The judgment in Capital Home Loans Limited (CHL) v Hewitt & Gilpin Solicitors Limited (the Solicitors) handed down in Northern Ireland confirms incorporation of the CML Handbook and the Solicitors’ obligations to follow its terms.
We set out the basis to the decision in more detail below.
Mr Geoff Young (the Borrower) owned seven properties. Due to a concern over CGT liability, he sought to transfer the properties into his wholly owned property company.
He approached CHL to "remortgage" (which in fact was a purchase) the properties for a sum that was sufficient to redeem all the existing mortgages, settle stamp duty and fees.
The Solicitors were instructed on the normal basis subject to the CML Handbook. However, the Solicitors failed to report that the transaction was not a remortgage, the deposit was in fact shares from the Borrower's business and that the advance was being used in part to pay the SDLT and associated fees.
The bank advanced approximately £445,000. This was based upon the clear certificate of title, the low average LTV (approximately 50%) and upon obtaining first legal charges over the properties and a personal guarantee (PG) from the Borrower in respect of his existing assets.
Unfortunately, the Borrower's property business took a turn for the worse. CHL was forced to enforce its security, leaving a debt of approximately £325,000. CHL did not look to enforce the PG as it had no appetite to pursue this in the Northern Irish courts.
CHL was unsuccessful in the case. It had no underwriting evidence and could not show that it would have acted differently, had it known the true facts of the transaction.
The Judge was clear that the CML Handbook applied and should be followed.
The Solicitors were found to have breached their duty by failing to report all the facts relevant to the background to the transaction. This is because the Solicitor "should not be guessing at the Plaintiff's [CHL's] knowledge… the Defendant [the Solicitors] should have expressly drawn all these relevant matters to the Plaintiff's attention…".
In finding that CHL could not prove that it would have acted differently if they had known the true facts of the transaction, the Judge was influenced by the low LTV, the rising property market and the fact that CHL had breached its lending guidelines in this case.
The Judge also held that there was no good reason for CHL not to have pursued the personal guarantee, and taking that step would have been a reasonable step in mitigation.
Although CHL was unsuccessful, this decision is good news for lenders operating in Northern Ireland. Arguments based on the applicability of the CML Handbook in professional negligence claims should be a thing of the past.
TLT’s team of financial service litigators in Northern Ireland has specialist expertise in dealing with lender professional negligence claims. For more information contact Frances Thompson.