Law firm not negligent for transferring money to struck-off solicitor

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A law firm which transferred the proceeds of a property sale to a former solicitor and convicted criminal, has escaped a claim of negligence after the ex-solicitor ran-off with the money. The court ruled that the law firm had no duty to investigate the former solicitor, who was acting as ‘some sort of an agent’ for the seller.

Michelle Lennon was selling a property in London owned by her late father for £1.25 million. She appointed Philip Englefield to act as a facilitator in the transaction and appointed Philip Moody & Co to handle the conveyancing.

Ms Lennon and her mother both believed Mr Englefield was a solicitor and placed their trust and confidence in him. In fact he had been struck off in 1991 and jailed for stealing £900,000 from his firm’s client’s account.

When the property sale went through, the Lennons provided written instructions for Philip Moody & Co to transfer the sale proceeds to Mr Englefield’s client account. Mr Englefield failed to transfer the money to the Lennons and instead said it had been invested in a joint venture for the construction of a dam in Guatamala.

The Lennons successfully sued Mr Englefield for the return of their money, but received no payment.

In an attempt to recover their loss, the Lennons alleged that Philip Moody & Co had been negligent in transferring the money to Mr Englefield. They claimed that the firm had failed to investigate his background and advise them that he was not a solicitor. They also argued that the firm had failed to undertake identity checks as required by the Money Laundering Regulations 2007.

In Court, the judge denied the Lennon’s negligence claim. He ruled that Philip Moody & Co were entitled to accept instructions from their client about where the sales proceeds should be paid and that their duty of care was limited to acting as conveyancer on the property sale. The judge also ruled that investigating Mr Englefield’s background was not part of Philip Moody & Co’s retainer.

James Burgoyne, Divisional Director – Claims & Technical, Brunel Professions said “The Court did not interpret anti-Money Laundering requirements as creating a wider duty to the client, and despite the fiduciary duty of the solicitor to the client. Whilst this was welcome, the case is still a reminder that law firms and conveyancers should be extremely careful when transferring money to third parties and ensure that they have explicit written instructions from their clients.

Reports about the case have been published by DAC Beachcroft, Legal Futures and Brodies.

Brunel Professions is a leading provider of professional indemnity insurance broking to the legal profession. To find out more call Mark Sommariva on 0203 475 3275.