transfer and was under a corresponding duty to alert a potential purchaser to the problem, such that the open market value of the flat was the sum that a purchaser with knowledge of the forged transfer would pay.
Although section 14A of the 1980 Act provided an alternative time limit of three years from the date of knowledge, that did not assist the appellant since he had had the requisite knowledge of the fraudulent sale to M by 2002 and the three-year time limit had therefore also expired.
(2) There were no special facts to suggest that the respondent had assumed a continuing duty to the appellant that survived the completion of the transaction for which it had been retained. Prior to July 2001, the respondent had done all that was necessary to complete the sale and was not obliged to supervise the registration of the appellant’s title: Midland Bank Trust Co Ltd v Hett Stubbs & Kemp [1979] Ch 384 distinguished. Moreover, even in the event of a continuing duty, the cause of action would still have accrued in April 2001, when loss was first suffered as a consequence of breach.
Philip Jones (instructed by Mackrell Turner Garrett) appeared for the appellant; Ben Lynch (instructed by Davies Arnold Cooper LLP) appeared for the respondent.
Sally Dobson, barrister
