Solicitors liable even if claimant acted illegally – Supreme Court decision of 30 October 2020 in Stoffel & Co. v Grondona

The background facts arise from the purchase by Ms Maria Grondona from Mr CL Mitchell of a flat with the benefit of a mortgage from Birmingham Midshires in October 2002.

‘The mortgage advance was procured by fraud. The respondent dishonestly misrepresented on the mortgage application form that the sale from Mitchell to the respondent was not a private sale, that the deposit moneys were from her own resources and that she was managing the property. The purpose of the fraud, as found by the trial judge, was to raise capital finance for Mitchell from a high street lender which he would not otherwise have been able to obtain, rather than to fund the purchase of the property by the respondent’ (Supreme Court judgment paragraph 6).

Stoffel & Co. acted for Ms Grondona and were instructed to register the transfer of ownership and the mortgage but negligently failed to do so. Birmingham Midshires obtained summary judgment against Ms Grondona. She brought a negligence claim which Stoffel & Co. defended based on illegality.

The claim by Ms Grondona was successful at first instance, on appeal to the Court of Appeal and has today been upheld by the Supreme Court.

Lord Lloyd-Jones gave the leading judgment (with whom Lord Reed, Lord Hodge, Lady Black and Lady Arden agreed)
Link to the full judgment.

Lord Lloyd-Jones says at paragraph 46. ‘As Lord Toulson explained in Patel at paras 99-101 (cited at para 22 above), adopting the reasoning of McLachlin J in Hall v Hebert supra, at pp 175-176, the notion that persons should not be permitted to profit from their own wrongdoing is unsatisfactory as a rationale of the illegality defence. It does not fully
explain why particular claims have been rejected and it leads judges to focus on the question whether a claimant is “getting something” out of the wrongdoing, rather than on the question whether to permit recovery would produce inconsistency damaging to the integrity of the legal system. The true rationale of the illegality defence, as explained in Patel and in the judgment of McLachlin J in Hall v Hebert, is that recovery should not be permitted where to do so would result in an incoherent contradiction damaging to the integrity of the legal system. In the present case, to
allow the respondent’s claim to proceed would not involve any such contradiction, for the reasons I have given.

PNLA Members Levi Solicitors LLP acted for the appellant represented by Michael Pooles QC and Dan Stacey of Hailsham Chambers

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