Broker House Insurance Services Ltd v OJS Law

A solicitor instructed by a lender is ordinarily liable only for loss attributable to the solicitor’s breach, not for every loss arising from the transaction. Where the breach concerns conveyancing mechanics, liability is limited to adverse consequences caused by the defective priority, consent or registration arrangements. It does not extend to losses caused by the borrower’s inability to repay or by falls in the value of the security, where those risks would have existed had the instructions been properly performed. Instructions will restrict a solicitor’s authority to complete only where they use sufficiently clear language to make compliance a condition of that authority.

Broker House Insurance Services Limited lent money to a property developer, secured by a proposed second charge. The solicitor, OJS Law, was assumed to be under duties to obtain the first mortgagee’s consent and to procure substantive registration of the second charge. Instead, no consent was obtained and the charge was protected by an agreed notice.

The preliminary issues concerned the scope of the solicitor’s liability for resulting loss and whether the lender’s special conditions made compliance a condition of the solicitor’s authority to release funds and complete the transaction.

1. The solicitor’s liability was governed by the principle stated by Lord Hoffmann in South Australia Asset Management Corporation v York Montague Limited [1997] AC 191. A professional under a duty to provide information is liable for consequences attributable to the information being wrong, not generally for losses which would have occurred even if the information or service had been correct.

2. The fact that the lender would not have advanced the money had it known of the breaches did not make the solicitor liable for all consequences of the transaction. The relevant question was whether the course of action was lending at all, or lending with a particular form of security and priority protection.

3. The lender’s recoverable loss was therefore confined to adverse consequences caused by failure to obtain the first mortgagee’s consent and by protecting the charge through an agreed notice rather than substantive registration. The solicitor was not liable for losses caused by the borrower’s inability to repay or by a fall in the value of the security, since those losses would have arisen even if the conveyancing instructions had been properly performed. The authorities discussed in Portman Building Society v Bevan Ashford [2000] 1 EGLR 81, Nykredit plc v Edward Erdmann Ltd [1997] 1 WLR 1627 and Bristol & West Building Society v Mothew [1998] Ch 1 supported that analysis.

4. The special condition requiring the conveyancer to ensure that the charge ranked second, with appropriate permission before release of funds, did not clearly make compliance a condition of the solicitor’s authority to complete. Following the approach in Bristol & West Building Society v Mothew [1998] Ch 1, very clear wording was required for that inconvenient consequence. The condition’s reference to the first mortgagor rather than mortgagee, and the practical impossibility of completing registration before release of funds, weakened the suggested construction.

5. The preliminary issues were determined accordingly. Any recoverable loss remained to be established at trial.