Click here to download this Case Note by Simon Wilton KC.
This decision of HHJ Hodge KC (“the Judge”) is believed to be the first final judgment in a solicitors’ negligence claim arising from a buyer-funded off-plan purchase (the Judge previously gave interlocutory judgments traversing the same issues in relation to strike-out and amendment applications). The judgment contains a detailed consideration of the duties owed by solicitors to purchasers of such properties. It also resolved various causation and duty-nexus issues.
The Facts
Niprose Investments Limited (“Niprose”) was a family company which in 2018 exchanged contracts to purchase 8 units in an off-plan development in Liverpool. The development held out the prospect of capital appreciation and a guaranteed 8% rental return. On exchange Niprose paid up-front ‘deposits’ totalling £299,800 (c.50% of the total purchase price in each instance). The monies were paid to the developer’s solicitors who held them as “stakeholder for the seller” on terms stipulated in the contract. Those sums were then paid away to or to the order of the developer. The development failed when the developer’s lender entered administration and the developer and its parent company became insolvent. Receivers appointed by the lender sold the partially built development. The purchasers recovered nothing.
Vincents Solicitors Limited (“Vincents”) and other conveyancers acted for the many different purchasers of units in the development. Niprose was one of Vincents’ clients.
Vincents’ report on title drew attention to the risk that the development might fail, that the developer might become insolvent, and that purchasers might recover nothing. Vincents also enclosed the SRA’s 23 June 2017 Warning Notice (“the SRA Warning”) which highlighted the risks presented by unorthodox property investment schemes and said that in some instances solicitors should tell their clients not to proceed.
The Litigation
94 purchasers sued 10 different solicitors’ firms and licensed conveyancing practices alleging that their purchases had only proceeded because of a negligent failure to advise. The claimants sought to recover their ‘deposits’ together with interest. 35 claimants sued Vincents.
Niprose was one of a number of lead claimants selected for the purpose of a trial of the claims against Vincents. In the event, it was the only claimant whose claim was tried.
The allegations were essentially three-fold ie that Vincents:
Vincents denied the allegations, pointing to the warnings given in its report on title and via the SRA Warning. It maintained that Niprose understood the risks. It alleged that Niprose would still have gone ahead even if it had received further warnings. It also maintained that the loss was not attributable to anything it got wrong, even if it should have advised Niprose not to proceed. Vincents had highlighted the very risks (of developer insolvency and the development failing and of everything being lost) which came to pass, Niprose was prepared to accept them, and there was no evidence that any deficiencies in the deposit-holding arrangements had been exploited by the developer or otherwise had caused any loss.
The Judgment
The Judge found that Niprose, by its director and principal shareholder, had understood the risks identified in the report on title and had read the SRA Warning. On the other hand, Niprose had not fully understood the limited protection the deposit-holding arrangement provided.
The Judge found that Vincents should have gone further when advising about the deposit-holding arrangements and should have advised that they provided no meaningful security or protection.
The Judge rejected the contention that Vincents should have advised Niprose not to go ahead. The SRA Warning did not create any universal duty to that effect. It was designed to focus solicitors’ attention on dubious or risky investment schemes presented as routine conveyancing transactions but it remained to be decided what the duty was in any individual case. This was not the kind of exceptional case where a solicitor had a duty to advise not to proceed. Vincents did not know that this was a dubious scheme rather than a genuine property investment opportunity.
Aside from the failure to advise properly about the deposit-release arrangements the Judge also concluded that Vincents had complied with its duty to communicate clearly the material risks. There was no obligation to take further steps by way of a video meeting or otherwise to make sure the risks had been understood.
On causation the Judge found that if proper advice had been given about the deficiencies in the deposit-holding arrangements, the single allegation of breach which had succeeded, Niprose would have withdrawn from the transaction. However, on duty-nexus, the Judge found that there was no sufficient connection between that breach of duty and Niprose’s loss of its ‘deposits’. The loss did not represent the fruition of a risk which Vincents had failed to guard against as there was no evidence that deficiencies in the deposit-holding arrangements occasioned any loss. Even if there had been adequate safeguards the result would have been the same.
The claim therefore failed.
The Judge considered, but did not need to decide, the legal question of whether duty-nexus would have been established if Vincents had had a duty to advise Niprose not to go ahead, where the specific risks which ultimately occasioned loss had been understood and accepted.
Simon Wilton KC
Hailsham Chambers
This Case Note is available to download as a PDF below.
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