Bristol and West Building Society v Mothew

CourtCourt of Appeal
Docket NumberFC3 96/5816/B
JudgeLORD JUSTICE MILLETT, LORD JUSTICE OTTON, LORD JUSTICE STAUGHTON
Judgment Date24 Jul 1996
Jurisdiction

[1996] EWCA Civ J0724-2

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE CHANCERY DIVISION

(MR JUSTICE CHADWICK)

Royal Courts of Justice

Strand

London WC2

Before:

Lord Justice Staughton

Lord Justice Millett

Lord Justice Otton

FC3 96/5816/B

Mothew (T/A Stapley & Co)
Appellant
and
Bristol & West Building Society
Respondant

MR J SIMPTON QC and MR G CAMPBELL (Instructed by Wansboroughs Willey Hargrave WC2B SHA) appeared on behalf of the Appellant

MR N PATTEN QC and MR T HIGGINSON (Instructed by Osbourne Clarke B599 7QQ) appeared on behalf of the Respondent

1

Wednesday, 24th July, 1996

LORD JUSTICE MILLETT
2

This is an appeal brought by the Defendant with the leave of the single Lord Justice from an Order for summary judgment given initially by the District Judge and affirmed (for different reasons) by Chadwick J. It raises important questions of principle in relation to a claim by a mortgagee to recover from the solicitor who was acting for both mortgagor and mortgagee the loss arising from the mortgagor's subsequent default.

3

The collapse in the property market which accompanied the recession at the beginning of the present decade caused mortgage lenders to suffer serious losses. Unable to recover their advances from the borrowers or by the enforcement of their security they have sought to recover them from the valuers or solicitors on whose valuations or advice they have relied. In some cases they have been the victims of a fraud to which the valuers and solicitors have been parties. In other cases, such as the present, they have been unable to accuse their solicitor of anything more serious than negligence. Believing that the common law rules of causation and remoteness of damage might not enable them to recover the whole amount of their loss they have turned to equity and alleged breach of trust or fiduciary duty. We have thus been concerned to decide just what is involved in these concepts.

4

THE FACTS.

5

The facts are not in dispute. The Defendant is a solicitor. In August 1988 he acted for a Mr. and Mrs. Towers in the purchase of 17 Thameshill Avenue, Romford ("the property") for £73,000. In accordance with the usual practice he also acted for the Building Society ("the Society") to which the purchasers had applied for an advance of £59,000 in order to finance the purchase. (This was the Cheshunt Building Society, but its rights have since vested in the Society). In their application form the purchasers had stated that the balance of the purchase price of £14,000 was being provided by them personally and that they were not applying elsewhere for financial assistance towards the purchase price.

6

The Society offered to advance to the purchasers £59,000 on the security of a first mortgage of the property on the express condition that unless otherwise agreed in writing the balance of the purchase price was to be provided by the purchasers personally without resort to further borrowing and that no second mortgage or other loan was being arranged or contemplated in connection with the purchase. The Defendant was provided with the Offer of Advance (but not with the purchasers' application).

7

The Society's standing instructions to solicitors acting for the Society required them to report to the Society prior to completion (inter alia)

"(viii) Any proposal that the applicant may create a second mortgage or enter into a promissory note or otherwise borrow in order to finance part of the purchase price. (ix) Any incorrect information given in the solicitor's instructions. (x) Any other matters which ought to be brought to the notice of the Society."

8

The solicitor was required to submit a Report on Title and Request for Advance Cheque to the Society at least five clear working days before the cheque was required. This was done on a form by which the solicitor was asked to confirm (inter alia) that the title was good and marketable and might safely be accepted by the Society; that to the best of his knowledge and belief the balance of the purchase money was being provided by the applicant personally without resort to further borrowing; and that the Special Conditions attached to the Offer of Advance had been, or would be, complied with.

9

Mr.and Mrs. Towers intended to provide the balance of the purchase price from the net proceeds of sale of their existing property after discharging a subsisting mortgage. As it happens, they owed money to Barclays Bank which was secured by a second charge on that property. They arranged with the bank to allow a small part of the debt (£3,350) to remain outstanding after the sale of the existing property and to be secured by a second charge on the new property. The Defendant was informed of these arrangements and gave an undertaking to the bank to hold the title deeds to its order pending registration. Unfortunately, he either failed to appreciate that, although they related to old borrowing, they were a matter which he was required to report to the Society, or he had forgotten or overlooked them when he made his report.

10

By his Report dated 2nd. August 1988 the Defendant confirmed that to the best of his knowledge and belief the balance of the purchase money was being provided by the applicants personally without resort to further borrowing and that the Special Conditions attached to the Offer of Advance had been or would be complied with. He failed to disclose the fact that Mr.and Mrs. Towers were making arrangements for a second mortgage in connection with the purchase.

11

It is conceded by the Defendant that his statements were untrue and that his failure to report the purchasers' arrangements for a second mortgage was a breach of his instructions. The Society alleges that the Defendant acted negligently and in breach of contract, and this is admitted. There is no allegation of dishonesty or bad faith, and if any such allegation were made it would be strongly resisted. The Society does not allege that the Defendant made the statements in question knowing them to be untrue. It alleges only that he "knew or ought to have known" that they were untrue, and this is consistent with oversight.

12

Following the receipt of the Report the Society forwarded a cheque for the amount of the advance to the Defendant in readiness for completion on 30th. August. Completion took place on that date when the mortgage advance was released to the vendor's solicitors as part of the purchase price for the property. Mr.and Mrs. Towers executed a first charge in favour of the Society and a second charge in favour of the bank. On 25th. November the Defendant applied to the Society for its consent to the registration of the second charge in favour of the bank. The Society granted its consent on 10th. March 1989. It does not appear that the Society was aware of the date of the bank's charge (and so was aware that it constituted a breach of the conditions of the advance) when it gave its consent, but it is alleged that the Society must have learned of it shortly afterwards and nevertheless took no action.

13

The purchasers defaulted after making only small repayments and the Society enforced its security. The property was sold on 6th. February 1991 and realised net proceeds of a little under £53,000. The Society claimed to recover the whole of its net loss on the transaction from the Defendant, alleging breach of contract, negligence and breach of trust. As I have already indicated, breach of contract and negligence are admitted; breach of trust is denied.

14

It has always been the Defendant's case that the Society would not have been concerned by the purchasers' proposal to grant a second charge to the bank if this had been disclosed to it in August 1988; that it would still have proceeded with the transaction; and that it would have suffered precisely the same loss in that event. It is alleged that, in the heady days of 1988, when the property market was at its height and mortgage lenders were falling over themselves to advance money to house purchasers, the Society would not have been concerned by a proposal to grant a second charge to secure a relatively trivial indebtedness which did not even represent fresh borrowing; and it is contended that this is demonstrated by the lack of concern shown by the Society when it was asked to give its consent to the registration of a second charge in March 1989. Despite the submissions of the Society to the contrary, I am satisfied that, if legally relevant, these allegations raise a triable issue.

15

THE COURSE OF THE PROCEEDINGS BELOW.

16

It was common ground below that no damages would be recoverable at common law for breach of contract or tort unless the Society could show that it would not have proceeded with the transaction if it had been informed of the facts. The Society, however, submitted that the position was different in equity. It alleged that the Defendant had committed a breach of trust or fiduciary duty, and submitted that common law principles of causation and remoteness of damage have no application in such a case so that it was not necessary for the Society to show that it would not have proceeded with the transaction if it had been informed of the facts.

17

The District Judge accepted these arguments. In respect of the common law claims for breach of contract and negligence she gave summary judgment for damages to be assessed. This was apparently on the basis that the judgment would leave it open to the Defendant to contend that no loss was caused by the breach.

18

The District Judge also gave summary judgment for the Society for breach of trust for the sum of £59,000 less the sums received by the Society on the sale of the property, and this was affirmed by the Judge, who...

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