Select Committee on Standards and Privileges Ninth Report


ANNEX K

Letter to the Parliamentary Commissioner for Standards from Herbert Smith Solicitors

  

THE RT HON MR PETER MANDELSON MP

MORTGAGE ON 9 NORTHUMBERLAND PLACE

We have been asked by the Britannia Building Society ("the Society") to respond to your letter of 29th March 1999 to Mr Williams, the Chief Solicitor of the Society. We deal below with the points you have raised:—

  • As Mr Wegg-Prosser has informed you, the only formal document which is required to be delivered by solicitors acting on the Society's behalf is a Report on Title, which was delivered in this case. Wegg-Prosser and Farmer's file was remitted to the Society at its request in order for it to be reviewed.

  • A solicitor acting for a lender on a mortgage transaction has a contractual obligation to adhere to the express instructions of that particular lender (these are usually sent out, as in this case, with the initial letter of instruction). Furthermore, a solicitor is also under a common law duty to take reasonable care to protect and secure the position of the lender. The general duty on a solicitor is to report to the lender any matter which comes to his attention which materially affects the nature of the transaction.

  • There was no express instruction from the Society in this case, and there is no duty at common law, for a solicitor to confirm the ability of the borrower to cover the remainder of the purchase price. However, a solicitor is under a duty to inform the lender of any material change (in the borrower's circumstances or otherwise). Wegg-Prosser and Farmer were instructed in this case (in accordance with the Society's standard instructions) to inform it if they became aware that a third party was lending money towards the purchase of the property and/or if a third party was to take a charge over the property in respect of that loan.

  • Wegg-Prosser & Farmer did not inform the Society about the change in Mr Mandelson's circumstances and also failed to inform the Society that Mr Robinson was to provide a loan towards the purchase of the property.

  • Mr Mandelson applied for and was granted a standard five year fixed term mortgage with no special concession whatsoever being granted to him. Indeed, all normal procedures were followed including a request that Mr Mandelson be interviewed at his local branch. This interview took place on 30th August 1996.

We note your request for a copy of our report to the Society on this matter. We were instructed by the Society to carry out an Independent Inquiry into the facts of this transaction due to the seriousness with which the Society treated the queries raised in the media. We were asked to undertake this instruction due to there being no pre-existing business relationship between the Society and this firm in order to ensure its independence. At the conclusion of our investigation we provided our client with our advice and recommendations. That advice is confidential and privileged and has been disclosed to no-one except our client.

Nevertheless, in order to assist you with your enquiries, our client has instructed us to summarise the conclusions which we have reached regarding this matter which are as follows:—

1.  There was no dishonest intent on behalf of Mr Mandelson or Mr Wegg-Prosser and, therefore, no element of mortgage fraud.

2.  There was never any financial risk to the Society at any time and no loss will be suffered by the Society as a result of this transaction.

3.  The Society has always been fully secured—the arrangement with Mr Robinson was that his loan was unsecured (so that the Society's interests prevailed) with interest being rolled up and only payable on the sale of the property. Accordingly, there was never a risk that Mr Mandelson would be unable to make his interest payments to the Society despite the loan from Mr Robinson.

4.  The Society's normal lending criteria and procedures were followed at all times, and the Society conducted itself properly throughout the transaction and in the aftermath of the publicity arising in respect of this matter in December 1998 / January 1999.

As a result of our findings, we recommended to the Society that it take no action in relation to Mr Mandelson. We understand that our advice has been considered and accepted by a meeting of the Board of the Society.

We hope that this is sufficient for your purposes. As this letter relates to dealings between our client and one of its customers, we would ask that the contents of this letter be kept confidential.

7 April 1999


 
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