Negligence – Bankruptcy – Breach of contract – Causation – Conveyancing – Legal advice

Sara Dayman (as trustee of the estate of Sandra Estelle Fielding, a former bankrupt) v Lawrence Graham (a firm): ChD (Judge Hodge QC): 28 August 2008

The claimant trustee in bankruptcy (D) claimed damages for alleged breaches of contract and professional negligence against the defendant firm of solicitors (L) in respect of their conduct of the sale and purchase of property for the bankrupt (F).

F’s husband (H) had been a partner of L. He had stolen some £5.8m from L and had been convicted of theft. Before the theft was discovered, F and H had sold their home in London, which was registered in F’s name, and acquired a new home in F’s name. The cost of purchasing and renovating the new home of around £1.25m was financed by a bridging loan from a bank (C) secured by an undertaking from L to repay it from the sale proceeds of the first property. F believed that the £3m proceeds of sale of the first property had repaid the mortgagee bank (R) and more than covered the costs of purchase and renovation of the new property. In fact, as she later discovered, H had run up substantial debts to R on their joint account, for which she was jointly and severally liable under the legal charge over the property, and R had required the sale of the house and had retained most of the proceeds, which failed to eliminate the indebtedness of F and H. R later obtained judgment against F in respect of the outstanding indebtedness of over £3m and made her bankrupt. Unbeknown to F, H had obtained the shortfall required to repay the bridging loan from offshore sources on a secured basis. D’s case was that, as a result of L’s acts and omissions in the transactions, F had lost the opportunity to challenge the extent of her indebtedness to R at that time and to negotiate a settlement which would have resulted in R releasing F from further liability in return for the proceeds of £2.51m which it received from the sale of the first property.

Held: (1) The extent of a solicitor’s duties depended upon the terms and limits of his retainer, and any duty of care to be implied had to be related to what he was instructed to do. In the instant case, there was no formal letter of retainer, so its terms had to be inferred from the work that L were required to perform, namely the conveyancing work associated with the sale of the first property and the purchase of the second.

(2) H acted throughout in a dual capacity: as his wife’s agent, both in instructing L to act as her solicitors in the sale and purchase, and also in undertaking many of the ordinary tasks that would be undertaken by any seller, or purchaser, of a family home. In addition, H also performed certain tasks that would ordinarily be undertaken by a conveyancing solicitor. However, F left it to H to secure the bridging finance required to purchase and then refurbish the second property, and to settle the amount required to repay that bridging finance, as well as the sum owing to R on the security of the first property, not in his capacity as her solicitor, but rather in his capacity as her husband.

(3) Once L had given its undertaking to pay £1.25m to C on the sale of the first property, that sale could not proceed to completion unless either R was prepared to accept less out of the proceeds of sale than the sum that was required to be paid to C, or an alternative source of funding could be found. In the event, H found an alternative source of funding. Once he had done so, L’s retainer properly extended to the provision of appropriate legal, as distinct from commercial, explanation and advice to F as to the terms of, and the security for, such alternative funding. No such explanation or advice was ever given to F. That was because L proceeded on the footing that appropriate explanation and advice would have come from H. But, to the extent that L looked to H to discharge their duty in that regard, that must have been in his capacity as a solicitor and partner in the firm, rather than as the husband of the firm’s client; and they were therefore vicariously liable for his omission to give such explanation and advice. A firm of solicitors who, when acting for the spouse or any other relative of a partner, looked to that partner to discharge a legal duty falling within the scope of that firm’s retainer was liable for any failure in that regard. L could have discharged that duty by providing such advice in a letter to F. L did not owe any more extensive duty, in particular to guard F against the risk that she was being deceived by H.

(4) D had to show, on the balance of probabilities, that F would have agreed to any deal that there was a real or substantial chance that R would have proposed to her, Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 CA (Civ Div) applied. On the evidence, L’s limited breach of duty had not caused any loss to F, because she would not have approached R and because R would not have put forward any deal which F would have been likely to accept.

Judgment for defendant.

Bernard Livesey QC, David Eaton Turner (instructed by Cripps Harries Hall) for the claimant; Sue Carr QC, Ben Hubble, Sarah Cowey (instructed by Barlow Lyde & Gilbert) for the defendants.