Mortgage — Valuation of premises 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
The plaintiff’s business was to make loans on the security of property. This was an action for damages for negligence brought by the plaintiff against the defendant firm of solicitors arising out of a transaction in which the defendants acted both for the plaintiff and H with respect to the purchase of a flat by H and the execution of a first mortgage over the premises to secure a £180,150 loan, which the plaintiff advanced to H to acquire the property. The total purchase price was £220,000. The essence of 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 £150,000. Contracts for that 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 £110,000, although the exact figure was not disclosed to the defendants at the relevant time. The plaintiff claimed that these matters cast doubt upon its valuation of the property, of which the defendants knew, and that the defendants should have reported these matters (or at least details of the purchase by A) to it, as it did to H. The plaintiff said that if the defendants had one 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, and 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 £96,000.
Held The defendants were liable in damages for the sum of £117,549.19.
1. The disclosure of information which might cause the plaintiff to withdraw its offer of finance inevitably gave rise to a conflict of interest.
2. The duty of a solicitor in these circumstances was clear, namely to protect the interest of the lender when carrying out his instructions.
3. Where a solicitor was acting for more than one client he had to be astute to perceive the potential for a conflict of interest between two clients and he must obtain their fully informed consent before he acted for them.
4. A conveyancing solicitor was experienced in property transactions. He knew well the risks attached to such transactions and in particular the risks involved in advancing money on inadequate security. In this case the plaintiff had, as G knew, a right to withdraw its mortgage offer at any time. Further, the plaintiff had, again as G knew, relied on the valuation in deciding whether to make a mortgage offer at all. G ought to have realised that the price paid by A cast doubt upon the valuation of the property at £199,000. G was put on inquiry as to the accuracy of the valuation.
5. He ought to have reported to the plaintiff the information which he had about the sale price being paid by A. If he had done so, the plaintiff would not have lent money to H on the security of the premises.
6. The defendants were liable in damages in the amount claimed less the sum of £24,000 representing the loss resulting from the fall in market value for which neither the valuers nor the solicitors were liable.
Nicholas J Pattern QC and Timothy H Harry (instructed by Rosling King) appeared for the plaintiff; Genevra Caws QC and Ben Patten (instructed by Pinsent & Co) appeared for the defendants.