Credit & Mercantile plc v Nabarro (a firm) [2014]

In Credit & Mercantile plc v Nabarro (a firm) [2014] EWCH 2819 (Ch) the Claimants were the short-term lenders in a purchase transaction which was being financed by them, by way of a bridging loan to the buyer, in the sum of £1.65m.The Claimants instructed Nabarro Solicitors to act for them on the transaction. It transpired that planning permission had been granted to a former owner of the property in respect of the erection of a new property to replace an existing building that had fallen into disrepair and been knocked down.

The planning permission had been granted for the property being bought by the buyer, together with an adjoining property and, as it related to both properties, could not be used on one property without the other.

Nabarros Solicitors did not identify the planning issues, which they had discovered, when they submitted their report on title to the Claimants. The Claimants subsequently advanced the sum of £1.65m to the buyer who thereafter defaulted on the loan.

The Defendants argued that the loss suffered should be restricted to how much the property would have been valued with enforceable planning permission if it could be utilised for this property and, on the other hand, what the value of the property would be without that planning permission.
The Claimants contended that the issue relating to the planning permission affected the practicalities of the transaction and whether the purchase was capable of proceeding and not just about the property’s worth, with or without the planning permission. Therefore, they argued, the Defendant should be liable for the whole loss.

The court referred to the case of South Australia Asset Management Corp v York Montagu Limited (1997) which concerned assessing accurately, the level of damages to be awarded when a Solicitor has failed to report to the Lender on matters relating to planning permission.

The court did not agree with the argument put forward by the Claimant that, had they been aware of the problems with the planning permission, they would not have advanced the bridging monies and therefore should be entitled to the whole of the monies owing. The court found their loss to be restricted as to what would have been the property’s worth combined with a legally enforceable planning permission and, alternatively, the property’s worth without that planning permission.

The court applied the principles laid down in the South Australia Asset Management Corp v York Montagu Limited (1997) to give the relief requested by the Defendant. If a person is under a duty to advise another as to how they should proceed in a matter, that person would be liable for anything that followed from giving that advice, if it was negligent, which that other person had relied upon. However, a person with a duty to give advice, so that the other person can make their own decision on what action to take, would be liable for that advice being incorrect if the other person had taken the action advised, but, he would not be liable for all that occurred as a result of that other person being reliant upon the information.

Lenders have always argued that they would not lend money on certain transactions such as where there are planning inadequacies and therefore, the Solicitor who is obliged to report to them on all aspects of the transaction, must be held liable for the whole loss.
The principles laid down in the case of South Australia Asset Management Corp would not readily be applied to the failings of the Solicitor, it would depend on whether the failing was at the heart of the matter and therefore in cases such as mortgage fraud, the Solicitors would probably bear the entirety of the loss.

The effect of this case, in relation to conveyancing transactions, is that liability will be assessed as to how the value of the property has been affected by the failing in the Solicitors duty.

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