The Court of Appeal has upheld a damages award against a negligent law firm – despite it being widely acknowledged that the winning claimant was involved in mortgage fraud.
Lady Justice Gloster concluded there was no doubt that Kent-based Stoffel & Co had failed to register in Maria Grondona’s favour a Land Registry transfer document form which would have resulted in her receiving the legal title of the property.
The judge accepted that the sale agreement was ‘tainted with illegality’ because it was entered into with the object of deceiving high street lenders, and to lend her good credit history to a business associate trying to secure finance.
But in Stoffel & Co v Grondona the judge dismissed an appeal from the law firm and allowed the claimant to recover damages in respect of negligence and breach of duty.
‘Her illegal conduct was not central, or indeed relevant, to the otherwise proper and legitimate contract of retainer between the claimant and the defendant or indeed to the claimant’s claim in the present action; it was simply part of the background story,’ said the judge.
Despite misrepresentations to the mortgage lender being ‘reprehensible’, it would be ‘entirely disproportionate’ to deny Grondona’s claim. The ‘victim’ chargee had raised no complaint, the solicitor from Stoffel & Co did not allege fraud in his witness statement, and the claimant was legally responsible under the terms of her personal covenant for any sums not paid to the lender.
The judge said the issue on appeal was whether the claimant was precluded from recovering damages on the basis of the illegallity principle.
In the High Court, Her Honour Judge Walden-Smith held that Grondona had been a participant in mortgage fraud. But he also concluded that the case did not meet the test of whether the illegality was closely connected, or inextricably linked, with the claim against the law firm, which was closed down three years ago. He said it was only as a result of the breach of contract and/or negligence that her title had not been registered and accordingly the claimant was not relying upon the illegal mortgage agreement to support her claim.
Lady Justice Gloster agreed, saying there was no reason why the claimant was not entitled to sue the law firm. She added: ‘I see no public interest in allowing negligent conveyancing solicitors (or, in financial terms, their insurers), who are not party to, and know nothing about, the illegality, to avoid their professional obligations simply because of the happenstance that two of the clients for whom they act are involved in making misrepresentations to the mortgagee financier.’