Purchasers’ solicitor paying entire purchase price upon undertaking of vendor’s solicitor to redeem prior mortgage – Undertaking not fulfilled – Whether purchasers’ solicitor negligent despite compliance with normal conveyancing practice – Judge dismissing claim – Appeal dismissed
The claimants were the sole directors and shareholders of V Ltd. The defendant firm of solicitors was instructed to act for V Ltd in: (i) the purchase by V Ltd of a sports club (the club) for £605,000; and (ii) the furnishing, by the claimants, of personal guarantees required by a bank (BCCI) as a condition of providing V Ltd with a bridging loan for the purchase of the club, plus a further £350,000 for refinancing purposes. The entire loan from BCCI was to be repaid within in four months, and in one lump sum, from the proceeds of the sale of another club belonging to V Ltd.
Contracts for the purchase were exchanged in February 1989, at which time the club was mortgaged to secure the vendor’s borrowings from Midland Bank (Midland). In March 1989 the vendor’s solicitor confirmed that a written solicitor’s undertaking (in the Law Society’s recommended Form 53), evidencing the discharge of existing mortgages, would be handed over upon completion. Completion took place in June 1989, just prior to the agreed deadline, and the entire purchase price was paid into an account held by the vendor’s solicitor.
In July 1989 the vendor’s solicitor wrote to the defendant purporting to confirm that sufficient funds had been remitted to discharge the Midland mortgage. However, in February 1990 the defendant discovered that Midland had refused to release its security, as the vendor’s solicitor had not fully complied with Midland’s conditions for such release. By that time, the vendor’s solicitor had ceased to practice.
The Midland mortgage was eventually discharged in May 1993 with the payment of £235,000 out of money recovered by BCCI from the vendor’s solicitor’s professional indemnity insurers. The club was then sold and the proceeds applied, in reduction of the claimants’ indebtedness, to BCCI.
In proceedings brought against the defendant for negligence, it was agreed that, inter alia, the question of whether (disregarding any issue of damage) the defendant had incurred liability should be heard as a preliminary issue. The claimants contended that, even though the defendant had followed a commonplace conveyancing practice, it had been negligent in arranging for the entire purchase price to be remitted to the vendor’s solicitor, in reliance upon an undertaking, rather than arranging for the redemption monies to be paid directly to Midland or its duly authorised agent.
Accepting Edward Wong Finance Co Ltd v Johnson Stokes & Master [1984] AC 296, the judge referred to three questions for consideration when assessing whether the defendant’s conduct had fallen short of the standard of care owed to the claimants: (i) did the practice, as operated by the defendant, involve a foreseeable risk?; (ii) if so, could that risk have been avoided?; and (iii) if so, was the defendant negligent in failing to take avoiding action? The judge held that despite the inconvenience involved in making a direct payment to the vendor’s mortgagee, the answer to the first question was that there was a foreseeable risk. He also found that a solicitor who followed the practice adopted by the defendant did so at his own risk and not his client’s: see National Home Loans Corporation plc v Kaufmann unreported 21 June 1995). However, he held that upon the facts, notably that the deadline had almost expired before the claimants were put into funds, the second and third questions had to be answered in favour of the defendant. Accordingly, he held that the defendant was not liable. The claimants appealed.
Held: The appeal was dismissed.
If a professional practice exposed clients or patients to a foreseeable and avoidable risk, the practice might be indefensible upon rational grounds, and, in such circumstances, the fact that it was commonly or even universally followed, would not exclude liability for negligence.
The risk involved in accepting an undertaking from a vendor’s solicitor as to the discharge of a bank mortgage was that Form 53 might not be produced. That failure could be caused either by the solicitor’s dishonesty or by a last-minute dispute or misunderstanding as to the amount required to redeem the mortgage. However, the defendant had shown that a defensible conclusion could be reached upon the question of comparative risks and benefits of the practice by a purchaser’s solicitor of completing a conveyance upon the strength of an undertaking from the vendor’s solicitor to redeem any pre-existing charge on the property. Accordingly, the judge had reached the correct conclusion. Edward Wong Finance Co Ltd and Bolitho (deceased) v City and Hackney Health Authority [1997] 4 All ER 771 applied.
Roger Smith (instructed by Ormorods) appeared for the claimants; Michael Briggs QC and Michael Gadd (instructed by Ince & Co) appeared for the defendant.
Thomas Elliott, barrister
