Donald Frederick and Others v Positive Financial Solutions (Financial Services) Ltd
| Jurisdiction | England & Wales |
| Judge | Master Bowles |
| Judgment Date | 05 August 2016 |
| Neutral Citation | [2016] EWHC 2030 (Ch) |
| Docket Number | Case No: HC-2015-000712 |
| Court | Chancery Division |
| Date | 05 August 2016 |
[2016] EWHC 2030 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane
London EC4A 1NL
Master Bowles
Case No: HC-2015-000712
Edward Bennion-Pedley (instructed by Irwin Mitchell) for the Claimants
Simon Howarth (instructed by RPC) for the Defendant
Hearing date: 11 th February 2016
By this Claim, issued on 2 nd March 2015, the Claimants seek to recover from the Defendant, Positive Solutions (Financial Services) Ltd (Positive Solutions), compensation for losses that they have allegedly suffered as a result of the conduct of a Mr Qureshi and a Mr Warren.
In barest outline it is argued that Positive Solutions are vicariously liable for the conduct of Mr Warren; alternatively that, in his actions in respect of the Claimants, Mr Warren acted with the ostensible authority of Positive Solutions, such that that company is liable for losses arising from his conduct; alternatively, again, that Positive Solutions owed, in its own right, a duty of care to the Claimants, such as to render it liable for the consequences of Mr Warren's and Mr Qureshi's activities; alternatively, again, that as regards the fourth named Claimant, the transaction, in respect of which compensation is sought, was regulated business carried on by Positive Solutions in respect of which Positive Solutions is liable to pay statutory damages, pursuant to section 150 of the Financial Services and Markets Act 2000, as then in force (now section 138D(2) of that Act), by reason of breaches of the rules and duties owed by authorised persons, as defined in that Act, contained in the Mortgages: Conduct of Business Sourcebook (MCOB). Positive Solutions is an authorised person, for purposes of the Act, regulated, at the material time, by the Financial Services Authority and authorised by that authority to advise, among other things, in respect of mortgage contracts.
The circumstances in which it is said that these claims arise, as set out in the Claimants' Particulars of Claim. are as follows.
In early 2008, Mr Warren, through an associate, Mr Qureshi, who was a friend of the Third Claimant, Janine Frederick, approached the Claimants, who are all members of the same family with the proposal that they should make short term loans to Mr Warren to facilitate a property development that Mr Warren was intending to carry out in Wembley, pursuant to which, at the end of a six month period, they would secure a fixed return and, as I understand it, the return of their monies. The Claimants were interested in the proposal but lacked cash resources to make the proposed investment.
In that context, it was Mr Qureshi's suggestion that Mr Warren should help the Claimants to raise money to invest by way of re-mortgages of their respective properties. Mr Warren was, as it is pleaded, an Independent Financial Adviser 'employed or otherwise authorised' by Positive Solutions and, as it is pleaded, his 'regulated position' gave comfort to the Claimants, in entering into the proposed re-mortgages.
The re-mortgages, in question, were these: a re-mortgage by the First and Second Claimant of a 'buy to let' property at 11 Old Oak Road, London W3; a re-mortgage by the Third Claimant, the daughter of the First and Second Claimants, of a 'buy to let' property at 10 Oakleigh Avenue, Surbiton; a re-mortgage by the Fourth Claimant, the sister of the Second Claimant, of a property, her home, at 112 Elmbridge Avenue, Surbiton.
The applications for re-mortgage were, in each case, prepared, submitted and successfully arranged by Mr Warren.
In respect of the First and Second Claimant, the application submitted by Mr Warren stated, as was not the case, that the First Claimant had an annual income of £80,000 with an intended retirement age of 75, when, in point of fact, his income, as a local authority employee, was £47,000. The application further stated, as, again, was not the case, that the purpose of the loan was a pound for pound replacement of existing borrowing, when, in fact, the purpose was to raise capital for the proposed investment. Neither the First nor the Second Claimant, so it is pleaded, were aware of these mis-statements.
In respect of the Third Claimant, the application submitted by Mr Warren stated, as was not the case, that her annual earnings were £92,000, with a further £25,000 in non-regular overtime, when, in point of fact, her income was £58,000. The application further stated, as, again, was not the case, that she was a manager at an investment bank, when, in fact, she was an associate and, further, that she lived at the relevant property, when, in fact, it was a 'buy to let' property. She was not, it is pleaded, aware of any of the foregoing mis-statements.
In respect of the Fourth Claimant, the application submitted by Mr Warren stated, as was not the case, that she was a Human Resources manager, earning £83,750 per annum, when, in fact, she was a single mother with a child, earning some £26,000 per annum as a personal assistant. Like the other Claimants, the Fourth Claimant was not, so it is pleaded aware of the mis-statements contained in the application.
In reliance upon these applications, Abbey advanced to the Claimants the following sums, which were then applied in the following way.
The First and Second Claimants received an advance of some £500,000, of which £217,500 went to pay off bridging finance obtained by a company, HGQ Limited (HGQ), of which Mr Warren and Mr Qureshi were directors, and some £39,000 went to Mr Warren. The balance went to redeem the First and Second Claimants' then existing mortgage.
The Third Claimant received an advance of some £430,000, on an interest only basis and without any supporting investment vehicle to provide repayment at term. Of the advance, some £246,000 was paid to HGQ and the bulk of the balance in redemption of her existing mortgage.
The Fourth Claimant received an advance of some £386,000, on an interest only basis and, again, without any supporting investment vehicle to provide repayment at term. Of her advance, some £53,000 went to Mr Warren's personal account and the balance, after redemption of her existing mortgage, to HGQ.
The monies advanced by each Claimant to Mr Warren, or HGQ, have been lost by the failure of the property development and, in these proceedings, the Claimants and each of them claim the losses they have incurred by reason of that failure, credit being given for partial recoveries already, apparently, obtained elsewhere. The total amount claimed is in the order of £400,000.
In regard to the causation of those losses, the Claimants' case is that, had Mr Warren acted properly as their agent (and, therefore, as a fiduciary) the clear conflict of interest as between the Claimants and Mr Warren would have resulted in his refusal to act, in the applications not being made and the monies, therefore, not being advanced and lost.
Alternatively, as a fiduciary, Mr Warren should have given full disclosure of the content of the applications, at which point the Claimants would have withdrawn, the applications would not have been made and, again, the monies advanced and lost would not have been advanced and lost.
As a further alternative, Mr Warren assumed a responsibility and, in consequence, a duty of care to the Claimants to advise them as to the suitability of their applications, such that, if that duty had been complied with, the Claimants would have been advised not to proceed and would not have proceeded.
Alternatively, again, by reason of Mr Warren's assumption of responsibility and the duty of care, arising therefrom, any application made upon behalf of the Claimants by Mr Warren should have been made truthfully, in which event the Abbey would either not have advanced any monies, or significantly, smaller sums of money, with a corresponding diminution in the Claimants' loss.
The primary basis upon which it is said that Positive Resolutions bears legal responsibility for Mr Warren's conduct and for its alleged consequences is said to be found in Mr Warren's relationship with Positive Solutions; it being said, as already outlined, that, by reason of that relationship, Positive Solutions are vicariously responsible for the wrongdoing of Mr Warren, or, in the alternative, that Mr Warren acted, in respect of the transactions now complained of, with the ostensible authority of Positive Solutions.
The secondary basis upon which it is contended that Positive Solutions bears responsibility for Mr Warren's misconduct and its consequences is said to arise from an assumption of responsibility by Positive Solutions, in respect of that conduct, derived from the fact that it was only by reason of his status as an agent of Positive Solutions that he had access to the electronic 'portal' through, or via, which the mortgage applications were made and only by reason of that access that the applications now complained of could have been made. That assumption of responsibility is said to give rise to a 'direct' duty of care as between Positive Solutions and the Claimants
The further basis of liability to the Fourth Claimant arises, it is said, from the fact that Positive Solutions was an authorised person and that the mortgage application in respect of the Fourth Claimant was regulated business carried on by Positive Solutions under the Act, such as to give rise to a duty in Positive Solutions to advise as to the suitability of the transaction. That liability can, of course, only arise if Positive Solutions was acting in the transaction and, therefore, if Mr Warren was, or is to be treated...
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