Dean v Allin & Watts

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE SEDLEY,MR JUSTICE LIGHTMAN
Judgment Date23 May 2001
Neutral Citation[2001] EWCA Civ 758
Docket NumberCase No: A3/2000/0057
Date23 May 2001

[2001] EWCA Civ 758

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL

ON APPEAL FROM THE HIGH COURT OF

JUSTICE CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Robert Walker

Lord Justice Sedley and

Mr Justice Lightman

Case No: A3/2000/0057

Roy Dean
Appellant
and
Allin & Watts (A Firm)
Respondent

Mr Bernard Weatherill QC (instructed by Coles Miller, 44/46 Parkside Road, Poole, Dorset BH15 2P) for the Appellant

Mr Alastair Norris QC (instructed by Bond Pearce, Darwin House, Southernhay Gardens, Exeter EX1 1LA for the Respondent)

MR JUSTICE LIGHTMAN

INTRODUCTION

1

This is an appeal against a judgment of Mrs Justice Arden given on the 21st December 1999 in which she dismissed the claim by the appellant Roy Dean ("Mr Dean") against the respondent Allin & Watts ("A&W"), a firm of solicitors, for professional negligence on the grounds that Mr Dean did not establish that A&W owed him any duty of care either in contract (under an implied retainer) or in tort. She went on to hold that, if she was wrong and any such duty had been established, she would have held that such duty had been broken, that there was no break in the chain of causation, that Mr Dean had suffered the loss which he alleged that he had suffered, namely the agreed sum of £50,000 plus simple interest from the 1st January 1997, and that he had not been in breach of his duty to mitigate his damage.

2

The learned judge granted Mr Dean permission to appeal limited to the issue whether A&W owed to him a common law duty of care on the facts found by her and the inferences to be drawn therefrom, but not (without the permission of the Court of Appeal) from her findings on the primary facts. Mr Dean has applied to the Court of Appeal for permission to appeal on the issue whether there was an implied retainer giving rise to a contractual duty of care and permission was granted at the hearing. A&W by a Respondent's Notice cross appeals on three of the issues decided by the judge against it.

3

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 ("Section 2") provides that a contract for the sale or other disposition of an interest in land can only be made in writing and that the writing must incorporate all the terms which the parties have expressly agreed and be signed by or on behalf of each party to the contract. In United Bank of Kuwait Plc v. Sahib [1997] Ch 107 on the 24th June 1994 Mr Justice Chadwick held that Section 2 governed the validity of all dispositions of interests in land and this included the creation of equitable charges by way of deposit of title documents, and accordingly an attempt to create such a charge by making a deposit of title documents without the preparation of, and signature of the parties to, a memorandum in writing setting out the express terms had no legal effect. The Court of Appeal affirmed this decision on the 2nd February 1996.

4

In summary, Mr Dean agreed with a Mr Beasey and Mrs Young ("the Borrowers") to make a consecutive series of four loans to them (each loan replacing its predecessor) and that Mr Dean should have as security a charge on a leasehold flat ("the Flat") of which a Mr and Mrs Sharman were the registered proprietors. The charge was to involve the deposit by Mr and Mrs Sharman of the title documents to the Flat ("the Deeds"). The loans represented a very substantial investment so far as Mr Dean was concerned. The Borrowers instructed a Mr Dolan of A&W as their solicitor to advise and take the necessary steps to effect the transactions. The fourth loan was of £50,000. Unfortunately Mr Dolan was not aware of the possibility that a deposit of the Deeds by Mr and Mrs Sharman without execution of a memorandum signed by them might be legally ineffective. He advised the Borrowers that a mere deposit of the Deeds would be sufficient and effective. To his knowledge Mr Dean did not intend to, and did not, instruct a solicitor to act on his behalf in the loan transactions. He knew or ought to have known that in the case of each of the loan transactions the Borrowers and Mr Dean relied on him to ensure that Mr Dean obtained an effective security. The Borrowers defaulted and were without any funds to repay. Mr and Mrs Sharman demanded and obtained without making any payment the return of the Deeds on the ground that no valid charge had been granted. In this action Mr Dean seeks to recover his loss from A&W. The crucial question of law raised is whether in this situation Mr Dolan owed a duty of care, not merely to the Borrowers, but also to Mr Dean, to set in place an effective security or to warn both parties if the validity of the security was open to serious question.

FACTS

5

Mr Dean has at all material times carried on the business of a car mechanic. He is not widely experienced in business. In or about 1992 Mr Beasey first approached Mr Dean to inject capital into a firm called Citizen Homes ("CH"), a business owned and run by an experienced business woman Mrs Young, and in which Mr and Mrs Sharman were also involved. CH dealt in buying run down or repossessed houses, rebuilding or refurbishing them and then reselling. In 1993 Mr Beasey made a second approach asking for a loan of £20,000. Mr Sharman showed Mr Dean some of the properties being refurbished. The Borrowers proposed to Mr Dean that Mr Dean lend to them for injection into CH the sum of £20,000 for two months for which the Flat should stand as security in one form or another, and Mr Dean agreed. Security was important to Mr Dean because he had previously lost £10,000 on an unsecured loan to another borrower. A solicitor was needed to carry out the transaction and Mrs Young suggested that they all use A&W. Mr Dean made it clear that he would not instruct solicitors to act on his own behalf though he did have a solicitor, a Mr Greenwood of Hawkins Greenwood of Poole. CH had been a client of A&W since 1992. Mr Dean had no previous connection with the firm. On or about the 9th March 1993 Mr Beasey telephoned Mrs Fry-Metcalf of A&W to instruct A&W to act on the transaction. Mrs Fry-Metcalf only dealt with conveyancing matters and she passed the matter over to Mr Dolan.

6

On the 10th March 1993 Mrs Young on the telephone instructed Mr Dolan to act on behalf of CH on the transaction. She told him that Mr Dean was to lend CH £20,000 repayable in two months with the addition of interest of £1,500; she made reference to security in the form of a deposit of the Deeds; and she said that the transaction was to be as simple as possible. Mr Dolan suggested that the transaction take the form of a promissory note. Mrs Young said:

"he just wants the comfort of knowing that there is a document there saying that his money is lodged with Citizen Homes and that we have agreed to repay him X amount at the end of two months plus his interest."

Mr Dolan raised the question whether additional interest should be payable on default in payment, but he advised that CH did not need to pay this. On the question of security over the Flat Mrs Young told Mr Dolan that Mr and Mrs Sharman were in Southampton and asked Mr Dolan to proceed on the basis that they were not available to sign a charge. Mr Dolan stated that, if it was just a deposit of the Deeds that was required, Mr and Mrs Sharman did not need to sign anything. Mr Dolan summarised the transaction as follows:.

"A simple promissory note from you [i.e. Mrs Young] to pay or repay in two months £20,000 plus £1,500 interest and the physical depositing of the title deeds to the flat."

Mr Dolan said that it would be normal for Mr Dean's solicitors to hold the Deeds, but that he did not know whether Mr Dean was instructing a solicitor. Mrs Young replied that she did not think that he was doing so and that he would be happy for Mr Dolan to "sit on" the Deeds. Mr Dolan made it clear that he could not act for Mr Dean. Mrs Young promised to let Mr Dolan know Mr Dean's address and Mr Dolan promised to prepare the promissory note that afternoon. He prepared a promissory note to be signed by Mrs Young.

7

The learned judge in her judgment set out her findings on the instructions given by Mrs Young to Mr Dolan regarding security as follows:

"20 Mrs Young took the decision for the structuring of the security as a deposit of title deeds. She also specifically instructed Mr Dolan to work round the fact that Mr and Mrs Sharman were in Southampton. She did not consult Mr Dean on this. In fact there was no great difficulty in taking a deed to Mr and Mrs Sharman for signature. In my judgment, Mrs Young was anxious not to have to seek Mrs Sharman's consent because it might have led to delay or been refused. If Mr Dolan had said that to create effective security it would be necessary for Mr and Mrs Sharman to execute a legal charge, that course would have been taken and a legal charge would have been obtained. In addition, Mr Dolan told her that because it was a private mortgage and not a loan by an institution, he could act only for one party

In my judgment, it follows that Mrs Young imposed constraints on what work A&W were to do. The interests of CH and Mr Dean on these matters were not identical. Moreover, Mr Dolan was aware that he could not act for both parties in his evidence Mr Dolan ultimately accepted that [Mrs Young] wanted Mr Dean to have some effective security in my judgment he must have been aware from the conversation with Mrs Young on the 10th March that Mr Dean was an unsophisticated investor and that he would probably do what Mrs Young suggested."

In short the position was that Mr Dolan was instructed to ensure that Mr Dean obtained an effective security even if this meant requiring Mr and Mrs Sharman to...

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