Professional Negligence: No loss, no claim. Simple?

This was the issue before the High Court in Bakrania v Shah and others following the Defendants’ successful strike out application. The case involved an unusual series of property frauds, which culminated in the Claimants losing their share in a property. Following failed applications to rectify the register, they unsuccessfully pursued damages claims against the various law firms involved as well as the Land Registry.

Professional indemnity specialists at Mills & Reeve acted for the successful defendants (Shah London Limited – a firm of solicitors) and their insurers together with David Halpern QC and Nick Broomfield of 4 New Square.

The claim

Vallabh Bakrania, his brother Jayanti and sister Hansa owned a house together. Shah Solicitors were purportedly instructed in 2009 by all three siblings to transfer the house from them all into the names of Jayanti and Hansa only. Shah carried out the transfer and registered it at HM Land Registry. Hansa and Jayanti then purportedly instructed another firm, Premier Solicitors to sell the house in 2010. It was alleged that fraudsters had masqueraded as Jayanti and Hansa.

Some years later, neighbours noticed work being done on the house and told the “real” Vallabh and Hansa (who lived abroad) that someone new had moved in. Vallabh and Hansa (Jayanti had since died) applied to rectify the Registry but failed. The new owners kept their house.

Vallabh and Hansa then sued Shah, Premier and the Land Registry. They claimed Shah had caused the ultimate loss of the property through the first transfer. It was alleged that Shah had acted without authority from the siblings to conduct the transfer and failed to take sufficient care to satisfy itself that it had instructions from Vallabh and Hansa. 

The arguments

Shah’s case

The focus of the strike out application was on causation and loss - the claim was bound to fail because:

• The initial transfer effected by Shah did not cause any loss to Vallabh.
• Hansa and/or Jayanti did not set out to defraud Vallabh of his share – the transfer was simply from three trustees to two, leaving the underlying trust of which the three siblings were trustees entirely unaffected.
• The initial transfer did not affect Vallabh’s equitable interest in the property or under the trust. It just left Hansa and Jayanti with a responsibility to rectify the register.
• The loss claimed only came about following the sale to the new owners. Whether by accident or design, the fraudsters instructed another law firm to act on this.

The Claimants’ case

The application was resisted on the basis of the (much debated) Court of Appeal decision in Swift 1^st Limited v Chief Land Registrar namely that:

• The Claimants did not retain any interest in the property after the first transfer was registered.
• s.58 LRA 2002 deems registration to be effective to transfer absolute ownership. The siblings would have no interest under a trust to challenge the new owners.
• The “statutory magic” of s.58 LRA 2002 gives good title to a purchaser even where the transferee had no title to transfer.

The result

The claim was struck out.

No loss

The Court found that the first transfer vested the entire legal estate of the property in Jayanti and Hansa, including equitable interests but that the title could have been rectified. The trust the three siblings had created remained after the transfer to the two with the land no longer held by all three in trust for each other, but by Jayanti and Hansa as trustees for all three. Vallabh had both proprietary and personal rights against his siblings by virtue of the trust they had created.

More critically, Vallabh’s claim for loss was found to be entirely lacking. No loss had been suffered on the initial transfer save for the nominal cost of rectifying the register, which was not claimed in any event.

This is all likely to cause a stir among property litigators in particular, with Swift (which in turn considers the approach by Arden J in Malory Enterprises Ltd v Cheshire Homes (UK) already a hot topic.

No duty on Shah to foresee a further fraud

The claim against Premier had fallen away by such time owing to a procedural issue but even still the Court looked at Shah’s involvement accounting for the second transfer. It was not pleaded that Shah should have foreseen that another fraud would happen but in any event, it was found that it was not within Shah’s scope of duty to foresee another fraud.

What about the Land Registry?

Owing to the way in which the claim was pleaded, once the claims against Shah and Premier had been struck out, no subsisting claim against the Land Registry remained so this was struck out too bringing the matter to an end.

Take away?

While the matter involved complex legal concepts, the claim ultimately boiled down to a careful analysis of the key strands of a professional indemnity action: duty, causation and loss. If any one of these three prongs is not satisfied (in this claim, loss) then a claim must fall away. Put simply, even if Shah were in breach of duty for effecting the first transfer any loss arose out of the second transfer. That was the true cause of the loss.