When can lenders sue solicitors on the other side of a property transaction?

The Court of Appeal has recently handed down judgment in a long-running action relating to the purported fraudulent transfer of a property.

The decision will be relevant to lenders when considering whether there are non-instructed solicitors that may nevertheless owe a duty to the lender.  

The decision considers the well-established principle that solicitors only owe a duty of care to their clients, and do not usually owe any duties to parties on the other side of a transaction. In the case of Seema Ashraf v Lester Dominic Solicitors & Others [2023] EWCA Civ 4, however, the Court of Appeal held that solicitors, acting for a bank, may owe a duty of care to the non-client seller of a property in certain circumstances. 

Background

Mr Ul Haq was the registered proprietor of a property in Ealing, London. The property was subject to a registered charge in favour of the Bank of Scotland (the Bank). In 2008, Mr Ul Haq agreed to sell the property to Mr Attarian, who was purchasing the property with the assistance of a mortgage, coincidentally also from the Bank. FLP Solicitors were instructed, unusually, to act for both seller and purchaser in the transaction. The 2008 property transfer was, however, not completed as intended. The office manager at FLP stole most of the purchase monies (for which he was subsequently jailed). The Bank’s charge granted by Mr Ul Haq could not be redeemed and the 2008 TR1 transfer had not been witnessed. Mr Attarian the purchaser could not be registered as the new proprietor and the Bank’s new charge also could not be registered.

In 2010, the Bank instructed Rees Page solicitors to resolve the matter and complete registration. This required a new TR1 (the 2010 transfer), which was purportedly executed by Mr Ul Haq and dated in July 2010.  Rees Page registered the transfer and the Bank’s charge from Mr Attarian with the Land Registry. Registration was completed in June 2011.

Proceedings

In 2016, Mr Ul Haq issued proceedings alleging that the 2010 transfer was not validly executed because his signature had been forged. Mr Ul Haq died in 2017 but his Estate continued the proceedings. The Estate claimed that Rees Page were negligent in registering the 2010 transfer and the charge.

Rees Page applied for summary judgment on the grounds that the Estate had no real prospect of succeeding on the claim. At first instance in 2019, summary judgement was granted on the basis that no duty of care was owed by Rees Page to Mr Ul Haq. The Estate appealed, but their appeal was dismissed in 2022 on the basis that there was nothing in the evidence that the Estate could point to which put the case into the exceptional category of cases where, contrary to the usual rule, a solicitor owes a duty of care to a third party. The Estate appealed again to the Court of Appeal. 

Court of Appeal 

The Estate alleged that, at the time Rees Page submitted the 2010 transfer and registration to the Land Registry, it owed Mr Ul Haq (as the then registered proprietor) a duty to take reasonable care to establish that the transfer had been properly executed by Mr Ul Haq. 

In registering the transfer and charge, Rees Page filled in and lodged an AP1 form. The solicitor at Rees Page filled in box 13(1) of the AP1, which confirmed that each party was represented by a conveyancer. Mr Ul Haq was not legally represented at the time of the 2010 transfer but had been at the time of the original transaction in 2008. The Court of Appeal stated that, when filling the AP1 form in, Rees Page was doing so as solicitor for the Bank.  However, in filling in box 13, the Court of Appeal also held that Rees Page was giving confirmations to the Land Registry in relation to not just the Bank, but to each of the other parties (Mr Ul Haq and Mr Attarian). 

The Court of Appeal noted that “in giving such confirmations the solicitor for the applicant is not acting for the applicant alone but stepping outside that role and acting for all parties… and hence owes a duty to all such parties to act with reasonable care in filling in the form accurately. I have come to the conclusion that this is indeed arguable.”

The Court of Appeal allowed the appeal and set aside the summary judgment in favour of Rees Page. 

Comment

A solicitor’s duty of care is an area where the law is likely to develop. We know of at least two cases where permission is being sought or has already been given to bring an appeal before the Court of Appeal. The direction of travel suggests that it will still be rare for a solicitor to owe a duty to a party who is not their client. 

This new decision does, however, provide authority for the proposition that, when filling in Land Registry forms to complete a property transaction, solicitors may owe a duty of care to the other parties to that transaction, which will include lenders.  The Court of Appeal appears to have been influenced by the wider policy consideration that the Land Registry relies on those filling in its forms to do so accurately and having conducted appropriate due diligence that what is being represented in the forms is correct. This is to help guard against property fraud. 

The Court of Appeal’s decision may therefore provide lenders with another potential route to recover losses it suffers as a result of property fraud or negligent mistakes by other professionals when it comes to registering title.

Contributors: Nick Curling, Emily Maliphant

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.