Informally appointed managing agent disposing of properties after forging owner’s signature and falsely representing that he was authorised to instruct defendant solicitors to act in disposal – Solicitors failing to verify agent’s authority – Whether solicitors negligent – Liability of Land Registry
The plaintiff was a son of the Emir of Kuwait and normally resident in that country. In 1982, on one of his frequent visits to London, the plaintiff made the acquaintance of the first named defendant, A, who had moved to London from Iraq during the 1970s. In 1983 the plaintiff bought a flat in London W1, for £130,000, and reached an informal agreement with A that A would manage it during his absence. In 1984 the plaintiff bought another flat in London SW7, which was included in the arrangement. Both purchases were for cash, and the legal formalities were attended to by JB, a solicitor then practising on his own account, who had been introduced to the plaintiff by A. In 1988 there came into existence a document bearing the forged signature of the plaintiff, which purported to grant a general power of attorney to JB, who joined the defendant firm of solicitors (B&B) in May 1990. During 1990 and 1991 the first two flats were conveyed to A, supposedly pursuant to contracts for their sale by the plaintiff to A at prices in excess of £250,000 each. With the flats registered in his name, A, using different lending institutions, obtained mortgage loans of £250,750 on the W1 flat and £195,000 on the SW7 flat. Legal formalities were attended to by JB, who purported to act on instructions from A. No money was remitted to the plaintiff, who was unaware of these events. Some time later, JB left B&B and moved to Australia. Neither loan was repaid. In June 1993 the W1 flat was sold by its mortgagee for £168,000. The SW7 flat was similarly sold in May 1994 for £128,000. None of these transactions came to the knowledge of the plaintiff before early 1995. The plaintiff proceeded against A for fraud and against B&B for negligence. At a late stage the Land Registry was joined as an additional defendant. A filed a defence, but absented himself shortly after the commencement of the trial. Having found that the allegations against A were proved, the judge turned to consider the claims against B&B and the Land Registry, the latter being for compensation under section 83 of the Land Registration Act 1925
Held B&B was liable. The Land Registry was liable only to the extent that the plaintiff was not compensated by A and B&B.
1. If instructions came to a solicitor from a third party claiming to represent the client, the solicitor had to take special care to satisfy himself that the client wished him to act, by seeing the client personally or obtaining written confirmation from the client or taking some other step sufficient in the circumstances to show that the client wanted the solicitor to act in the matter: see the Law Society’s Guide to the Professional Conduct of Solicitors, as quoted in Penn v Bristol & West Building Society [1995] 2 FLR 938. Where failure to observe this principle caused prejudice to the supposed client, then the solicitor, as well as breaching professional conduct rules, was liable in negligence to the supposed client, even in doing something that would otherwise be proper if duly retained. Here, the need for caution was even greater, as JB purported to act on behalf of the plaintiff in a transaction where the plaintiff was selling to the very person who was giving instructions on the plaintiff’s behalf as well as his own.
2. Where a solicitor did not follow the usual practice of receiving the price on behalf of a client vendor, a special burden lay upon him to satisfy himself that the vendor did not part with his property before the price was paid. No attempt was made by JB, acting in the employ of B&B, to see that the price was paid by A and received by the plaintiff.
3. Accepting that the register could not, in the circumstances, be rectified against the end purchasers of the flats, the Land Registry had recognised that the finding of fraud rendered it liable to indemnify the plaintiff under section 83(2) of the 1925 Act. However, the registry had successfully contended that no loss would be sustained by the plaintiff to the extent that judgments against the other defendants were satisfied. The plain scheme of the Act was to make the registry in substance an insurer of last resort in respect of registered titles.
Mark Warwick (instructed by Howard Kennedy) appeared for the plaintiff; Michael Pooles (instructed by Wansbroughs Willey Hargrave) appeared for the defendant firm, Brain & Brain; Timothy Evans (instructed by the Treasury Solicitor) appeared for the Land Registry; the first named defendant did not appear and was not represented.
Alan Cooklin, barrister