The latest wave of lenders’ litigation against conveyancing solicitors has seen their professional indemnity insurers adopt a variety of tactics in order to suppress lenders’ claims. One method has been to refuse to provide (incriminating) parts of a conveyancing file by asserting duties of confidentiality and privilege that the conveyancing solicitor owes to the borrower client. Given a conveyancing file is to be treated as if it is jointly owned by the lender and borrower client, the rights of the parties to the full file have recently been tested by the Courts.
Traditionally the rights to request a conveyancing file were dependant upon the rights of ownership of the file determined by the intention with which the particular document was created. This entailed a four fold classification of documents that the conveyancing file could be divided into and to which Annex 16C of the Solicitors Practice Rules reflected. If the document was created solely for the lender, the lender had the right to access the document, similarly so for documents created solely for the borrower such as a bill of costs or a completion statement. Documents created for the benefit of both lender and client could be accessed by both.
Documents such as the ledger card which were created for the solicitors’ use in discharging the Solicitors Accounts rules belonged to the solicitor and to which neither client could assert a right of access. Without access to all the documents on a file, the lender is in difficulty in understanding the true nature of a transaction and pursuing any claim for breach of contract, negligence or fiduciary duty.
CML Lenders’ Handbook
The orthodox ownership of a conveyancing file was changed by the introduction of the CML Lenders’ Handbook; the file now was to be held as if it were jointly owned by the borrower and lender client. Each client was entitled to copies of the file if the other consented. It was in view of the CML Lenders’ Handbook that lenders sought to obtain the consent from the borrower at the beginning of the mortgage process. This was achieved by lenders introducing a consent declaration as part of the mortgage application by which the borrower expressly authorised the release of the full file if the lender was to request it before even the advance was made.
When faced with the most recent requests for conveyancing files following September 2008, insurers have sought refuge in the traditional analysis of file ownership and sought to overlook the effect of the CML Lenders’ Handbook. The routine insurer response when faced with a request for a conveyancing file is to state that the borrower has not consented to the release of the full file and the solicitor is forbidden from disclosing those parts of the file that belong to the borrower. When provided with mortgage application declarations providing the consent, insurers have sought to doubt the veracity by restrictively construing the effect of the declaration and arguing that it is for the Court to determine questions of privilege.
Obtaining the file
Following a spate of case law at the end of 2010, some light has been shed upon this battle area between lenders and insurers. In Mortgage Express v Sawali and Oakwood Homeloans v Tollers (on which Cobbetts were instructed), both court orders resulted in orders for the full file to be provided to lenders.
The difference between the two cases lies in costs; the lender did not recover costs against the solicitors in Sawali because the court held that the insurer was putting forward arguments that borrowers could put forward who were not party to the proceedings.
In Tollers, the borrowers were before the Court by virtue of being named defendants but the solicitors continued to put forward arguments why the declaration could not be construed to provide the consent required by the CML Lenders’ Handbook. The Judge was critical of the position adopted by Tollers; they were not adopting a neutral position as mere custodians of the file but were seeking to capitalise on privilege arguments to suppress the disclosure of potentially damaging material. This stance sounded in the costs order made against Tollers.
It appears that conveyancing solicitors and their insurers will continue to seek to suppress disclosure of documents and recent refusals have now focused upon stating the declarations are unfair contract terms, or that their effect will be challenged before the Competitions Tribunal.
It may well prove to be that a Part 8 Claim will be inevitable in each matter and that borrowers will have to be named defendants as they are the party to the ‘contract’ that the court is construing.
However the Tollers case suggests that any deviation from a neutral position will be frowned upon by the Court and refusals in the context of a court decision as to the effect of a particular declaration will form the basis of an indemnity costs application against solicitors and their insurers.
Our litigation teams are fully up to speed with recent developments and are able to offer full advice to lenders and others on the prospects and costs of recovering a full file from a solicitor suspected of negligence.