Negligence – Solicitor – Conveyancing – Company providing loans secured by mortgages over residential property – Company selling mortgages to claimant – Claimant bringing claim in negligence against defendant solicitors retained by company – Court being asked to rule on preliminary issues – Whether defendant discharging duties in contract and at common law – Preliminary issues determined
B provided loans secured by mortgages over residential property. It retained the defendant to act as its conveyancing solicitors with authorisation to complete its mortgages over the properties in accordance with the CML Handbook for Solicitors and Licensed Conveyancers (2005 edition) and with supplemental Part 2 Instructions.
Once completed, the mortgages were sold to the claimant under a mortgage purchase facility agreement (MPFA) under which the claimant took an assignment from B of all its rights and liabilities in relation to any purchased mortgage. The origination and securitisation of the mortgage securities was part of a single commercial venture. Both B and the claimant were funded by a German bank. The intention was that the mortgages purchased by the claimant would be bundled, securitised and offered to the market (issued) as residential mortgage backed securities.
The defendant provided legal services to B both on the taking of the original mortgage and its assignment under the MPFA for a fixed fee of £200 on each transaction. It did so under the terms of a legal services agreement made between the defendant (as legal servicer), B (as originator) and the claimant (as issuer). Although the claimant was a party to the retainer agreement, the object of the retainer was to govern the relationship between the defendant and B and that the claimant was a party solely for the purpose of specified clauses relating to its own purchase of mortgages.
The claimant brought proceedings against the defendant alleging professional negligence in the preparation of residential mortgage backed securities. The court was asked to determine preliminary issues in relation to four properties which had implications for others: (i) what were the terms and scope of the contractual and common law duties of care, if any, owed by the defendant to the claimant on each of the transactions in question and whether the defendant had discharged any such duties; and (ii) if not, what further steps should the defendant have taken and/or what facts or matters ought the defendant to have reported to B on each transaction.
Held: The preliminary issues were determined.
(1) The duties which the defendant owed to B under the retainer as regards title and in relation to the certificate of title were also owed in tort to the claimant: see White v Jones [1995] 2 AC 207. The rights which B had against the defendant under the retainer in relation to each mortgage were, by virtue of the terms of the MPFA, enforceable by the claimant against the defendant. But in both cases the rights which the claimant was enforcing as against the defendant were the rights which B could have enforced against the defendant. If in relation to a particular matter B had given express specific written or oral instructions or had agreed a specific process and the defendant had acted in accordance with those instructions and in the light of them could still properly issue a certificate of title, then neither B nor the claimant could have any complaint. Therefore, if B and the defendant agreed in writing a variation in the retainer, or if B gave the defendant any express specific written or oral instructions or if it did agree a specific process with the defendant in relation to a particular matter which conflicted with the terms of the solicitor’s instruction letter or CML Part 2 instructions, the claimant would have no right of action against the defendant in respect of that departure.
(2) Express specific instructions or agreement upon a specific process in relation to a particular matter was quite different from generalised laxity of practice or the adoption of some unspoken convention. Subject to the claimant bearing the ultimate burden of proof in the action, specific instruction or agreement was a matter for the defendant to establish by direct evidence of a specific instruction or agreement or by evidence of a specific change of practice obviously embarked upon and accepted and which passed muster at any audit, which properly founded the inference that it had its origins in some instruction or agreement. The variation in the retainer or the specific instruction or agreement had to relate to something in the solicitor’s instruction letter or the CML Part 2 instructions: the retainer was careful in its use of the words “specific” and “particular”, and it should be possible to identify the particular obligation from which the specific instruction or agreed process departed. At the end of the day, it was the defendant’s responsibility to decide whether it could properly issue a certificate of title. The absence of the certificate of title would then enable the claimant to exercise the rejection power reserved to it in the MPFA and B would find it had made a loan that the claimant was not obliged to purchase. Whatever variations to the retainer were agreed between B and the defendant whatever specific instructions were given in relation to particular matters, the resulting mortgage security, if purchased by the claimant, would still be subject to the warranties as to its nature and quality which B had given to the claimant in the MFPA, including warranties as to title. There would therefore be no commercial point in B instructing the defendant to overlook known defects in title since that simply exposed it to liability under its warranties.
(3) On the evidence in the present case, as regard the first two properties, B had been told untruths by its borrower and the defendant, as its solicitor, was not to blame. The defendant had discharged its contractual duties to B and its common law duty to the claimant and both those claims would be dismissed. However, the defendant had not discharged its contractual duties to B, or its common law duty to the claimant in respect of the other two properties.
Paul Chaisty QC and Mark Harper (instructed by TLT LLP) appeared for the claimant; Graeme McPherson QC and Michael Bowmer (instructed by Clyde & Co LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read transcript: Redstone_v_B_Legal_v1