Liability of Solicitors to Third Parties

by | Mar 26, 2015 | Blog Posts

| Liability of Solicitors to Third Parties

It has long considered that, except in extreme circumstances, the liability of a solicitors extends only to his client, and not also to any third party who may have in interest in the completion of a solicitor’s instruction. This High Court has recently considered and confirmed this principle in Metropolitan Venues Ltd v Watson Burton LLP [2014] EWHC 883 (Ch).

This case involved the solicitors of a property developer, JP. JP had contracted to purchase properties with a view to redevelopment. The claimant company entered into a contract with JP to acquire a stake in the redevelopment (the first contract). It was agreed that JP would secure the vendor’s agreement to transfer the properties into the joint names of himself and the company. The company paid JP £220,000 towards the purchases, leaving a balance of £530,000 outstanding, but did not follow legal advice that it should register a unilateral notice against the title of the property. JP obtained a loan, secured by way of first charge over the properties. The properties were conveyed to him in his sole name in breach of the first contract. The company then registered a unilateral notice, but only after the charge in favour of JP’s lender had been registered. JP subsequently ran into financial difficulties and entered an individual voluntary arrangement and the properties were repossessed. The company received £1,892 under the IVA.
As JP was by this point not worth suing, the claimant company brought an action against JP’s solicitors for breach of collateral contract, breach of an implied retainer and breach of a duty of care. Giving his judgement in the Chancery Division of the High Court, His Honour Judge Pelling QC, rejected all of the claimant’s arguments. The judge ruled that there was no evidence to support the existence of a collateral contract; had one existed it would almost certainly be mentioned in the notes of the respective parties’ legal representatives. Further, the judge ruled that there was not an implied retainer between the defendant firm and the claimant company. The judge noted that the claimant had instructed alternative solicitors to provide independent legal advice throughout their involvement with the defendant. This would indicate that the claimant had been fully advised and was not relying on the advice of the defendant and therefore that an implied retainer did not exist. As a retainer did not exist between the claimant defendant, the defendant did not owe the claimant a duty of care.
This case highlights a number of important points concerning the liability of solicitors in both tort and contract law:
Firstly; that the courts are reluctant to extend a solicitor’s duty of care to beyond their client, unless it can be demonstrated that a solicitor has expressly accepted a duty of care towards a third party. This is true even in cases where a solicitor’s actions may have caused loss to a third party.
Secondly; that it is highly unlikely that an implied retainer will form between a solicitor and a third party, where the third party receives independent legal advice throughout their involvement with a solicitor.

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