Letter to the Parliamentary Commissioner
for Standards from Herbert Smith Solicitors
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
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 securedthe
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
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