Solicitors Found Negligent When Failing To Register A Property Transfer That Facilitated Fraud

If solicitors fail to do their job properly, with the result that a fraudulent transaction is not carried out as intended, are the solicitors still liable?

Stoffel & Co v Maria Grondona [2018] EWCA Civ 2031

In a recent case it was found they could be, but by reaching that view the court was able to supply the defrauded lender with a remedy. It seems a perverse outcome, but the purpose of the court made overall sense.

Facts

Mrs Grondona claimed against her solicitors for their failure to register at Land Registry a transfer to her of 73b Beulah Road in Thornton Heath, Surrey. She was buying that house (or so it seemed) from a Mr Mitchell.

However, the reality was that Mrs Grondona was in cahoots with Mr Mitchell to 'front' residential mortgage loans to obtain funds for his property business. He retained beneficial ownership of the house at all times, with the result that her mortgage application was dishonest.

When Birmingham Midshires sought repayment of the £90,000 advance from her, Mrs Grondona claimed against the solicitors who had failed to provide her (and the lender) with the security of the property. She successfully recovered around £95k to compensate for the outstanding borrowing she had incurred with Birmingham Midshires on the residential mortgage loan she had used to buy the house.

Defence of illegality by solicitors

However, the solicitors who negligently failed to register the transfer of the house appealed. They argued that because the transaction as a whole was a mortgage fraud, they should be absolved of any liability. They relied on the long-held principle of English law by which no-one can benefit from an illegal act 1.

Appeal outcome

The appeal judges accepted the view that the claim was simply to recover damages to put Mrs Grondona back in the position she would have been had the defendant not been negligent or in breach of contract. Crucially, it was not to enable her to gain or profit from the fraud. Her claim for damages was in order to extricate her from the transaction and to redeem, or part redeem, the mortgage for which she was liable.

They also agreed that the loan and security were not intended to be a sham but was a real transaction and the intention was to...