Borrowers applying for loan – Solicitors acting for lender – Solicitors discovering borrowers in arrears under earlier mortgage and under threat of legal proceedings – Solicitors not informing lender – Whether solicitors in breach of duty – Judgment for plaintiff – Solicitors’ appeal allowed
The plaintiff, NHL, was a centralised lender operating a practice of self-certification where the loan sought was less than 75% of three times the valuation of a borrower’s income. In February 1989 Mr and Mrs C, the borrowers, who wanted to remortgage their property again, applied to NHL for a loan of £90,000. They certified that the husband’s gross income was £31,000, and that the wife’s was nil. They signed a declaration confirming that they had never been in arrears by more than one month with any existing or previous loan, and that no county court judgment had been recorded against them. They declared that that information was correct. However neither the confirmation nor the declaration were correct. The plaintiff did a credit search and discovered the county court judgment, but made no further inquiries. On April 5 1989 NHL offered the borrowers a loan of £92,114.30. The borrowers had already instructed the defendant solicitors. On April 5 1989 NHL instructed the defendant to act in the preparation of a mortgage in accordance with notes for guidance which NHL provided. NHL required the defendant to certify that it was not aware of any material change in the borrowers’ circumstances subsequent to the date of the offer of loan. It came to the defendant’s attention that the borrowers were in arrears of over £4,000 with their second mortgage and had been threatened with legal proceedings. The defendant had not been told what inquiries NHL had made and did not inform NHL of the arrears. On receiving the report on title, NHL made the loan to the borrowers. However soon afterwards the borrowers defaulted on their repayments under the mortgage. On April 13 1992 NHL as mortgagee sold the property for £70,000. NHL then issued proceedings against the defendant for professional negligence, claiming a loss of £74,110.07. The judge found for the plaintiff and the defendant appealed.
Held The appeal was allowed.
1. Where an experienced commercial lender specified in its instructions to solicitors the particular matters on which the lender required to be advised, the scope of the duty of care did not include a requirement for the solicitor to take action which had not been expressly required in those instructions.
2. The report on title, which required the defendant to certify that it was not aware of any material change in circumstances, led the defendant to believe that the plaintiff was already satisfied of the borrowers’ ability to perform their obligations. The defendant did not know what inquiries had been made by the plaintiff and presumed that the plaintiff sought a reference from the other mortgagee. The judge been wrong to conclude that the defendants ought not to have assumed that the plaintiff had made enquiries justifying its lending decision. He had not correctly applied Mortgage Express Ltd v Bowerman and Partners [1996] 2 All ER 836 and his conclusion was inconsistent with Carradine Properties Ltd v DJ Freeman & Co (1982) [1989] 5 Cons LJ 267 and Birmingham Midshires Mortgage Services Ltd v David Parry [1996] PNLR 494.
Nicholas Davidson QC and Elizabeth Weaver (instructed by Mills & Reeve, of Cambridge) appeared for the appellant; Daniel Serota QC and Peter Kirby (instructed by Eversheds, of Cardiff) appeared for the respondent.
