Chief Land Registrar v Caffrey & Co

On an application for default judgment, the court must assume pleaded facts are true but must independently decide what legal relief those facts support.

A solicitor acting for a client whose interests conflict with a bank does not ordinarily owe the bank a duty to verify the genuineness of documents supplied by the client. The allocation of fraud risk depends on the particular relationship and the wider legal and factual context. A separate duty may arise in negligent misrepresentation where a professional conveyancer makes representations to the registration authority, knowing or reasonably expected to know that they will be relied on, although the conclusion remains fact-sensitive.

The Chief Land Registrar sought default judgment against a solicitors’ firm which had acted for mortgagors in an allegedly fraudulent discharge of a registered mortgage. The bank was indemnified under the Land Registration Act 2002, and the Registrar claimed statutory subrogation to the bank’s alleged negligence claim.

The Registrar also claimed directly for negligent misrepresentation, alleging that the firm represented that it had taken sufficient steps to verify the discharge documents and power of attorney. The firm did not acknowledge service and did not appear. The central issues were whether the pleaded facts established a duty of care in negligence and whether they established a duty in negligent misrepresentation.

1. Default judgment. Under CPR r 12.11(1), the court had to assume the pleaded factual allegations were true, but it remained necessary to decide what relief the claimant was legally entitled to on those facts. The rule did not require the court to accept the claimant’s legal characterisation of the facts.
2. Negligence. The alleged duty to the bank was not established. The firm acted for the mortgagors, not the bank, knew that the bank had separate solicitors, and was dealing with parties whose interests were opposed. Those circumstances made an assumption of responsibility to the bank improbable. The authorities relied on by the claimant involved materially different relationships, including reliance by an unsophisticated lender or instructions apparently given on behalf of the claimant.
3. The relevant inquiry required attention to the detailed circumstances and the relationship between the parties in their legal and factual setting. The fact that the firm could have avoided the loss by making further checks did not justify imposing a duty where those checks were outside its contractual role. The loss was caused by removal of the charge by the Registrar, and it was not fair, just or reasonable to transfer the risk of fraud in the registration system to the client’s solicitor. Default judgment was therefore refused on the negligence cause of action.
4. Negligent misrepresentation. On the assumed facts, the firm had volunteered information to the Registrar in circumstances where it knew or ought to have known that the Registrar would rely on it when deciding whether to remove the charge. Although the Registrar was professionally staffed, had raised a requisition, and the firm had no special expertise in detecting fraud, the court was narrowly persuaded that the peculiar pleaded facts established an assumption of responsibility to take care over the representations. Default judgment was accordingly entered on the second cause of action, with damages to be assessed.

First-instance decision on an application for judgment in default. The application followed service of the claim form and particulars of claim and the defendant’s failure to file an acknowledgment of service. Default judgment was entered only on the negligent misrepresentation cause of action, with damages to be assessed.