The extent of a solicitor’s duties to his or her client are determined by the solicitor’s retainer and will depend on what the solicitor is employed to do or advise on. Law firms are not obliged to expend time and effort on issues outside their retainer. But Credit Lyonnais SA v Russell Jones & Walker [2002] EWHC 1310 (Ch); [2002] 2 EGLR 65 underlines the importance of reporting on any risks or potential risks of which lawyers become aware during the course of a transaction, unless the client is sufficiently experienced to know about them.
When selling land, conveyancers are required to deal with the formalities to effect the sale to the buyer, to ensure that the purchase price is paid, to secure the discharge of financial charges and to account to the seller for the proceeds of sale. In addition, because property transactions are an attractive target for criminals, solicitors must verify the identity of their clients in order to guard against money laundering and the risk of money being diverted to fund terrorism. Failure to comply renders lawyers liable to a civil penalty and is also a criminal offence.
Routine transaction
Lennon and another v Englefield and others [2021] EWHC 1473 (QB); [2021] PLSCS 105 concerned the sale of a house in London for £1.25m. There were no mortgages on the property and the registered proprietor held it on trust for her widowed mother. The widow asked a trusted adviser, to whom she had been introduced in 2004, to help with the sale. He recommended and instructed a firm of solicitors to deal with the transaction and then acted as an interface between them – having acted as a facilitator for another of the firm’s clients in a previous transaction.
On completion of the sale in 2013, the intermediary provided the firm with a letter signed by the daughter, at the request of her mother, directing them to pay the sale proceeds into his company’s client account. Rule 15(1)(b) of the Solicitors Accounts Rules 2011, which were then in force, specifically permitted payments into a bank account in the name of a person designated by a client – and the firm complied.
Unwelcome discoveries
The widow requested money as and when she needed it and did not ask for the balance, totalling just over £1m, until 2017. But the money had disappeared.
The solicitor who handled the sale was unable to establish that she had complied with the money laundering rules, or that she had carried out additional due diligence to mitigate the risks involved where solicitors do not see a client face-to-face. And, unfortunately, the intermediary was not the solicitor that the widow believed him to be. He had been once. But he was struck off in 1991 and had served a six-year prison sentence for stealing £900,000 from a client account.
Were the solicitors liable for non-compliance with the money laundering requirements? Or for failing to ask further questions – which are considered advisable where an intermediary is acting on behalf of clients, or on being requested to pay funds to a third party – before sending the proceeds of sale to the intermediary?
Solicitors’ duties
Many will be surprised by the High Court’s decision that the law firm was not liable for the loss of the money. But the judge took his lead from two previous decisions. The first was Johnson v Bingley Dyson and Finney [1997] PNLR 392 QBD. In that case, the court held that a failure to observe the principles in the Guide to the Professional Conduct of Solicitors did not automatically give rise to a liability in damages. And, in P&P Property Ltd v Owen White & Catlin LLP [2018] EWCA Civ 1082; [2018] EGLR 27, Lord Justice Patten observed that the duty to comply with money laundering regulations was imposed for the benefit of society at large – and not to create private law rights in cases where such checks are overlooked. Therefore, any civil liability attaching to the solicitors must be established under the general law.
Clients are entitled to appoint their own facilitators and lawyers are entitled to take instructions through an agent. An internet search would have revealed the intermediary’s past, and a search against his company would have revealed that it was balance-sheet insolvent. But the solicitors were not informed that their client believed that the intermediary was a solicitor. And it was not part of their retainer, or reasonably incidental to their work, to investigate the intermediary, or his company, or their solvency, or to proffer unsought advice on the commercial wisdom of their client’s actions. Nor had it been necessary to seek verbal confirmation of the clear, written instructions regarding the proceeds of sale.
Furthermore, the outcome would have been no different had the conveyancer taken appropriate steps to verify her client’s identity. The requisite documents would have been provided, the transaction would have proceeded and the money would still have disappeared.
Comment
Solicitors are not insurers and cannot be held liable for every decision made by, or theft from, their clients. But compliance with the money laundering rules, and regulatory and professional duties and obligations, is of the utmost importance. The law firm could and should have delved more deeply, and could have avoided the claim altogether by refusing – as some firms do – to pay the proceeds of sale to anyone but their client.
Allyson Colby is a property law consultant
