Banks advancing money to company for lending business – Advances conditional upon solicitors providing funds request on company’s behalf – Solicitors providing funds request for transaction – Borrower unable to repay loan – Whether funds request had contained false or untrue statements – Whether defendants had been negligent in providing request – Whether loss was reasonably foreseeable – High Court dismissing claim – Appeal allowed
The plaintiffs were four lending banks who agreed to lend money to a company. The company was to comply with an operations manual which contained, inter alia, a solicitors’ instruction pack and the lending criteria, which was that the loans were to be made by the company to individuals against the security of a first legal charge on property for the purpose of buying residential property. The manual also provided that a solicitor on the company’s behalf had to provide a funds request in order for the company to draw the loaned money. The defendant was instructed and provided with the operations manual. The instruction pack made clear that the defendant was required to check that the property to be mortgaged fell within the lending criteria.
In July 1990 the company wanted to make an advance to a proposed borrower for a deposit on a property. It was common ground that the relevant transaction fell outside the scope of the lending criteria because the borrower was a company, the property was not for residential use and the advance was for the purpose of paying a deposit and therefore there could be no mortgage on the property until the purchase price was paid. The defendant signed the funds request form which contained the confirmation that ‘in respect of the transfer’ the signatory had ‘carried out all the necessary instructions in accordance with [the] solicitor instruction pack’. The form was sent to the banks and the advance was made. However the purchase was not completed and the borrower was unable to repay the advance. The plaintiffs issued proceedings against the defendant for breach of duty of care in providing the funds request. The judge held that the defendant owed a duty of care to the plaintiffs but that there had been no breach because the funds request had not contained any false or inaccurate information. The plaintiffs appealed.
Held The appeal was allowed.
1. The defendant had been under a duty to carry out the instructions in accordance with the manual which had entailed making the appropriate arrangements for a first legal charge on the property. The defendant had not arranged a first legal charge over the property and therefore the form amounted to an untrue statement that such a mortgage had been arranged.
2. It was not reasonable for the defendant to have believed that the request form was a mere formality on the basis that the funds being requested belonged to the company . The defendant should have known that the plaintiffs were advancing their own money and that funds request would cause them to do so. Therefore the defendant had been negligent when it had provided the request.
3. It was reasonably foreseeable that money lent to the mortgagor without the benefit of a charge which ought to have been secured would not be recovered.
Nicholas Patten QC and James Ramsden (instructed by Clifford Chance) appeared for the plaintiffs; Richard Seymour QC and Fiona Sinclair (instructed by Pinsent Curtis) appeared for the defendants.
