Godiva Mortgages v (1) Sophie Khan and (2) Keepers Legal LLP [27.06.12]
High Court holds that notwithstanding clear breaches of retainer and common law duty, failings by defendant solicitor were not causative of loss to the Claimant.
Godiva, a residential mortgage lender, made an offer to Ms Khan upon receipt of an application submitted on her behalf by a mortgage broker and retained Keepers to act on the contemplated transaction on its and Ms Khan’s behalf.
Shortly after Keepers transferred completion monies to the vendor’s solicitors, Ms Khan cancelled her direct debit with Godiva and claimed that she was unaware that the purported sale had gone ahead. The vendor’s solicitors disappeared shortly thereafter and the completion monies were never recovered.
Godiva commenced proceedings against Ms Khan alleging fraudulent misrepresentation in respect of her application and complicity the fraud perpetrated against it. A claim was also made against Keepers, alleging negligence and breach of retainer.
It was held to be overwhelmingly likely that Ms Khan was complicit the fraud against Godiva. Her defence that any false and dishonest representations made in her application were the fault of her mortgage broker failed and Ms Khan was held liable for Godiva’s losses flowing from the advance.
More interestingly for solicitors and their insurers, the High Court found that although Keepers acted in breach of retainer and its common law duties to Godiva, this did not cause loss to Godiva. It was held that Godiva had failed in its pleaded case and evidence to demonstrate that it would have acted differently had it been properly advised by Keepers. As such, Godiva were held to be unable to recover damages in respect of Keepers’ breach of duty and entitled only to nominal damages in respect of its breach of retainer.
The decision will be a welcome development for solicitors and their insurers facing claims by lenders active during the 'boom' period of 2004-2008. While the High Court in Paratus v Countrywide gave a welcome indication of how the Courts would view questions of contributory negligence in lender claims, we believe this to be the first reported decision where a claim originating from this period has failed on causation.
Also of interest is that Godiva’s evidence at trial was provided by an employee who was not involved in the original lending decision. In circumstances where many of the present crop of lender claimants are no longer lending, or are not the same company that made the loan, and are therefore unlikely to adduce evidence from the employees involved in lending decisions, defendant solicitors may seek to play on this in defending claims and negotiating settlement.
Defendant solicitors, when faced with a claim where breach of duty is clear but causation is questionable, would be well advised to consider a low Part 36 offer at the outset to improve the prospects of the recovery of their costs on an indemnity basis should their defence succeed.