Purported charge in 1993 by deposit of document – Document not signed by owners of property intended to be charged – Defendant solicitor assuring claimant lender that loan was secured – Borrower defaulting in 1996 – Claimant advised that security invalid – Advice based on Court of Appeal decision in same year regarding effect of section 2 of the Law of Property (Miscellaneous ) Provisions Act 1989 – Whether duty of care owed to claimant – Whether defendant should have been aware in 1993 of problem posed by 1989 Act
In or about 1992 the claimant, a self-employed car mechanic with little business experience, was invited by B and Y to inject capital into Citizen Homes, an unincorporated home-renovation business that was run by B and Y with the assistance of a married couple (the Sharmans). In March 1993 Y consulted the defendant firm, which had acted for Citizen Homes in other matters, seeking advice as to the simplest method of using a flat belonging to the Sharmans as security for a £20,000 short-term loan to be made by the claimant to Citizen Homes. A member of the firm, D, advised that the simplest course would be for B and Y to sign a promissory note, to be drafted by D, while leaving the firm in physical possession of the title deeds to the flat, there being no need to obtain the signatures of the Sharmans. At a meeting at the defendant’s office on 11 March 1993, D showed the deeds to the claimant. He confirmed that he would hold them to the order of the claimant pending the repayment of capital and interest, whereupon the claimant presented a cheque for £20,000 to Y, who was also present at the meeting. On 23 March 1993 D wrote to the claimant enclosing a photocopy of the promissory note and again confirming that the deeds were being held by the firm to the claimant’s order. Over the following 10 months, three further promissory notes were signed, pursuant to agreements to extend the repayment period and to increase the amount to £50,000. During that period, the claimant received two further assurances from D that the deeds were being held to his order pending repayment. On 20 April 1995 Y was declared bankrupt, and it was ascertained that B had no funds.
In 1996 the claimant was advised that, in the absence of the Sharmans’ signatures, his supposed security had been invalid from the outset. This advice was based on a Court of Appeal ruling earlier that year (upholding a 1994 High Court decision) that, by reason of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, a mortgage by deposit of documents was ineffective unless recorded in a document complying with the section: see United Bank of Kuwait plc v Sahib [1997] Ch 107. In October 1996 the claimant agreed to the return of the title deeds to the Sharmans, who had commenced proceedings for their recovery. In the same year the claimant brought a High Court action against the defendant, alleging that he had made the loan in reliance upon D’s erroneous advice, such advice having been given in breach of contract and/or negligently.
Held: The action was dismissed.
1. Due to the limited contact between the defendant and the claimant (who had visited the defendant only once), there was no material from which a contractual retainer could be implied. The omission on the part of D to advise the claimant to seek independent advice did not, of itself, allow for such an implication: Madley v Cousins Coombe & Mustoe [1997] EGCS 63 distinguished. Accordingly, no claim lay for breach of contract.
2. It was clear that a professional failing on the part of a solicitor could, in certain circumstances, be actionable in negligence at the suit of a non-client: see White v Jones [1995] 2 AC 207, concerning the negligent drafting of a will. However, it would not be just or reasonable to impose such a duty in the present case. Given that the claimant could have taken separate advice at any stage, this was not a case where the negligence of the solicitor could only be discovered when it was too late to remedy the situation. Accordingly, it was not a case where, to the knowledge of the solicitor, the claimant’s economic well-being was dependent on the proper discharge of the solicitor’s duty to the client. Again, unlike the disappointed beneficiary in White, the claimant could not contend that there was no conflict between the duty to the client and the alleged duty owed to him: Searles v Cann and Hallett [1999] PNLR 494; Gran Gelato v Richcliff (Group) Ltd [1992] Ch 560 considered.
3. If a duty of care had been owed, the claimant would undoubtedly have established negligence on the part of the defendant. Although the point had not been authoritatively decided in 1993, a reasonably competent solicitor should have gathered from books and articles that there was a significant question mark over charges by deposit. It was immaterial that other firms might have failed to advise accordingly: see Edward Wong Finance Co Ltd v Johnson Stokes & Master [1984] AC 296.
Thomas Jefferies (instructed by Coles Miller, of Bournemouth) appeared for the claimant; Tracey Angus (instructed by Bond Pearce, of Exeter) appeared for the defendant.
Alan Cooklin
