Solicitors must make sure that their client has received and understood their advice to protect themselves against claims of negligence.  In a recent case a firm was able to defend itself against claims that it had failed to provide adequate advice about a property loan.  The firm’s file demonstrated that it had advised against proceeding in writing and verbally.

A husband and wife, Mr Irfan and Mrs Parveen, had agreed to lend the wife’s uncle, Mr Afzal, £700k as his property was said to be under threat of repossession by the Bank of Scotland.  They set up a company, Brook Properties, to provide the loan.  Brook appointed law firm, Alton & Co, to advise on the transaction.

Alton’s solicitor found out that Mr Afzal was being investigated by the Serious Fraud Office (SFO).  He discovered that in addition to a charge over the property, in favour of the Bank of Scotland, the SFO had placed a restraint order on the property.  This order would prevent a charge over the property in favour of Brook Properties.

Alton’s solicitor advised Mr Irfan and Mrs Parveen against making the loan.  He wrote to them by fax with the advice and also rang someone he believed to be Mr Irfan – although it later transpired that this may have been a friend speaking on his behalf.

Mr Irfan told Alton & Co that Mr Afzal was resolving matters with the SFO and instructed the firm to proceed.  The loan was completed and a charge was registered against the property in favour of Brook Properties.  Later the Crown Court ordered that Brook’s charge be removed.  The entire loan remained outstanding.

Brook Properties brought an action against Alton & Co for repayment of the loan. Brook claimed that Alton had failed to warn it about the restraint order and the impact it would have on Brook’s security.  They said the letter with the advice had not been received. They also claimed that Brook had been advised it would ‘would ‘step in to the Bank of Scotland’s shoes’ in terms of the priority of its charge.

The judge found in favour of Alton & Co.  He concluded that in all likelihood the faxed advice had been received by Mr Irfan and Mrs Parveen.  He also decided that the claimants had understood the advice they were given.

James Burgoyne – Director- Claims & Technical, Brunel Professional Risks, said: “Alton & Co were able to successfully defend themselves as they had clear records which showed that they had gone to considerable lengths to advise Mr Irfan and Mrs Parveen and to ensure that they understood the advice.  Without these records the outcome might have been quite different.  The case shows just how important it is that solicitors make sure that their advice has been received and understood if they are to successfully defend themselves against claims of negligence.

Reports on the case have been published by law firms Wright Hassall, Stephens Scown and Bond Dickinson.