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Paul Shenton is the solicitor at Eversheds Cardiff office who handled the case for NHL. The 1990s have seen an unprecedented amount of litigation brought by mortgage lenders against valuers and solicitors. Following the House of Lords decision in Banque Bruxelles Lambert SA v Eagle Star Ins Co & Ors (BBL/ Saamco), the law in respect of claims against valuers (subject to the question of interest) is now reasonably well-settled.
But the nature and extent of a solicitor's duty to its lender client and the method of assessing damages in such cases are still controversial topics
The decision in NHL v Giffen Couch & Archer in December 1996 has provided clarification on these issues.
The case concerned a remortgage loan made by NHL. During the conveyancing transaction, the solicitor became aware that the borrowers were over £4,000 in arrears with their existing mortgage and were being threatened with possession proceedings. The solicitor did not pass this information on to NHL.
The court held that the solicitor owed a duty to inform NHL. This finding is of considerable importance as there are hundreds of similar cases awaiting the NHL decision.
Having found for NHL on liability, the court considered the appropriate method of assessing damages, with the full loss suffered on the transaction being awarded to NHL.
The court drew a distinction between the duty owed by a solicitor and the duty owed by a valuer. The role of the valuer is limited to providing an opinion about the value of the security the lender proposes to take in respect of a mortgage advance. The lender will need to rely on the security only if the loan defaults. The accuracy of the valuation rarely ever, in itself, plays a part in the performance of the underlying loan transaction.
Contrast this with the position of the solicitor. In the NHL case, the solicitor had information which went to the heart of the loan transaction. Its failure to pass on the information led NHL to make a loan which was doomed to failure from the outset.
Once the loan defaulted, NHL, in mitigating its position, sought to repossess and sell its security. This was a course of action that was directly linked to the solicitor's failure. As Judge Graeme Hamilton QC said in the NHL case, Lord Hoffman in BBL/Saamco approved similar cases and he saw no restriction placed on him from awarding the full loss to NHL.
While the NHL case may be appealed, it is a welcome decision for mortgage lenders.