Clark and another v Lucas Solicitors LLP

JurisdictionEngland & Wales
JudgeSARAH ASPLIN QC
Judgment Date31 July 2009
Neutral Citation[2009] EWHC 1952 (Ch)
Docket NumberCase No: HC09C01461
CourtChancery Division
Date31 July 2009
Between
(1) Adrian Paul Clark
(2) Heather Jane Clark
Claimants
Lucas Solicitors Llp
Defendant

[2009] EWHC 1952 (Ch)

Before:

Sarah Asplin QC

(sitting as a Deputy High Court Judge)

Case No: HC09C01461

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Mr Adrian Pay (instructed by Eversheds LLP) for the Claimants and

Mr Charles Phipps (instructed by Williams Holden Cooklin Gibbons LLP) for the Defendant

Hearing date: 16 July 2009

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic

SARAH ASPLIN QC

MISS

1

This is an application for summary judgment pursuant to CPR Part 24 in respect of a claim for specific performance of an undertaking given by the Defendant, Lucas Solicitors LLP, (“Lucas”) in the ordinary course of a conveyancing transaction. The Claimants, Mr and Mrs Clark, (“the Clarks”), seek to invoke the inherent supervisory jurisdiction of the Court over solicitors.

2

The claim was commenced by Part 8 claim form with Particulars of Claim attached. The Clarks seek specific performance of Lucas' undertakings to which I shall refer, by “provision of a DS3 in favour of Michael Kenny.” The Defendants do not dispute the breach of the undertaking but contend that an inquiry as to loss and compensation is the appropriate remedy.

3

At the beginning of the hearing, I gave permission to amend the title to the proceedings in order to reflect the proper spelling of the Clarks' name.

The Transaction

4

On 28 March 2007, the Clarks contracted to purchase Plot 3, The Mount, Hereford Road, Monmouthshire, (“Plot 3”), from Gainsborough Homes Limited, (“Gainsborough”) at a price of £560,000. Gainsborough owned the entirety of the property known as The Mount, (“the Site”) and was in the course of developing it. Plot 3 was one of five newly built properties. The Clarks had paid an initial deposit of £1,000 and a further deposit of £27,000 on exchange of contracts.

5

Two charges were secured on the entirety of the Site, both being all monies charges. The first was in favour of NatWest Bank plc, dated 30 September 2005 and the second in favour of Mr Kenny and dated 3 October 2005. NatWest Bank plc's charge had priority over that of Mr Kenny. It was an express term of Nat West Bank plc's legal charge that it could set off the whole or any part of Gainsborough's indebtedness from time to time, against any credit balance on any account Gainsborough might have with the bank.

6

As is the usual course, the Clarks and their solicitors were unaware of the existence of the charges until receipt of the Replies to the Requisitions on Title to which I refer below. Furthermore, as is usual, they had no knowledge of the terms of the charges or the existence of any deed of priority until this dispute arose.

7

On 29 March 2007, Eversheds LLP, (“Eversheds”), the Clarks' solicitors sent Requisitions on Title in the Law Society standard form (second edition), to Lucas, who were the solicitors acting for Gainsborough in relation to the sale.

8

On 17 April 2007, Lucas returned signed Replies to the Requisitions on Title. The Replies included undertakings and the relevant parts of the Requisitions and Replies are set out in tabulated form below:

Requisition

Reply

Warning: “Replies to Requisitions 4.2 and 6.2 are treated as a solicitor's undertaking”

4.2

“If we wish to complete through the post, please confirm that (a) you undertake to adopt the current Law Society's Code for Completion by Post; and (b) the mortgages and charges listed in reply to 6.1 are those specified for the purposes of paragraph 3 of the Code.”

“Confirmed”

6

Warning “A reply to this requisition is treated as an undertaking. Great care must be taken when answering this requisition.”

6.1

“Please list the mortgages or charges secured on the property which you undertake to redeem or discharge to the extent that they relate to the property on or before completion …”

“National Westminster Bank plc charge dated 8/11/05 and Michael Kenny charge dated 3/10/05”

6.2

“Do you undertake to redeem or discharge the mortgages and charges listed in reply to 6.1 on completion and to send us Form DS1, DS3, the receipted charge(s) or confirmation that notice of release or discharge in electronic form has been given to the Land Registry as soon as you have received them.”

“Yes”

6.3

“If you agree to adopt the current Law Society's Code for Completion by Post, please confirm that you are the duly authorised agent of the proprietor of every mortgage or charge on the property which you have undertaken, in reply to 6.2, to redeem or discharge.”

“Confirmed”

9

On 1 May 2008, completion took place, Eversheds remitting the balance of the purchase price, being £532,076 to Lucas' client account. The same day, pursuant to instructions received from Gainsborough on 30 April 2008 and what was described in the Defence as “previous practice”, Lucas remitted the net proceeds of £520,854.62 to Gainsborough's account at NatWest Bank plc.

Subsequent Events

10

On 18 June 2008, NatWest Bank plc demanded immediate payment from Gainsborough of the balance of all sums due to it at that time, being £2.7m odd.

11

On 26 June 2008, Lucas sent notice of discharge in form DS3 in respect of the NatWest charge to Eversheds. However, no notice of discharge has ever been received in relation to Mr Kenny's charge dated 3 October 2005.

12

On 17 July 2008, NatWest Bank plc appointed a fixed charge receiver in respect of the Site, but for Plots 1 and 3 and Gainsborough was placed into administration.

13

Despite having been made aware that Eversheds' application to register the Clarks' title to Plot 3 would have to be cancelled if the DS3 in respect of Mr Kenny's charge was not produced, nothing was forthcoming. As a result, the Clarks have been unable to register the title to their home at Plot 3 and accordingly, are unable to sell it should they wish to do so, or to raise a mortgage on it.

Mr Kenny's charge

14

On 25 July 2008, Mr Patrick Fanning of Lucas made enquiries by fax of Mr Kenny's solicitors who responded by letter of 28 July 2008, that they were not instructed and assumed that negotiations in relation to the release of Mr Kenny's charge in relation to Plot 3 had been conducted directly by Lucas with Mr Kenny.

15

Thereafter, in a letter of 14 August 2008 from Lucas to Mr Kenny, there is some suggestion that DS3 forms may have been sent to Mr Kenny by NatWest Bank plc but not received by him. In any event, an attendance note of a telephone conversation with Mr Kenny on 29 August 2008, reveals that he stated that he would not be returning the discharge documents because he had not been paid the sums due to him under the loan agreement which was secured by his charge, to which I shall refer and he had been advised not to return them. Although it was suggested at first that the sum due to Mr Kenny from Gainsborough was £1.5m, in paragraph 11 of his witness statement dated 7 July 2009, Mr Kenny confirmed that the sum outstanding as at 30 June 2009 was £1,089,513.46.

16

The loan agreement entered into between Gainsborough and Mr Kenny dated 3 September 2005, required Gainsborough to apply up to 20% of the net sale proceeds of each property at the Site, in repayment of the Loan, (which was originally £775,000), and to repay any remaining balance of the Loan from the proceeds of the last property to be sold. Gainsborough agreed to grant a legal charge having second priority over the Site and all the buildings on it in favour of Mr Kenny, ranking immediately after NatWest Bank plc's first legal charge. The agreement did not oblige Mr Kenny to release his charge over any part of the Site as and when it was sold and in the event of the appointment of a receiver, administrative receiver or manager, entitled Mr Kenny to demand repayment of all sums outstanding under the loan agreement.

17

Lucas wrote to Eversheds on 2 September 2008, explaining the situation and stating that they were acutely aware of the failure to fulfil an undertaking and the disciplinary action which might result. The letter ended:

“We will advise you shortly of what action we propose to take to enable us to comply with our undertaking.”

A formal letter of claim was sent to Lucas on 18 September 2008 and complaint was made to the Solicitors' Regulatory Authority in early October. After numerous extensions, Lucas' solicitors responded to the pre-action protocol letter on 7 November 2008. It was stated that Lucas had already admitted that it was in breach of undertaking to the Clarks but that they had acted in accordance with a practice established on standing instructions from Gainsborough in relation to an earlier development. In accordance with those instructions, the net proceeds of sale had been remitted to NatWest Bank plc who were expected to pay Mr Kenny what was due to him and to obtain the executed DS3s. Unfortunately, on this occasion, the bank retained all the net proceeds of sale received and set it off against the sums which it was owed.

18

Proceedings were issued on 28 November 2008 and an acknowledgment of service together with a Defence was filed on 16 December 2008. In the Defence, emphasis is placed upon the “previous practice and/or . .contractual arrangements, the details of which have not yet been disclosed to the Defendants in their entirety . .” which purportedly existed between Gainsborough, NatWest Bank plc and possibly Mr Kenny himself. At paragraph 11 of the Defence, it is pleaded that Lucas is unable to perform its undertaking because it remains dependent upon the co-operation of Mr Kenny who declines to execute the requisite Form DS3.

19

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