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Retention by Appointment?

The Court of Appeal in Aroca Seiquer & Asociados, Miguel Angel Aroca Seiquer v Roger Adams & Ors [2018] EWCA Civ 1589 held that a Spanish Law firm had negligently failed to warn UK purchasers of Spanish holiday homes not to pay the full purchase price without proof that the vendor was able to pass unencumbered title to them.

A key aspect in the court's decision was determining at which point the purchasers retained the Spanish law firm and consequently when the firm's duties to advise of the risk came into play.

Background

The appellants in this matter were a Spanish law firm ('Aroca'), who sought to appeal an order awarding the respondents (holiday home purchasers) damages for professional negligence.

16 purchasers had bought holiday homes in Spain from a Spanish vendor.  Two UK-incorporated agents marketed the properties in the United Kingdom, on behalf of the vendor.  The agents offered a "one-stop" service to the purchasers, which included recommending they retain Aroca to act as their Spanish lawyers in the conveyancing transactions.  The purchasers were not commercial buyers and required professional guidance to acquire the properties.

After contacting the agents, the purchasers visited Spain to inspect the properties.  On this trip or shortly afterwards the purchasers signed a reservation form and purchase contract and paid the relevant agent a deposit of 10% of the purchase price.  The remainder of the purchase price was paid in instalments.   The purchase contracts did not accord with Spanish law, in particular they were not accompanied by documentary proof of a bank guarantee or insurance contract.

Aroca, despite being aware of the defects in the purchase contracts, sent each of the purchasers a letter shortly after the purchase contracts were signed.  The letters were entitled 'Dear Client' ("the Dear Client letters") and set out a number of duties Aroca would be responsible for, if they were instructed in respect of the purchases.

Once the properties were built, the relevant agent notified the purchasers and arranged for them to visit Spain to complete the purchase.  As part of those arrangements, the agents made appointments for the purchasers to attend Aroca's offices.  Thereafter, the purchasers made the final instalment of the purchase price and took possession of the properties.  However, the purchasers did not receive good title.  Unbeknownst to them, the vendors had mortgaged the properties and failed to discharge the mortgages. 

The judge at first instance found that Aroca had been retained by the purchasers prior to the final instalments being paid and had acted negligently in failing to advise the purchasers of the risks of paying the final instalment without securing good title.

When did Aroca agree to act on behalf of the Purchasers?

The critical factor in determining whether Aroca was liable to the Claimants turned on when they agreed to act on behalf of the purchasers.

The Court of Appeal held that the 'Dear Client' letters sent by Aroca constituted a contractual offer to act for each of the purchasers.  The purchasers then accepted these offers, when their agents arranged an appointment for the purchasers to attend Aroca's offices during their 'completion' trip to Spain.

The Court of Appeal rejected Aroca's submission that the making of an appointment was equivocal conduct and consequently not capable of constituting acceptance.  Instead, the court found the conduct to be unequivocal, with the appointments clearly made in order for Aroca to act for the purchasers.  During the trip to Spain, the purchasers visited their property, went to a bank to collect a banker's draft for the final instalment of the purchase price and cash to pay to Aroca for taxes and fees, and attended Aroca's offices.  They also met with the vendor to pay the final instalment and receive the keys. There was no suggestion of any other Spanish lawyer acting for the purchasers and the idea that the appointments were made so that the purchasers could decide whether to instruct Aroca was fanciful.

It consequently followed that the arranging of the appointments for the purchaser to attend Aroca's offices was the point at which the contract was formed following a valid offer and valid acceptance.  The purchasers had retained Aroca at this point and Aroca owed a duty of care to the purchasers.

 

Were Aroca Negligent?

The scope of Aroca's retainer to each purchaser was to provide a conveyancing service and it was held that Aroca was obliged to exercise the degree of skill and care ordinarily exercised by reasonably competent Spanish property lawyers providing their services to English-speaking clients who were not resident in Spain.  The Court at first instance had rejected an argument that Aroca owed the duties of a reasonably competent English solicitor. It also rejected the argument that Aroca's duties were lower because property agents had had conduct of initial meetings and negotiations.  It was found that the purchasers had retained Aroca before paying the final instalments to the vendor. Aroca had therefore been negligent in failing to advise the purchasers that there was no bank guarantee as required by Spanish law, there was no proof that the vendor was able to pass an unencumbered title and Aroca had failed to advise the purchasers of the risks of paying the final instalment without securing good title.  It was further found that had each purchaser withheld the final instalment, the vendor would have discharged the mortgages and the purchasers would have consequently acquired good title.

As a result, the purchasers were awarded damages based on the unencumbered value of the properties, with the exception of two purchasers who had discharged the mortgages and who were instead awarded damages for the cost of doing so.

Procedural Unfairness?

Aroca submitted to the Court of Appeal that there was a procedural unfairness in the trial.  They submitted that the purchasers had never pleaded that they had retained Aroca when they made the appointments to attend their offices, nor had they developed this argument in their opening or closing submissions. The judge's decision was therefore made on a basis that neither party had addressed. Aroca subsequently argued that they were deprived of the opportunity to call relevant evidence about the systems in place between agents and Aroca for making appointments for purchasers. 

The Court of Appeal dismissed this argument on the basis that Aroca must be able to point to a real possibility of relevant evidence that could realistically have made a difference to the trial Judge's decision.  The court was not convinced that such evidence existed, as there was doubt over whether the staff employed during the relevant period would be able to give specific evidence relating to each particular purchaser.  The transactions had occurred 11 to 12 years prior to the trial and Aroca handled about 3,000 purchases a year.  Any evidence would therefore be generic evidence relating to the system in place and such evidence would not assist Aroca's case.

Comments

This case highlights the courts' intention to protect vulnerable purchasers - great emphasis was placed on the fact that the purchasers 'were not commercial purchasers of their properties or sophisticated investors, and they depended entirely on the Agents and others acting for them, including Aroca….'

The purchasers, in addition to not being residents of Spain, required professional guidance in buying the properties in this case.  It appears that in order to protect such individuals, the trial judge was willing to find for the purchasers based on grounds that were not advanced/pleaded on behalf of any of the purchasers.  This decision was upheld by the Court of Appeal.

The decision emphasises that, in a world in which property transactions are negotiated by and on behalf of UK based purchasers in other jurisdictions, that lawyers retained in other jurisdictions will not owe the duties of care owed by a reasonably competent English Solicitor but will be judged by the standards of other lawyers in that jurisdiction. The involvement of agents will not reduce those duties.

Of equal importance to solicitors and their insurers is the court's finding that the solicitors' retainer letter was accepted by the purchasers (or their agents) making an appointment to visit the solicitors' offices.  Solicitors should therefore take precautions when making initial appointments to see clients, emphasising that such initial interviews are not retainers and nor are they advising clients. In addition, when sending retainer letters to prospective clients, solicitors should take care to ensure that the retainer letter clearly stipulates what is required from prospective clients in order to retain the solicitors, for example, signature of the retainer letter by the client or payment on account of legal costs made by the client.  Such clarity may help to reduce the likelihood of disputes, and prevent solicitors from finding themselves retained in situations where they did not intend to act at that point in time, or were even unaware they were acting on behalf of a client.

Contact

For more information, please contact Samantha Francis, Trainee Solicitor Samantha.Francis@dwf.law or Sheona Wood Partner Sheona.Wood@dwf.law

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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