Top 3 Cases - January 2023 01 February 2023
In this series of articles, we aim to highlight 3 of the most interesting cases in our field decided in the past month. This month we cover three cases from the Court of Appeal, concerning contractual construction and solicitors’ duties of care.
JANUARY 2023
Malik v Hussain [2023] EWCA Civ 2
Summary
The Court of Appeal determined that a contract to purchase assets of a dissolved partnership under a court-imposed sale mechanism remained on foot, notwithstanding that contracts were not exchanged ‘within 7 days’ and time was expressly ‘of the essence’.
The bidder was sent a form of contract mere hours before the 4pm deadline. His solicitors responded with proposed amendments. Exchange did not take place by 4pm. The underbidder (who was one of the vendors) asserted that he was entitled to purchase. The judge at first instance upheld that contention, on the basis that although there was an implied duty of co-operation, the purchaser’s proposed amendments were unnecessary and he could have exchanged in time.
The Court of Appeal determined that, on the true construction of the contract, the obligation was to exchange within 7 days of presentation with a contract in a form capable of being executed. Alternatively, it held that the vendors were in breach of the implied duty of co-operation because they produced the contract so late. The court ordered specific performance of the contract, on condition that the purchaser paid the balance of the purchase price into court within 7 days.
Why it’s important
Firstly, the case provides an interesting example of the commercial context of an agreement informing its construction. The sale mechanism provided various incentives to the former partners to frustrate the sale, given that the deposit would be forfeit and one of them would obtain the chance to purchase the property at a lower price. This led the Court of Appeal to a construction which the words alone would not have suggested.
Secondly, it is also a salutary reminder that express terms must be considered in the first instance before asking whether any terms should be implied.
Thirdly, the acceptance of the implied duty of co-operation in these circumstances, and the Court of Appeal’s comments as to the sort of conduct that would amount to a breach of it will likely be of interest to transactional lawyers.
Practitioners may also be interested in reading the court’s reasons for ordering specific performance despite the underbidder/vendor’s claims that he would suffer overwhelming unfairness and prejudice : in view of the hardline stance he had adopted, the court considered him to be in large part ‘the author of his own misfortune’, resulting in little sympathy when his position was not upheld by the Court.
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Ashraf v Lester Dominic Solicitors [2023] EWCA Civ 4
Summary
The Court of Appeal allowed an appeal against a summary judgment, and determined that the claim should proceed to trial to determine whether a solicitor had owed a duty of care to a non-client.
The relevant Defendant solicitors, Rees Page, had acted for a Bank in registering a transfer which purported to be made by the claimant, and a charge made by the supposed purchaser. The claimant asserted that the transfer was a forgery and that Rees Page owed him a duty to take reasonable care to establish that the transfer had been properly executed by him.
The Court of Appeal agreed that it was arguable that, in completing Box 13 on the AP1 form confirming that the claimant was represented by a particular conveyancer, the solicitor stepped outside his role as solicitor for the Bank, and owed a duty to all parties to take reasonable care that the form was accurate.
However, the Court of Appeal upheld the Judge’s decision that there was no real prospect of the claimant establishing its factual case.
Why it’s important
Cases where solicitors will be under a duty of care to non-clients are exceptional. The judgment reviews these exceptions. .
Despite those unusual facts, the Court of Appeal would have concluded that this was not an exceptional case, but for the bank’s solicitors having completed the AP1 form to register the transfer and charge. Nugee LJ, with whom Arnold LJ and Sir Christopher Floyd agreed, expressed the view that the reason solicitors are typically not under duties in respect of non-clients is that they have not agreed to provide services to those people. One basis for an exception to the rule is that the solicitor has stepped outside their usual role and provided services for the benefit of someone who is not their client. In this case, it was arguable that when stating that the claimant was represented by a conveyancer (who would have carried out identity checks), that was for the benefit of the true proprietor, and that the solicitors thereby assumed a duty of care.
It remains to be seen whether the final decision in this case will establish an incremental progression in the situations where solicitors will be found to owe a duty of care to non-clients. If it does, it would lead to the curious position that a solicitor who purports to act for a vendor does not owe any duty of care to the purchaser to establish the identity of the client (per P&P Property Ltd v Owen, White & Catlin LLP [2018] EWCA Civ 1082) but the purchaser’s solicitor will owe a duty to the true owner to act with reasonable care when it completes the AP1 form. It remains to be seen what the purchaser’s solicitor is supposed to do to discharge that duty – and, specifically, whether relying on the alleged vendor’s solicitor is sufficient, even though the vendor’s solicitor owes the purchaser no duty of care.
The case will also be of interest to anyone involved in a summary judgment application where there are facts in dispute.
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Yee Shi Yin & Ors v. 174 Law Solicitors Limited [2023] EWCA Civ 13
Summary
The Court of Appeal concluded that stakeholders had been entitled to release deposit monies.
The claim was brought by a number of individuals who had agreed to purchase flats in a proposed development. The contracts provided expressly that the deposits were held by the developer’s solicitors, to be held as stakeholder to the order of ‘the Buyers’ Company’ (a company limited by guarantee set up to protect the buyers’ interests), and released to the developer in certain circumstances once evidence was provided that a first legal charge had been registered in favour of ‘the Buyers’ Company’. .
In fact, as the lender had other finance in place,, the buyers’ company only obtained a second legal charge. A workaround was devised by which it was agreed by the directors of the buyers’ company (who were the buyers’ solicitors) that the deposit funds would be released notwithstanding the lack of a first legal charge. The funds were released, but the development failed after the money had been spent.
The individual purchasers brought proceedings alleging that the release of the deposits had been wrongful. The judge at first instance found that it was for the buyers’ solicitor to satisfy itself that the first legal charge was in place, not the stakeholder; accordingly the buyers’ solicitor’s agreement meant that the stakeholder had been able to release the funds.
The Court of Appeal found that the release of the deposits was not wrongful, but for different reasons to the judge below:
The requirement for the provision of evidence of the first legal charge was a precondition to the release of funds. As there had only ever been a second legal charge, there was no such evidence, and so the precondition was not fulfilled.
However, the contract provided for the deposits to be held ‘to the order of [the buyers’ company]’. It was necessary to give effect to those words. This meant that the consent of individual purchasers was not needed for withdrawals outside of the scope of those foreseen by the clause (namely to fund the development): the buyer company and the developer could agree to the release, which they had done when using the workaround. Accordingly, the individual purchasers could not complain.
Why it’s important
Newey LJ’s judgment (with which Warby LJ and Sir Christopher Floyd agreed) provides a useful exposition of the law of stakeholder contracts, and an application of that law, heavily conditioned by commercial common sense, to the words of the agreement in question. For example, in the context of this particular agreement, it made commercial sense for the company representing the buyers to authorise release instead of the individual buyers, who were numerous, primarily located abroad, and in many cases not proficient in English.
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