A law firm failed to advise on unusual provisions governing deposit release, but that negligence did not cause a client’s loss when an investment development collapsed, the High Court has ruled. Judge Hodge KC in Manchester said he reached the conclusion “with regret.”
The deal and the collapse
The claim involves Niprose Investment’s purchase of eight units in a partially buyer-funded, off-plan residential development in Liverpool. The project never finished because the finance company funding it entered administration. As a result, Niprose lost its 50 percent up-front deposits, totaling £300,000.
Lancashire firm Vincents acted as the conveyancing solicitor, having been introduced by the developer through its marketing agent. The firm charged £3,796 in fees. Judge Hodge KC said it was clear to Vincents that Ruth Nickoll, whose corporate vehicle was the claimant, was a highly intelligent client with a remarkable level of understanding.
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Her claim succeeded on one point only: Vincents’ failure to advise on the “unusual provisions” in Schedule 2 to the agreement for sale. These provisions gave the illusion of security but offered no effective protection. Deposits were held by the developer’s solicitor, MSB Solicitors, as a stakeholder. Schedule 2 stated that MSB “shall not be required to enquire into or verify the accuracy appropriateness or authenticity” of documents when money was requested.
Practically all the deposits were transferred to the developer before it entered insolvent liquidation. None were recoverable. The judge said the standard-form report on title did not alert buyers to this condition, which he described as “spurious.” He linked it to a 2017 warning notice from the Solicitors Regulation Authority regarding investment schemes that involve a law firm “to give an impression of credibility or security.”
In such cases, the judge found the risk might elude even an intelligent lay person. A solicitor is required to draw this sort of risk to the attention of the client, and advise specifically about the nature of the risk and its dangers. Vincents did not do this.
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That duty was “nothing to do with the risk of the developer’s insolvency, or the failure of the development for any reason otherwise than, or collateral to, the unauthorised and improper release of the deposits.” Vincents had advised separately and adequately in relation to this latter range of risks; the claimant freely assumed these. She has failed to establish that Vincents breached any duty that extends far enough to adopt the losses she suffered as a result of the developer’s insolvency.
The wider litigation and costs
Niprose was one of an original 94 claimants suing 10 separate law firms over the purchase of more than 100 apartments, for which they paid more than £6 million in deposits. There were 35 claimants against Vincents who had bought 50 units. Last year, Judge Hodge KC ordered the trial of three of six potential lead claims but the other five had settled by the time of the hearing. Further claims remain outstanding, however.
Rather, the judge said Vincents’ duty was to explain, fully and fairly, the relevant terms of the sale agreement. In discharging this duty, the firm was required to be alive to any false expectations that may have been created by inaccurate statements in the marketing materials. Mrs Nickoll also argued that Vincents failed to advise her not to proceed with the transaction but the judge said the SRA warning notice created no new duty on the part of conveyancing solicitors; nor did it seek to do so.