Broker House Insurance Services Ltd v OJS Law
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE LEWISON |
| Judgment Date | 25 November 2010 |
| Neutral Citation | [2010] EWHC 3816 (Ch) |
| Date | 25 November 2010 |
| Docket Number | Claim No: TLC 344/10 |
| Court | Chancery Division |
[2010] EWHC 3816 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice,
The Strand, London WC2A 2LL
Mr Justice Lewison
Claim No: TLC 344/10
MR M HALLIWELL appeared on behalf of the Claimant_ MR INNES appeared on behalf of Defendant
Approved Judgment
No of Folios: 49
No of Words: 3514
Wednesday, 25 th November, 2010
The main question raised by this preliminary issue is this. For what loss is a solicitor liable if he fails to carry out his instructions when acting for a lender whose loan is to be secured by mortgage? In the present case, it is assumed for the purposes of the issue that the solicitor was bound to obtain the consent of the first mortgagee to the creation of a second charge, but failed to do so. No consent was obtained. It is also assumed that the solicitor was bound to arrange for the registration of the second charge as a registered charge at Her Majesty's Land Registry. Instead of doing that, the second charge was protected by an agreed notice on the register. There is a subsidiary question raised on the form of the solicitor's instructions from the lender. I can take the facts from the agreed statement of facts, emphasising that these facts are assumed for the purposes of the preliminary issues only.
Broker House Insurance Services Limited is a provider of mortgage finance which it in turn borrows from other lenders. OJS Law is a firm of solicitors. Geoff Manstone Limited is a property development company of Mr and Mrs Twim-Barrimer. By 5 February 2007 Geoff Manstone Limited was registered as the owner of land described as land on the southwest side of Near Birches Parade, Oldham, which it intended to develop by building flats. Initially it borrowed money from the National Westminster Bank pursuant to an agreement dated 1 December 2006 and secured by a first legal charge dated 10 January 2007 over the land in question. By clause 11.3 of the agreement, Geoff Manstone Limited agreed not to grant any security to a third party or enter into any borrowing or other obligation without the National Westminster Bank's prior consent. The terms of that clause were reflected in a restriction entered on the register of the Land Registry in the following terms:
"No disposition of the registered estate by the proprietor of the registered estate, or by the proprietor of any future registered charge, is to be registered without a written consent signed by the proprietor for the time being of the Charge dated 10 January 2007 in favour of National Westminster Bank plc referred to in the Charges Register."
Geoff Manstone Limited did seek further borrowing, and by a facility letter dated 21 November 2007 Broker House Insurance Services Limited offered to lend £145,935 to Geoff Manstone Limited for a term of six months with interest at 8% per month. Page 2 of the facility letter asks the borrower to return the documentation with identification documents to OJS Law at Bell Street in London. Page 3 of the facility letter refers to notes for solicitors to be contained in special conditions. The special conditions attached to the facility letter read as follows:
"Special Conditions:
(1) Conveyancer to ensure all documents witnessed by an Independent Solicitor, and Lodged correctly.
(2) Conveyancer to ensure our charge ranks second to the first charge, with appropriate permissions granted by 1 st Mortgagor [sic], to our charge prior to release of funds.
(3) Conveyancer to ensure will be acting in relation to the proposed New Build Project known as 'Land at The Birches' Near Birches Parade Oldham OL4 9PZ."
The relevant documents reached OJS Law on 28 November 2007. On 4 December 2007 Broker House Insurance Services remitted the advance to OJS Law, and on the following day, 5 December 2007, Geoff Manstone Limited executed the charge in respect of the land. The agreed statement does not say precisely when the money was released to Geoff Manstone Limited, save that it was after 4 December; but I infer that it must have been on or about 5 December that the money was released.
OJS Law did not seek or obtain the consent of Nat West. They did not register a second legal charge against the land, but they did protect Broker House Insurance Services' charge by the entry of an agreed notice which was entered in the charges register at the Land Registry.
Under the Land Registration Act 2002, the effect of the agreed notice is to protect the priority of the interest which is noted. However, unlike a substantive registration of the interest in question, it does not guarantee the validity of the noted interest. It is common ground for the purposes of the issues that OJS Law were in breach of duty in failing to seek or obtain the consent of Nat West to the creation of a charge and in failing to register the charge substantively at the Land Registry.
Mr Innes, appearing on behalf of OJS Law, accepts that, if the measure of priority and protection given to Broker House Insurance Services' second charge by means of the agreed notice was any less effective than it would have been if the charge had been substantively registered as a registered charge, then Broker House Insurance Services are entitled to damages to reflect the difference in the value of the security. He also accepts that, if any adverse consequences have been caused by the lack of consent from Nat West, then, equally, Broker House Insurance Services are entitled to damages to reflect those adverse consequences. However, Mr Halliwell, appearing on behalf of Broker House Insurance Services, argues that, if Broker House had known the true position, it would not have entered into the transaction. The inactions of OJS Law were tantamount to advising Broker House to enter into the transaction and, in consequence, they are liable for all the consequences of Broker House having parted with its money.
The starting point for questions of this kind is now the speech of Lord Hoffmann in South Australia Asset Management Corporation v York Montague Limited [1997] AC 191 (usually abbreviated to SAAMCO). At page 213 Lord Hoffmann said this:
"Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy. Normally the law limits liability to those consequences which are attributable to that which made the act wrongful. In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of the information being inaccurate."
Lord Hoffmann then illustrated his point with a now famous example of the mountaineer's knee. Following the illustration he said at page 214:
"I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.
The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of...
To continue reading
Request your trial
-
Credit & Mercantile Plc (Respondent/Claimant) v Nabarro
...loan. 26 Mr Flenley QC has also referred me to a decision a more recent decision of Lewison J, as he then was, in Broker House Insurance Services Limited v. OJS Law [2011] PNLR 23. That was a loan to a property developer intending to develop a site. The lender was agreeing to lend some deve......