Two recent cases have gone some way towards clarifying the ambiguity introduced by this blurring of distinctions. In the cases of Darby and Darby v Joyce [2014] EWCA Civ 677 and AIB Group UK plc v Mark Redler & Co Solicitors [2014] UKSC 58, the shift in legal perspective relating to remedies has been illustrated. In both cases, the Court, in using compensation for actual loss as the measure of damages as opposed to a restitution model, has interpreted the law more favorably for solicitors than for lenders, for whom restitution would be the preferred remedy.
In Darby and Darby, which centered on negligence due to failure of the solicitor to properly advise on the existence and consequences of a restrictive covenant, the Court relied on the property owner’s contributory negligence and applied this to causation principles. In doing so it discounted the claim by £70,000 for the difference in the original value of the property and its value as a distressed asset and limited the award to actual loss suffered of £186,007.94.
In AIB Group UK plc, the Court awarded £300,000 in damages against the £2.5 million claimed for solicitor negligence in failing to obtain a full discharge of a Barclays security and a first registered charge in favor of AIB. The award of £300,000 was deemed to be more appropriate in that it reflected actual loss suffered by AIB. The view was taken that, in a distressed market and regardless of the priority of the AIB security, the property would still have been sold at a loss and, based on the application of common sense principles, the solicitor should not be held accountable.
The AIB case does indicate that causation is an important yet not quite straightforward consideration in assessing damages in breach of trust cases. As Lord Reed points out in the judgment, “difficult questions of causation do not however always have an intuitively obvious answer. Legal analysis is as important in equity as in the common law.”
Both Darby and Darby and AIB Group UK plc were greeted with relief and positivity within the conveyancing profession in that not only do they clarify the law but they also infer less onerous consequences for solicitors faced with professional negligence claims. For lenders, however, the cases arguably dilute the degree of comfort they might take from the existence of professional indemnity insurance sitting behind a solicitor’s duty of care, as insurers will look to these cases to drive down settlement figures.
In a landscape in which the Courts appear to be importing legal principles into equity, which works to the advantage of the legal profession, lenders will pay the ultimate price in a negative equity context. Therefore, as property values slowly recover, it would be prudent for lenders to look to other means apart from professional negligence claims – such as title insurance policies ideally with a six month cure or pay guarantee – to manage their downside risk exposure.
By Reema Mannah, Solicitor and Senior Underwriter, Titlesolv
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