Impecunious borrower submitting application form with false particulars – Defendant solicitor discovering matters that would have alerted claimant mortgagee to inaccuracies – Mortgagee aware of second charge but consenting to advance without ascertaining amount outstanding – Whether solicitor obliged to call for copy of application form – Whether solicitor in breach of express requirement to report amount outstanding under second charge – Action dismissed
The defendant firm of solicitors acted for the borrower and the claimant lender with regard to a remortgage transaction. In August 1989 the borrower applied under the lender’s “Self Certification Plan” for a loan supported by a remortgage of the borrower’s house in Nottingham, which had been recently valued at £87,000. At that time the house was subject to a first charge in favour of Barclays Bank (Barclays), and a second charge in favour of National Westminster Bank (Natwest), the second having been taken as security for the borrower’s indebtdness arising out of a business venture that had recently failed. The particulars given in the application form misrepresented the borrower’s employment status and income, and partly misrepresented the purpose of the loan. In response to a question as to current commitments, no mention was made of the second charge. In September 1989 the defendant received the lender’s instructions, which, while dealing with matters relating to title and the value of the security, did not require any investigation as to the borrower’s status. There was however an express requirement (the second charge requirement) that, where the property was to be subject to a second charge, a request had to be made for the lender’s written consent, such request to be accompanied by details of the amount and purpose of the loan obtained from the second chargor. During November 1989 the defendant was informed by Barclays that £32,100 was owing under the first charge and that, failing redemption by the end of the month, proceedings already taken for recovery of arrears would be pursued.
At about the same time the defendant, being then unaware of the amount outstanding under the Natwest charge, made a telephone call to the lender and informed the responsible officer of the existence of that charge and of the agreement of Natwest to its postponement to the intended mortgage. The officer gave her consent over the telephone to the intended advance. On 23 November 1989 the defendant learned that the amount owing to Natwest amounted to £89,614. On 4 December 1989 the lender made an advance of £57,500, the balance of which, following redemption of the Barclays charge, was applied towards the Natwest loan.
Within a year of making the advance it became plain to the lender that the borrower’s financial position had been hopeless from the outset. After repossessing the house and selling at a considerable loss, the lender took proceedings against the defendant alleging that, in the light of the information received from Barclays and Natwest, the defendant knew or ought to have known that the particulars given were or were likely to have been untruthful, and consequently that the borrower was in no position to service the loan. The judge found as a fact that the defendant had not been furnished with a copy of the application form.
Held: The claim was dismissed.
1. The duty of a solicitor to report matters that came to his attention during the course of investigation was limited to matters falling within his retainer. The defendant had discovered nothing affecting the value of the proposed security: Mortgage Express Ltd v Bowerman & Partners [1996] 1 EGLR 126 explained and distinguished. Unless otherwise instructed there was no duty to report matters going to the creditworthiness of the borrower: see National Home Loans Corporation v Giffen Couch & Archer [1997] 3 All ER 808; [1997] PLSCS 182, as applied in Hypo-Mortgage Services Ltd v David Parry & Co [1997] EGCS 150.
2. The obligation to provide a specific piece of information under the second charge requirement (the only express instruction arguably going to the financial standing of the borrower) could not be enlarged into a duty to report matters going to creditworthiness in general: the defendant was accordingly not obliged to call for a copy of the application form.
3. Since the lender was aware of the Natwest charge when it consented to the advance, the second charge requirement, which was plainly waived by the release of the funds, afforded no basis for claims for breach of contract or breach of fiduciary duty.
Roger Smith (instructed by the solicitor to Eagle Star) appeared for the claimant; Patrick Lawrence (instructed by Browne Jacobson, of Nottingham) appeared for the defendant.
Alan Cooklin, barrister
