Aylwen v Taylor Joynson Garrett (A Firm)

Tuesday, 3rd July 2001

I will ask Arden LJ to give the first judgment.

This is an appeal with the permission of May LJ and Dyson LJ from the order of Lloyd J dated 20th December 2000. Lloyd J allowed an appeal from Deputy Master Weir and gave summary judgment against the claimant on the whole claim. Deputy Master Weir had dismissed an application to dismiss the action and gave permission to amend the particulars of claim. He made his order on 17th August 2000. There was an appeal from that order to the judge, together with an application for leave to amend, and there is an appeal before us from the order of Lloyd J and an application for permission to make further amendments to the particulars of claim and to adduce further evidence. There was also before us a cross-appeal by the respondents to adduce new evidence, but that has not been argued and therefore I will not deal with that matter in this judgment.

I now turn to summarise the claimant's case. As the issue before the judge was whether the claim disclosed a reasonable prospect of success, I proceed on the basis that the claimant will succeed in her allegations at the trial.

In 1987 Mr Aylwen, the husband of the claimant, took out a loan for £1 million from Boston Safe Deposit and Trust Company ("Boston Safe"). The loan was secured on a property known as 39 Green Street. It is said that he was going to develop this property. In 1990 Mr Aylwen agreed to sell 39 Green Street to the claimant, Mrs Aylwen, for £1.8 million. He agreed to sell it free from encumbrances on the basis that Mrs Aylwen was to assume responsibility for the secured loan with Boston Safe for £1 million and to pay the balance of £800,000 in cash. The claimant paid about £800,000 in settlement of that part of the purchase price.

Mr Aylwen and Mrs Aylwen signed the necessary transfer. The defendants acted as their solicitors on the transaction, but it is said that the defendants failed to advise that there was a caution against the property, they failed to register the transfer, they failed to transfer the obligations owed to the claimant and that they failed to tell the claimant, Mrs Aylwen, that Boston Safe had refused to extend the loan and that they had begun possession proceedings. It was also said that they had failed to protect Mrs Aylwen's interest in the property by a caution.

In April 1993 Boston Safe obtained an order for possession. The defendants failed to tell her about this. The arrears of interest were then about £100,000. Boston Safe obtained a possession order, and in May 1993 Boston Safe agreed to sell 39 Green Street for £1.3 million. Shortly after that date the claimant learnt about that transaction.

In December 1994 the purchaser resold 39 Green Street, but this time at the increased price of £1.9 million. On the sale by Boston Safe, Boston incurred a shortfall on its security and the claimant therefore received nothing back from the sale. On the other hand, she was not subject to the obligations to Boston Safe, which had remained with her husband.

What the claimant says is that she would have refinanced Boston Safe if she had known about the possession proceedings, and she would therefore have been able to retain the property, to develop it in her own time and to sell it herself later at a profit. I should add that it is well-known that the property market in London collapsed in the early 1990s.

As regards loss and damage, the claimant claims, first, the sums paid by Mrs Aylwen pursuant to the agreement between her and her husband to Boston Safe, including payments of mortgage interest, although those mortgage interest payments fell into arrears quite soon after the transaction between her and her husband in about 1992 for reasons which have not been explained. The second head of damage was loss of profit on resale or enfranchisement. The claimant says that the defendants knew about the intention to sell the property, when developed, at a profit. Third, there is a claim for the cost of alternative accommodation. I will deal with the evidence on that matter shortly. Fourth, there is a claim which the claimant seeks to add by her application to amend the pleadings on this appeal. This claim is for lost tax benefits sought to be obtained in the United States, plus recovery of interest and penalties to which she stands subject as a result, she says, of the loss of 39 Green Street.

In the proposed amended particulars of claim, a new paragraph 5A is to be added as follows:

"At all material times the Defendants by Mr Lewis knew that one of the effects of entering into the Sale Contract was to enable the Claimant to shelter from the United States tax a capital gain arising from the sale of her apartment at 65th Street, New York, and to enable her to set off the mortgage interest payments against rental income arising in the United States for United States purposes."

The sale contract is a defined term and it constitutes the agreement between Mr and Mrs Aylwen for the sale and purchase of the property for £1.8 million. In the particulars of claim the following items of loss are sought to be added to reflect the tax losses which the claimant says that she has suffered:

"(iv)The loss of tax savings in respect of both capital gains tax liability on the sum of £800,000 paid by the Claimant pursuant to the Sale Contract, and in respect of the income tax liability on the Claimant's rental income against which the Claimant has set off the interest payments made to the Boston Safe Deposit and Trust Company, which tax savings are now being challenged by the United States Internal Revenue Service;

(v)Such interest and penalties in respect of late payment capital gains tax and income to which the Claimant may become liable if the said challenge by the United States Internal Revenue Service is successful;

(vi)The loss of the tax saving in respect of income tax liability which the Claimant would have been able to claim by setting off the interest payments to Boston Safe Deposit and Trust Company (or some other mortgagee) against income arising in the United States in the period from June 1993 (when she vacated the Property) to December 1995 (when she purchased her present home and assumed a liability to make interest payments which are available to be set off against the United States income for tax purposes."

The evidence shows that the claimant had funds with which to redeem the mortgage and that since the sale by Boston Safe, as I have explained, there has been an increase in value of Green Street.

A defence has been filed in these proceedings which, among other defences, pleads that the loss was not reasonably foreseeable and puts in issue the remoteness of damage and causation and also relies on limitation. On 29th June 2000 the defendants made an application to have the action dismissed on the grounds of no reasonable prospect of success or no reasonable cause of action. There was a witness statement filed on behalf of the defendants by Kathryn Tregidgo dated 29th June 2000. This says that the property had diminished in value by the time Boston realised its security, that the interest paid to Boston Safe was paid for the use of property and that therefore there was no loss, that the loss was too remote and that there was no loss in fact incurred on the alternative accommodation. There are several other points made in that witness statement with which I need not deal.

On 24th August 2000 Deputy Master Weir dismissed the defendants' application. The defendants appealed to the judge. The defendants sought to adduce the fresh evidence of Ms Tregidgo in the form of a witness statement dated 13th November 2000. The thrust of this witness statement was that the contemporary documents from the defendants' file showed that the defendant well knew that Boston Safe had taken out possession proceedings in February 1993. However, all those matters are hotly disputed by the claimant. The judge refused leave for this new evidence. The exclusion of this witness statement was the subject of the cross-appeal which, as I have explained, has not been moved. When the matter came before the judge the claimant protested that the witness statement raised a new point but, from the papers before us, it appears that Mrs Aylwen in due course signed a further witness statement dealing with the point. She says, as I have explained, that she did not know about the possession proceedings until late May 1993.

I now turn to the judgment of the judge. He first dismissed the respondent's application to file new evidence. I need not, in the circumstances, explain why he rejected that application. He then turned to deal with the defendants' argument on loss.

The defendants' argument was that the loss was to be assessed at the date of breach. If Mrs Aylwen had been registered as proprietor, she would have been liable for the shortfall and therefore she suffered no loss by the defendants' negligence. She could have invested her...