19 Sep 2013

Is compliance with the CML Handbook a matter of strict liability?

Is compliance with the CML Handbook a matter of strict liability?

Paul McIntosh, Associate, provides an overview of a recent decision which considered the nature of the CML Handbook obligations in professional negligence claims.

Paul McIntosh, Associate, provides an overview of a recent decision which considered the nature of the CML Handbook obligations in professional negligence claims.

In the recent action of Davison Solicitors -v- Nationwide Building Society, the question of whether compliance with the terms of the CML Handbook is a matter of strict liability has been considered by the Court of Appeal.

In this case Davisons Solicitors sought to overturn a judgment of the High Court where it had been found that they had acted in breach of trust and breach of contract.

Davisons had represented the interests of the lender, Nationwide, in a conveyancing transaction, The solicitor purporting to act for the seller had impersonated an existing solicitor. The imposters even provided the Law Society of Scotland and the Solicitors Regulation Authority (SRA) with an alternative address so that when Davison Solicitors checked their identify, details were confirmed with the Law Society and SRA.

The transaction was concluded. The imposter subsequently failed to discharge the existing securities for the property. Davison Solicitors had therefore failed to secure Nationwide a first-ranking security in compliance with paragraph 5.8 of the CML Handbook. The question considered in this case was whether compliance with paragraph 5.8 was an absolute obligation that was a matter of strict liability. 

Key judicial comments:

“The retainer of Davisons was one for services in connection with that transaction.  A fully enforceable first charge by way of legal mortgage over the property was not comparable to a pre package commodity to be supplied to a customer’s order.  It involved issues of title in the exercise of professional skill. Similarly the requirement that all existing charges must be redeemed necessarily relying on the acts and omissions of the vendors solicitors. Each of those ingredients is inconsistent with an absolute obligation.”

The judgment concluded:

“In these circumstances I would hold that the obligation imposed by paragraph 5.8 goes no further than an obligation to exercise reasonable skill and care in seeking to procure the outcome it refers to”

Conclusions

The significance of this decision is that if the obligation had been held to be absolute, arguments of contributory negligence would not have applied.

When considering whether a solicitor has breached his obligations under the CML Handbook, the context of the instructions provided to the solicitor and the nature of the obligation imposed must be considered to determine whether it is a strict obligation or whether it is one where the solicitor requires to exercise his reasonable skill and care. The judgment appears to indicate that factors such as the nature of instruction and whether fulfillment of the obligation requires reliance upon the acts of other parties should be taken as indicators of whether strict liability is intended. 

If it can be satisfactorily argued that any CML Clause amounts to an absolute obligation, this could be of great benefit in lender claims as we could remove considerations of contributory negligence.


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