Gordon Roger Morkot and Irene Morkot and Another v Watson & Brown Solicitors and Another
| Jurisdiction | England & Wales |
| Judge | Judge Behrens |
| Judgment Date | 24 October 2014 |
| Neutral Citation | [2014] EWHC 3439 (QB) |
| Docket Number | Case No: 3LS40576 |
| Court | Queen's Bench Division |
| Date | 24 October 2014 |
[2014] EWHC 3439 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LEEDS DISTRICT REGISTRY
MERCANTILE LIST
The Court House
Oxford Row
Leeds LS1 3BG
His Honour Judge Behrens sitting as a Judge of the High Court in Leeds
Case No: 3LS40576
Geoffrey Knowles (instructed by RobinsonMurphy Solicitors) for the Claimants
The Defendants did not appear and were not represented
Hearing dates: 2 and 3 October 2014
This is an assessment of damages /loss in two separate claims made by the Claimants against their former solicitors, Watson & Brown.
The claims arise out of purchases of property by the Claimants in 2006 from Morris Properties Group Ltd ("Morris Properties") In fact some other Companies controlled by Simon Morris are involved in some of the transactions. Nothing turns on this for the purpose of this judgment. The properties were purchased for the purpose of letting. The Claimants did not have the purchase price and thus needed to borrow from various lenders.
The properties were part of a portfolio of properties marketed by Morris Properties to investors often by way of advertisements in the press. Typically they were marketed on the basis that investors would be able to obtain a 100% mortgage and then be able to let the property. It is said that the price of each of the properties was significantly above its then market value.
Morris Properties offered a "gifted deposit/seller's cash back scheme" which represented the deposit necessary to obtain a mortgage.
Watson & Brown is a firm of solicitors practising from South Shields. As is now clear Karon Brown was the sole principal of Watson & Brown. In each of the transactions Karon Brown was acting for the purchaser and the lender. She also received the referrals from Morris Properties.
In each of the cases with which I am concerned the principal allegation against Watson & Brown is that Karon Brown did not disclose to the lender that the deposit was in fact being provided by the vendor as part of the gifted deposit scheme. Equally she did not disclose to the purchasers that she had failed to disclose the existence of the gifted deposit to the lenders. If the lenders had known about the gifted deposit scheme they would not have gone ahead with the loans. In the result the purchasers would not have gone ahead with purchases.
As a result of these (and other) transactions involving the Morris Group of Companies disciplinary proceedings were commenced against Karon Brown. She did not attend the hearing on 25 th October 2010. Four serious allegations were found proved including an allegation that she preferred the interests of Simon Morris to that of her clients and that she acted deliberately so that her conduct was dishonest within the test derived from Twinsectra v Yardley [2002] UKHL 12. She was struck off the Roll of Solicitors.
A number of purchasers have instituted proceedings against Watson & Brown. A detailed Particulars of Claim has been prepared in each case. Karon Brown is bankrupt. Neither she nor her trustee in bankruptcy has taken any active steps in the proceedings. No defence has been filed and judgment on liability has been obtained in default of defence. On 20 th June 2014 directions were given for the assessment of damages. I ordered that three cases stand as test cases and all other claims be stayed pending the quantification in the test cases.
The first test case (Mr and Mrs Edwards) was relatively straightforward in that the transaction did not eventually proceed. However Mr and Mrs Edwards had paid a total of £10,678.75 between 11 April 2006 and 18 August 2006. I was satisfied that those monies would not have been paid if they had received proper advice from Watson & Brown. Accordingly it was relatively straightforward to assess the damages/loss in the sum of £10,678.75. In addition I awarded interest at 4%. It was accordingly not necessary to reserve judgment.
The other two test cases are more complex because in both cases the transactions proceeded to completion. In one case (Mr and Mrs Morkot) the lender repossessed under the terms of the mortgage and (fortunately for Mr and Mrs Morkot) has waived any claim for the shortfall. There is accordingly modest and is limited to the amount they have lost in the transaction. In the other case Mr Bellew and Mrs Knight completed on two properties and have continued to pay the mortgage instalments and to receive rents. Their losses are said to be substantial because the rents they have received do not cover the mortgage instalments and other expenses involved in the letting. Furthermore the properties were overpriced and the value has fallen further as a result of the falls in the property market. The legal issues involved in these two claims were such that I felt it necessary to reserve judgment.
It remains to be seen whether any of the Claimants will recover the fruits of any judgment. Karon Brown is bankrupt and it appears unlikely that much will be recovered by way of dividend by the unsecured creditors. Watson & Brown's professional indemnity insurers have refused to indemnify the firm because of the dishonesty. Thus the only hope of recovery may lie in a claim to the Solicitors Compensation Fund.
The facts of the individual cases
Before discussing the relevant legal questions it is necessary to set out the facts of the individual cases in more detail.
Mr and Mrs Morkot – 85 Burley Lodge Terrace, Leeds LS6 1QD ("85 Burley Lodge")
The Transaction
Mr and Mrs Morkot attended a sales presentation by Morris Properties on 20 February 2006. They agreed to purchase 85 Burley Lodge, which, at that time, was being marketed at £269,995.
They were told that all matters relating to the property transaction would be dealt with by Morris Properties. All they needed to do was to provide a reservation fee of £2,000. They paid the reservation fee the same day.
The documents are not easy to follow. However Watson & Brown opened their file on 22 February 2006. Their file contains a quotation of legal fees totalling £9,929.38 the majority of which (£8,099.85) relates to Stamp Duty.
It was initially proposed that there would be a loan of £240,245 funded by GMAC. On 18 May 2006 Connells provided the proposed lender with a valuation valuing the property at £250,000. [It is to be noted that the only comparables relied on were 3 other properties sold or under offer by Morris Properties.] In any event the mortgage valuation report was not shown to Mr and Mrs Morkot.
In the result on 7 June 2006 GMAC made a mortgage offer of only £222,945. On 12 June 2006 the vendor reduced the price to £249,995.
The transaction completed on or about 20 June 2006.
There are 2 completion statements on Watson & Brown's file. One is prepared by Watson & Brown and the other by Morris Properties.
Watson & Brown's completion statement confirms the purchase price at £249,995. It contains 2 additions – a figure of £4,106.13 in respect of fees and £500 in respect of a broker's fee. Thus the total cost is said to be £254,601. This is paid for by a loan of £222,460, a deposit "paid to Morris Properties" direct of £27,499 a reservation fee of £2,000 and a balance due from Mr and Mrs Morkot of £2,642.13. There is no documentary evidence but when he gave evidence Mr Morkot confirmed that he paid the £2,642.13.
There is in fact a complication in this case because the vendor was an associated company of Morris Properties (First City Rentals Ltd) who instructed their own solicitors. However I do not think that this affects the position that in effect Morris Properties were providing a gifted deposit of 11% of the purchase price.
The completion statement from Morris Properties is more difficult to follow. It also records the price at £249,995. It records the reservation fee of £2,000. It also refers to a customer deposit of £27,499. It refers Customer Stamp Duty of £2,499.95 said to be paid direct to Morris Properties leaving a balance of £220,495.55 to complete.
It is thus to be noted that both completion statements refer to the deposit of £27,449 paid direct to Morris Properties. In reality as everyone knew this sum was not paid.
Following completion Mr and Mrs Morkot attempted to let out 85 Burley Lodge. The documents supplied by them indicate that they received rents of £13,004 but their expenses including mortgage payments insurance repairs, letting agent's fees and sundry expenses totalled £14,052.34. Thus they allege that they made a loss of £1,048.11.
In July 2007 they surrendered possession to GMAC. 85 Burley Lodge was sold in September 2008 for £135,400 leaving a shortfall to GMAC of a sum in excess of £110,000. However GMAC have written off the shortfall so that the losses relate solely to the amounts they have paid out and the loss in the lettings.
The allegations
The allegations of breach of duty are set out in paragraph 41 of the Particulars of Claim. There are 32 separate allegations. They include:
1. concealing from Mr and Mrs Morkot the effect and significance of the gifted deposit
2. acting for both Mr and Mrs Morkot and GMAC when a conflict of interest existed.
3. preferring the interests of Morris Properties over those of both Mr and Mrs Morkot and GMAC
4. failing to advise Mr and Mrs Morkot that if GMAC had been informed of the gifted deposit it would not have offered a mortgage to Mr and Mrs Morkot.
It is to be noted that there is no pleaded allegation of dishonesty or fraud although it is plainly to be inferred from the pleading that it is alleged Watson & Brown were aware...
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