Is your safe custody room full of time bombs?

Some time ago, it was said that the goodwill of a lawyer's practice could be gauged by the number of documents held in his or her safe custody facility. But there are risks for practitioners in their retention of documents on a client's behalf - particularly Certificates of Title.

In recent times, fraudulent dealings concerning real property, including identity fraud, have become more prevalent

Practitioners are frequently called upon to release documents urgently - but what is the extent of a solicitor's obligations to ensure that a Certificate of Title is delivered to the correct person/client? Is a solicitor's duty (simply) to act with reasonable care? Alternatively, might the solicitor be under strict liability?

The source of a solicitor's duty concerning documents retained on behalf of his or her client is threefold:

  • the contract of retainer
  • a duty of care
  • bailment.

The first two elements (contract and duty of care) oblige a solicitor to act with reasonable care in the retention, and release, of a client's documents.

There have been several cases in which solicitors have been deceived into delivering a Certificate of Title into the hands of a wrongdoer or fraudster.

In this context, the courts have imposed high standards of care:

"For a solicitor, handling the title documents of a client or of a supposed client calls for vigilance. Possession of a Certificate of Title is charged with economic significance: loans are made on their mere deposit, even without writing. ... a reasonable solicitor would have wanted to see the clients, and would have wanted them to establish their identities, or would have got a much better story than Mr ... gave as to why they were not consulting a solicitor themselves. A reasonable solicitor would have seen the new Certificate of Title into their hands, or with their written authority would have seen it into the hands of someone who was likely to have been an appropriate recipient, such as a bank, finance house or another solicitor." 1

A recent set of Supreme Court proceedings, however, prosecuted a claim against a solicitor in bailment - and not in negligence.

Briefly, part of the factual matrix was:

  • the solicitor held a Certificate of Title for a client
  • the client had some initial telephone contact with the solicitor
  • the solicitor received a number of emails which were ostensibly from the client's email address ("[client]"), but the establishment of the email address was the work of a fraudster
  • the solicitor also received by email a certificate purportedly signed by another solicitor - which included confirmation of a "one hundred point" identity check by that other solicitor. Again, this was the work of a fraudster
  • the solicitor handed over the Certificate of Title in accordance with the email directions.

Part of the solicitor's defence was that he had acted without negligence.

There was much technical consideration as to whether this was a gratuitous bailment; or a bailment for reward - but the real issue of substance was the risk that "no negligence" did not operate as a defence to a breach of bailment claim - where the alleged wrongful act was one of misdelivery (that is, not delivering the Certificate of Title to its true owner).

The plaintiff, in that case, relied upon the leading text and upon a 1989 Queensland Full Court decision 2, which held that, in the case of misdelivery, the absence of negligence was no defence to a bailment claim; and that the solicitor's liability was strict.

Ultimately, this piece of litigation settled.

While there is no New South Wales authority determinative of the issue - practitioners should recognise a very real risk that they may have a strict liability in circumstances where a Certificate of Title is handed over by a solicitor to someone other than its true owner.

Practitioners would be well advised to review their protocols and procedures concerning the release of Certificates of Title and other important documents - including an appropriate level of identity check and verification.

1. Chandra & Anor v Perpetual Trustees Victoria Ltd & Ors [2007] NSWSC 694, at 106 per Bryson AJ.

2. Palmer, Prof N, "Palmer on Bailment", 3rd Ed, at 15.024; and Jackson v Cochrane [1989] 2 QdR 23.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.