Causation key to failure of lender's claim against solicitors
Causation was the key factor in the failure of a claim brought by mortgage lender Godiva, against its solicitors, Keepers Legal.
Keepers Legal acted for Godiva and a Mrs Khan in relation to Mrs Khan's purchase of a residential property, supposedly from Mrs Khan's brother-in-law. The transaction turned out to be fraudulent. Mrs Khan's brother-in-law had in fact died over a year previously. The solicitors acting for the supposed vendor did not discharge the existing mortgage on the property and the mortgage monies provided by Godiva disappeared.
Godiva sued Mrs Kahn for fraudulent misrepresentation and Keepers Legal for breach of contract and/or negligence. Mrs Khan appeared before the court in person and claimed to be an innocent victim of the fraud. The court had no difficulty in concluding that it was overwhelmingly likely that Mrs Khan was dishonestly involved in the transaction, and that she was knowingly party to the fraudulent mortgage application to Godiva. The discovery that she had forged a GP letter and certificate in support of an application to adjourn the trial did not help her credibility at the trial.
Godiva's claim against Keepers Legal did not allege that the firm was a party to fraud, but that the firm was guilty of negligence and breach of contract. Keepers Legal took no part in the trial. Godiva alleged that Keepers Legal had failed to inform it of three matters: (1) that the deposit had been paid as a cash deposit direct to the seller, and of discrepancies in the description of the cash payment; (2) that the receipts provided in relation to the cash deposit added up to £5,000 less than the cash deposit said to have been paid; and (3) that the price of the property was effectively reduced by in excess of £16,000 at completion in relation to costs and disbursements shown on the completion statement as "paid by seller". The court agreed that all these matters were ones which the solicitors should have reported to the lender and that Keepers Legal were in breach of retainer in relation to their failure to report each of these matters to Godiva.
Godiva's witness evidence was that it would not have advanced the mortgage monies had it known that the application was fraudulent. Crucially, however, the evidence did not establish that Godiva would not have proceeded with the transaction if it had been told about any of the three matters it complained about against Keepers Legal. Godiva therefore failed to establish that it had suffered any loss as a result of Keepers Legal's negligence.
The key message from this decision, which will be of comfort to professional defendants and their insurers, is that whatever the allegations made, the courts will require the claimant to prove its case. In a professional negligence claim, even where breach of duty is established, the claimant must still provide evidence that it would have acted differently if it had been properly advised. If it is unable to come up with that evidence, the claim will not succeed, even where, as here, the professional defendant takes no active part in defending the proceedings.
Godiva Mortgages Ltd v (1) Sophie Khan (2) Keepers Legal LLP  EWHC 1757 (Ch)