Ashraf v Lester Dominic Solicitors: An expansion of solicitors' duties to third parties?

The claimant in this action was the executrix of Mr Syed Ul Haq (the "Deceased") who, shortly before his death, brought proceedings against several defendants seeking relief in relation to two frauds that had occurred in connection with the sale of his property. This particular case concerned only one of the claims advanced by the Deceased's estate (the "Estate"): a claim for damages against Rees Page Solicitors for alleged breach of duty of care said to have been owed by Rees Page to the Deceased.

The Deceased was the registered proprietor of a freehold house that was subject to a registered charge in favour of the Bank of Scotland plc (the "Bank") (the "Ul Haq Charge"). In 2008, the Deceased instructed FLP solicitors ("FLP") to act for him in the proposed sale of his property to a Mr Bijan Attarian. Mr Attarian held a mortgage offer from the Bank and was also represented by FLP. Contracts were exchanged between the parties and the Bank transferred the mortgage advance on behalf of Mr Attarian to FLP in anticipation of completion; the bulk of the funds were then stolen by FLP's office manager. The result was that no money was paid to the Bank in discharge of the Ul Haq Charge and the Deceased remained as the registered proprietor.

Shortly thereafter, the Bank instructed Mr Kilvert of Rees Page to act for it in respect of various mortgage advances that had been made to FLP and misappropriated by FLP's office manager, including the advance made by the Bank on behalf of Mr Attarian. At this stage, Mr Attarian was living in the property and wished to register his interest in the property with the Land Registry. Mr Kilvert advised Mr Attarian and the Bank that all that was needed to finalise the sale was a replacement mortgage in favour of the Bank and a replacement of the transfer form ("TR1") executed by Mr Attarian and the Deceased in the presence of solicitors instructed by them.

Mr Kilvert sent the relevant documents to Mr Attarian and received them back each apparently duly signed and witnessed; however, proof of identity had not been provided by the Deceased. Mr Kilvert corresponded with the Deceased via letter and telephone call to request the relevant proof, but no such proof was ever provided.

In June 2011, the Bank asked Mr Kilvert to take urgent steps to register their charge as the Attarian account was seriously in arrears. Mr Kilvert accordingly applied to the Land Registry to register the transfer and charge. This included lodging an application to change the register ("Form AP1"). Box 13 of Form AP1 required Mr Kilvert, in relation to each party, to: (i) confirm that the party was represented by a conveyancer; (ii) confirm that he was satisfied that sufficient steps had been taken to verify their identity; or (iii) provide evidence of their identity. Mr Kilvert completed Box 13 to state that FLP was the Deceased's conveyancer. The application was completed, Mr Attarian was registered as proprietor and the Bank was registered as chargee in respect of the Attarian charge (as well as in respect of the Ul Haq Charge, which had never been discharged). The Deceased ceased to be proprietor, but he (and now the Estate) was said to remain liable for the Ul Haq Charge. The Deceased claimed that the replacement of transfer (Form TR1) was not validly executed because his signature had been forged, and that Rees Page were therefore negligent in registering the transfer and the charge (Form AP1); these claims are now pursued by the Estate.

Rees Page applied for summary judgment on the grounds that the firm owed no duty of care to the Deceased and there was no real prospect of the Estate establishing its factual case. The application was initially granted by Deputy Master Lloyd.  The Estate appealed and the appeal was dismissed by Edwin Johnson J on the basis that there was nothing in the evidence that the Estate could point to which put the case into a category where, contrary to the usual rule, a solicitor owed a duty of care to a third party.

The Estate appealed against the judgment of Edwin Johnson J on two grounds:

• the lower Courts were wrong to hold that there was no arguable duty of care owed by Rees Page to the Deceased ("Ground 1"); and
  
  
• it was inappropriate to grant summary judgment where there were factual disputes between the parties, namely: (i) the Estate's case was that the Deceased's purported signature on the TR1 was a forgery and they adduced evidence to that effect in the form of a report by a handwriting expert; and (ii) the Estate pleaded that the Deceased had told Mr Kilvert that he had not signed the TR1 and did not know the solicitor claiming to have witnessed his signature ("Ground 2").

The Court of Appeal dismissed the Estate's appeal under Ground 2 on the basis that: (i) the Estate could not recover the property even if it successfully proved that the Deceased's signature on the TR1 was forged because the Bank had already exercised its powers as registered chargee under the Attarian charge and sold the property to a couple who were registered as proprietors in 2013; and (ii) the Estate put forward no evidence in support of their allegation that the Deceased had told Mr Kilvert that he had not signed the TR1 and there was no reason to believe that any such evidence would become available for trial.  The focus of the Court of Appeal's judgment was therefore on Ground 1.

Nugee LJ (giving the leading judgment in the Court of Appeal) began by noting that it was well established that, in general, a solicitor only owes a duty of care to their client. The source of this duty is the contract of retainer that governs the solicitor-client relationship, and the core content of the duty is to carry out the service that the solicitor has agreed to carry out for the client with skill and care. It is therefore obvious why, in general, solicitors owe no equivalent duty of care to third parties: they have not agreed to provide a service to third parties and so they owe no obligation to perform any such service with skill and care.

Nugee LJ then went on to recognise that there are three distinct groups of special cases which are exceptions to the general rule:

• firstly, cases where the very purpose of the solicitor's retainer by their client (A) is to confer a benefit on a particular third party (B) and so by agreeing to act for A the solicitor is agreeing to provide a service for the benefit of B;
  
  
• secondly, cases where the solicitor for one party makes representations to the other party on which the other party reasonably relies, and it was reasonably foreseeable that they would so rely; and
  
  
• thirdly, cases where the solicitor steps outside their role as solicitor for the client and assumes a different role, either independent of both parties or as agent for both (the Al-Kandari exception).

The question for the Court of Appeal in this case was whether the Al-Kandari exception applied to the filling in and lodging of Form AP1 by Mr Kilvert. The Estate argued that, in completing Box 13 of Form AP1, Mr Kilvert was giving confirmations not only in relation to the Bank, but also in relation to the Deceased and Mr Attarian. Mr Kilvert was therefore stepping outside his role as solicitor for the Bank and acting for all parties so as to engage the Al-Kandari exemption and, as such, owed a duty to all of the parties to act with reasonable skill and care in completing the form accurately. Rees Page submitted that, in filling out the Form AP1, Mr Kilvert had thought that he was simply finalising the formalities which had not been observed when the contract had been completed back in 2008, and that he indicated against the Bank's name that FLP had now been intervened on (i.e. were no longer operating). Rees Page also submitted that the purpose of the Land Registry insisting on the confirmation in Box 13 was for its own benefit rather than for the benefit of the parties (in that if it unwittingly processes a false instrument, it may have to pay out under its statutory indemnity).

Whilst Nugee LJ recognised that the facts of this case were not on all fours with those in the case of Al-Kandari (notably, the Deceased presumably knew nothing of the Form AP1 and thus could not be said to have directly relied on Mr Kilvert having completed Box 13 with reasonable care), he ultimately concluded that this aspect of the Estate's case on second appeal was indeed arguable. In giving his judgment, Nugee LJ noted that the Land Registry was a public body whose purpose was to provide a service to those who want to engage in land transactions. Identity fraud is a known problem in this area, and he was far from persuaded that the confirmations required in Box 13 of Form AP1 were only for the benefit of the Land Registry and not for the benefit of the parties. As to Rees Page's arguments regarding Mr Kilvert's understanding and intention when completing the form, Nuggee LJ considered that this went more to the question of possible breach than the prior question of whether filling in the form generated a duty of care at all. The other two Court of Appeal judges agreed; the summary judgment was set aside and the Estate's claim was permitted to proceed to trial.

This is a further example of the Courts showing willingness to extend the duty of care owed by solicitors, and a cautionary tale for solicitors when it comes to completing paperwork relating to multiple parties to a transaction. If the Court finds in favour of the Estate at trial this could potentially serve to broaden the types of circumstances in which solicitors could be held liable to third parties who are not their clients and to whom they have not agreed to provide a service. The impact of any such decision could be significant in circumstances where, unlike with the client-solicitor relationship, there is no cap placed on the liability that could be owed by solicitors to third parties. The trial of this case will undoubtedly be followed by solicitors with interest.

Read the full judgment for further detail.