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Cite as: [2014] EWHC 4561 (QB)

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Neutral Citation Number: [2014] EWHC 4561 (QB)
Case No: 1HQ/14/0535


Royal Courts of Justice
London WC2A 2LL
17 December 2014

B e f o r e :


- and -


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MR T DUTTON QC and MR R ALLEN (instructed by Bevan Brittan LLP) appeared on behalf of the Claimant
MR C DOUGHERTY QC and MR M THORNE appeared on behalf of the Defendant



Crown Copyright ©

  1. MR JUSTICE MITTING: The claimants were a two-partner firm of solicitors. The defendant is the representative and, as the Solicitors Regulation Authority, the regulatory body, for solicitors in England and Wales, incorporated by Royal Charter.
  2. On 30 April 2010 the claimants were instructed by Nico Kristofi(?) to act for him in the purchase of a registered freehold property, 30 Parkgate Avenue, Hadley Wood, Hertfordshire, for 735,000 from T Dean. The property was subject to a first charge in favour of Lloyds TSB Plc on which 843,000 was in fact outstanding.
  3. Contracts were exchanged on 19 May 2010 and the sale completed on 21 May 2010. "Acorn Solicitors" (principal J Dobbs) acted for the vendor. They gave the usual undertaking to discharge the first charge on completion out of the purchase monies paid by Mr Kristofi. They did not do so. Neither they nor J Dobbs were solicitors. They made off with the purchase monies.
  4. On 9 June 2010 Mr Kristofi was surprised to find notice of eviction served on the occupiers of the property on behalf of Lloyds TSB Plc. I understand that he has not in fact lost his home, but as a result of a settlement, to which I will refer, with the claimants, and of the payment to him of a sum by the collecting bank of the banker's draft used to transfer the purchase monies, he has substantially mitigated, although not entirely avoided, his loss. He sued the claimants. Their insurers settled his claim for 500,000 and costs. By subrogation, the insurers now sue the defendant to recover their outlay.
  5. The circumstances in fact relevant to this claim are as follows:
  6. (i) The defendant has three relevant statutory duties: (1) to keep an electronic list or Roll of all solicitors of the Senior Court (see regulations 2A and B of the Solicitors Keeping of the Roll Regulations 1999); (2) by Section 10.1 of the Solicitors Act 1974 it is responsible for issuing practising certificates to solicitors; (3) by Section 10A of the same Act, it must maintain a Register of such solicitors.

    (ii) To permit members of the public and others, including solicitors, to find out who is on the Roll, the defendant maintains a website updated daily of all of those entitled to practice as solicitors which can be accessed through a "page" called "Find a Solicitor". The information thus listed is the same as that on the electronic Roll and Register omitting some details not relevant to this case.

    (iii) By paragraph 4.3 of a practice note on mortgage fraud issued on 15 April 2009 to solicitors, the defendant said the following:

    "Identify other solicitors or conveyancers. Fraudsters may pose as a solicitor or a conveyancer acting for either party to add greater legitimacy to the transaction. If you do not know them, you should check the recognised directory of their professional Body, the Law Society (then The Law Society's website is identified including the page "Find a Solicitor), the counsel of licensed conveyancers you can also check a solicitor's details with the SRA over the telephone."

    Their contact number is then given. In the glossary in paragraph 1.6 of the practice note "should" is stated to be "good practice for most situations in the Law Society's view".

    "If you do not follow this, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice or in the particular retainer."

    Practice Note 4.3 therefore contained strong advice which was nonetheless not mandatory.

    (iv) John Clyde Clayman(?) was a 61-year old retired solicitor born on 21 March 1949. By a deed poll made on 23 April 2009 signed by "John Dobbs", but not by Mr Clayman in his original name, he apparently changed his name to John Dobbs. The latter signature was witnessed by two witnesses. One of the signatures of the witnesses was placed next to the stamp of a firm of solicitors, and the signatory appears to be one of the partners in that firm. A copy of the deed poll was provided in support of an application to amend the name of John Clayman on SRA records. On 18 May 2009 "John Dobbs" applied to the SRA for a practising certificate. The application form stated that he was admitted on 1 August 2006. He described himself as a locum solicitor. On 30 September 2009 "John Dobbs" applied to the SRA for approval to practice as a recognised sole practitioner under the name "Acorn Solicitors" from an office in Rotherham. Both applications were accepted and his name and that of Acorn Solicitors were entered on the Roll and on the "Find a Solicitor" page of the defendant's website.

    (v) On 10 May 2010, Mrs Murphy, one of the claimants' two partners, carried out a search of the "Find a Solicitor" website page which confirmed the existence of Acorn Solicitors and that its principal was John Dobbs.

    (vi) In reliance on that information, the claimants accepted the worthless undertaking of "Acorn Solicitors" to discharge the debt owed to Lloyds TSB Plc out of the purchase monies, to their clients', and ultimately as a result of the claim brought by him, their and their insurer's loss.

    (vii) In (1) placing the name of John Dobbs on the Roll and issuing a practising certificate to him and (2) representing to the claimants and through them to Mr Kristofi that John Dobbs was a qualified solicitor entitled to practice as such under the name "Acorn Solicitors" the defendant acted for the purpose of this application carelessly. The claimants' case is that they acted negligently, in other words not only carelessly, but in breach of a duty of care owed to either or both of the claimants and Mr Kirstofi.

    (viii) The alleged negligence of the defendant has caused the claimants and/or Mr Kristofi loss which the claimants are entitled to recover either on their own behalf or under the Civil Liability Contribution Act 1978 from the defendant. The defendant raises numerous defences, some of which depend on facts which can only be found at trial. By an application notice dated 15 August 2014, the defendant applies to strike out the whole of the claimant's statement of case on the basis that it discloses no reasonable grounds for bringing the claim and/or for summary judgment on the basis that it has no reasonable prospect of success. As in other cases, I treat those two tests as effectively synonymous. The basis of both applications is that the defendant owed no duty of care to the claimants or to Mr Kirstofi. The claimant's case is that a duty of care not to cause economic loss to them or to Mr Kristofi arose in one or more of three ways: (1) by assumption of responsibility; (2) by application of the three part test in Caparo Industries Plc v Dickman [1992] AC 605; (3) either within or by way of a modest increment on established case law relating to negligent misstatement of the Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465 variety.

  7. The defendant's contention that no duty of care arises is based on the performance by the defendant of its statutory duty as regulator. Mr Dutton QC for the defendant submits that a body in the position of the defendant exercising that statutory function, either as a matter of principle or generally, owes no duty of care to those who may be injured economically by carelessness on his part in the performance of its duties. The bedrock of his submission is the decision of the Privy Council in Yuen Kun-Yeu v Attorney General of Hong Kong [1988] 1 AC 175.
  8. The facts were that the plaintiffs had deposited money in a deposit taking company registered by the defendant, the Commissioner for Deposit-Taking Companies under a Hong Kong Ordinance. The plaintiffs alleged that the defendant knew or ought to have known that the affairs of the company which took the plaintiffs' deposit were being conducted speculatively and fraudulently and should either not have registered it or revoked its registration. The Privy Council upheld the decisions of the Hong Kong courts, striking out the plaintiffs' claim on the basis that it disclosed no reasonable cause of action.
  9. The question which produced the answer by the Privy Council was posed by Lord Keith at page 190 C to D:
  10. "The foremost question of principle is whether in the present case the commissioner owed to members of the public who might be minded to deposit their money with deposit-taking companies in Hong Kong a duty, in the discharge of his supervisory powers under the Ordinance, to exercise reasonable care to see that such members of the public did not suffer loss through the affairs of such companies being carried on by their managers in fraudulent or improvident fashion."
  11. The Privy Council answered that question by reference to the two-stage test in Anns v Merton London Borough Council [1978] AC 728. At page 194F to 195D Lord Keith analysed the nature of the power exercisable by the defendants and the circumstances in which it would fall to be exercised. The power was to refuse or grant registration and to revoke or suspend it once granted. Anything other than granting the registration would put the deposit-taker out of business. The power was quasi-judicial. In exercising it, the defendant might well have to have regard to the interests of existing as well as prospective depositors whose interests might not coincide. The defendant did not have the resources to control the day to day management of the company. In those circumstances, the Commissioner owed no statutory or common law duty to potential depositors.
  12. At page 196H to 197C Lord Keith concluded that it was not reasonable or justifiable for the plaintiffs to rely on the fact of registration as a guarantee of the soundness of the company, nor could the defendant be expected to know of such reliance. In the circumstances, no duty of care was owed to the plaintiffs.
  13. Yuen Kun-Yeu is of limited assistance to the defendant on the facts of this case. It does not establish that in no circumstance can a regulator be responsible for economic loss caused by a regulated person or company. All that it decides is that on the facts, which are likely to be replicated in the Financial Services Industry in many cases, the Commissioner owed no duty to see that members of the public minded to deposit money with a regulated deposit taking company did not suffer loss through the affairs of such companies being conducted in a fraudulent or imprudent fashion.
  14. On the assumed facts of this case, no such allegation is made. The defendants are not said to have failed to exercise due care in an assessment of the honesty or competence of "John Dobbs" or to have made any representation to anyone about his honesty or competence. All that they are said to have done is to have entered his name on the Roll and register of solicitors as entitled to practise when, if they had exercised proper care, they would not have done so and, having done so, told the claimants and through them Mr Kristofi that he was so entered.
  15. The existence or not of a duty of care must therefore depend upon the careful analysis of a number of facts and circumstances, both general and particular to the case. If the three-part Caparo v Dickman test is taken as the starting point, which I do, then Mr Dutton accepts that the first part is satisfied, that loss was foreseeable, and accepts that a factual enquiry would be necessary into the third part, whether it was reasonable and just to impose the duty. I think it is worthwhile spelling out what at least some of those facts might be and which of them need to be established, because the interaction of the three tests on each other must be analysed as well as the three tests independently.
  16. It seems to me that at least the following facts would need to be established: (i) What are the defendants required to do and what in fact do they do to check the identify of an applicant for entry on the Roll or Register and his entitlement to be so entered? Whether the decision involves an exercise of judgment or is simply a box-ticking exercise or semi-automatic. Whether there are circumstances which should alert those responsible for making checks to anomalies in applications which require investigation. What resources are available to the defendant to permit them to make checks to a satisfactory standard? (ii) What, if any, additional financial burden would be imposed by carrying out checks sufficient to eliminate or more likely minimise the risk of fraudulent entry on the Roll. (iii) What is the scale of the problem? How many fraudulent applications are detected each year and what would be the financial exposure of the defendant if it were to be held liable for careless failure to carry out adequate checks? (iv) What insurance is available and at what cost to the defendant and/or those practising as solicitors in the conveyancing market if liability for carelessness on the part of the defendant is acknowledged or disavowed. (v) To what extent, if at all, can the defendant escape a liability which it might otherwise have for an erroneous answer given personally by an employee by telephone or by letter or by email by relying on an automated response given by a page on its website?
  17. It is only if those questions can be answered in a manner unequivocally favourable to the defendant that its application can succeed unless, however answered, no duty of care could be held to exist. That contention is advanced by Mr Dutton and it turns, and turns squarely, on the issue of proximity. It is not necessary at this stage to undertake an exhaustive analysis of the cases. It is only necessary to say that the requirement of proximity is somewhat difficult to define and on individual facts to grasp.
  18. An issue which arises in considering it is whether or not it is necessary that the careless act or omission relied upon should coincide temporally with the facts which give rise to the relationship of proximity. Mr Dutton submits, plainly correctly, that when the assumed careless inclusion of "John Dobbs" on the Register was made, the defendant and its employees could have had no-one in particular in mind other than "John Dobbs" himself. Accordingly, he submits that on any analysis the duty, if it existed, not to register carelessly was at that stage owed to the public at large. Accordingly, he submits there can be no question of proximity between the claimants or Mr Kirstofi and the defendant arising out of it. Plainly, his submission is right if proximity must be established at that stage in the process. However, if it can come into existence later, that analysis fails.
  19. On one view of the electronic occurrence in this case, the defendant represented to the claimants and through them to Mr Kristofi that "John Dobbs" was on the Roll of Solicitors and entitled to practise as such. At that stage, if that amounted to a representation, plainly there was a relationship of proximity. The defendant told an enquirer on a specific enquiry that "John Dobbs" was so registered. The relationship of proximity arose from the enquiry and the answer.
  20. Mr Dutton accepts, I believe, that there is no difference in principle created by the manner in which the enquiry was answered. If, instead of inputting a request on her computer, Mrs Murphy had picked up the telephone and spoken to someone at the premises of the defendant and asked whether "John Dobbs" was on the Roll of Solicitors and entitled to practice as such and got the answer yes, then Mr Dutton accepts that there would be no difference in principle between an enquiry made by that means and one made electronically; similarly if a written enquiry had been made and answered by letter or by email.
  21. At this stage the manner in which an enquiry is made and answered, whether it be personally by human beings or electronically by computers, does not affect determinatively the outcome of the claim. There is no difference in principle.
  22. In negligence claims generally there is no requirement that the act of carelessness giving rise to the claim must coincide temporally with the occurrence of harm. Likewise, in representation cases there is, as far as I know, no requirement that carelessness which gives rise to an erroneous representation must occur coincidentally with the giving of the representation. I canvassed in the course of argument a credit reference agency. It would be no answer to a credit reference agency who had given an erroneous reference about the creditworthiness of an individual that although it was careless in giving that reference, its carelessness was in the research which it conducted into the creditworthiness of the individual long before the answer had been given, and not in the giving of the answer. There can be no difference in principle as regards liability between an individual who, at the request of someone seeking information, looks up on a list to see whether or not a person is a solicitor and misreads the list and asserts that he is when he is not, and someone who reads the list correctly, but in circumstances in which the list has been erroneously compiled.
  23. This is in principle a representation case. If the representation was erroneous because of carelessness such as that which I am for present purposes required to assume, it does not matter that that carelessness occurred at a time when the person to whom the representation was made was not personally in contemplation of the defendant and its employees.
  24. In those circumstances it is not necessary for me to go on to consider whether or not the defendant assumed responsibility for the accuracy of the Roll and Register, and I decline to do so. I would not wish to depart from this judgment on the defendant's application without making two further observations. The circumstances of this case raise a question of much wider importance than what should happen to this case. It calls into question, at least in theory, the security of current conveyancing practice. The principal guarantee that a purchaser of mortgaged property has that he will obtain clear title is the undertaking given by the vendor's solicitors, who will usually act for the mortgagee as well, that they will discharge any secured debt out of the purchase monies. If they do not, the Solicitors Compensation Fund will rapidly make good any loss if, but only if, the person giving the undertaking is a solicitor. If he is not, then I accept Mr Dutton's submission that the compensation fund is not permitted by its remit to make a payment and is certainly under no obligation to do so.
  25. If the purchaser's solicitors exercise all reasonable care in dealing with the imposter who has given the undertaking, the purchaser may be without legal remedy for the loss which he will undoubtedly suffer. Even though a trust is imposed upon the solicitor to apply the purchase monies to effect the transfer of the property to the purchaser, he will in principle at least be entitled to rely on Section 61 of the Trustee Act 1925 so as to be relieved of liability. There is perhaps a division of approach to this issue demonstrated by Davisons Solicitors (a firm) v Nationwide Building Society [2012] EWCA Civ 1626 and Santander UK Plc v RA Legal Solicitors [2014] EWCA Civ 183, in particular the observations of Briggs LJ at paragraph 33, but it is at least unsatisfactory that a purchaser in those circumstances should be put at risk of the exercise of a discretion in a manner unfavourable to him in circumstances in which he cannot reasonably have expected to have been put at risk of any loss whatsoever.
  26. If the defendant's argument is right, then the security of current conveyancing practice may be called into question. That may be a powerful factor in support of recognising the existence of a duty of care coincident with its statutory duty when considering applications for the entry onto the Roll of Solicitors and their registration.
  27. The position of an individual acting directly with someone claiming to be a solicitor also has to be considered. Assuming that he or she takes the wise precaution of consulting with the defendant's website, they would have and perhaps still do find the following:
  28. "Find a Solicitor. This section contains our searchable database to help you find a solicitor, advice on what to expect, guides to common legal problems and what to do if things go wrong."

    A little further down the page under the heading "regulation" the following entirely accurate statement is made:

    "When choosing a solicitor you can be confident they are professionally qualified and properly regulated."

    The identity and telephone number of the regulator is then given.

  29. The defendant is accordingly encouraging ordinary members of the public to rely on its published information about who is a solicitor. If an ordinary member of the public reliant on that information consults an imposter operating an office on a high street near him and entrusts that person with money, as people are at to do with solicitors, then if he loses it, he might well be rather shocked to find that he had no recompense against the representative and regulatory body that held out that person as a solicitor on its website.
  30. Accordingly, and for those reasons, this seems to me to be a case which is eminently suitable for a trial and I refuse either to strike out the claimant's claim or to enter judgment for the defendant.
  31. ______________

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