Settlement Group v Purcell Partners [2013] VSCA 370

There were several properties being refinanced. The solicitor for the incoming lender did not obtain a payout figure for the entirety of the properties. The solicitor prepared a cheque for this lower sum. At settlement, the outgoing lender handed over discharges of mortgage for all properties and accepted the cheque. Immediately following settlement, the outgoing lender asked for the return of one of the discharges as the cheques did not add up to the full discharge figure. The agent for the incoming lender was instructed by the solicitor not to return the discharge, that settlement was complete. The solicitor tried to have the parties return to settlement, but the cheques had been banked. The agent returned the discharge of mortgage.

As a result, the incoming lender lost priority, being only a second mortgagee over that property. The loans went into default and there was a shortfall on the sale. The lender would have recovered considerably more funds if it had been first mortgagee.

The lender settled with solicitor on its claim for negligence. The solicitor then pursued the settlement agent, claiming that their failure to follow instructions caused them to have to pay the lender. The trial judge granted the solicitor judgment.

On appeal, however, the decision was overturned.

Solicitor negligence

The Court described the relevant duties as:

The obligation of the solicitor for an incoming lender is to ensure that, at settlement, they obtain clear title to the security properties in order to register the mortgage as a first ranking security. This requires that it provides the cheques, in the sums and to the payees, that the outgoing lender directs. The respondent ought to have appreciated that it had simply not received a necessary payout figure and could not certify title.

The solicitor was therefore negligent because he:

  1. failed to obtain complete payout figures for the outgoing lender;
  2. Certified that the lender would obtain clean title to all properties on settlement;
  3. Instructed the agent to settle when the funds provided were insufficient.

The solicitor was the sole cause of the lender´s loss because `but for´ the solicitor certifying title, the lender would not have advanced the funds.

Agent´s negligence

There was some disagreement between the three judges as to whether the agent was negligent having regard to whether or not the agent was required to return the discharge. However, it was agreed that if there was negligence, no loss was caused by the actions of the agent. That is, the solicitor was solely responsible for the lender´s loss.

As a result, the agent was not required to pay damages to the solicitor.

Click here to read the full judgment

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