Padden v Bevan Ashford Solicitors [2011] EWCA Civ 1616 (21 December 2011)

First let me wish you all a very happy and peaceful new year.

Continuing with my blogs on current case law this case from December is an important and a stark warning for lawyers who witness documents without considering fully their potential liability.

The Court of Appeal noted in this case the ultimate purpose of consulting a solicitor is not normally to be advised in terms whether or not to enter into the contemplated transaction. It is to ensure that a person understands the nature, effect, and potential consequences of the transaction, and is not under a misapprehension or undue influence.

Background

The claimant and her husband jointly owned a property near Exeter, in Devon ('the house'). They also had a joint bank account, and some shares and endowment.The husband was a financial consultant.

In March 2003 the claimant's husband returned home with his solicitor a Mr Lawson, who told the claimant that a dispute had arisen between her husband and another. That dispute involved monies taken by the husband from a third party.

The claimant alleged she was told that in order to avoid a criminal prosecution the house would have to be sold and the money repaid to the third party. The claimant was told she should get independent legal advice.

Following the meeting , Mr Lawson sent the claimant a letter recording that, in order 'to assist' her husband, the claimant had said that she was 'willing to effectively give up her interest in the house and the endowment policies, pension rights and shares.

The claimant attended the defendant's and met with a newly qualified Solicitor. She explained the matter to the solicitor , who advised the claimant not to proceed with the projected transaction. Against that the claimant decided to proceed. The defendant did not charge for this meeting.

The defendants sent a fax to Mr Lawson, the claimant's husband's solicitor, stating that they had been asked by the claimant to write to 'confirm her consent to transfer her interest in the house and other assets having taken independent legal advice from the firm as to the consequences of doing so', and adding that it was her wish that the transaction 'should be dealt with as quickly as possible.

Four draft documents were taken by the claimant's husband to the defendants, which he visited with the claimant. The claimant then met another solicitor at the defendant's office.

The claimant signed the four documents, (i) a second mortgage ('the mortgage') over the house as security for a debt (which was recorded as being £740,000), (ii) a charge over certain shares ('the shares'), (iii) a charge over certain endowment policies ('the policies'), and (iv) a Deed ('the Deed', which referred to the other three documents), all in favour of a third party.

A solicitor employed by the defendant witnessed the signature of the claimant and her husband on each of the four documents.

He also certified that the claimant had 'had the consequences of this deed and the obligations which it imposes on her explained by a solicitor/ legal executive' and that he was 'satisfied' that she 'understands the nature of this deed and its meaning and effect' and that 'to the best of [his] knowledge [she] has freely consented to it without undue influence or … in reliance upon any misrepresentation.

The claimant's husband was prosecuted in mid-2005 for obtaining money by deception from third parties including the mortgagee and was convicted

Later the Mortgagee sought to enforce its security. The Claimant tried to set aside the documents on the ground of undue influence and in subsequent proceedings which were eventually compromised the house was sold, with the proceeds being paid to the Mortgagee.

The Proceedings

The claimant issued proceedings against the defendants in early April 2009, claiming damages for their negligently having failed to advise her properly in connection with the transaction.

By their defence, the defendants contended that (i) they were not in breach of any duty to the claimant, (ii) any claim based on the March meeting was time-barred, and (iii) the claim anyway on causation. At trial the claimant was unsuccessful. In effect the trial judge found there was no case for the defendants to answer.

The Appeal

The main issue before the Court of Appeal was whether the Judge was entitled to conclude at the end of the claimant's evidence that the defendant solicitors had satisfied their duty to her.

The defendants raise an alternative argument namely that, even if breach of duty were established, the claim should fail on causation, because the claimant would have acted no differently, even if she had been advised as she contends that she should have been.

Duty of Care

The Court of Appeal reviewed the authorities. The reader is referred to the judgment but in summary it noted:

1 Where the extent of a solicitor's duty is in issue, 'the court must beware of imposing upon solicitors … duties beyond the scope of what they are requested and undertake to do' as per Oliver J in Midland Bank Ltd v Hett, Stubbs & Kemp [1979] Ch 384, 403,

2 The test familiar to all is 'what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession'.

3 Fletcher Moulton LJ said in Re Coomber [1911] 1 Ch 723, 730 The solicitor 'is not bound to say … "if I were you I would do it"; or "if I were you I would not do it", …

4 The solicitor should put clearly before the client the nature and consequences of the act so that from the clear language of an independent mind they should know what they are doing.

5 Where a wife is charging the matrimonial home as security for the husband's business debts to a bank, 'the scope of the responsibilities of a solicitor who is advising the wife' was considered by Lord Nicholls of Birkenhead in Royal Bank of Scotland plc v. Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, see paras 64-68:

The Court of Appeal then reviewed the Judge's findings that there was no breach of duty . The following are germane:

1 As to the finding that at no stage were the defendant's asked to advise the claimant' but 'were simply being asked to witness the signing of certain documents, crucially by signing the certificate the solicitor confirmed that the claimant (i) had been given appropriate legal advice about the mortgage, and (ii) to the best of the solicitor's knowledge, understood the effect of the mortgage, and was not acting under undue influence or pursuant to a misrepresentation.

2 The effect of (i) must be that the solicitor either had given appropriate advice or had taken reasonable care to ensure that the claimant had received such advice.

3 As to the Deed, the Solicitor witnessed the claimant's signature on a document which stated that the firm had advised her and could be said to be less clear. It might be said that the solicitor may not have read the document if only witnessing signatures. However, given that the claimant's husband took the claimant to a solicitor to witness their signatures on the four documents, and to give the certificate, a judge may well conclude that it was likely that a competent solicitor would have ensured that they understood the basic nature of the transaction contained in the four documents, of which the mortgage, on which they were providing the certificate, was clearly part of.

4 The reason for the claimant consulting the defendants, and as the defendants should have appreciated, and appear to have appreciated from correspondence , was to ensure as far as a reasonable solicitor could have done in the circumstances, that the claimant understood the effect of the documentation and was free of any undue influence or misrepresentation. Providing the bald advice not to enter into the transaction cannot have been a sufficient discharge of the defendants' duty to the claimant if that duty was reflected in correspondence.

5 Merely advising a person in the position of the claimant that she should not enter into the contemplated transaction, appeared to the Court of Appeal to fall well short of the duty imposed on a solicitor when called on to perform the duty which culminates in signing a certificate such as that in this case.

6 A solicitor should have emphasised to the claimant the desirability of exploring why she was prepared to put her home and assets at severe risk simply to protect her husband. The most important purpose of independent legal advice in this case would have been to explain to her that her main, or perhaps sole, purpose for entering into the transaction was very weak as it would very probably not be achieved.

The Court of Appeal allowed the appeal on as the judge was wrong to conclude that the defendants had complied with their duty to the claimant. The other issues raised by the defendant namely any claim was time-barred, and failed on causation remained live and would be retried.

Conclusion

This is a salutary warning for all lawyers. Merely witnessing documents does not necessary avoid liability. Each case turns on it's own facts. Given the certificates signed there was clearly an arguable duty of care owed to this Claimant.