Water cooler and triangular chairs

The scope of a solicitor's duty to third parties in the spotlight again

26 January 2023. Published by Michelle Peacock, Associate and Rhian Howell, Partner & Head of Office, Bristol

The Claimant (Mr Syed Ul Haq), via his Estate, brought claims against the Defendants for damages arising out of two frauds in connection with the same property.

It is indeed for that reason Rees Page Solicitors applied for summary judgment on the grounds that the Claimant had no reasonable prospects of success. After hearing the application, on 13 December 2019, Deputy Master Lloyd, granted summary judgment on the basis that as Mr Ul Haq was not a client of Rees Page Solicitors, they did not owe him a duty of care. The Estate subsequently appealed to the High Court, who, on 21 March 2022, dismissed the appeal, stating there was no evidence that the Estate could point to, which put the case into a special category i.e., where there were exceptional circumstances outside the normal rule that a solicitor owes a duty of care to a third party.

The Estate made an application to the Court of Appeal in respect of the Hight Court decision. On 13 January 2023, after hearing the Estate's application, Lord Justice Nugee, agreed to set aside the summary judgment and give permission to appeal, on a limited basis, to allow the Estate to test whether this case may well be one of those exceptional cases where the solicitor owes a third party a duty of care.

Background of the facts

The Claimant, (now deceased), was the registered owner of property in Ealing, London and was the unfortunate victim of not just one, but two frauds in respect of a conveyance on the property. Only in so far as the background facts are relevant, the Claimant purchased the property, with the assistance of a mortgage loan, from the Bank of Scotland plc in 2007. In 2008, the Claimant agreed to sell the property to Mr Attarian for £1.25 million, who incidentally, also secured a mortgage from the Bank of Scotland ("the Bank") to facilitate the purchase. 

Fraud no #1

Rather unusually, FLP Solicitors was instructed to act in relation to the conveyance on behalf of the Claimant, as the vendor, Mr Attarian, as the purchaser, and the Bank as the lender. The Bank sent the mortgage funds to FLP in the sum of £1,125,000, which were intercepted by Mr Uddin, an employee of FLP Solicitors, who misappropriated the monies. Mr Uddin was subsequently imprisoned for this offence but that meant that no money was paid to the Bank to discharge the Claimant's charge, which remained on the register. The Claimant remained on the register as the proprietor.

Fraud no #2

The Bank instructed Rees Page Solicitors who, during the course of their investigations, were informed by Mr Attarian's new solicitors, that they thought: (i) the transaction had actually completed; (ii) Mr Attarian was living at the property and paying the mortgage; and (iii) notwithstanding FLP's fraud, the property had not been registered in his name due to an administrative error. Rees Page wrote to Mr Attarian's new solicitors asking if the Claimant would consent to transfer the property into his name. 

Rees Page was sent copies of documents including three transfers in form TR1 but, whilst they had been signed, none had been witnessed, meaning Mr Attarian could not register as the new proprietor and the Bank's charge in respect of Mr Attarian's mortgage, could not be registered either. Subsequently, Mr Attarian's solicitors ceased trading and Rees Page liaised direct with Mr Attarian in relation to seeking the Claimant's signature on a replacement TR1.  

Mr Attarian assured Rees Page that he was in contact with the Claimant, would obtain his signature on the replacement documents and arrange for them to be witnessed at the same time. 

When Rees Page received the signed documentation they lodged an application in form AP1, to register the transfer and charge. However, the Claimant alleged the purported signature on the Transfer was a forgery and submitted evidence supporting this. The Estate was unable to have the register amended as the Bank sold the Property to an innocent third party.

Did Rees Page assume responsibility to the Claimant?

When submitting the AP1 Rees Page confirmed each party was represented by a conveyancer. The Claimant was not. The Estate's case was that Rees Page owed the Claimant a duty of care in tort by assuming direct responsibility to ensure information provided to the Land Registry was correct. English was not the Claimant's first language, he was a litigant in person and as such, he was unlikely to have any legal or technical knowledge in terms of the transaction. The Estate claim the Land Registry would have questioned the Claimant's position is they had known he was not in fact represented.

The Court of Appeal said the legal principles set out in P & P Property Ltd v Owen, White & Caitlin LLP [2018] were relevant i.e. a vendor's solicitor does not owe a duty to the purchaser to take reasonable care to establish the identity of his client.

However, the Court of Appeal also held that there are exceptions to the general rule which included:

1. Where the Solicitor is retained by his client to confer a benefit on a particular third party (and the Court gave an example where a testator engages a solicitor to make a will in favour of a beneficiary).

2. Where the Solicitor for one party makes representations to the other party upon which the other party relies.

3. The 'Al-Kandari principle' – where solicitors step outside their role to their client and accept responsibilities of third parties. In the Al-Kandari case, a husband voluntarily surrendered his passport to his solicitors to have his children's names removed but later re-gained control over it through deception. The solicitors were held to have owed a duty of care to the wife and children by agreeing to hold the passport.

The Court of Appeal considered whether the Al-Kandari principle applied in this case, i.e. by completing and lodging the AP1 form, Rees Page stepped outside their role as solicitors for the Bank and accepted a responsibility to the Claimant.

The incremental approach approved in Caparo Industries v Dickman [1990] and reaffirmed by the Supreme Court in NRAM Ltd v Steel [2018], held that a solicitor will not assume responsibility for the other party, unless it was foreseeable and reasonable, that that party would rely upon what that solicitor had said.

Lord Justice Nugee was satisfied that Rees Page Solicitors had not expressly assumed responsibility to the Claimant and were not under any statutory obligation to verify the Claimant's identity. As such, Lord Justice Nugee said the Judges in the previous courts were right to find that Rees Page did not owe a duty of care to the Claimant, until, that is, they lodged the AP1 form.

The AP1 Form

Lord Justice Nugee considered that, when filling in the AP1 Form, Rees Page's position changed, as they gave confirmations to HMLR on behalf of not only the Bank, but each of the other parties to the transaction, that the facts stated within it were correct and, by doing so, the Al-Kandari principle applies. Accordingly, Lord Justice Nugee said that it was indeed arguable, despite the fact Mr Ul Haq was unaware Rees Page had completed and submitted the AP1 form on his behalf, that Rees Page assumed responsibility of a duty of care to the Claimant to ensure the form was completed correctly.

However, as this argument only came out during oral submissions and was not formally pleaded by the Estate, Lord Justice Nugee fell short of considering whether a duty of care was owed. Notwithstanding this, he allowed the Estate's appeal, to the extent of setting aside the summary judgment against Rees Page and gave permission for the Estate to take the matter to trial, on the limited basis of whether Rees Page owed the Claimant a duty of care. 

What does this mean for Solicitors?

The Court of Appeal was satisfied that there was no express assumption of responsibility to Mr Haq but it was arguable that, by completing the AP1 Form, Rees Page stepped outside the role as solicitors solely for the Bank and assumed a duty of care to the Claimant to ensure the content of the form was correct.

Whilst this case may be limited to its own facts and, even if Rees Page lose at trial, it is another example of the Courts being prepared to extend a solicitor's duty if they stray into third party territory, whether inadvertently or not. This remains a case to watch and is a reminder that solicitors need to be extremely careful of assuming a duty to a non-client and the consequences that can follow.