Property Law: Seller’s lawyers owe duty of care to buyer

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Professional negligence lawyer, Emma Slade, looks at a recent court decision in which a firm of solicitors dealing with a property transaction were held liable for negligence and financial loss suffered by a party who was not their client.

We often get enquiries to see if a potential client can sue another party’s solicitor for professional negligence. We have to turn those cases down as there isn’t a relationship between the caller and the solicitors they wish to sue. This is never more so than in conveyancing transactions where it has long been established that a seller’s solicitor does not owe a duty of care to a purchaser.

However, a case decided on 14th April 2016, has dented that general principle.

In Purrunsing –v- A’Court & Co (a firm) and House Owners Conveyancers Ltd the judge concluded that a seller’s solicitor can, in certain circumstances, owe a duty of care to a purchaser.

The facts are relatively simple. A’Court & Co were instructed by a Mr Nicholas Dawson to sell a property that he owned and had apparently belonged to his father. Although A’Court undertook basic Money Laundering investigations – obtaining copies of Mr Dawson’s passport and utility bills – they did not undertake more detailed investigations. Specifically, they did not seek from Mr Dawson evidence that he actually owned the property in question. They simply obtained Office Copy Entries from the Land Registry. These confirmed that a Mr Nicholas Dawson did indeed own the property.

The judge said there were a number of markers that should have alerted A’Court & Co to being suspicious about the transaction. Aside from the lack of evidence that their client owned the property, the address for service of papers on the Office Copy Entries did not match the address given to them by Mr Dawson. Alarm bells should also have rung when, on being questioned about their client’s occupation in Dubai – A’Court being unaware that their client lived or worked abroad – he pulled out of the transaction and decided to sell the property to another party (the claimant). Added to that, the property was unoccupied, it was of comparatively high value and Mr Dawson was pressing for an expedited completion.

In particular, a specific enquiry was raised by the purchaser’s solicitors (the second defendant), that A’Court confirm they were “familiar” with the seller and would “verify that [he is] the seller”. The response from A’Court was quite ambiguous and did not actually address the query raised. This information should have been passed on to the purchaser so that he was aware of the potential problem. His solicitors failed to do that and so for that reason, they were found jointly culpable with A’Court.

It was only after the sale proceeds were sent to Mr Dawson in Dubai and attempts were made to register the sale, that the parties become aware that “Mr Dawson” had in fact stolen the identity of the registered proprietor of the property and defrauded the Claimant of a significant sum of money.

This is an interesting case and has the potential of making a big impact on the way property solicitors work as they become answerable not only to their own client but also a purchasing party. I suspect though that it will only give rise to professional negligence liability in limited circumstances; namely where there has been fraud. The Court made it clear that they did not consider either of the defendants to have been dishonest in the transaction or to have colluded in the fraud. From the look of it, they were careless at best and nonchalant at worst in failing to consider and comply fully with the Money Laundering Regulations. Either way, it does send a timely reminder to property lawyers of their obligations and the fact that a duty of care can be owed by a lawyer to a purchaser who is not their client.

Our property team are acutely aware of the risk of fraud and ensure that full and proper checks are made, thereby giving peace of mind to the parties involved in the transaction.

Our professional negligence department in the meantime are on hand to offer legal guidance to anyone who may have been let down by a negligent lawyer, even if the lawyer wasn’t directly instructed by them.