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A Solicitor's Duties and a Client's Rights

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Recent Court of Appeal decisions have shed some light upon two issues of interest in relation to professional negligence claims against solicitors - a solicitor’s duty to warn, and the rights of a fraudulent claimant.

A Solicitor’s Duty to Warn

A Court of Appeal judgment has given helpful clarity on the issue of whether solicitors owe a general duty to warn clients.

In its judgment in the case of Lyons v Fox Williams LLP, handed down on 25 October 2018, the Court of Appeal dismissed an appeal against an earlier judgment that had held there was no general duty to warn.

The Claimant, Mr Lyons, had instructed his solicitors, Fox Williams LLP, to advise him in relation to a claim he had made under an Accidental Death & Dismemberment insurance policy (ADD) following a serious motorbike accident.

While advising Mr Lyons in relation to this claim, the solicitor was provided with information relating to separate claims Mr Lyons was pursuing, under a different insurance policy - a Long-Term Disability policy (LTD). However, Fox Williams was not instructed by Mr Lyons to advise upon these separate claims. The LTD Insurers rejected Mr Lyons’ claims under that policy, and the limitation period for bringing proceedings against the insurers expired.

Mr Lyons then brought claims in negligence against his solicitors, alleging that the solicitor had a duty to advise him in relation to the LTD claims, or, at least to warn him about risks relating to his LTD claims.

The key issues on appeal were whether the solicitors had a duty to volunteer advice and warnings about the risks relating to the Long-Term Disability claims, despite Fox Williams not being instructed to advise on those claims, because of the links between the two cases, or, alternatively, whether the solicitors had a duty to warn Mr Lyons of the need to obtain further advice to protect his position in relation to the LTD claims.

The Court of Appeal rejected Mr Lyons’ appeal against the dismissal of his claims, and found that there was no general duty to warn on either basis put forward.

So, in delivering this judgment, The Court confirmed that a solicitor remains under a duty to advise his client upon, and bring to the client’s attention, matters and risks which come to light while doing the work he has been retained to carry out. However, that does not extend to a general duty to warn a client about matters outside the scope of the solicitor’s retainer.

The Fraudulent Claimant’s Rights 

Is a client who has engaged in fraud barred from bringing a claim for damages against solicitors who acted for them in a transaction associated with the fraud?

The Court of Appeal recently considered this question in its judgment, given on 13 September 2018, in the case of Stoffel & Co v Grondona. And it held that, even though the Claimant had acted fraudulently in relation to the underlying transaction in question - a mortgage deal - the solicitors were liable for negligence in failing to register their client’s title to the property.

The Claimant, a Ms Grondona, had participated in a series of fraudulent mortgage applications for the benefit of a third party, Mr Mitchell, whose interest was concealed from the lenders. One such application was in connection with a property owned by Mr Mitchell, which he purported to transfer to Ms Grondona, who had obtained a mortgage loan for the fraudulent purchase.

It was held that Ms Grondona had participated in a mortgage fraud in acquiring the loan, in that Mr Mitchell, in fact, continued to own the property after the transfer. The true purpose of the loan was to raise funds for a different property, for Mr Mitchell. 

Unaware of Ms Grondona’s fraudulent conduct, solicitors were instructed to act for her and the mortgage lender in the transaction, but they failed to register their client’s title to the property, or the new lender’s charge. Following default on the loan, the mortgage lender brought proceedings against Ms Grondona, obtaining a judgment against her. She then brought proceedings against her solicitors, regarding the firm’s failures to register the transfer and charge.

The solicitors admitted negligence, but defended the claim on the ground that no damages should be recoverable by Ms Grondona because the mortgage transaction was fraudulent. The Court of Appeal found in favour of Ms Grondona and awarded damages against the solicitors on the basis that Mr Mitchell and Ms Grondona had always intended to transfer the legal title of the property to Ms Grondona, so therefore the transfer and legal charge were not sham transactions. Furthermore, Ms Grondona had not attempted to avoid her obligations under the mortgage.

The underlying theme of the judgment is that even though the Claimant may have acted fraudulently, that fraud did not affect the specific purpose for which the solicitors were instructed, and therefore did not enable the solicitors to avoid liability for negligence.