Law firm Cripps Harries won a lawsuit today in which a mortgage lender had accused it of fraud.
Mortgage lender Masnol, a lending unit of the Britannia Building Society, has been suing the firm for £5,254,123.99 claiming that two junior lawyers at the firm deliberately misled it, leading it to lend £11.4m to a client that subsequently defaulted.
But in a 150-page judgment, Mr Justice Mann dismissed all of the allegations made against the firm, finding that there was “nothing in the claim or the allegations at all”.
The claim relates to a property transaction in 2007. A property developer called Spencer McGuinness had been seeking refinancing for a development in Docklands. McGuinness had initially received financing from the West Bromwich Building Society, and was, unbeknown to Masnol, in arrears with them. Masnol agreed to the loan. Cripps represented McGuinness. The transaction completed on 10 May 2007.
“It was not long before Mr McGuinness fell into arrears on the Masnol loan and in due course receivers were appointed,” the judge said in his ruling. “A sale generated a shortfall. Part of the shortfall has been recovered from the surveyors deemed to have been negligent, leaving a very substantial unrecovered balance which Masnol now seeks to recover from” the law firm.
Masnol alleges that a newly qualified solicitor at the firm and an inexperienced legal executive made “misrepresentations” in the course of the conveyancing “which were made knowing of their falsity, and had they not been made Masnol would have withdrawn”.
The judge summarised the allegations into four points:
“(1) Describing outstanding works as snagging when they were more than that; and misdescribing when a meeting about them took place. This is said to have concealed the significant fact that there were serious defects or items of disrepair.
(2) Giving a false answer in preliminary inquiries as to the existence of notices or correspondence which wrongly failed to disclose the existence of the West Bromwich receivership.
(3) Falsely stating that the redemption figure for the West Bromwich loan was £11.1m when the redemption figure was in fact a figure which included the substantial unsecured borrowings; and making a false statement about the application of the balance of funds after the discharge of the West Bromwich charge.
(4) Falsely suggesting that a schedule or rentals of the Phase 1 properties was correct and falsely stating that CHH had no knowledge of letting arrangements.”
In his judgment, Mann dismissed all of the allegations brought against the junior solicitors, saying that,while at times they were mistaken, they were never dishonest. He said the pair are “entirely exonerated of the serious matters alleged against them”.
“By way of post-script I add one last observation. I am aware that I have dismissed a large number of allegations. Not all of them could be dismissed immediately,” Mann said in his ruling. “One might wonder how a claim can be brought and sustained over so many points (some merely evidential, some going to the actual claim itself) and yet fail on all of them so comprehensively and it be found that there is nothing in the claim or allegations at all.”
“The claimant was anxious to maximise its recovery in what was a fairly disastrous loan. It did not recover in full from its valuers; having heard the evidence in this case, and without making findings on the inducement/causation part of this case,” he said.
“When attention turned to CHH the claimant donned its fraud detection goggles, turned the sensitivity up to high and attributed a dishonest motive to every interesting feature in the landscape (in very delayed proceedings). That led to a large number of accusations of dishonesty being made. Some allegations came close to being allegations which should not have been made or sustained.”
The two lawyers Masnol made accusations against “have had years of anxiety, culminating in a trial, which they should not have had. They should now be freed from that anxiety,” the judge said.
Mortgage Agency Services Number One Limited (trading as Britannia Commercial Lending) v Cripps Harries LLP
Chancery Division (Mann J) 12 Oct 2016
Ben Hubble QC and Hugh Evans (instructed by Burges Salmon LLP) for the Claimant
Jonathan Seitler QC and Jonathan Chew (instructed by Triton Global Ltd) for the Defendant
