Morkot & Ors v Watson & Brown Solicitors & Anor

A solicitor acting for both borrower and lender must disclose a gifted deposit relevant to the lender’s decision and advise the borrower of its significance. Where disclosure would have caused the lender not to lend and the borrower not to proceed, damages may extend to the loss arising from entering the transaction. The loss is not necessarily limited by the narrower approach applicable to a negligent valuation.

The claimants sought assessment of damages against their former solicitors after liability had been established in default. The transactions involved properties marketed with gifted deposits, which the solicitors failed to disclose to the lenders and purchasers. One claim concerned a repossessed property; the other concerned two properties retained and let by the claimants. The court determined the proper measure of loss and quantified the resulting damages.

1. The court found breaches of fiduciary duty, including an actual conflict of interest and intentional preference for the interests of Morris Properties.

2. A gifted deposit was a recognised indicator of mortgage fraud. The solicitors had to disclose it to the lender and advise the purchasers that it was unlikely that mortgage finance would be offered.

3. Where disclosure would have caused the lenders not to lend, and a lesser advance would not have enabled the purchases to proceed, the claimants were entitled to recover the losses arising from entering the transactions. The loss was not capped by the narrower negligent-valuer approach.

4. The same conclusion followed alternatively from the equitable-compensation approach to fiduciary breach. Awards were made of £4,840.24 to Mr and Mrs Morkot, £155,131.30 for Flat 34, and £131,803.60 for Flat 7.