Did the claimant’s participation in a mortgage fraud prevent her recovering damages for professional negligence from her conveyancing solicitors?
No, said the Court of Appeal in Stoffel & Co v Grondona  EWCA Civ 2031.
G purchased a property from her business associate, M, with the assistance of mortgage finance. The transaction was not intended to be a transfer of M’s beneficial interest in the property; merely a way for him to obtain finance that he could not obtain in his own name. In pursuance of the transaction, G committed a mortgage fraud.
G’s solicitors, S, failed to register the transfer and the legal charge in favour of G’s lender. G subsequently defaulted in payments to her lender. Due to the registration failures, G’s borrowing was unsecured and her lender sued her for a money judgment. G claimed damages against S for failing to register the relevant documents.
S admitted negligence but defended the claim on the basis that the purpose of the transaction was illegal, as it involved a mortgage fraud. It was common ground that in deciding this issue the Court of Appeal should apply the test set out in the Supreme Court decision in Patel v Mirza  A.C. 467.
As the transfer had not been registered, G had only an equitable interest in the property; namely, the right to be registered as legal owner. Nevertheless, she fell within the general principle that, once an interest in property had passed to an illegal transferee, she had all of the remedies available to her as the valid holder of that interest. S was therefore obliged to protect G’s equitable interest and her liability to her lender by registration. The illegal features of her agreement with M were irrelevant to that obligation.
It was necessary to consider whether, applying the three criteria in Patel v Mirza, there was any reason why G should not be entitled to recover damages from S. As to those criteria:
Winston Jacob / 10th Oct 2018
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