Frederick and Others v Positive Solutions (Financial Services) Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Asplin,Lady Justice Rafferty,Lord Justice Flaux |
| Judgment Date | 13 March 2018 |
| Neutral Citation | [2018] EWCA Civ 431 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2017/0539 & A3/2017/0539(A) |
| Date | 13 March 2018 |
[2018] EWCA Civ 431
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
HIS HONOUR JUDGE DIGHT (Sitting as a Deputy High Court Judge)
CH-2016-000213; [2017] EWHC 643 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Rafferty
Lord Justice Flaux
and
Lady Justice Asplin
Case No: A3/2017/0539 & A3/2017/0539(A)
Thomas Grant QC and Edward Bennion-Pedley (instructed by Irwin Mitchell) for the Appellants
Roger ter Haar QC and Simon Howarth (instructed by Reynolds Porter Chamberlain) for the Respondent
Hearing date: 21 February 2018
Introduction
The appellants appeal with the permission of Gloster LJ against the order dated 9 February 2017 of His Honour Judge Dight, sitting as Deputy High Court Judge in the Chancery Division allowing the respondent's appeal against the decision of Master Bowles dated 5 August 2016 and entering judgment for the respondent pursuant to CPR Part 24 and dismissing the appellants' cross-appeal.
The factual background
The matter came before Master Bowles as an application by the respondent to strike out the claim under CPR 3.4, alternatively for “reverse” summary judgment under CPR 24 and accordingly, the Master took the facts as being as set out in the Particulars of Claim. There were also witness statements from each of the appellants in response to the application.
The facts as set out in the pleading and evidence can be summarised as follows. The first and second appellants are husband and wife, the third appellant is their daughter and the fourth appellant is the sister of the second appellant. In early 2008, the appellants were approached by a man called Qureshi, who had been a school friend of the third appellant. He persuaded them to make short term loans in a property development scheme that his business partner, Luke Warren, was intending to carry out in Wembley. At the end of six months they would secure a fixed return on their investment and the return of their monies.
Qureshi explained that the monies needed for the investment could be raised by way of re-mortgage of properties of the respective appellants which could be arranged by Warren. It was pleaded that Warren was an Independent Financial Adviser “employed or otherwise authorised” by the respondent and that his “regulated position” gave comfort to the appellants in entering into the re-mortgages. The evidence was that the third appellant had found Warren's entry in the FSA Register online as a “client facing” investment adviser for the respondent and it is said that she and the other appellants derived comfort from the fact that Warren was FSA regulated. It was not disputed however, that they had no personal dealings with Warren and did not meet him or receive any written communications from him. They also did not receive any communications from the respondent. It follows that there was no semblance of an advice process, such as one would normally have expected to take place.
The respondent is a company providing independent financial advice to the public. It is an “authorised person” regulated by the Financial Conduct Authority and operates through agents. Warren was appointed as an agent of the respondent by an agreement dated 29 November 2005 (the “Agency Agreement”). He was a “Registered Individual” for the purposes of the Agency Agreement, which was defined in clause 1.1 as: “the Registered Individual of the Company, Registered Individuals having the meaning ascribed to Investment Adviser Function, Investment Adviser (Trainee) Function or Pension Transfer Specialist Function by the FSA and in the Financial Services and Markets Act 2000.”
The relevant provisions of the Agency Agreement were as follows:
“2 Appointment of Registered Individual
2.1 The Company hereby appoints the registered individual as its Registered Individual for the purpose only of introducing applications by clients for new contracts for submission to institutions specified by the registered individual and approved by the Company.
2.4 The relationship between the Company and the registered individual shall be strictly that of principal and registered individual and not in any way that of employer and employee. The company shall be responsible for acts, omissions and representations of the registered individual in the course of carrying out the business in the agency hereby created or in the course of performance of the duties hereby contracted but only to the extent that it would be so responsible at common law by virtue of any statutory enactment or regulation or by virtue of the rules of any organisation, including FSA, of which the company is a member for the time being. In particular, the company shall not be bound by acts of a registered individual which exceed the authority granted under provision of this agreement or by fraudulent acts of the registered individual or of the registered individual's staff.
4 The Registered Individual's Duties
4.10 The Registered Individual shall not engage in any conduct which in the opinion of the Company is prejudicial to the Company's business or interests or the marketing of the Products generally and/or is prejudicial to any of the Company's customers.
5 Financial Provisions
5.1.1 In consideration of the obligations undertaken by the Registered Individual hereunder, the Company shall pay the Registered Individual commission at such percentage of the Commissions as agreed in Schedule 2 to the Agreement …
5.5 The Registered Individual shall be a self employed person …
10 FSA Undertaking
10.1 The Registered Individual shall conduct himself to the strict adherence of the FSA rules.
10.9 The Registered Individual will comply with any requirement, direction, order or award made under the investment referee scheme. The registered individual will also be required to follow and carry out compliance as laid out in the Company's Procedures manuals.”
10.10 The Registered Individual shall not effect any transactions relating to an investment at any time if he knows that the company is forbidden by any of the FSA rules to effect that transaction at that time on the Company's own account or if to do so would to his knowledge involve the registered individual in a conflict in its own interest with that of any clients or with its duty to any clients.
14 Indemnity
14.3 Without prejudice to the generality of Clause14.1 the Registered Individual shall indemnify the Company against any liability claims, loss, damage, costs and expenditure incurred in respect of, arising out of or otherwise connected with any misrepresentation, negligence, dishonesty, misconduct or fraud by the Registered Individual or by any employee, agent or representative of the Registered Individual or by reason of any act, advice or omission of the Registered Individual or persons employed by or connected with the Registered Individual which is contrary to the provisions of the Financial Services and Markets Act 2000, FSA rules or the provisions of this agreement. Such indemnity shall extend to the Company's costs and any costs charged to the Company by FSA in respect of investigations of the registered individual or the affairs of the registered individual by the FSA.”
The re-mortgages were duly arranged by Warren. He submitted the applications for loans on behalf of appellants through an online portal operated by Abbey National plc, to which he only had access because he was an agent of the respondent. Unknown to the appellants, the applications were based upon false information in relation to their income and employment, dishonestly put forward by Warren so as to justify the borrowing which would not otherwise have been advanced. There is no dispute that the applications were dishonest and fraudulent.
The applications for the loans were duly accepted and mortgage offers from Abbey National plc were made, which stated: “Positive Solutions Financial Services Limited recommended that you take out this mortgage.” Some of the monies released were used to pay off the appellants' existing mortgages. The balance of the monies was advanced by the appellant to Warren or HGQ, a company of which he and Qureshi were directors. Those monies were misappropriated and lost in the property development scheme. Warren was made bankrupt.
Commission was paid to the respondent by Abbey National in respect of the transactions but that commission was paid by the respondent into a suspense account because it could not be matched with any transaction on the respondent's systems. Thereafter, Warren is said to have created a false paper trail in order to access his percentage of the commissions. In the meantime, the appellants' properties remain subject to mortgages which they cannot discharge.
The appellants commenced proceedings against the respondent alone on 2 March 2015. The claim as pleaded sets out a number of bases on which the respondent is said to be legally responsible for Warren's wrongdoing. The primary basis so far as relevant to this appeal, is that by reason of the relationship between the respondent and Warren, it bore vicarious liability for his wrongdoing. The secondary basis is that the respondent is said to have assumed responsibility to the appellants, by reason of Warren only having access to the portal as its agent, such as to give rise to a duty of care owed by the respondent to the appellants.
In view of the way in which the argument developed before this Court, it is to be noted that the loss and damage is pleaded by the appellants as follows: “The Claimants will claim the net sums lost in the property schemes or such other sums as the court shall determine as damages for breach of the contractual, tortious and/or fiduciary duties owed by...
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