Defendant solicitor alleged to have negligently facilitated mortgage fraud – Fraud perpetrated nine years before issue of writ – Lender claiming benefit of section 14A Limitation Act 1980 – Defendant pointing to various facts known to lender more than three years before writ issued – Whether such knowledge should have been disseminated within lender’s organisation – Whether information should have prompted lender to investigate suspicious cases already on file – Limitation defence successful
On 14 August 1997 the claimant instituted the present proceedings against the defendant firm of solicitors, seeking to recover losses arising out of a £245,000 mortgage advance fraudulently obtained by the defendant’s client (the borrower) in December 1989. It was alleged that the claimant would not have accepted the application but for the defendant’s failure to report certain matters that would otherwise have: (a) alerted the claimants to the fact that the borrower was party to a sub-sale; and (b) caused the claimant to question a £320,000 valuation earlier obtained from a firm of valuers (SH). In response to the defendant’s claim that the action was statute-barred, the claimant invoked section 14A of the Limitation Act 1980 and contended that, for the purpose of the special three-year period there provided for, time had not begun to run before July 1997 when, as a result of a Land Registry search, the claimant first learned that the borrower had been party to a back-to-back sale at a substantial difference in price. The defendant contended that, by the end of 1991, the claimant had acquired various items of information (the known relevant facts), which, singly or together, fixed them with constructive notice for the purpose of the section, that is to say, would have led a reasonable lender to investigate further and conclude that he had a claim against the defendant. The known relevant facts included: (i) the immediate and unexplained default by the borrower, who had not applied for MIRAS relief and whose application contained serious discrepancies as regards employment; (ii) the dishonouring of a cheque drawn by an unidentified third party; (iii) the unoccupied state of the property when repossessed by the claimant in January 1991; (iv) steps already taken by the claimant to remove SH from its panel of valuers and to conduct an investigation (having notified the police) into seven cases of mortgage fraud involving valuations by that firm; (v) a discrepancy between the name of the registered proprietor and the vendor named in the mortgage application; and (vi) the receipt by the claimant of various publications alerting it to the risks and mechanics of mortgage fraud.
Held: The claim was statute-barred.
Taking the “common sense” approach urged by Sir Thomas Bingham MR in Spencer-Ward v Humberts [1995] 1 EGLR 123 at p126, the claimant could not rely on section 14A. It was immaterial that pertinent information might not have come to the notice of each responsible department, as an organisation like the claimant could reasonably be expected to have put into place a system for its dissemination: see Abbey National v Wilkin & Chapman unreported 7 October 1997. Moreover, on receipt of such information, in particular the status of the named vendor, it was not enough for the claimant to take preventive steps: there was the clearest case for investigating past cases where, like the one before the court, serious losses had been incurred in circumstances suggesting a sub-sale at an inflated price.
David Phillips QC and Andrew Goodman (instructed by Curtis & Parkinson, of Nottingham) appeared for the claimant; Michael Pooles QC and Spike Charlwood (instructed by Beachcroft Wansbroughs) appeared for the defendant.
Alan Cooklin, barrister
