Mortgage — Valuation to secure loan — Solicitor acting for more than one client — Solicitor becoming aware of information casting doubt on valuation — Failure to inform lender — Whether solicitors negligent — Judgment for lender — Appeal dismissed
The plaintiff’s business was to make loans on the security of property. The plaintiff brought an action in damages for negligence against the defendant firm of solicitors arising out of a transaction in which the defendants acted both for the plaintiff and H, in relation to the purchase of a flat by H and the execution of a first mortgage to secure a &tlb;180,150 loan. The plaintiff advanced moneys to H to enable him to acquire the property. The total purchase price was &tlb;220,000. The allegation of negligence was that the defendants, acting by one of their partners (G), learnt in the course of acting for the plaintiff and H that the property was the subject of two recent sales.
Under the second in time, A purchased it for &tlb;150,000. Contracts for the transaction were exchanged on the same day as contracts for H’s purchase and both contracts contained the same completion provision. Under the first in time, which was completed on November 2 1990, R purchased the premises for &tlb;110,000, although the exact figure was not disclosed to the defendants at the relevant time. The plaintiff claimed that those matters cast doubt upon its valuation of the property, of which the defendants knew; and that the defendants should have reported those matters (or at least details of the purchase) to A, as it did to H. The plaintiff said that if the defendants had done so it would have obtained a second valuation, which would have demonstrated that the property was worth less than the amount of the proposed advance so that it would not have proceeded with the transaction at all. There was no criticism of G’s integrity. The plaintiff obtained a possession order when H failed to make interest payments and the premises were sold for &tlb;96,000. The High Court held that the defendants were liable in damages for the sum of &tlb;117,549.19: see [1994] 2 EGLR 156. The defendants appealed.
Held The appeal was dismissed.
1. Where a solicitor was acting for both a mortgagor and mortgagee in relation to the same transaction, he was under a duty to act in the best interests of both parties. There was an obvious conflict of interest. The solicitor had the implied authority to inform both clients as to matters in connection with title and was under a duty to consider whether it was proper to disclose information in his possession.
2. If a solicitor had any cause to doubt the accuracy of the valuation of the property in question, he should pass it on. The question in each case was whether a solicitor of ordinary competence would throw doubt on the valuation which might cause a purchaser to question it.
3. It was a matter of fact and degree. G ought to have realised that the price paid by A cast doubt upon the valuation of the property at &tlb;199,000. He should have informed the plaintiff about it. If he had done so the plaintiff would not have lent H the money.
Nicholas Patten QC and Timothy Harry (instructed by Rosling King) appeared for the plaintiff; Genevra Caws QC and Ben Patten (instructed by Pinsent Curtis) appeared for the defendants.
