Lloyds TSB Bank Plc v Markandan & Uddin (A Firm)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer |
| Judgment Date | 09 February 2012 |
| Neutral Citation | [2012] EWCA Civ 65 |
| Docket Number | Case No: A3/2010/3031 |
| Court | Court of Appeal (Civil Division) |
| Date | 09 February 2012 |
[2012] EWCA Civ 65
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Roger Wyand QC sitting as a Deputy High Court Judge
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Mummery
Lord Justice Rimer
and
Sir Mark Potter
Case No: A3/2010/3031
Miss Nicole Sandells (instructed by DLA Piper UK LLP) for the Respondent, Lloyds TSB Bank PLC
Mr Christopher Aylwin (instructed by Patricks, Solicitors) for the Appellant, Markandan & Uddin
Hearing date: 2 December 2011
Introduction
This appeal is by a firm of solicitors, Markandan & Uddin ('M&U'), the defendant. The claimant/respondent is Lloyds TSB Bank PLC, which sued as the successor to the mortgage lending and deposit taking business of Cheltenham & Gloucester PLC ('C&G'), now a wholly owned subsidiary of Lloyds. No point turns on Lloyds' title to sue. As all the relevant facts relate to the activities of C&G, I shall in this judgment generally refer only to C&G.
In August 2007 C&G retained M&U to act for it on a proposed mortgage loan of £742,500 to someone calling himself Victor Davies. The loan was to enable him to buy a freehold property at 35, Claremont Road, Hadleywood. The repayment was to be secured by a first legal charge of the property. In September 2007, upon what they claimed was the completion of Mr Davies' purchase and charge, M&U remitted the loan money to (so they believed) a firm of solicitors acting for the vendors, one they believed was called Deen Solicitors.
In the event it turned out that C&G and M&U were the victims of a fraud. Whilst there appear to be some suspicious circumstances surrounding Victor Davies' role in the story, he was not on trial before the judge, who made no findings that he was a villain rather than a victim; and whichever he was makes no difference for the purposes of the appeal. The owners of the property (Gary and Monique Green) had not, however, agreed to sell it to him, or to anyone, and they were ignorant of the fraud that was being carried on. Although there is a genuine and reputable firm of solicitors called Deen Solicitors ('Deen') with offices in Luton, that firm also knew nothing of it. What happened is that one or more individuals pretended to be carrying on practice at a Deen branch office at 43a Stoneleigh Street, Holland Park, London W11, for which they printed some bogus notepaper, whereas in fact Deen had no such office. The fraudsters duped M&U into paying the loan money to them and made off with it. C&G received no legal charge over the property; and, subject only to any recovery that it might make from M&U, the transaction represented a total loss for it.
C&G did seek to make recovery from M&U. By proceedings issued in the Chancery Division in April 2008, it (in fact, Lloyds) claimed that M&U were answerable for the full amount of its loss under three alternative heads. First, that in parting with the loan money on the purported completion of the charge, M&U had acted in breach of trust and were liable to reconstitute the trust fund (the loan money) and restore it to C&G. Second, that M&U had parted with the money in breach of its undertakings to C&G. Third, that M&U were answerable to C&G for negligence and breach of contract.
In relation to the first alternative, M&U admitted in their Defence that they had held the loan money 'on bare trust for C&G with C&G's authority to pay it away in connection with Mr Davies' purchase of the property'. In light of that, on 26 August 2008 Master Moncaster directed the trial of these preliminary issues: 1(a) had there been a breach of trust by M&U? (b) If 'yes', (i) were M&U entitled to be relieved from liability to C&G under section 61 of the Trustee Act 1925; and (ii) could M&U rely in principle on the allegation advanced in their Defence that any loss or damage suffered by C&G was caused or contributed to by C&G's own fault? (c) If the answer to question (a) was 'yes' and that to question (b) was 'no', what was the measure of C&G's loss?
Those issues were tried before Mr Roger Wyand QC, sitting as a Deputy High Court judge, on 27 and 28 May 2010. His reserved judgment of 14 October 2010 was favourable to C&G. His consequential order of 23 November 2010 answered 'yes' to question 1(a), 'no' to each of questions 1(b)(i) and (ii) and, as to question 1(c), entered judgment against M&U for £742,500, with interest at 3% from 31 August 2007 until payment, to be compounded annually (the amount due at 23 November 2010 totalled £817,018.13).
The judge gave M&U permission to appeal. They produced elaborate grounds but Mr Aylwin's argument was confined to two points. First, that the judge was wrong to find that, in paying away the loan money, M&U committed a breach of trust. Second, if that submission was wrong, that the judge was wrong to find that, as a matter of causation, M&U's breach of trust caused any loss to C&G. There is no appeal against the judge's rejection of M&U's claim for relief under section 61, nor against his answer to the contributory negligence point raised by issue 1(b)(ii).
The facts
On 14 June 2007 Mr Davies submitted to C&G an application for a mortgage loan. He described himself in it as a single 32 year old British national who was 'LW [living with] friends' at 21B Burnley Road, London NW10, as he had been for 11 years. His stated occupation was that of a self-employed commodity broker, as it had been since March 2001. He declared a total gross income of £287,484 for the previous tax year and slightly less for the one before. His firm was V.D. Investments, for which his duties were 'asset management, stock exchange'. He named Business Management Services as his accountants, for whom he gave an address and contact name. He sought a £977,500 loan for a purchase for £1,150,000 of the property (a four-bedroom freehold house) for use as his main residence. That represented a loan to price ratio of 85%. His proposed deposit of £172,500 was said to be 'gifted and savings'. He gave the name of 'Ruth' and a telephone number for use by C&G's valuers when arranging access for valuation purposes. He named his solicitors as Phoenix Nova Solicitors, for which he gave an address and contact name although in the event that firm was not used.
Mr Davies' application form was submitted for him by a mortgage broker called M. Solutions & Financial Limited ('S&F') (some S&F documents use 'Solution' in the singular), which itself completed part of the form and provided independent verification of his identity. The individual acting for S&F was Victor Strong. The verification included a photograph of Mr Davies and copies of his driving licence and of an EDF Energy letter addressed to him at Flat B 21–25 Burnley Road bearing an account number and explaining his nectar points entitlement. Mr Strong also provided C&G with copies of Mr Davies' accounts prepared by Logical Consultant & Co (not the firm named in the mortgage application).
C&G's valuers valued the property on 16 July 2007 at £825,000 and provided C&G with their valuation. There is no suggestion that they were involved in the fraud. At the material times the owners of the property (Mr and Mrs Green) were resident in the USA and the property was purportedly occupied by tenants under a tenancy agreement of 1 June 2007. On 23 July 2007 C&G advised S&F that the valuation showed the loan to value ratio to be 119% and asked it to 'contact the customer and advise and update Caseflow by amending either the loan amount or product chosen and the valuation figure as per the report.' S&F's prompt response was to request C&G to 'proceed with the mortgage with the purchase price of £825000 @ 90% loan to value'. That was a request for a mortgage loan of £742,500.
C&G did not apparently regard as odd the vendors' willingness promptly to drop the purchase price by £325,000 to the precise amount of the valuation. On 7 August 2007 C&G offered Mr Davies a mortgage loan of £742,500, plus £18,592 for fees to be added to the loan. The total amount to be advanced was therefore £761,092 and was to enable the purchase of the property at the revised price of £825,000. The offer assumed that the mortgage would start on 1 November 2007. The loan was to be repaid by monthly payments over 25 years. Mr Davies accepted the offer on 24 August 2007.
On 7 August 2007 (the date of its offer) C&G sent written instructions to M&U to act for it on grant of the proposed mortgage. Mr Davies also instructed M&U to act for him on his proposed purchase. Their offices were at Thamil House, 720 Romford Road, London E12.
C&G's instructions to M&U did not include a copy of Mr Davies' mortgage application and did not inform them of the drop in price. They made no reference to the mortgage offer of 7 August, although I infer that they must have included a copy as otherwise M&U would not have known the amount of the loan; and M&U's later letter to C&G of 17 December 2007 M&U shows that they did have a copy. The letter of instructions included the following:
'C&G has adopted the CML [Council of Mortgage Lenders] Lenders' Handbook for England and Wales (the "Handbook") and we therefore require you to act in accordance with the instructions contained in it. General instructions and guidance are contained in Part 1 of the Handbook and provisions which are specific to C&G, including details of who you should contact with any queries, are contained in Part 2.
We would draw your attention to the following points:
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