Despite solicitors being negligent and in breach of contract in failing to advise on certain matters, if it is not inevitable that the lender would have refused to lend if properly advised, the lender has suffered no damage at the solicitors' hands.
This was the scenario in Godiva Mortgages Ltd v Khan and Keepers Legal LLP in which Keepers acted for the claimant and Khan in a house purchase from Khan's brother-in-law (B). Exchange and completion were simultaneous. The purchase price was £495,000 and a direct deposit of £173,250 had been paid. The claimant provided the balance of £321,750 by way of mortgage. Keepers transferred that balance, less its costs and legal fees of approximately £16,500, to the solicitors acting for B having been told that B would accept the reduced sum to complete.
Khan failed to pay the mortgage and it transpired the transaction was fraudulent. B's solicitors had not discharged the existing mortgage on the property and the firm ceased practicing. The money disappeared. Neither the claimant nor Khan obtained any title as the contract and transfer purportedly signed by the named vendor were forgeries; the named vendor having died a year or so previously.
The court held that it was overwhelmingly likely that Khan was dishonestly engaged throughout. Khan had fraudulently misrepresented on the mortgage application that there was a genuine sale. She had also known that no deposit had been paid, no receipt had been signed and no contract signed as she knew her brother-in-law was dead. The claimant had clearly relied on Khan's representations and would not have proceeded had it been told the representations were not true. Khan was liable for the claimant's losses flowing from the advance.
As to Keepers, it was in breach of contract and in breach of the duty of care owed to the claimant by failing to tell the claimant that the purchase price had been reduced by the sum Keepers had deducted from the mortgage advance for its costs etc.
Keepers was also in breach for failing to advise the claimant of the direct deposit allegedly paid. However, even if it had advised as it should have done, it was not inevitable that the claimant would have refused to lend. In the context of a family sale with an apparent substantial security margin and a confirmation from the seller's solicitors that the deposit had been paid, the claimant may still have proceeded. The claimant could not therefore establish that it had suffered any loss as a result of Keeper's breaches.
Things to consider
The solicitors were fortunate here. The lender could not say it would not have lent in the circumstances of the sale being a family sale. The position would not have been the same had it been an arm's length transaction.