Frost v James Finlay Bank Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Jonathan Parker,Lord Justice Longmore,The Vice-Chancellor |
| Judgment Date | 23 May 2002 |
| Neutral Citation | [2002] EWCA Civ 667 |
| Docket Number | Case No: A3 2001 2367 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 May 2002 |
[2002] EWCA Civ 667
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION (Mr Justice Hart)
Royal Courts of Justice
Strand,
London, WC2A 2LL
The Vice-Chancellor
Lord Justice Jonathan Parker and
Lord Justice Longmore
Case No: A3 2001 2367
Mr James Dingemans QC (instructed by Messrs Freeman Solicitors) for the Claimant/Respondent
Mr Michael McParland (instructed by Messrs Collyer-Bristow Solicitors) for the Defendant/Appellant
INTRODUCTION
This is an appeal by James Finlay Bank Ltd ("the Bank") against an order made by Hart J on 3 October 2001 following the trial of an action brought against the Bank by Mrs Sara Cameron (then Mrs Frost).
In the action, Mrs Cameron claims damages against the Bank for negligence in connection with a loan of £250,000 made to her by the Bank in August 1991 to enable her to refurbish her house at 7 Ingleby Drive, Mount Park Road, Harrow-on-the-Hill ("the Property") with a view to selling it. In the course of the refurbishment the builders reported cracking in the structure of the Property, and the Property was later found to have suffered from subsidence.
Mrs Cameron's claim arises out of what happened concerning the insurance of the Property. In essence, Mrs Cameron alleges:
1.that the Bank advised or required her to change the insurers of the Property;
2. that that advice or requirement gave rise to a duty of care on the part of the Bank;
3. that when it gave that advice or imposed that requirement, the Bank had in its hands a surveyors' report (of which she had no knowledge) which referred to cracking in the structure of the Property;
4. that the Bank breached its duty of care in (among other things) failing to disclose the report to her before she acted on its advice or in compliance with its requirement to change insurers;
5. that had she known of the contents of the report she would not have so acted;
6. that by reason of the change of insurers the settlement of the insurance claim in respect of the subsidence took substantially longer than it would have done had she remained with her original insurers; and
7. that the resulting delay caused her economic loss for which the Bank is liable.
Mrs Cameron's claim succeeded before the judge. By his order, the judge directed an inquiry as to damages and an account of the sum due from Mrs Frost to the Bank. He also directed that further proceedings on the inquiry and the account be stayed pending an appeal by the Bank.
The Bank applied to the judge for permission to appeal on six grounds. The judge granted permission to appeal in respect of two of those grounds, but refused permission in respect of the remaining four grounds. Subsequently, the Bank applied to the Court of Appeal for permission to appeal additionally on three of the four grounds on which the judge had refused permission. For her part, Mrs Frost applied to the Court of Appeal for permission to cross-appeal. On 30 January 2002 Robert Walker LJ directed that both these applications be adjourned to be heard with the appeal for which the judge had granted permission.
THE FACTS
In 1976, Mrs Cameron's husband, Mr Gerald Cameron, a successful businessman, died aged 57. There was one child of the marriage, a son Harvey, who was about 6 years old when his father died. Mrs Cameron was left reasonably well-provided for, and she and Harvey continued living in the Property, which had been the matrimonial home. In 1978 Mrs Cameron married a Mr Stanley Frost. Thereafter, they lived together in the Property with Harvey (whom Mr Frost subsequently adopted). The Property was transferred into their joint names, and charged to Eagle Star by way of first charge as security for a loan of some £50,000.
As the judge records in paragraph 2 of his judgment, it would appear that Mrs Cameron's financial assets were, over the course of time, dissipated by Mr Frost. In 1984 Mr Frost was convicted of fraud and sentenced to four years in prison. In the same year, he was made bankrupt. He was released from prison in 1986. By this stage, the family were in straitened financial circumstances, and in receipt of State benefit. Mr Frost's trustee in bankruptcy claimed an interest in the Property, but in 1989 his claim was bought off for some £100,000 with funds provided by a relative of Mrs Cameron and the Property was transferred into her sole name. At about this time, she granted a second charge over the Property in favour of Lloyds Bank plc, as security for a loan of some £60,000.
In early 1989, Mrs Cameron decided to sell the Property. She accordingly approached a number of local estate agents. They advised her that in order to realise the full potential of the Property, which was by then in a somewhat run-down state, she should refurbish it before placing it on the market for sale. She accepted this advice. She was then faced with the problem of financing the refurbishment. Mr Frost discussed this with a Mr Philip Wilson, a property dealer friend of his, who suggested that Mrs Cameron approach the Bank. Mrs Cameron was agreeable to this, and in due course Mr Wilson introduced Mrs Cameron to Mr James Strachan, a director of the Bank.
At that stage Mrs Cameron was considering transferring the Property into the joint names of herself and Harvey, but in the event she did not do so and the Property has remained in her sole name.
The initial meeting between Mrs Cameron and Mr Strachan took place on 29 June 1989. Mr Wilson was also present. The primary issue at the trial was as to what transpired at this meeting (which I will call "the June 1989 meeting"), and I will accordingly return to it later in this judgment.
Following the June 1989 meeting, the Bank requested a valuation of the Property for loan purposes from Scrase Hewlett Partnership, surveyors and valuers. In a letter to Mr Strachan dated 19 July 1989, Mr Cozens of Scrase Hewlett Partnership reported that in "tip top condition" the Property might be worth something approaching £1M. However, in its current state he valued it for loan purposes at £550,000 and for fire insurance purposes at £500,000. Mr Cozens' letter (to which I will refer hereafter as "the 1989 valuation") contained a general description of the nature and current condition of the Property, in the course of which Mr Cozens said this:
"No structural survey has been carried out, but from our general limited inspection it could be seen that the property is in basically sound condition.
…..
There is evidence of some minor movement to one side of the house with cracking to the brickwork around the window opening. It is possible that some localised stabilisation may be required, but we have no reason to anticipate significant problems."
The Bank did not supply Mrs Cameron with a copy of the 1989 valuation, but in a letter dated 3 August 1989 it informed her that it had received a "satisfactory report". The evidence was that the Bank would have supplied her with a copy of the 1989 valuation had she, or her solicitor Mr Carlson, asked for one.
By a facility letter dated 26 July 1989 addressed to Mrs Cameron and Harvey, the Bank offered a loan facility of £250,000. The term of the loan was to be two years and it was to be secured by a first charge on the Property. £200,000 of the loan was to be applied in paying off the existing charges on the Property and in carrying out the proposed refurbishment (which was expected to cost some £70,000 to £80,000); the remaining £50,000 was to be retained by the Bank to cover interest, which was to be rolled up during the period of the loan.
The facility letter contained a number of standard conditions. Condition Precedent 2.2 in the facility letter (I shall refer to it hereafter simply as "condition 2.2") provided (so far as material):
"The Lender shall require to be satisfied with the insurance cover of the Borrower and will utilise the services of its Insurance Services Division in this connection…."
The reference to the Bank's "Insurance Services Division" is a reference to James Finlay Financial Services Ltd ("JFFS"), a subsidiary company of the Bank which was at that time owned as to 75 per cent by the Bank and as to the remaining 25 per cent by independent shareholders (in 1991 it became a wholly-owned subsidiary of the Bank). JFFS in turn had a subsidiary company called James Finlay (Insurance Brokers) Ltd, which carried on business under the same name as JFFS.
On 1 August 1989 Mrs Cameron accepted the Bank's offer by signing a copy of the facility letter. (By that stage she had decided not to transfer the Property into the joint names of herself and Harvey.)
On 3 August 1989 Mr McInroy, a manager in the Bank's lending department responsible to Mr Strachan, wrote to the Bank's solicitors, Saunders Bearman Anselm, instructing them to act in the matter, and enclosing a copy of the facility letter. In his letter, Mr McInroy stated that the Bank would itself be dealing with a number of aspects of the facility letter, including condition 2.2.
At about the same time, Mr McInroy referred the question of the insurance cover on the Property to Mr Macdonald (a director of JFFS), sending Mr Macdonald a copy of an "Advance Proposal Form" containing details of the proposed loan and of the security to be taken for it (i.e. a first charge on the Property). This was in accordance with what had by then become the general practice of the Bank in referring questions of insurance cover to JFFS.
The Property was at that time insured in...
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