The decision in Orientfield Holdings Ltd v Bird & Bird LLP [2015] EWHC 1963 (Ch) (26 June 2015) should serve as a warning to all conveyancers of the serious financial consequences that can flow from mistakes made when carrying our due diligence on the purchase of a property.
In Orientfield the buyer’s claim against the conveyances acting on its behalf was for damages arising out of an alleged breach of contract and/or negligence relating to the purchase of a property in London. Contracts had been exchanged, a deposit paid by the buyers of £2.575 million and completion fixed for the 4th April 2011.
The buyer sought damages contending that its former conveyancers were in breach of duty as they had not informed the buyer of the impending development of a school, which the conveyancers had been aware of from a planning search carried out by them.
The trial took place during June 2015. The conveyancers argued that the buyer had bought the property solely as an investment in central London whereas the buyer said it was bought as a residence in retirement for the owner of the its Company.
The conveyancing transaction included a Property Information Form completed and signed by the Sellers. In the question headed Notices and Proposals they had marked ‘no’ in respect of any notices or letters received which would affect the property and in answer to whether the sellers were aware of any proposals for development nearby, they had written that the buyers should make their own enquiries, which the conveyancers had queried with the sellers solicitors as being an unsatisfactory answer.
In email correspondence the sellers solicitors told the conveyancers to carry out a Plan search which they did and which revealed all the planning proposals for the area including the school. The conveyancers sent their report on title of 9th November 2010 to the buyer without revealing the results of the Plan search and confirming to the buyer the local authority search result “which does not reveal anything adverse”.
After receiving the report on title the buyer gave instructions to the conveyancers to proceed to exchange of contracts with the deposit of £2.575 million paid.
The buyer’s friend in this Country discovered through talking to neighbours, the proposal to redevelop the school.
The buyer then contacted the conveyancers via emails who sent her a copy of the Plan search result with a comment that as they had not seen the search result, they may wish to take independent legal advice.
Email correspondence followed between the Claimant and conveyancers asking for the purchase to be rescinded on the basis that the sellers had not disclosed the school development. The conveyancers did not follow up on this or advise the Claimant to obtain a valuation of the property before rescission. The conveyancers appointed Counsel to advise on whether the sale should be rescinded. Counsels advice identified three reasons why rescission would prove difficult and also risky, one being that there was no evidence the notice of development had been sent to the property.
A property litigation lawyer was subsequently engaged by the buyer and notice of rescission was served on the basis that “the answer to question 3.1 in the PIF was untrue because (i) the Plants had received notice of application for both outline planning permission in 2008 and detailed planning permission in 2010, (ii) the Plants had commissioned Knight Frank to submit a detailed objection on their behalf at outline application stage and (iii) with others, had objected via Boisot Waters Cohen at detailed planning stage”.
Negotiations took place and the proceedings were settled before trial on the basis of a 50/50 split of the deposit.
The buyer then brought proceedings against the conveyancers for breach of contract or duty and their failure to let the Claimants know about the Plans search results and the Defendants failure to investigate the results in an effort to recover the other half of the deposit and unrecovered costs. The conveyancers denied breach of duty using and argued that even if there was a breach there was no causal link between the alleged failure to advise and the consequential loss. Essentially arguing that the buyers would have still proceeded with the purchase in any event.
His Honour Judge Pelling on considering Breach of Duty found in his judgment that the conveyancer “was in breach of his duty by failing to include in the ROT a summary of the effect of the Plan search report, the further investigations that could be undertaken with the LPA without undue difficulty, cost or delay, and to invite instructions in the light of that summary. By doing so, he would have given Ms Chow the opportunity to decide whether she wished to proceed, withdraw or obtain further information before deciding”.
In considering Causation, His Honour Judge Pelling ruled that the final point to prove this issue was the email to conveyancers acting on the property purchase where the Claimant had said
“I am sure I would not have entered into the purchase agreement if I had known that there was going to be a school for 1250 pupils and 250 staffs in the same block as my property.”
He continued that even though the buyer had become aware of the conveyancers failure to reveal the results of the Plan search and had taken other legal advice, he did not believe that the email was anything other than it was “reflective of her honest belief at that time”, which she had expressed long before the start of the proceedings. He was satisfied that the Claimants had “established the causal link necessary to maintain its claim in damages for breach of duty against the defendants”.
The decision is to be appealed.
Lessons to learn
There are a number of unanswered questions arising from the above which makes it difficult to carry out a complete and fully informed evaluation of the decision and its practical consequences.
To begin with its unclear why the buyer agreed to compromise on the financial consequences of rescission when it seems the seller had not acted in good faith when failing to disclose the fact that notice of the development has been received by the seller but the seller had failed to disclose this in the Property Information Form. It seems to be that there had been a deliberate concealment which should have provided a more than sufficient basis to justify a clean and complete rescission of the contract. Perhaps the buyer was not too concerned about not making a full recovery given the fall back of a claim against the conveyancers.
It would have been interesting to know whether there would have been a different outcome to the rescission discussions had the conveyancer not sought a plan search and had proceeded to report to the buyer solely on the basis of the Protocol documents.
The decision clearly reinforces a message which seems to have become lost in the age of the Protocol that when acting for a buyer greater energy and scrutiny needs to be given to the replies to the answers given by a seller in the Property Information Form and related communication. Its unclear why the conveyancers did not press the sellers solicitors for an answer to question 3.1 of the property information form and not accept what is fast becoming a standard reply of ‘rely on your own searches’. The seller should be required to answer 3.1 with a ‘yes’ or a ‘no’. A search will not reveal whether a seller has received a planning notice. Only the seller would know and this is why the question is raised in the Form.
This was the first error made by the conveyancers and one which is reflective of a more growing and widespread practice.
It is clear a failure to disclose a search report having received one is not advisable especially when it should have been obvious having read through it that it contained information highly relevant to the transaction. The unanswered question is whether this decision would have been the same had the report been sent to the buyer but without comment and advice on its content. Looking at the judgment it would on the face of it appear that the mere disclosure of the report would not have been sufficient, though this is far from clear, particularly when there must be a reasonable expectation that a client having received the report would have read through it.
The other unclear aspect is whether there is in fact an obligation on a conveyancer to always commission a plan search or at the very least advise that one should be obtained. My view is that the latter should at the very least form part and parcel of the practice of a comment conveyancer. By advising the client of the insufficiency of the local authority search when it comes to pending planning applications the client should be advised in clear terms that a plan search should be sought or at the very least the client should make their own enquiries with the local authority.
At the end of the day the conveyancers in this case really do not have any excuse for the failures and I doubt any appeal will be based on the breach of duty issue. I suspect what has happened here is that the report has come in and was overlooked. In a bust conveyancing practice this can happen. The more avoidable error was the failure to push the sellers solicitors on providing further information on the reply provided to question 3.1 of the Property Information Form. The readiness to accept an unacceptable reply to that question was the beginning of a very bad day for those conveyancers.
