Silent witness

Professional negligence has been a growing specialism for many years. During the last recession in the early 1990s, many lenders hunted through their diminished property loan portfolios looking for a scapegoat. There were plenty of examples. During the property boom in the late 1980s, loan underwriters and some of their solicitors and valuers had become careless. The competitive effect of diminishing fees had encouraged some shoddy work; valuers in particular were targeted. A series of appeal cases defined and resolved issues of professional negligence. Many firms collapsed through under-insurance (e.g. Goddard & Smith, a 300-year-old firm of surveyors), and insurers of professionals felt serious pain (Lloyds underwriters funded the South Australia v Yorke/Nykredit v Erdman litigation for the defendant professionals).

The current recession is generating more professional negligence work, but this time the valuers do not seem to be such easy targets. My impression is that the 1987-91 background of deceitful valuations (or at least surprisingly high valuations) and ramped property prices is not as obvious as it was in the last recession.

Nevertheless, claims are coming through '“ especially against solicitors '“ and often arising out of conveyancing problems, such as in a recent claim which came to trial in the High Court in Manchester (Stoll & Atkins v Wacks Caller [2009] EWHC 2299 (Ch)). This case highlights the need for care in conditional contracts for the purchase of development property, and deserves comment because it concerned a novel conveyancing issue which was dealt with without expert evidence.

The importance of a call-in clause

The claimants contracted to buy a development property in north Manchester, conditional on the grant of planning permission, with a long stop date six months from exchange. There was no 'call-in clause' in the contract drafted for the buyers by their solicitor; i.e. there was no provision in the contract to protect the buyer in the event that following the grant of planning permission, and completion of the purchase, someone challenged the grant of permission on judicial review '“ leaving the buyer with a property which he bought for development, but which he cannot develop.

In this case, planning consent was granted within the six months provided for by the conditional contract. Notice was served on the buyer to require completion, and the claimants completed the purchase in August 2003. Within three weeks, the owners of property adjoining the development land had issued proceedings for permission to apply for judicial review and quash the grant of planning consent. An oral application for permission was heard (and opposed by the planning authority) in February 2004. Permission was granted, the planning authority capitulated. The court quashed the planning consent with effect from April 2004.

Meanwhile, the buyers had been left with a property they could not develop, which was in poor repair and costly to maintain. But worse was to come. This area of north Manchester had been re-designated as a conservation area (since the original planning application had been granted in July 2003), and therefore the prospect of planning consent had become more remote. The change to conservation area was effective from March 2004. There was no realistic prospect of obtaining permission for the proposed development once the original permission was quashed.

The buyers contended that there was a duty to ensure that (by giving prudent advice and assistance) the purchasers were not bound to buy the property unless and until planning permission was in place and not capable of further challenge.

The solicitors defended the buyers' claim on the basis that the developers knew what they were doing as experienced men of property, and the contractual provisions were simple and had been approved by them '“ and the developers had advised the solicitors that planning permission would be a straightforward matter.

This was a substantial commercial development. Everything turned on the acquisition of the property with planning permission, as the written report on title acknowledged. It was common ground that at no time did the solicitor seek to introduce any 'call-in' clause into the draft contract; nor did he advise the developer of the risk of any third party challenge to any future grant of planning permission by way of an application for judicial review, of the potential implications and dangers of such a challenge, or of the possibility of addressing these by way of some form of call-in clause.

There was no decided authority in support of the claimant's contention that it was negligent not to include a call-in clause, or at least warn the developer of the risk without a call-in clause. But the commentary in the Encyclopaedia of Forms and Precedents (at note 1 to form 67 of the then current volume 38 (2)) made it clear that the inclusion of a call-in clause should at least be considered in any case other than 'the very simplest cases such as an application for change of use or for the carrying out of relatively minor building operations where'¦ it is unlikely that the grant of planning permission would be challenged by third parties by way of judicial review'¦'.

The claimants argued that a call-in clause should have been introduced into the draft sale contract along the lines of the precedent to be found at form 68 of the Encyclopaedia, which is there described as a form 'drafted in favour of the seller'. As a result of evidential difficulties, the claimants were reluctant at trial to identify the precise terms of the appropriate call-in clause.

In cross-examination, the solicitor accepted the propositions that he owed a duty to the claimants to identify, and to explain, any particular areas of risk that would not have been apparent to an inexperienced lay client; and that he should have advised the claimants, before they exchanged contracts to purchase the property, of the risks that they were potentially running by doing so without the protection of a call-in clause.

David Hodge QC in a long and meticulous judgment decided that: 'In my judgment, the [solicitor's] perception is clearly right as a matter of law. In his leading judgment in the case of County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916 at 922E, Bingham LJ said that: 'If in the exercise of a reasonable professional judgment a solicitor is or should be alerted to risks which might elude even an intelligent layman, then plainly it is his duty to advise the client of these risks or explore the matter further.'

'In my judgment, that observation applies to the circumstances of the present case '¦ the proper discharge by [the solicitor] of the duties he owed to his client, as the prospective purchaser of a property subject to a condition of the grant of planning permission acceptable to the purchaser 'acting reasonably', dictated that'¦ [he should have amended]'¦ the draft contract, by seeking to introduce a call-in clause'¦ In failing to propose such an amendment without having raised and discussed the matter with [the buyer], in my judgment [the solicitor] breached the duties he owed to his client.'

A few months after this solicitor failed his client, he acted for a golf club in a transaction to acquire development land conditional on planning. An appropriate call-in clause was included in the contract!

No supporting expert

In Stoll v Atkins v Wacks Caller there was no expert to enlighten the court about conveyancing practice. Funds did not permit such an expert to be engaged, and in the event the claimants were fortunate to come before a judge with a firm grasp on property law and conveyancing.

The lack of an expert in support is one of the difficulties facing claimants in solicitor negligence cases. Often there is no one for the claimant to give evidence to contradict the negligent solicitor. The Court of Appeal encourages judges to consider themselves to be experts in law and legal practice and therefore capable of determining the issues without expert assistance; for example, Bown v Gould & Swayne [1996] PNLR 130, where an expert solicitor was being asked to express a view as to what the defendant should have done, this was inadmissible as trespassing into the very issue which it was for a judge at trial to decide. In Bown, the Court of Appeal upheld the rejection of an application to adduce a conveyancing solicitor expert as to what was good practice '“ was there a need for a site visit, in particular.

Why, when the expertise of other experts is generally admissible to help resolve issues which have to be decided by trial judges, is legal expertise generally inadmissible? Most judges have no familiarity with or understanding of conveyancing issues, any more than they understand the coefficient of expansion, or the quantification of a dilapidation claim without expert assistance.

Fortunately the principle of 'no legal expert' expounded by the Court of Appeal is often distinguished. In UCB Bank v David Pinder plc [1997] EGCS 179, the judge admitted expert evidence as to the solicitor's negligence (which the valuer sought to introduce in a contribution claim). In May v Woolcombe Beer v Watts [1999] PNLR 130, HHJ Jack QC decided that expert conveyancing evidence as to local enquiries about footpaths would be of help in circumstances in which there was no general guidance in the textbooks (or from the Law Society).

As an advocate arguing a case for a claimant, one would unhesitatingly prefer to be backed by an expert solicitor. Fighting Stoll without an expert was exceedingly difficult (one among many difficulties in a thoroughly awkward case!). I can see concerns about cost and unnecessary complexity, but, if the judge lacks experience and general insight into conveyancing practice, how does a claimant's advocate convince the court when the only relevant witness may be the solicitor accused of negligence? Is it not too much to expect that cross-examination of that solicitor will provide sufficient enlightenment?