"His dream of a successful development and £2m profit was broken. He was not happy, and sought recompense, this time from solicitors, Lupton Fawcett."
The bridge was for £350,000 and for a three-month term only.
By the end of term, debt had risen to £390,000 with interest and fees. Amalgamated Finance Ltd, the bridging lender, defaulted the loan and appointed its own receivers, who sold the property, by which time the debt had grown to £647,459.57.
Mr Nayee, the sole director of NDH, was dispossessed of his property. His dream of a successful development and £2m profit was broken. He was not happy, and sought recompense, this time from solicitors, Lupton Fawcett.
Lupton Fawcett acted for the lender, but Mr Nayee submitted that the firm also acted for him because they received his authority to arrange, as part of the refinance proposition, to deal with a bankruptcy aspect, which was necessary as a condition of the bridge lending.
Mr Nayee sought repayment of his losses and substantial damages for poor advice, failure to advise on risk, failure to advise on the financial consequences of default (very significant in this case), failure to advise that the exit refinance might not happen, and for allowing him/his company into a loan which was manifestly disadvantageous to him.
Lupton Fawcett denied responsibility, saying they did not act for the debtor, and owed no duty of care to him.
Their defence succeeded, because there was no retainer, implied or otherwise. They never had any direct communication with NDH and there was no duty on them to warn that they did not act for the debtor.
I’m all for a solicitor’s win – but what’s so notable about by NDH v Lupton Fawcett?
Here is my thinking...
The lending terms, advanced in 2012, provided for standard rates of 2.5% per month, increasing to 5% per month on default, arrangement fees of 2.5% and exit fees of 2.5%, both doubling in the event of default. The judgment, just this month, describes the lending as “expensive short-term credit”.
Litigation trends increase in times of economic uncertainty. We’re all now bored of the c-word, but batten down the hatches, because these scenarios are not unfamiliar, expect more of these claims over the next 12 months. This time the target was solicitors, next it may be the lender, or both.
And what does this say about dual representation? On the surface, nothing – because in this case, the solicitor’s actions and documentation persuaded the judge that they did not represent or act for the borrower. Here was a clear case of separate representation and solicitors were saved by that. But consider the wider implications.
What might the result have been if the court had implied a retainer, or these solicitors had to admit acting for Mr Nayee in a dual representation case, bearing in mind that this judge recognised the “very expensive” nature of the credit, the significant disadvantageous impact on the borrower. Mr Nayee thought he should use the lender’s solicitors or had to, and in dual rep cases, borrowers might say the same, more so, when on some occasions incentivised to do so.
And what does this say about the duties of a dual rep solicitor in respect of their advice and obligations when advising jointly on bridging loans, or their responsibilities where the instruction originates from the lender, with whom there is a history of dealing, and an established solicitor/client relationship, with all the inferences which will be drawn? And how that might be interpreted, judicially, in the context of the overall arrangement?
And what about customer outcome? This customer, on his own his own case, argues that his interests have not been best served because he did not receive, or was discouraged, or even deprived of competent independent legal advice.
This was, on the face of it, a simple case, but it poses questions about dual representation in this specialist space, that are worth careful consideration by lenders, solicitors and borrowers considering this route.
