In recent years, there has been a substantial growth in professional negligence claims against solicitors, ie claims for breach of contract and negligence. Insurers have apparently paid out more than £2bn in the past 10 years or so with half of such claims being property-related. The reasons normally given for such growth are:
- the availability of third-party funding and after-the-event insurance to pursue such claims, for example, group claims (relating to failed property investment schemes) or other claims which claimants either do not have the resources to bring or which they wish to de-risk;
- the growth in the number of law firms now specialising in pursuing such claims and their willingness to do so on a no-win, no-fee basis;
- the increase in cyber and other frauds which have led to solicitors making payments to fraudsters, such as in P&P Property Ltd v Owen White & Catlin LLP; Dreamvar (UK) Ltd v Mishcon de Reya (a firm) and another (Law Society Intervening) [2018] EWCA Civ 1082; [2018] EGLR 27;
- solicitors being an easy target as they have compulsory insurance cover;
- higher expectations on the part of clients and a greater willingness to sue their professional advisers.
The root of the problem
However, there is clearly a real issue as to poor service. Standards are not being maintained sufficiently. In what is a very competitive industry for property solicitors, the focus can be too much on profitability and not on client service. This is particularly so in relation to domestic conveyancing as this produces the greatest number of complaints to the SRA in relation to lack of actual advice and care and attention. This often relates to the purchase of leasehold properties.
The vast majority of claims against solicitors never see the courts. They are settled because liability is either admitted or difficult to contest. In the main, these claims result from very simple and basic failings by the solicitors, such as:
- missing deadlines – particularly in relation to leasehold enfranchisement claims and business tenancy renewals or filing SDLT returns;
- failing to ensure that the final documentation actually reflects the agreed terms;
- failing to read all relevant documents or to actually proof-read the documentation produced. It is amazing in this technological age how many executed documents have blanks in them where dates were to be inserted, or are missing sections or attachments, or contain contradictory provisions;
- proceeding on the basis of assumptions rather than checking the facts or the law;
- not keeping the client informed or advised as a transaction progresses;
- failing to properly amend precedent documents; or
- not keeping proper notes or recording advice.
The lack of care and attention by solicitors is often on both sides of the transaction and has led to many claims to rectify documents to correctly reflect what was agreed rather than what the solicitors documented.
An example case: Moda
The recent case of Moda International Brands Ltd v Gateley LLP [2019] EWHC 1236 (QB); [2019] PLSCS 126 is a good example of what can go wrong on a property transaction and why (although the solicitor involved was actually a specialist in company and corporate law).
In brief, the defendant solicitors were held to have been negligent in failing to advise their client as to a change in the terms of the transaction whereby the client would no longer receive a share of the profit on part of the property being sold. The claimant was awarded damages of £221,209.22 based on the loss of the chance to have received such profit share.
The failings of the solicitor in the case, and the reasons for them, were:
- he was slack in the way he dealt with the matter, perhaps because he knew the client well and was friendly with the individual behind it. In particular, he failed to keep proper notes or records (which the judge held hampered his evidence). He claimed that he had orally informed the client of the change made to its profit share but there was no evidence to this effect and his evidence was not accepted;
- he failed to pass relevant documentation to the client for its consideration and approval, such that the client was wholly unaware of the change to the original terms as to profit-sharing;
- he was extremely busy on other work at the time with some 30-35 live client matters; and
- he wrongly reassured his client that there was nothing untoward in the documentation.
- Ironically, if the solicitor had kept accurate notes and records, and not wrongly sought to blame the client, it may well have been possible to seek rectification of the transaction. He argued that he had no duty to give commercial advice as to the transaction itself but he had simply not kept the client properly informed.
Minkin & County Personnel
The duties of a solicitor were summarised in Minkin v Landsberg [2015] EWCA Civ 1152 as including the need to:
(a) carry out the tasks which the client has instructed and the solicitor has agreed to undertake;
(b) proffer advice which is reasonably incidental to the work that he/she is carrying out; and
(c) warn an inexperienced client of risks which are (or should be) apparent to the solicitor but not the client.
In County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1986] 2 EGLR 246 Bingham LJ stated that: “If in the exercise of a reasonable professional judgment a solicitor is, or should be, alerted to risks which might elude even an intelligent layman, then plainly it is his duty to advise the client of these risks or explore the matter further”.
Negligence and property
Examples of particular property issues that often give rise to claims are:
- drafting of rent review clauses and, in particular, formulae as to RPI increases;
- drafting of tenant break clauses and negligent serving of tenant or landlord break notices – with the result that the break is ineffective and the tenant remains bound by, or still entitled to, the lease;
- ineffective or invalid lease assignment covenants which allow the tenant to essentially walk free;
- failing to advise on planning restrictions and/or to advise the client to obtain specialist planning advice;
- failing to appreciate the tax implications of the transaction or regulatory issues (such as the need for a licence for HMO accommodation).
- failing to obtain the mortgagee’s consent or the consent of some other requisite party.
- failing to observe statutory deadlines in enfranchisement claims or serving enfranchisement notices or counter-notices that are invalid.
In Orientfield Holdings Ltd v Bird & Bird LLP [2017] EWCA Civ 348; [2017] EGLR 26, the Court of Appeal confirmed that the solicitors were negligent in that, having obtained a Plansearch report detailing planning applications within 300m of the property being purchased, they were then under a duty to draw to the attention of their clients that there was to be a major school site development close to the property.
In Robinson v Ness & Co [2017] EWHC 2305 (Ch), the solicitors were negligent in not advising their client that planning consent was required to convert a house into five flats. A solicitor has a duty to identify matters that may be important to the client to know and bring such matters to the client’s attention.
In O’Neill v Bull [5 February 2018, Canterbury County Court, unreported], the solicitors were negligent in not drawing to the attention of their clients prior to exchange of contracts a term of the offer of mortgage that required a surveyor’s report confirming there was no subsidence.
Establishing negligence is just the first stage in recovering damage from solicitors. It is then necessary to establish causation and loss arising directly from such negligence and many claims do fail at this stage. The client needs to establish that, correctly advised, it would have acted differently and that the loss claimed would have been averted. In BPE Solicitors v Hughes-Holland [2017] UKSC 21; [2017] EGLR 23, the solicitors negligently drafted a property loan facility agreement but the court held that the claim for damages of £200,000 failed as the client would have lost the loan monies even if the agreement had been correctly drafted.
Final word
While conveyancing does give rise to a substantial number of claims, it should be remembered that not only is this in a very small minority of cases but also in one of the busiest, if not the busiest, areas of the law. Moreover, the work done is subject to far greater consequence and scrutiny than other fields of the law as, if there is any failing on a property purchase or lease, this is often revealed on any further sale of the property or assignment of the lease.
In conclusion, and at a time when clients are stressing that their priority concern is quality of service rather than cost, it is vital for firms to ensure that they do act professionally. All major firms spend substantially on training for their lawyers but many lawyers work under pressure and there are still a considerable number of claims. In a sense, the fact that all legal firms have indemnity insurance may actually lessen concerns as to quality but nothing can compensate a firm for losing a client.
Jonathan Ross is a partner at Forsters LLP
