ROY DEAN v ALLIN & WATTS (A FIRM)

A solicitor retained by one party may exceptionally owe a duty of care to a non-client. The question is objective. A duty may arise where the solicitor is instructed to perform a task fundamental to the non-client’s protection, knows that the non-client is unrepresented and relying on the task, and the parties have an identity of interest in its proper performance. It must also be fair, just and reasonable to impose the duty.

A solicitor’s drafting or transmission of a client’s document does not, without more, represent that its legal effect is valid or adequate. A property solicitor who fails to recognise a serious statutory risk that a security is ineffective may nevertheless be negligent where a duty is owed.

Mr Dean made successive loans to borrowers connected with Citizen Homes. The borrowers instructed Allin & Watts to document the transactions and arrange security over a flat owned by third parties. The intended security was a deposit of title deeds, but no memorandum was signed by the owners and Mr Dean.

Arden J dismissed Mr Dean’s professional-negligence claim. She held that the solicitors owed him no contractual or tortious duty, although she made findings in his favour on breach, causation, loss and mitigation if a duty existed. Mr Dean appealed, and the solicitors cross-appealed those contingent findings.

The central issue was whether solicitors acting for borrowers owed a non-client lender a duty to provide, or warn of the absence of, effective security.

1. Appeal allowed unanimously. Lightman J gave the principal judgment. Sedley LJ and Robert Walker LJ agreed that, on the particular facts, the law imposed a duty of care on the solicitors towards Mr Dean.

2. No implied retainer arose. An implied solicitor-client contract requires an objectively clear intention to enter that relationship. The borrowers alone instructed and paid the solicitors, who had stated that they could not act for Mr Dean. Their later communications and undertaking to hold the deeds were consistent with acting for the borrowers.

3. Nor did the promissory notes or the undertaking constitute a negligent representation that the security was valid. The notes conveyed the borrowers’ statement that deeds had been deposited as collateral security. They did not advise on the security’s legal efficacy. The undertaking concerned custody of the deeds only.

4. A duty in tort nevertheless arose. The solicitors were instructed to secure repayment, knew that effective security was fundamental to the loan, knew or should have known that Mr Dean was inexperienced and unrepresented, and knew that he relied on them. There was an identity of interest between borrower and lender in creating effective security. Applying the approach in White v Jones [1995] 2 AC 207 and Gorham v British Telecommunications plc [2000] 4 All ER 867, foreseeability, proximity and fairness justified a duty limited to that common purpose.

5. The court permitted an amendment to plead expressly a duty to provide effective security. It caused no prejudice and reflected the real issue. The appeal succeeded on both the amended and unamended pleadings.

6. The respondent’s challenges failed. A reasonably competent property solicitor should have appreciated the serious risk that Law of Property (Miscellaneous Provisions) Act 1989 section 2 rendered an unsigned deed-deposit security invalid. Mr Dean’s later consultation of another solicitor did not end his reliance on Allin & Watts or break causation. He had not acted unreasonably in compromising the third-party owners’ claim for return of the deeds, given the uncertainty, expense and risk of litigation.

Judgment was entered for Mr Dean for £50,000 with simple interest from 1 January 1997.

• Court of Appeal (Civil Division): Allowed Mr Dean’s appeal and reversed the dismissal of his negligence claim. Judgment entered for Mr Dean for £50,000 with simple interest from 1 January 1997. Permission to appeal to the House of Lords was refused.
• High Court, Chancery Division (Arden J): On 21 December 1999, dismissed the claim on the basis that the solicitors owed Mr Dean no contractual or tortious duty. Made contingent findings for Mr Dean on breach, causation, loss and mitigation.