In this recent decision, where we represented the successful solicitors, the Court of Appeal upheld the first instance decision exonerating the stakeholder solicitors of any liability, albeit on slightly different grounds to the original decision. 

Here, the scenario was a failed buyer-funded development, called North Point Pall Mall, in Liverpool.  174 Law was the developer’s solicitor, and was nominated as stakeholder under contracts for sale.  The contracts provided that monies could be released in certain circumstances, including where a company formed to represent the interests of all buyers (the “BuyerCo”) held a first legal charge over the development site.  The contracts also provided for a mechanism where further financing could be sought, and priority of charges changed, and also stated that the monies were to be held to the order of the BuyerCo.

The claim against 174 Law was that it should not have released the buyers’ monies given that the BuyerCo’s charge was only ever a second legal charge.  There was additional litigation awaiting the outcome of these proceedings.

The directors of the BuyerCo, who were solicitors acting for many of the buyers, had agreed a “work-around”, consenting to the release of monies in the circumstances arising.  The Claimants nevertheless maintained that contractual pre-conditions had not been met and that their solicitors / the BuyerCo did not have authority to agree the release in such circumstances.

Both at first instance and at Court of Appeal, the courts saw the matter as a question of contract construction.  The first instance judge felt that there had been satisfaction of a clause requiring provision of evidence of the charge as a first legal charge.  The Court of Appeal disagreed with that, but found that the implied stakeholder contracts allowed for the release of monies in circumstances where contractual pre-conditions had not been met, where the BuyerCo authorised the same, given that the contracts provided that the monies were held to the BuyerCo’s order.

As it was accepted, following first instance proceedings, that the BuyerCo had as a matter of fact purported to authorise the release of monies, this decision should provide some relief to practitioners.  The fact of the litigation should however represent a salutary reminder of the potential contractual and/or other liabilities that could arise in such circumstances.