National Home Loans Corporation Plc v Giffen Couch & Archer (A Firm)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PETER GIBSON,LORD JUSTICE HOBHOUSE,LORD JUSTICE LEGGATT |
| Judgment Date | 18 June 1997 |
| Judgment citation (vLex) | [1997] EWCA Civ J0618-2 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHANF 97/0097/B |
| Date | 18 June 1997 |
[1997] EWCA Civ J0618-2
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(MR GRAEME HAMILTON QC)
Royal Courts of Justice
Strand
London WC2
Lord Justice Leggatt
Lord Justice Peter Gibson
Lord Justice Hobhouse
CHANF 97/0097/B
MR N DAVIDSON QC with MISS E WEAVER (Instructed by Messrs Mills & Reeve, Cambridge, CB2 1PH) appeared on behalf of the Appellant
MR D SEROTA QC with MR P KIRBY (Instructed by Messrs Eversheds, Cardiff, CF2 1X2) appeared on behalf of the Respondent
Wednesday, 18 June 1997
The boom in my the residential property market in the late 1980s, followed as it was by the recession and the collapse in the housing market at the beginning of this decade, left mortgage lenders, who had vied with each other to obtain business in the 1980s, with defaulting mortgagors and substantial losses which they were unable to recover out of the security they had taken. This has led mortgage lenders to seek ways to recover their losses from others, and actions in negligence against their professional advisers have become only too common. The present appeal is an action brought by one mortgage lender suing the solicitors, who were acting for it as well as the borrowers in a remortgage transaction, for failing to reveal information which the solicitors obtained relating to the borrowers. It is an appeal by the defendants, Giffen Couch & Archer, from the order dated 6 December 1996 of Mr Graeme Hamilton QC, sitting as a Deputy High Court Judge. By his order the judge awarded £78,192.58 damages and interest to the plaintiff, National Home Loans Corporation plc.
The plaintiff was, until it ceased lending in 1992, a centralised lender, which, unlike the high street banks and building societies with which it competed, operated from a single location and was dependent on introductions of clients by intermediaries. Part of its business came from remortgage transactions, such as when house owners with existing mortgages wanted to take advantage of rising house prices to raise money by borrowing more on the security of their houses. In December 1988 the plaintiff announced a self-certification scheme whereby on a remortgage intending borrowers from it of sums of up to £100,000, which did not exceed 75 per cent of the valuation of the property intended to be the security for the loan, could themselves certify both their incomes and their good conduct as mortgagors, a reference from the existing lenders being no longer a prior requisite. A consequence of this scheme, as Mr Doherty who at the material time worked in the plaintiff's underwriting department accepted in cross-examination, was that borrowers in financial difficulties under an existing mortgage but who sought a remortgage, would stand a greater chance of success in applying to the plaintiff than if they applied to a lender who required independent verification of the information supplied by the intending borrowers. It should be added that the plaintiff was far from being alone among lenders in adopting a self-certification scheme.
On 12 December 1986 the Halifax Building Society lent £58,500 to Mr Ather Choudhry on the security of his house, 224 Buckingham Road, Bletchley ("the property"). He fell into arrears on the mortgage. On 30 June 1988 he transferred the property into the joint names of himself and Mrs Choudhry, and they remortgaged the property, borrowing £71,375 from Tamar Mortgage Company Number One Ltd (then known as and hereafter called "Western Trust") and using part of the loan to pay off the Halifax.
By February 1989 Mr and Mrs Choudhry wanted to remortgage the property again. They were introduced to the plaintiff by an intermediary, Carrington & Co. On 10 February 1989 Mrs and Mrs Choudhry applied to the plaintiff for a loan of £90,000 to be secured on the property. In the application form they gave the income of Mr Choudhry, who is a panel beater and sprayer, as £31,000 per annum, and that of Mrs Choudhry as nil. They were not asked to state by whom Mr Choudhry was employed. They gave £150,000 as the current value of the property. They said that they had a mortgage with Western Trust and gave their account number, but they were not required to give further details of the mortgage. They were not asked to state the purpose of the remortgage. They were asked to note that a credit search would be made in respect of each applicant. At the end of the form, Mr and Mrs Choudhry acknowledged that the plaintiff might withdraw any offer made in consequence of the application before the loan was completed. They authorised the plaintiff or its agents to obtain any reference or other information which it might require to support their application, they confirmed that they had never at any time been in arrears by more than one month with any existing or previous loan and had never had any County Court judgment recorded against them, and they declared that the information provided in that application was correct to the best of their knowledge and belief.
That confirmation and that declaration were not correct. At that time they had been in arrears for more than one month on their mortgage with Western Trust. On 17 May 1989 their arrears were in excess of £4,000 and there was evidence to suggest that the monthly payments payable under that mortgage did not exceed £800. There had also been a County Court judgment for £37.10 against Mr Choudhry for water rates in August 1988, which he subsequently paid.
On receipt of the application the plaintiff obtained a valuation of the property. That gave a value of £125,000. The plaintiff did a credit search and discovered the County Court judgment. Despite this proof of the inaccuracy of what Mr and Mrs Choudhry had stated in the application, no further inquiries were made by the plaintiff to check whether other statements made by Mr and Mrs Choudhry might also be inaccurate. It would appear from the paucity of the information sought on the application form relating to the applicant's income and existing mortgage that the plaintiff at that time relied principally on the fact that it was only lending 75 per cent of the value of the mortgaged property as providing its chief protection in the event of default. Mr Doherty accepted in cross-examination that the plaintiff's view at the material time was reflected in a sentence in the plaintiff's training manual:
"If we are only lending up to 75% of the purchase price valuation, it is considered a safe margin and we should not lose any money in the event of a forced sale."
On 5 April 1989 the plaintiff offered Mr and Mrs Choudhry a loan of £92,114.30 to be secured by a first legal charge of the property. In the meantime Mr and Mrs Choudhry instructed the defendants. The name of Mr Taylor of the defendants had been inserted in the application as their solicitors, although it was not until 8 March that Carrington & Co wrote to the defendants to introduce Mrs and Mrs Choudhry to them and to ask the defendants to act on the remortgage. On 9 March 1989 the defendants wrote to Mr and Mrs Choudhry to ask for confirmation that they wanted the defendants to act for them. Even before that confirmation came on 22 March, the defendants sought and obtained from Western Trust the title deeds to the property. Also on 5 April 1989, the plaintiff wrote to the defendants instructed them to "act for the [plaintiff] in the preparation of a mortgage with any other appropriate documents in accordance with the Notes for Guidance and the documents provided." The defendants were sent details of the mortgage offer, but they were not told whether it was to be a status mortgage, where the lender confirms the borrower's earnings, or a non-status mortgage. They were sent a number of other documents, including a printed form of instructions to solicitors and licensed conveyancers. Thereby the defendants were instructed to investigate the title to the property, and to advise if any condition of the offer of loan or any condition of the instructions had not been or could not be complied with. They were also instructed to report on title on the plaintiff's form, which was also sent to them. This required the defendants to certify amongst other things:
"6. We are not aware of any material change in the Applicant's circumstances subsequent to the date of the offer of loan."
The instruction also required a clear bankruptcy search to be obtained. There was no requirement to report on the state of the account on any existing mortgage. The documents sent to the defendants did not include the application completed by Mr and Mrs Choudhry, and there is no evidence that the defendants ever saw it, or were aware of the misrepresentations in it.
On 31 May 1989 the defendants submitted to the plaintiff the report on title containing the certificate in the form which I have mentioned. The defendants by 17 May 1989 had become aware that there were arrears of over £4000 on the mortgage with Western Trust, and in their letter of that date Mr and Mrs Choudhry told them that completion had to take place on 9 June 1989, failing which the matter was to be placed in the hands of Western Trust's solicitors. But the defendants did not pass on the information as to the arrears, or as to any implied threat of legal proceedings, to the plaintiff. It is not suggested that considerations of confidentiality prevented the defendants from passing on the information to the plaintiff. It is apparent from the evidence that it never occurred to the defendants that they...
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