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Essays in Conveyancing and Property Law

 | 
Frankie McCarthy
, 
James Chalmers
, 
Stephen Bogle

Professional Negligence in Principle and Practice

17. Primary Clients, Secondary Clients, Surrogate Clients and Non-Clients – the Expanding Duty of Care of Scottish Solicitors

Kenneth Swinton

Texte intégral

  • 1 R Rennie, Solicitors’ Negligence (1997).
  • 2 R Rennie, Opinions on Professional Negligence in Conveyancing – The Opinions of Professor Robert R (...)

1Until the publication by Professor Rennie of his monograph Solicitors’ Negligence1 in 1997 there was no coherent treatment of the liability of Scottish solicitors for their negligent acts or omissions. Thereafter Professor Rennie published a volume of opinions on professional negligence2 and has published a stream of articles which relate to the professional practice of conveyancing. He has continued to make himself available for opinion work as well as appearing as an expert witness in many cases. Law and practice has continued to develop over the last two decades and this chapter considers how factors have developed which may have expanded the duty of care over this period without seeking to provide a comprehensive update of Professor Rennie’s work.

A. Introduction

  • 3 Law Society of Scotland Practice Rules 2011, r B1.4.
  • 4 2011 Rules, r B1.7; Charter of Core Principles of the European Legal Profession and Code of Conduc (...)
  • 5 2011 Rules, r B1.6; Charter of Core Principles of the European Legal Profession and Code of Conduc (...)
  • 6 2011 Rules, r B1.7.2.
  • 7 Ibid, r B1.7.1.
  • 8 Bank of East Asia Ltd v Shepherd & Wedderburn 1995 SLT 1074; Frank Houlgate Investment Co Ltd v Bi (...)
  • 9 See A Paterson and B Ritchie Law, Practice and Conduct for Solicitors (2006), Ch 7 for a discussio (...)

2The fundamental duties of a Scottish solicitor have not changed over the years. However they have been subject to formal elaboration and expansion in Codes of Conduct, Standards of Conduct and Standards of Service. A solicitor is expected to place the interests of the client above her own,3 to avoid conflicts of interest4 and to respect the confidentiality of a client’s business.5 It is trite law that a solicitor owes those duties to a client but does not owe duties to third parties, in general. Where a solicitor acts for more than one party then she may do so only where there is no conflict or at least there is only a potential conflict of interests6 but not an actual conflict.7 Where confidential information is obtained from one client and it becomes of value to another client then a conflict will occur. The dilemma is whether to breach confidence and make a disclosure or to maintain the confidence and risk a subsequent claim for negligence or negligent misrepresentation.8 There is only one course of action which is to resign the agency for one or both parties.9

  • 10 Rennie, Negligence (n 1), para 2.01 and the authorities cited there.

3The primary duty of a solicitor is to the client and is based on the law of agency. While the term professional negligence is commonly used this is not based on delictual liability but a breach of contract. Where a claim is made by a third party it must be based on delict. This is problematic as pure economic loss cannot be recovered in delict although it is available in cases based on negligent misstatement.10

4Over the last two decades, a uniform series of basic contractual obligations owed by solicitors to lenders has resulted from the introduction of the Council of Mortgage Lenders Scottish Solicitors’ Handbook,11 This covers solicitors acting in the constitution of securities for lenders in relation to residential mortgages, both for purchase and re-mortgage purposes as well as many buy to let commercial loans. The existence of clear standard obligations has led to the growth of situations where solicitors have been found wanting in failing to either (a) recognise the existence of an actual conflict of interests between a purchaser client and lender client or (b) obtain the purchasing client’s authority to make disclosures to the lender. Smith and Barton12 writing in 1995 devote a whole chapter to disciplinary proceedings relating to conflicts of interest. None of the cases digested refer to conflicts between purchaser and lender. The Scottish Solicitors Discipline Tribunal has in recent years considered what appears to be a steady stream of cases where solicitors appear to have regarded their purchasing clients as the primary clients and the disclosure to the lenders of surrounding circumstances as of secondary importance.

  • 13 Money Laundering Regulation 1993, SI 1993/1933.
  • 14 Currently represented by the Money Laundering Regulations 2007, SI 2007/2157 and the Proceeds of C (...)
  • 15 Proceeds of Crime Act 2002, s330.
  • 16 Money Laundering Regulations 1993, SI 1993/1933, reg 42.
  • 17 Cheshire Mortgage Corporation Ltd v Grandison [2012] CSIH 66; 2013 SC 160; Frank Houlgate Investme (...)
  • 18 Rennie, Negligence (n 1), para 11.03.

5Furthermore the Money Laundering Regulations 199313 imposed new obligations on solicitors to identify their clients. Those duties had not had a significant impact on practice when Solicitors’ Negligence was published. In the intervening years the obligations in relation to prevention of money laundering have expanded considerably,14 imposing increasingly onerous duties on solicitors to identify the clients, the source of funds and the wealth of the clients from which these funds are obtained. The intention is to prevent the legal profession and the financial system becoming conduits which assist criminals in concealing or converting the proceeds of their unlawful activities. Furthermore solicitors fall within the regulated sector and are obliged to make authorised disclosures of suspicious activity to the relevant authority under pain of criminal prosecution15 or regulatory sanctions.16 This has led to attempts founded on failures in a criminal or regulatory sense as evidence of a contractual or delictual failure on solicitors acting for private clients with a view to imposing civil liability, even where separate agents are instructed by the borrower and lender.17 Such a possibility in the context of inadequate professional service claims has been recognised by Professor Rennie.18 In this way, the Law Society of Scotland investigating conduct complaints or the Scottish Legal Services Commission investigating service complaints may in fact operate as a surrogate for the client in providing a basis for a negligence claim.

  • 19 Law Society of Scotland Practice Rules 2011, r B4.1-4.2.
  • 20 This is subject to certain exceptions which are not discussed here.

6The consolidated Practice Rules19 require that a solicitor should provide in writing details of the work to be undertaken at the earliest opportunity.20 A solicitor should accordingly be aware of who their client is. Such terms of engagement will generally not only specify what work is to be done but what is not to be done. Thus it should prevent the subsequent expansion through leakage into other areas or others who might potentially later claim client status.

B. The Move to Written Terms of Business

  • 21 Rennie, Negligence (n 1), para 3.02.
  • 22 Law Agents (Scotland) Act 1873; J H Begg, A Treatise on the Law of Scotland Relating to Law Agents(...)
  • 23 Rennie, Negligence (n 1), para 4.01.

7The relationship between solicitor and client is one of agency,21 which makes entirely appropriate the term “law agent.”22 As noted, above lenders instructing solicitors in residential lending work will impose their terms for business through the CML Handbook. It would however be unusual for consumers to impose written terms. Writing in 1996, Professor Rennie stated:23

The basic duty of care owed by a solicitor is to his or her client. Similarly any specific contractual obligations are, generally speaking, owed to the client who instructs the legal task concerned.

  • 24 Ibid para 3.02.
  • 25 Law Society of Scotland Practice Rules 2011. r B4.2.
  • 26 Ibid.
  • 27 In Stevens v Hewats [2013] CSOH 61; 2013 SLT 763 the agents in question had been instructed to pre (...)

8The corollary to this simple truth is that no duty of care is owed to others in pursuit of the interests of the client. Professor Rennie noted then that the contract between solicitor and client is rarely in writing.24 The converse is now the case as a result of the imposition of a practice rule. The terms of business on which the client instructs the agent must be set out in writing at the earliest practical opportunity.25 There should be no doubt as to the identity of the client, therefore, in contemporary practice. Nor should there be doubt as to the nature of the work for which the solicitor has been instructed. The terms of business should set out the extent of the services to be provided and the estimated fees and outlays.26 Setting out the scope of the engagement offers comfort to the solicitor which can prevent subsequent claims arising out of “mission creep” to other areas which were beyond the initial instructions. For example, when instructed in relation to the sale of an investment property, a solicitor may undertake the conveyancing work and exclude liability for advice in relation to taxation.27

  • 28 Law Society of Scotland Practice Rules 2011, r B1.4.1 and B1.4.2.
  • 29 Unfair Contract Terms Act 1977, s 2.
  • 30 [2001] PNLR 1.
  • 31 Unfair Terms in Consumer Contract Regulations 1999, SI 1999/2083.
  • 32 1999 Regulations, art 5 and schedule para 1 (b).
  • 33 West v Ian Finlay and Associates [2014] EWCA Civ 316, in relation to the terms of business of a fi (...)
  • 34 CML Handbook (n 11).
  • 35 Ibid para 1.4.
  • 36 For example in terms of para 5.9.1, the solicitor must ask a purchasing client if the balance of t (...)

9There might be a temptation to include in the written terms of engagement some restriction of liability on the part of the solicitor. Such attempted limitations of liability are unlikely to be effective. Firstly, solicitors are under the general obligation to act in the best interests of clients and not to allow personal interests to affect advice to or actings on behalf of clients.28 Secondly, under the Unfair Contract Terms Act 1977, any exclusion of liability for loss or other damage through negligence can only be given effect where it satisfies a reasonableness test.29 In Killick v PricewaterhouseCoopers [No1]30 the defendant accountants argued unsuccessfully before Neuberger, J (as he then was) that the cap on liability of £10m imposed in their terms of business was reasonable. On this basis, it is submitted that exclusions or limitations of liability in terms of business are unlikely to meet the threshold required to establish reasonableness. Furthermore, where the client is a consumer, the Unfair Terms in Consumer Contract Regulations will apply31 provided the contract is in standard terms – in other words, where the consumer has no opportunity to individually negotiate it. If an imbalance in parties’ rights and obligations to the detriment of the consumer arises from the terms of the contract it is to be regarded as prima facie unfair. Where, for example, a term excludes or limits liability in the event of total or partial non-performance or inadequate performance of a contract for services, this is like to fall within the ambit of unfairness.32 In this context, a limitation of liability clause has been held to contravene the Regulations.33 Where the client is a commercial entity the economic balance may favour the client. The CML Handbook34 adopts the common law standard35 in respect of the duty of care owed by the solicitor to the lender and then imposes a series of specific and more onerous duties.36 These may in turn be supplemented by individual lenders’ own requirements and the possibility exists of transaction-specific further instructions issued with the loan papers. There is no opportunity for the solicitor to include a term which might limit her liability to the lender.

  • 37 Rennie, Opinions (n 2), p 436.
  • 38 Ibid p 438.
  • 39 Unfair Contract Terms Act 1977, s2; Hedley Byrne v Heller and Partners [1964] AC 465; [1963] 1 All (...)

10As well as providing clearer guidance to clients through having written terms of business the use of such terms should allow solicitors to avoid claims where the alleged want of due care and skills relates to a matter which is ancillary to the business undertaken – such as advice regarding surveys37 or finance38 in relation to a purchase. Of course those terms of engagement might seek to restrict liability to third parties. Whether this would be effective would depend on whether such a limitation of liability was reasonable.39

C. Identification of the Client

  • 40 Money Laundering Regulations 1993, SI 1993/1933.

11As noted in the previous section, the change brought about through professional practice rules requiring written terms of business has brought clarity in identifying to whom the legal services are delivered and who will be responsible for payment. However that is not quite the same thing as identification of the person who provides the instructions. Are the instructions those of the person who presents herself as the client to the solicitor or who she represents she is? There has been no change in the underlying common law in relation to agency. However the imposition of duties in relation to anti-money laundering processes has clouded this issue. The first Money Laundering Regulations40 in the UK came into force on 1 st April 1994. Solicitors fell within the regulated sector for the purposes of the Regulations and were obliged to identify clients. A major exemption permitted solicitors to excuse existing clients from the requirements to produce documentary evidence of identity. Given the novelty of the obligations and the noted exemption it is unsurprising that Professor Rennie did not require to address these issues in 1996.

  • 41 W M Gloag and R C Henderson The Law of Scotland, 13th edn, by H Macqueen et al (2012) para 19.27 a (...)
  • 42 L Macgregor, “Agency,” in The Laws of Scotland: Stair Memorial Encyclopaedia, Reissue (2002) para (...)
  • 43 Ibid.
  • 44 W M Gloag, Law of Contract, 2nd edn (1929) p 155.
  • 45 1990 SLT 305.
  • 46 Scott (n 45) at 307.
  • 47 (1903) 11 SLT 163; see also Salvesen & Co v Rederi AB Nordstjernan (1903) 6 F 64 9 (which was part (...)

12The relationship between solicitor and client is one principally governed by the law of agency. Where the solicitor is acting for a disclosed principal then the solicitor will not, in general, become personally liable to third parties.41 The position is less straightforward where the principal turns out to be a fraudster, impersonating another. In such a situation there is scope to argue for the solicitor to incur personal liability on the basis she had no instructions from the appropriate party. Laura Macgregor suggests that where the agent has been neither fraudulent nor negligent in misrepresenting his authority, the only possible action which the third party has against the agent is the contractual action of breach of warranty of authority.42 She indicates that the theoretical basis of the action is difficult to discover,43 but adopts the approach taken by Gloag,44 who refers to the principle as arising out of the contract between the third party and the agent. In this context, however, there is no effective contract between the agent and the third party. In Scott v J. B. Livingston & Nicol45 Lord Coulsfield states that the normal rule is that the agent is liable in delict on the basis of breach of warranty of authority.46 This is borne out by the earlier case of Anderson v John Croall & Sons Ltd47 which is generally taken as the standard authority for this proposition in Scotland.

  • 48 [2012] CSIH 66; 2013 SC 160.
  • 49 Further claims were made based on the letters of obligation which had been issued by the “borrower (...)

13The point was raised in sharp focus in the recent case of Cheshire Mortgage Corporation v Grandison.48 Lenders who were separately represented raised actions against firms of solicitors who had acted apparently for the owners of properties who raised funds from the pursuers secured over the properties. Some time after the recording of the relevant standard securities it became apparent that the persons who had instructed the solicitors in relation to representing their interests in the constitution of the securities had impersonated the true owners of the properties. The securities, based on forged signatures and false identities were worthless. The lenders sued on the basis of breach of warranty of authority.49

  • 50 Cheshire Mortgage Corporation (n 48) at para 11.
  • 51 Money Laundering Regulations 2007, SI 2007/2157, reg 7.
  • 52 2007 Regulations, reg 5.
  • 53 Available at http://www.jmlsg.org.uk/industry-guidance/article/guidance
  • 54 It must now be approved by HM Treasury.
  • 55 2007 Regulations, reg 45.
  • 56 Law Society of Scotland Practice Rules 2011, r B6.23.1.
  • 57 Frank Houlgate Ltd v Biggart Baillie [2009] CSOH 165; 2010 SLT 527. Lord Drummond Young’s opinion (...)
  • 58 R v Preddy [1996] AC 815; [1996] 3 WLR 255; [1996] 3 All ER 481; R v Waya [2012] UKSC 51; [2013] 1 (...)
  • 59 Proceeds of Crime Act 2002 part VII. See n 105 in relation to the timing of the duty.
  • 60 See currently Money Laundering Regulations 2007, SI 2007/2157, reg 17.
  • 61 Outer House judgment [2011] CSOH 157; 2012 SLT 672 at para 16 being referred to as ‘KYC rules.’ Se (...)
  • 62 Nor for that matter had the solicitor confirmed in writing that he consented to his identification (...)
  • 63 Cheshire Mortgage Corporation Ltd v Grandison [2012] CSIH 66; 2013 SC 160 at para 32 per L Clarke, (...)

14Evidence was led as to the steps taken by the agents in question to identify the persons who presented themselves as the clients.50 In neither the Outer House nor Inner House judgments is any reference made to the purposes for which identification was being sought. The items sought would of course be familiar to anyone dealing with the anti-money laundering requirements in contemporary practice. A professional operating within the regulated sector, such as a solicitor, is obliged to carry out customer due diligence.51 This requires sufficient proof of identity on the basis of documents obtained from reliable and independent sources.52 The 1993 Regulations themselves do not specify what these might be. However guidance from the Joint Money Laundering Steering Group53 is regarded as authoritative54 and requires two forms of check – the first to identify the person and the second to tie that person to the address provided. A failure by a regulated professional to comply with these requirements is a criminal offence.55 Furthermore it is a regulatory requirement for solicitors to comply with this regime56 in all cases whether or not the business falls with the statutory money laundering definitions. It is surprising that there is no mention in the case of basis on which the solicitors in question collected these data or whether they met the statutory and regulatory requirements. It is submitted that compliance with those standards will satisfy the common law requirement of absence of knowledge or lack of negligence necessary to make a breach of warranty of authority entirely innocent. In order for there to be a successful prosecution then a criminal standard of proof would be required. The Scottish Solicitors Discipline Tribunal also applies a criminal standard in relation to evidence. In the context of a civil action for breach of warranty of authority presumably the agent would have to address having taken reasonable steps only. In the instant case it is apparent that the identification requirements did comply with the antimoney laundering regime in place at the time.57 What is equally clear is that while the practices of the solicitors in question met the standards in place in 2004 when the frauds occurred, the need for ongoing monitoring on a riskbased approach required under the 2007 Regulations ought to have raised suspicions about the written requests to transmit funds electronically to third parties. Once funds had been transmitted to the agent acting for the borrowers they become the property of the borrowers.58 Arguably the solicitor would not come any duty to the lender to disclose suspicions at this point unless the security was in an “all sums due and to be become due” format. However, she must make a suspicious activity to report to the National Crime Agency.59 Nonetheless the compliance with the statutory and regulatory requirements and the ability of an authorised person to rely on identification carried out by another such authorised person60 were referred to in the Cheshire Mortgage Corporation case.61 It was not accepted that there had been any such reliance as the business had already been introduced to the lender prior to the involvement of the solicitor for the “borrower.”62 As the court noted:63

All that the agent is warranting is that he has a client and that client has given him authority to act. It would be quite unreasonable and inappropriate to extend this to an implied warranty that his client has a certain attribute or attributes.

  • 64 [1964] AC 465; [1963] 1 All ER 575.
  • 65 [1990] 2 AC 605; [1990] 1 All ER 568. See further Rennie, Negligence (n 1), para 4.03 et seq.
  • 66 [2009] CSOH 165; 2010 SLT 527.
  • 67 Frank Houlgate (n 66) at para 28 (opinion of Lord Drummond Young).
  • 68 Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2014] CSIH 79; 2014 SLT 1001 paragraph 9.
  • 69 The solicitor in question was censured for his conduct and fined the maximum £10000: Mair [2009] S (...)
  • 70 Frank Houlgate (n 68) at para 34 (opinion of Lord Menzies).

15While there may be circumstances where the solicitor does warrant some attribute in relation to the client which can be relied on by third parties then that will amount to a representation and will bring matters with the principle articulated in Hedley Bryne & Co Ltd v Heller & Partners64 as refined in Caparo Industries v Dickman.65 There may be situations where the client’s identity is correctly ascertained by the solicitor but an important attribute becomes a matter of contention. In Frank Houlgate v Biggart Baillie66 solicitors acted for a party who was exactly who he claimed to be. However he represented that he owned an estate which was owned by another unrelated person with a similar name. The solicitors acted on behalf of the fraudster who borrowed money on the security of the property with other agents acting for the lenders. The action was framed in part on the basis of breach of warranty of authority. For the reasons discussed above it was held there was no warranty on the part of the agents for the fraudster that he was the registered proprietor of the subjects.67 However the solicitors were subsequently found liable on other grounds. After the security had been registered the fraud came to light and the fraudster admitted to his solicitor that the fraud had been committed. He asked for time to put matters right and repay the loan. However the fraudster used the breathing space to top up the sums advanced. The solicitor failed to withdraw from acting, advise the agents acting for the lender or make a suspicious activity report at this point under the Proceeds of Crime Act 2002.68 It was held that the solicitor ought to have resigned the agency and disclosed the fraud to the solicitors acting for the lender, the perception in the mind of the solicitor that he was bound by client confidentiality being entirely misplaced.69 The policy argument on which the decision is based is clear:70

Society expects high standards from a Scottish solicitor. Perhaps first and foremost, a solicitor is expected to have the highest standards of honesty. She is an officer of the court, and owes obligations to the client, to the court, to fellow members of the profession, and to the general public.

  • 71 Ibid at para 45.
  • 72 Ibid at para 43.
  • 73 Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2009] CSOH 165; 2010 SLT 527 at para 21 (L (...)
  • 74 Frank Houlgate (n 68) at para 89.
  • 75 Ibid at para 81.

16The legal basis on which to hang that policy provided divided opinions. In the Inner House, Lord Menzies held that once the solicitor became aware of the fraud and failed to take steps to dissociate himself from it be became an accessory to the fraud.71 There was, in effect, a continuing implied representation to the solicitor for the lender that he is not aware of any fundamental dishonesty or fraud which might make the security transaction worthless.72 This line of reasoning is supported by the three Lords Ordinary who gave opinions at earlier stages of the proceedings73 and Lord McEwan sitting in the Inner House.74 It must be taken as settling the law. Lord Malcolm however dissented from this analysis – in his view there was no need to invoke the concept of accessory to the fraud. Rather, he held that once the fraud became known the solicitor came under a freestanding duty to take reasonable care to prevent further foreseeable losses flowing from the fraudulent transaction which he had unwittingly facilitated.75 This may be sufficient to dispose of the case in question, but had the security granted been for a fixed amount rather than ‘all sums due or to become due’, then this suggests that no such duty would have arisen. On the other hand if the test is accessory to the fraud then in the fixed security example the solicitor would still come under a duty of disclosure. It would be odd if the resulting obligation on the solicitor depended solely on whether the security covered further advances or not. Accordingly the analysis of all the other senators who have given opinions is preferable to that of Lord Malcolm.

D. The Primary Client and the Secondary Client

  • 76 Law Society of Scotland Practice Rules 2011, r B1.7.1 and B2.1.2: “You shall not act for two or mo (...)
  • 77 See 2011 Rules, r B1.2 generally.
  • 78 1988 SLT 611.
  • 79 Midland Bank (n 78) at 618.
  • 80 [1998] IESC 66.
  • 81 Rennie, Negligence (n 1) para 5.01.
  • 82 [1995] 2 AC 207; [1995] 1 All ER 691.
  • 83 2nd Div, 4 July 1995, unreported.
  • 84 2002 SLT 544.

17Where the same solicitor acts for both the lender and the borrower each is owed a duty of care by the solicitor. This causes no issues where the interests of the lender and borrower coincide – most obviously in ensuring there is a good and marketable title.76 However the Practice Rules distinguish the situation where there is potential for conflict from that where there is actual conflict. In the former situation, the rules provide a series of limited exceptions.77 However, the primary rule must be adhered to where an actual conflict arises. In Midland Bank plc v Cameron, Thom, Peterkin & Duncans78 solicitors had made representations to the lender as to the borrowing client’s means. This was inaccurate and the lenders sought to hold the agents liable. Lord Jauncey in finding for the defenders established a four part test: (a) there must be an assumption of responsibility; (b) the solicitor must represent to the other party that he has the necessary skill in relation to the representation; (c) the other party must rely on the representation and; (d) the solicitor must be aware that the third party would rely on the representation. This is a straightforward restatement of the principle in Hedley Byrne. Lord Jauncey expressed the view that where the solicitor is engaged to prepare the security by a lender the decision to lend has already been taken and there are no other duties incumbent on the solicitor.79 The decision in Midland Bank has been followed in the Irish Supreme Court case of Doran v Delaney80 and has never been expressly overruled in this jurisdiction, however Rennie doubted it would be followed today.81 That must be correct – in the post-Caparo era cases such as White v Jones,82 Robertson v Watt & Co83 and Holmes v Bank of Scotland,84 step (b) in particular was absent.

  • 85 Rennie, Negligence (n 1) para 5.01.
  • 86 CML Handbook (n 11), para 6.4.4.
  • 87 Ibid, 6.4.5.
  • 88 Ibid, 5.1.1.

18Rennie, in considering the attitudes which prevailed at the time of Midland Bank, expressed the view that at the time the solicitor treated the purchasing/borrowing client as primary and the lending client was accorded a secondary status.85 If that ever was true, the CML Handbook, applying to residential transactions, makes explicit the obligations on a solicitor to make disclosures. The decision to lend is now subject to revision right up until release of funds. Notwithstanding the contractual equal status of both borrowing and lending clients it will be seen below that the primary/secondary approach has not entirely died out. Two issues in the Handbook require special attention. Solicitors are obliged to report cash incentives86 and situations where they will not have control over the whole purchase price87 on the one hand and on the other surrounding circumstances such as the property having changed hands in the six months prior to the current transaction.88 These provisions are designed to prevent lenders becoming victims of mortgage fraud by the ramping up of the purchase price and circulation of deposits. Some instances have involved a combination of all three techniques.

E. The Regulator as a Surrogate for Client Claims

  • 89 Pervez [No5] 2008 SSDT 1427; Dunbar [No1] 2011 SSDT 1540; Davidson 2011 SSDT 1557; Campbell 2012 S (...)
  • 90 CML Handbook (n 11), para 5.1.1.
  • 91 Ibid, para 1.4.

19The Law Society has taken disciplinary action ex proprio motu89 in a number of cases where the lender has not raised any complaint. Over the last six years, fifteen such surrogate claims have come before the Scottish Solicitors Discipline Tribunal. In these cases, with the exception of Baillie, no disclosure as required in the CML Handbook was made to the respective lenders at the time of making a report on title and requesting the funds. In Baillie, disclosures were made in bald terms that the property had not been owned by the seller in the present transaction. The Tribunal were critical of the solicitor in meeting the literal obligations specified in the Handbook90 but failing to provide information that the settlement of the current and prior transactions were simultaneous, thus failing to meet the common law duties which are preserved by the Handbook.91 On the basis of these decisions it would appear that there still remain a number of solicitors who are prepared to treat the interests of a lending client as secondary to those of a private purchaser.

  • 92 Law Society of Scotland Practice Rules 2011, r B6.18.2.
  • 93 Sharp v Council of Law Society of Scotland 1984 SC 129, 1984 SLT 313.

20Where subsequent disclosures were made by the solicitors concerned, the funds had already been advanced and the securities registered. It was too late for the lenders to reconsider the underwriting of the loans. The prompt for the late disclosures appears to have been the Society, following on routine Accounts Rules92 inspections of the respective firms. By taking these matters to the Tribunal it is argued that the Society has become a surrogate client – it appears that the Society has moved away from inspections for mere compliance with the Accounts Rules to a quality inspection of the work undertaken by solicitors at least in respect of secured lending work. Disciplinary penalties sanctioned by the Tribunal do not amount to findings of negligence. It may be that lenders involved in all the cases which have come before the Tribunal have not experienced defaults and have not had cause to call up the respective securities. Even if they had, it would only be in the event that they suffered a shortfall on the realisation of the security subjects that any claim for negligence would lie against the solicitor. Nonetheless it would be a powerful argument should such a claim arise that the Tribunal had regarded the solicitor’s conduct to amount to a serious and reprehensible breach of the standards required of a solicitor.93 The surrogate claimant, the Society, thus paves the way for the natural claimant should a loss subsequently be incurred.

  • 94 Law Society of Scotland Practice Rules 2011 B6.18.3.
  • 95 Solicitors (Scotland) Act 1980, s43.
  • 96 Law Society of Scotland Practice Rules 2011, r B6.18.3.
  • 97 Pocock ’s Trustee v Skene Investments [2012] CSIH 61; Russell Taylor [2004] SSDT 1148.
  • 98 See Billig v Council of the Law Society of Scotland [2006] CSOH 148, 2007 SC 32. The appellant who (...)
  • 99 [1996] AC 421.
  • 100 See Rennie, Negligence (n 1), para 5.04 for a detailed discussion of the decision in the Court of (...)
  • 101 AIB Group (UK) Plc v Mark Redler & Co Solicitors [2014] UKSC 58, reaffirming the decision in Targe (...)

21The counter argument is that the Society has not expanded its role at all. The original purpose of Accounts Rules inspections was to assure the Society, representing the broader profession, that the Guarantee Fund is not put at risk.94 The Fund is available to compensate persons who in the opinion of the Council suffer pecuniary loss by reason of dishonesty on the part of any solicitor.95 However the role of inspection has now broadened to include a supervisory remit under the Money Laundering Regulations.96 The typical situation where the Guarantee Fund is invoked is that where the solicitor has misappropriated funds under her control but it is not restricted to such situations. For example where a solicitor conveyed a property not to the original purchaser but to an innocent third party by fraudulently altering a signed deed in the event of that party suffering loss then the third party may have a claim on the Fund97 Similarly, conduct which is contrary to the express terms of Practice Rules may give rise to a claim but not where the party seeking to found on that conduct was aware of the terms of the Rules breach.98 However in the cases before the Tribunal discussed above, the lender and purchaser were both represented by the same agent and duties are owed to both parties so there is direct representation. In Target Holdings Ltd v Redferns99 it was held that the solicitor was under a duty in a back to back situation, as occurred in the recent Discipline Tribunal cases, at common law to disclose to the lender the nature of the back to back transaction.100 In such circumstances lenders typically argue that had a partial disclosure or in some cases full disclosure of the facts been made then the decision to lend would have been rescinded and therefore but for the failure to disclose relevant information no loss would have been incurred.101

  • 102 Financial Action Task Force, Report on Money Laundering and Terrorist Financing: Vulnerabilities o (...)
  • 103 CML Handbook (n 11), para 1.4.
  • 104 Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2014] CSIH 79. In Cheshire Mortgage Corpor (...)
  • 105 Proceeds of Crime Act 2002 s340. Law Society [of England and Wales] Anti-money Laundering Practice (...)
  • 106 Proceeds of Crime Act 2002 s330.
  • 107 Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2014] CSIH 79.

22Quick successive sales of property are a means of inflating the price of property which can be used to induce lenders to advance more money on property than might otherwise be the case. This is a recognised typology of money laundering.102 Of course, if the solicitor is aware of such a situation he is obliged under the common law principles103 including accessory to fraud to make a disclosure to the lender.104 Furthermore, once the mortgage funds have been received and used in conjunction with any deposit to acquire the property, at that point the proceeds of crime are being converted into another form which then itself represents the proceeds of crime.105 This and only this triggers the requirement to make a suspicious activity report to the National Crime Agency.106 Once the transaction is tainted by fraud then negligence claims will follow and will be irresistible.107

F. Third Party Claims

  • 108 Begg, Treatise (n 22), ch 21, para 1.

23Begg notes:108

Law Agents are under no obligation to attend to the interests of any persons except their own clients. To third parties they owe no duty but the negative one of abstaining from the commission of actual wrong.

  • 109 Rennie, Negligence (n 1), para 4.01.
  • 110 (1861) 23D (HL) 8; (1861) 4 Macq 167.
  • 111 White v Jones [1995] 2 AC 207; [1995] 1 All ER 691.
  • 112 White (n 111) at 258.
  • 113 Ibid at 177.
  • 114 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; [1963] 2 All ER 575; Henderson v. Mer (...)
  • 115 White (n 111) at 265 (Lord Goff).
  • 116 Ibid at 270 citing Caparo Industies plc v Dickman [1990] 2 AC 605 (Lord Brown Wilkinson).

24Professor Rennie was able to restate this proposition from Begg when writing in 1996. The position in Scotland was that a solicitor was not liable in negligence to third parties.109 The leading authority, as at the time of Begg’s work, was Robertson v Fleming.110 Professor Rennie predicted that the position adopted by the House of Lords in Robertson was liable to be reversed should the House be called to determine a similar point in the future. The House had recently considered matters in England in White v Jones111 in relation to the liability of solicitors to disappointed beneficiaries. Lord Goff112 referred to dicta in Robertson,113 where the Lord Chancellor had stated that an entitlement to claim by disappointed beneficiaries did not form part of the law of Scotland nor of England. Lord Goff noted that this dicta, strictly speaking, did not form part of the ratio of the case. In Robertson the solicitor concerned had failed to create an effective security over a long lease. When the intended security holder died a claim was made by his beneficiaries which claim was ultimately unsuccessful. On that basis the comments were merely obiter and Lord Goff’s analysis must be correct. The House of Lords by a majority of three to two in White held that a solicitor assumed a special duty towards potential beneficiaries and if that duty was breached then liability would follow. Such a duty could be by omission and not only negligent acts of commission.114 The House found that it was a case akin to transferred loss,115 where the beneficiary had a loss and no claim in contract and the deceased had a claim but no loss, and that it was fair just and reasonable in all the circumstances to hold the solicitor liable which was an incremental approach.116

  • 117 1990 SLT 266.
  • 118 2002 SLT 544.
  • 119 Robertson v Watt & Co, 2nd Div, 4 July 1995, unreported.
  • 120 Holmes v Bank of Scotland 2002 SLT 544 para 19.

25While White may have set a new course in England, Robertson was a Scottish case, hence Professor Rennie’s views that this still represented the law in Scotland but that it would be unlikely to remain good law should a Scottish case be taken to their Lordships’House. However, their Lordship’s intervention did not prove necessary. As recently as 1990, Robertson had been seen as binding and determinative of the issue by Lord Weir in Weir v J M Hodge & Son.117 However Holmes v Bank of Scotland118 saw Lord Kingarth sitting in the Outer House depart from the line of authorities starting with Robertson. The reason for so doing was an unremarked upon and unreported Inner House decision from 1995119 decided shortly after White and therefore binding upon him. For his part, Lord Kingarth saw no reason why White should not be followed in Scotland, notwithstanding the strong dissents therein from Lord Jauncey and Lord Mustill.120

  • 121 [2008] CSOH 88; 2008 SLT 634.
  • 122 [2008] CSOH 159; 2009 SLT 31.
  • 123 [2013] CSOH 61; 2013 SLT 763.
  • 124 Stevens (n 123) at para 13.
  • 125 Ibid at 16.
  • 126 Milligan ’s Executors v Hewats [2013] CSOH 60; 2013 SLT 758.

26That the deceased had a claim but no loss and the disappointed beneficiaries did is borne out by Matthews v Hunter & Robertson Ltd.121 The executor brought a claim against the solicitors alleging that they had failed to effectively revoke a survivorship destination. The executor is said to be eadam personam cum defuncto and if the deceased had no loss to his estate at the moment prior to his death then the estate suffered no loss either. It was held by Lord Brodie that the additional Caparo limb of the test, that it was fair, just and reasonable in the circumstances, would not be satisfied in this situation. The principle of assumption of duty has been held to extend potentially to recipients of lifetime gifts. There is a fine distinction between the sort of negligent omission as in White or Holmes and a situation where there is advice tendered negligently to a client who then acts on that advice and the resulting will or conveyance which in its own terms is perfectly in order does not produce the desired effect. In Fraser v McArthur Stewart,122 which related to the ineffective legacy of a croft based on negligent advice, it was held by Lord Brailsfield that White was not directly in point and that the facts were distinguishable. As a result the advice and the effects of the advice were severable and there was no assumption of duty on which the disappointed beneficiaries might found. In Stevens v Hewats123 on the other hand the solicitors were instructed to convey a house and associated lands by way of gift. The disponer continued to reside in the property notwithstanding the gift. Some eight years later it was discovered that the conveyance was ineffective and a new conveyance was registered. At this time consideration was also given to the gifts with reservation rules for inheritance tax and a lease drawn up at market rent whereby the donor paid rent to the donee. Unfortunately the donor did not survive the necessary seven years. Claims were made both by the executors and the donee, in relation to the additional inheritance tax which was payable. The registering of a disposition on behalf of the donee has contractual aspects of the duty of care, as noted by Lord Tyre124 but the assertion was made by the claimants that general tax planning advice was or ought to have been provided. Lord Tyre was of the view that a stateable case had been made out on the basis of the decision in White but that the issue required proof.125 In the parallel action by the executors, Lord Tyre held on the same basis as Matthews that no claim lay against the solicitors.126 To date Stevens is the only example of the White principle being applied in a conveyancing context in a reported case in Scotland. It is however clear that Lord Goff’s incremental approach to the extension of liability expressed in White is exactly that and the application of the principle of assumption of risk is capable of adaptation to a number of different situations. The law will continue to develop.

G. Third Party Claims for Inadequate Professional Service

  • 127 Legal Profession and Legal Aid (Scotland) Act 2007, s2 (1)(b).
  • 128 Solicitors (Scotland) Act 1980 s65 (1).
  • 129 Rennie, Negligence (n 1), para 11.06.
  • 130 Paterson and Ritchie, Law, Practice and Conduct (n 9), para 1.04.
  • 131 SP Committee Official Report, 23rd Meeting (Session 2), September 26, 2006.
  • 132 Legal Profession and Legal Aid (Scotland) Act 2007, s10.
  • 133 Rennie, Negligence (n 1), para 11.05.

27Inadequate professional service is now defined as “professional services provided by a practitioner in connection with any matter in which the practitioner has been instructed by a client [which] were inadequate.”127 These provisions replace earlier provisions128 which defined such services as not of the quality which could reasonably be expected of a competent solicitor. The relationship of inadequate professional service with negligence has been a source of uncertainty since the provisions were first enacted. Professor Rennie expressed the opinion that inadequate professional service is possible without negligence but whether the converse is true remains contentious in relation to the earlier provisions.129 Paterson and Ritchie are of the opinion that the two often overlap.130 In terms of section 11 of the 2007 Act the Scottish Legal Complaints Commission must, in considering what is fair and reasonable in all the circumstances, take into account the law, professional rules standards and guidance and any relevant codes of practice. When the provisions were being debated before the Scottish Parliament, the minister considered that there would be serious problems with requiring the Commission to separate negligence aspects from wider aspects of inadequate professional services.131 So overlap is the order of the day and there is no comprehensive definition of inadequate professional services. Given the compensation levels are up to £20,000 and the Commission has a number of other tools such as ordering other steps to rectify the inadequate service this is a significant remedy for those affected by inadequate professional service.132 Furthermore there is no need to prove loss as exists in the law of negligence.133 Such services according to the definition must relate to a matter instructed by a client there is no requirement for the person affected to be the client.

  • 134 Ibid para 16.04.
  • 135 [2010] CSIH 79; 2011 SC 94; 2011 SLT 31; for a similar cases see SLCC Annual Report 2011/12 case 4 (...)
  • 136 Scottish Legal Complaints Commission, Third Party Complaints advice sheet available at http://www. (...)
  • 137 [2012] CSIH 99.

28The test for service complaints is that the Commission must be satisfied that the complainer has an interest to enforce. Paterson and Ritchie suggest that the category has the potential to be broad and is capable of including beneficiaries (and presumably disappointed beneficiaries) in an executry, opponents in a court case or perhaps where the agent for one side delays a conveyancing matter to the prejudice of the other.134 The Commission’s ability to accept third party complaints is now circumscribed by the decision in Council of the Law Society of Scotland v Scottish Legal Complaints Commission.135 A complaint was accepted in relation to a conduct matter but the principle is equally applicable to service complaints where the person making the complaint had received a letter from a firm of solicitors regarding an alleged trespass on their property on the basis of information supplied by the client. The Court held that a solicitor had a duty to represent her client and was entitled to rely on the information supplied. Furthermore a solicitor is not bound to respond to any complaint made by third parties.136 In Saville-Smith v Scottish Legal Complaints Commission137 the pursuer sought to complain against the solicitor acting for his former employer on the basis that the solicitor had both revised the letter of dismissal and had appeared in the subsequent Tribunal proceedings. This was rejected as frivolous – again illustrating a narrow approach to third party claims. While these cases may restrict the scope of complaints they do not entirely exclude it and a third party complaint by a disappointed beneficiary may be admitted with the possibility of compensation being paid to complainer in circumstances where negligence need not be proved or where there is no incidence between liability and the loss. For example, the fine distinction drawn in Fraser in relation to the advice and the subsequent ineffective legacy, might not trouble the Commission when considering what is fair and reasonable in all the circumstances.

H. Conclusions

29The fundamental tenets of practice – fidelity, confidentiality and the avoidance of conflicts of interest – remain the same as they did two decades ago. Some measures of regulatory reform such as written terms of business may clarify the obligations undertaken by solicitors which will tend to reduce the scope for negligence and in a few restricted situations may permit the limitation of liability. On the other hand the increasing interest of the legislature in anti-money laundering measures and the reduction of financial crime have imposed duties on solicitors that have fundamentally affected practice, undermining the duty of confidentiality, as well as requiring regulatory bodies to expand the ambit of the supervision of the profession. Inevitably these duties have been seized upon by the victims of identity theft in conveyancing matters as enhancing the obligations of solicitors to third parties.

30Lenders have organised themselves to require solicitors to act on their behalf subject to standard terms which are significantly more explicit than the common law standards which are preserved. The result of such explicit standards is that a ‘tick-box’ approach can be adopted in regulatory inspections to demonstrate compliance or otherwise with those standards without the need to explore the perimeters of common law duties which can, on occasions, appear hazy.

31Finally the creation of a new simplified regime for service complaints with significantly increased limits of compensation opens the door to fairly sizeable negligence claims being dealt with as inadequate professional service claims without the need to prove loss and without the client being required to incur the potential costs involved in litigation.

32There can be little doubt that the duty of care owed by solicitors to their clients and third parties has expanded since Professor Rennie wrote his authoritative work.

Notes

1 R Rennie, Solicitors’ Negligence (1997).

2 R Rennie, Opinions on Professional Negligence in Conveyancing – The Opinions of Professor Robert Rennie (2004).

3 Law Society of Scotland Practice Rules 2011, r B1.4.

4 2011 Rules, r B1.7; Charter of Core Principles of the European Legal Profession and Code of Conduct for European Lawyers (2008) principle C, Code 3.2.

5 2011 Rules, r B1.6; Charter of Core Principles of the European Legal Profession and Code of Conduct for European Lawyers (2008) principle B, Code 2.3.

6 2011 Rules, r B1.7.2.

7 Ibid, r B1.7.1.

8 Bank of East Asia Ltd v Shepherd & Wedderburn 1995 SLT 1074; Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2014] CSIH 79; Marks & Spencer Group Plc v Freshfields Bruckhaus Deringer [2004] EWCA Civ 741, [2004] 1 WLR 2331; Prince Jefri Bolkiah v KPMG [1999] 2 AC 222; Bristol & West Building Society v Aitken Nairn 1999 SC 678; Clark Boyce v Mouat [1994] 1 AC 428; Leeds & Holbeck Building Society v Alex Morrison 2001 SCLR 41.

9 See A Paterson and B Ritchie Law, Practice and Conduct for Solicitors (2006), Ch 7 for a discussion.

10 Rennie, Negligence (n 1), para 2.01 and the authorities cited there.

11 Available at http://www.cml.org.uk/cml/handbook/scotland

12 I Smith and J Barton, Procedures and Decisions of the Scottish Solicitors Discipline Tribunal (1995).

13 Money Laundering Regulation 1993, SI 1993/1933.

14 Currently represented by the Money Laundering Regulations 2007, SI 2007/2157 and the Proceeds of Crime Act 2002, particularly Part 7 Money Laundering.

15 Proceeds of Crime Act 2002, s330.

16 Money Laundering Regulations 1993, SI 1993/1933, reg 42.

17 Cheshire Mortgage Corporation Ltd v Grandison [2012] CSIH 66; 2013 SC 160; Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2014] CSIH 79, where there was a finding against the solicitors on other grounds.

18 Rennie, Negligence (n 1), para 11.03.

19 Law Society of Scotland Practice Rules 2011, r B4.1-4.2.

20 This is subject to certain exceptions which are not discussed here.

21 Rennie, Negligence (n 1), para 3.02.

22 Law Agents (Scotland) Act 1873; J H Begg, A Treatise on the Law of Scotland Relating to Law Agents (1873); The Scottish Law Agents Society was incorporated by Royal Charter in 1884, all indicating this then universal usage.

23 Rennie, Negligence (n 1), para 4.01.

24 Ibid para 3.02.

25 Law Society of Scotland Practice Rules 2011. r B4.2.

26 Ibid.

27 In Stevens v Hewats [2013] CSOH 61; 2013 SLT 763 the agents in question had been instructed to prepare a gift of heritable property. Had the terms of engagement specifically excluded the provision of advice in relation to inheritance tax then, arguably, there would have been no basis of action.

28 Law Society of Scotland Practice Rules 2011, r B1.4.1 and B1.4.2.

29 Unfair Contract Terms Act 1977, s 2.

30 [2001] PNLR 1.

31 Unfair Terms in Consumer Contract Regulations 1999, SI 1999/2083.

32 1999 Regulations, art 5 and schedule para 1 (b).

33 West v Ian Finlay and Associates [2014] EWCA Civ 316, in relation to the terms of business of a firm of architects.

34 CML Handbook (n 11).

35 Ibid para 1.4.

36 For example in terms of para 5.9.1, the solicitor must ask a purchasing client if the balance of the price is being provided without resort to other lending and where there is other lending to disclose this to the instructing lender. This is the case whether or not that loan is to be secured on the property and has no impact of the validity or ranking of the security.

37 Rennie, Opinions (n 2), p 436.

38 Ibid p 438.

39 Unfair Contract Terms Act 1977, s2; Hedley Byrne v Heller and Partners [1964] AC 465; [1963] 1 All ER 575; Caparo Industries v Dickman [1990] 2 AC 605; [1990] 1 All ER 568.

40 Money Laundering Regulations 1993, SI 1993/1933.

41 W M Gloag and R C Henderson The Law of Scotland, 13th edn, by H Macqueen et al (2012) para 19.27 and the authorities referred to therein.

42 L Macgregor, “Agency,” in The Laws of Scotland: Stair Memorial Encyclopaedia, Reissue (2002) para 168.

43 Ibid.

44 W M Gloag, Law of Contract, 2nd edn (1929) p 155.

45 1990 SLT 305.

46 Scott (n 45) at 307.

47 (1903) 11 SLT 163; see also Salvesen & Co v Rederi AB Nordstjernan (1903) 6 F 64 9 (which was partially reversed in the House of Lords on other grounds (1905) 7 F (HL) 101; (1905) 13 SLT 20.

48 [2012] CSIH 66; 2013 SC 160.

49 Further claims were made based on the letters of obligation which had been issued by the “borrowers” agent. These were disposed of on the basis that a letter of obligation was granted as an ancillary obligation to those which were established in the principal contract. Where that principal contract had been reduced then the ancillary obligations must also fall: Mason v AR Robertson and Black 1993 SLT 773.

50 Cheshire Mortgage Corporation (n 48) at para 11.

51 Money Laundering Regulations 2007, SI 2007/2157, reg 7.

52 2007 Regulations, reg 5.

53 Available at http://www.jmlsg.org.uk/industry-guidance/article/guidance

54 It must now be approved by HM Treasury.

55 2007 Regulations, reg 45.

56 Law Society of Scotland Practice Rules 2011, r B6.23.1.

57 Frank Houlgate Ltd v Biggart Baillie [2009] CSOH 165; 2010 SLT 527. Lord Drummond Young’s opinion at para 25 dismissed claims based on the Money Laundering Regulations 2003 which have now been replaced by the 2007 Regulations.

58 R v Preddy [1996] AC 815; [1996] 3 WLR 255; [1996] 3 All ER 481; R v Waya [2012] UKSC 51; [2013] 1 AC 294; [2012] 3 WLR 1188; [2013] 1 All ER 889.

59 Proceeds of Crime Act 2002 part VII. See n 105 in relation to the timing of the duty.

60 See currently Money Laundering Regulations 2007, SI 2007/2157, reg 17.

61 Outer House judgment [2011] CSOH 157; 2012 SLT 672 at para 16 being referred to as ‘KYC rules.’ See further K Swinton, “The Potential for civil liability arising from failures in client identification requirements under the Money Laundering Regulations” (2011) 79 SLG 97.

62 Nor for that matter had the solicitor confirmed in writing that he consented to his identification being relied on as required by the Regulations.

63 Cheshire Mortgage Corporation Ltd v Grandison [2012] CSIH 66; 2013 SC 160 at para 32 per L Clarke, delivering the opinion of the Court.

64 [1964] AC 465; [1963] 1 All ER 575.

65 [1990] 2 AC 605; [1990] 1 All ER 568. See further Rennie, Negligence (n 1), para 4.03 et seq.

66 [2009] CSOH 165; 2010 SLT 527.

67 Frank Houlgate (n 66) at para 28 (opinion of Lord Drummond Young).

68 Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2014] CSIH 79; 2014 SLT 1001 paragraph 9.

69 The solicitor in question was censured for his conduct and fined the maximum £10000: Mair [2009] SSDT 1463.

70 Frank Houlgate (n 68) at para 34 (opinion of Lord Menzies).

71 Ibid at para 45.

72 Ibid at para 43.

73 Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2009] CSOH 165; 2010 SLT 527 at para 21 (Lord Drummond Young); 2011 CSOH 160; 2012 SLT 256 at para 33 (Lord Glennie); [2013] CSOH 80; 2013 SLT 993 at para 43 (Lord Hodge).

74 Frank Houlgate (n 68) at para 89.

75 Ibid at para 81.

76 Law Society of Scotland Practice Rules 2011, r B1.7.1 and B2.1.2: “You shall not act for two or more parties whose interests conflict.”

77 See 2011 Rules, r B1.2 generally.

78 1988 SLT 611.

79 Midland Bank (n 78) at 618.

80 [1998] IESC 66.

81 Rennie, Negligence (n 1) para 5.01.

82 [1995] 2 AC 207; [1995] 1 All ER 691.

83 2nd Div, 4 July 1995, unreported.

84 2002 SLT 544.

85 Rennie, Negligence (n 1) para 5.01.

86 CML Handbook (n 11), para 6.4.4.

87 Ibid, 6.4.5.

88 Ibid, 5.1.1.

89 Pervez [No5] 2008 SSDT 1427; Dunbar [No1] 2011 SSDT 1540; Davidson 2011 SSDT 1557; Campbell 2012 SSDT 1585; Coogans [No2] 2012 SSDT 1580; Kerr 2012 SSDT 1587; Joss 2012 SSDT 1603; Lints [No1] 2013 SSDT 1607; Campbell 2013 SSDT 1613; MacDonald 2013 SSDT 1618; Aikman 2013 1629; Tulips [2013] SSDT 1631; Haywood [2014] SSDT 1645; Baillie [2014] SSDT; Muir [2014] SSDT; K Swinton, “Compliance with CML Handbook” (2012) 80 SLG 92; K Swinton, “SSDT and CML Handbook Breaches” (2014) 82 SLG 21.

90 CML Handbook (n 11), para 5.1.1.

91 Ibid, para 1.4.

92 Law Society of Scotland Practice Rules 2011, r B6.18.2.

93 Sharp v Council of Law Society of Scotland 1984 SC 129, 1984 SLT 313.

94 Law Society of Scotland Practice Rules 2011 B6.18.3.

95 Solicitors (Scotland) Act 1980, s43.

96 Law Society of Scotland Practice Rules 2011, r B6.18.3.

97 Pocock ’s Trustee v Skene Investments [2012] CSIH 61; Russell Taylor [2004] SSDT 1148.

98 See Billig v Council of the Law Society of Scotland [2006] CSOH 148, 2007 SC 32. The appellant who had lent money to a client of a solicitor sought to found on personal guarantees issued by the solicitor which were prohibited by the Accounts Rules then in operation. He was aware as a result of legal advice received that the solicitor was not in a position to grant those guarantees but proceeded on the mistaken belief that he might successfully look to the Fund to make good the losses as the conduct of the solicitor must have been dishonest. It was held that it was reasonable to exercise discretion in such circumstances to refuse payment.

99 [1996] AC 421.

100 See Rennie, Negligence (n 1), para 5.04 for a detailed discussion of the decision in the Court of Appeal. By the time the case came to be discussed by the House of Lords it proceeded on a presumed set of facts where the solicitors were assumed to have advanced the funds ahead of obtaining a valid security which was later registered. It was held on the basis of breach of trust that this should be calculated on a basis of the actual loss attributable directly to the breach.

101 AIB Group (UK) Plc v Mark Redler & Co Solicitors [2014] UKSC 58, reaffirming the decision in Target should be narrowly interpreted. As Rennie has noted Negligence (n 1) para 5.05 English law is rendered more complex by discussions of breach of trust in addition to contractual and tortious liability. See also Lord Toulson’s opinion at paragraph 1 in AIB Group.

102 Financial Action Task Force, Report on Money Laundering and Terrorist Financing: Vulnerabilities of Legal Professionals (June 2013) p 46 Technique: Transferring Value – Back to Back or ABC Sales.

103 CML Handbook (n 11), para 1.4.

104 Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2014] CSIH 79. In Cheshire Mortgage Corporation (n 48) the solicitor had no knowledge, suspicion or grounds on which to suspect that there was a case of identity fraud.

105 Proceeds of Crime Act 2002 s340. Law Society [of England and Wales] Anti-money Laundering Practice Note (October 2013), para 11.4.4 – Lender issues. The SSDT has wrongly stated there to be a duty to make a SAR at a much earlier stage in a number of the cases cited above, for example, Baillie (n 89) at 58-59.

106 Proceeds of Crime Act 2002 s330.

107 Frank Houlgate Investment Co Ltd v Biggart Baillie LLP [2014] CSIH 79.

108 Begg, Treatise (n 22), ch 21, para 1.

109 Rennie, Negligence (n 1), para 4.01.

110 (1861) 23D (HL) 8; (1861) 4 Macq 167.

111 White v Jones [1995] 2 AC 207; [1995] 1 All ER 691.

112 White (n 111) at 258.

113 Ibid at 177.

114 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465; [1963] 2 All ER 575; Henderson v. Merrett Syndicates Ltd . [1995] 2 AC 14 5, 182, per Lord Goff.

115 White (n 111) at 265 (Lord Goff).

116 Ibid at 270 citing Caparo Industies plc v Dickman [1990] 2 AC 605 (Lord Brown Wilkinson).

117 1990 SLT 266.

118 2002 SLT 544.

119 Robertson v Watt & Co, 2nd Div, 4 July 1995, unreported.

120 Holmes v Bank of Scotland 2002 SLT 544 para 19.

121 [2008] CSOH 88; 2008 SLT 634.

122 [2008] CSOH 159; 2009 SLT 31.

123 [2013] CSOH 61; 2013 SLT 763.

124 Stevens (n 123) at para 13.

125 Ibid at 16.

126 Milligan ’s Executors v Hewats [2013] CSOH 60; 2013 SLT 758.

127 Legal Profession and Legal Aid (Scotland) Act 2007, s2 (1)(b).

128 Solicitors (Scotland) Act 1980 s65 (1).

129 Rennie, Negligence (n 1), para 11.06.

130 Paterson and Ritchie, Law, Practice and Conduct (n 9), para 1.04.

131 SP Committee Official Report, 23rd Meeting (Session 2), September 26, 2006.

132 Legal Profession and Legal Aid (Scotland) Act 2007, s10.

133 Rennie, Negligence (n 1), para 11.05.

134 Ibid para 16.04.

135 [2010] CSIH 79; 2011 SC 94; 2011 SLT 31; for a similar cases see SLCC Annual Report 2011/12 case 4 letter to third party, SLCC Annual Report 2010/11 case 4 opponent’s agent in court action.

136 Scottish Legal Complaints Commission, Third Party Complaints advice sheet available at http://www.scottishlegalcomplaints.org.uk/for-practitioners/guidance-advice/adviceand-information.aspx

137 [2012] CSIH 99.

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