A couple with limited English mistakenly believed they were guarantors to a mortgage to enable someone they trusted, a developer, to borrow money. In actual fact they were the borrowers. This mistaken belief was orchestrated by the developer. The couple obtained legal advice signed an acknowledgement to that effect. The couple sued the solicitor for negligence.
The court found the couple’s evidence more reliable than the solicitor’s evidence. The court found that the solicitor did not advise the couple that they were entering into a loan, of the legal effect and risks of the loan/mortgage and that they should not enter into the transaction. The court said:
…it was evident that the harsh and oppressive terms on offer from Accom (as well as the short period of the loan), represented a significant risk to the plaintiffs. A solicitor retained to provide advice was bound to advise them against the transaction….. The breach represented a gross departure from the standard of care, skill and diligence required of a solicitor.
The court found that strong advice needed to be given by the solicitor against entering into the transaction and this was not done. The court said:
In that sense, he was in what might be termed a “gatekeeper” role in the protection of his clients’ interests.
Expert evidence was given as to the nature of a solicitor’s duty:
In my experience as a matter of standard practice when clients are given advice which they are not prepared to take, record this fact at least by way of detailed file note and often by way of having the clients sign a record of that advice.
The court found that the absence of any file note recording strong advice was consistent with none having been given.
The solicitor was found negligent. The court found that if the couple had been properly advised, they would have heeded such advice and would not have proceeded with the high risk loan.
The court found that the couple’s loss resulted from two causes, namely:
a contractual liability to repay a harsh and oppressive loan; and
the acts of the developer in inducing the couple to assist him and his failure to indemnify them contrary to his representation to that effect.
The court found that the developer and solicitor were concurrent wrongdoers and apportioned liability between them 60:40. The court calculated damages on the basis of the original loan and interest and allowed the cost of refinancing that loan, as consequential loss.
The court declined to find the couple contributory negligent taking account of the following:
the couple were unsophisticated with a limited ability to read English;
the couple had not seen the documentation or read it and their solicitor did not advise them to do this;
the couple did not know what the developer had orchestrated;
the couple placed their interests with the solicitor;
the couple had no experience of short term lending;
the couple did not have an adequate understanding of the transaction and their solicitor failed to explain the transaction or its risks to them.
The court said:
….the action of providing the Certificate of Title does not carry the significance it otherwise would where mortgage fraud is involved. All that was involved was giving effect to what the plaintiffs believed was the transaction and in that context providing it for the purposes of registration of the mortgage……. The failure to make inquiries of [the developer]concerning the Malua Bay project and the terms of the loan they understood he would enter into has to be considered in the circumstances of the plaintiffs being simple people who would leave it to the solicitors to tell them what they needed to know. As to the plaintiffs’ failure to read documents, the plaintiffs were entitled to expect that they would have their attention drawn by the solicitor to anything they needed to read.