Penn v Bristol & West Building Society

JurisdictionEngland & Wales
Judgment Date16 April 1997
Judgment citation (vLex)[1997] EWCA Civ J0416-5
Docket NumberCHANF 95/1608/B
CourtCourt of Appeal (Civil Division)
Date16 April 1997
Deborah Ann Penn
(1) Bristol & West Building Society
(2) Patrick Wilson
(3) Peter Penn
(4) Ian Brill & Co. (A Firm)

[1997] EWCA Civ J0416-5


Lord Justice Staughton

Lord Justice Waite

Lord Justice Waller

CHANF 95/1608/B




(His Honour Judge Kolbert)

Royal Courts of Justice


London WC2

MR RUPERT JACKSON (Instructed by Wansbrough Willey Hargrave, Leeds DX 14099) appeared on behalf of the Appellant (4th Defendant).

MR DANIEL WORSLEY (Instructed by Messrs Veale Wasbrough, Bristol BS1 5DS) appeared on behalf of the Respondent.


Wednesday 16th April 1997


This appeal raises primarily the question whether in circumstances where a solicitor is acting for a Vendor, and negotiating on the Vendor's behalf with a solicitor whom he knows to be acting on behalf not only of the Purchaser but a Building Society, through whom the Purchaser will be borrowing money to complete the purchase, the solicitor's warranty that he is duly authorised on behalf of the Vendor is given not only to the purchaser but to the Building Society. His Honour Judge Kolbert sitting as a deputy High Court Judge in the Chancery Division held that it was, and it is from his decision that this appeal is brought. He also held on an issue of causation in favour of the Building Society, and made an order for indemnity costs in respect of the Building Society's costs on one aspect of the case, from which decisions appeals are also brought.


Summary of the facts


In February 1987 Mr and Mrs Penn bought 63 Church Lane, Sutton-on Sea, Lincolnshire (the house). They bought it as beneficial joint tenants for £25,000 with the assistance of a mortgage loan from Bradford & Bingley Building Society (Bradford & Bingley). In 1990 Mr Penn and a Mr Moore, his business partner, got into financial difficulties and decided to execute a mortgage fraud. The fraud was to consist of a purported sale by Mr and Mrs Penn of the house for £80,000 to Mr Patrick Wilson (Mr Wilson). Mr Wilson was a party to the fraud, the main aim of which was to obtain money in the form of a loan from the Bristol & West Building Society (Bristol & West). Mrs Penn was totally ignorant of what was taking place; she did not know that solicitors were to be instructed to negotiate on her behalf; or that contract documents were to be produced and exchanged apparently bearing her name as a joint vendor.


Mr Brill acted on the purported sale of the house for Mr Penn and appeared also to be acting for Mrs Penn. Mr Brill indeed thought he was acting for Mrs Penn as well as Mr Penn, and in all the pre-contract correspondence, negotiations and completion, Mr Brill held himself out as duly instructed by Mr and Mrs Penn jointly. The correspondence, negotiation and completion took place with solicitors acting for both Mr Wilson and Bristol & West, that firm ultimately being Messrs Gartons (Gartons).


The negotiations for the sale proceeded superficially just like any ordinary purchase and sale of a house with building societies involved. Mr Brill, thinking that he was instructed by both Mr and Mrs Penn to sell the house, obtained the title documents from the Bradford & Bingley on 17 January 1991 against an undertaking to discharge the Penns' mortgage on receipt of the proceeds of sale. Mr Brill obtained from what he assumed to be Mr and Mrs Penn a property questionnaire, the contract and the conveyance, but unknown to him on each Mr Penn had forged Mrs Penn's signature. We have not been troubled with the complete correspondence between Mr Brill and Mr Thorley for Gartons, but the usual correspondence took place including enquiries before contract and requisitions on title duly completed by Mr Brill at Gartons' request Mr Brill purporting to act for both Mr and Mrs Penn. In reliance on the fact that Mr Brill was acting for both Penns, and on the fact that accordingly Mr and Mrs Penn were going to pass the legal title in the house to Mr Wilson, Gartons and Bristol & West arranged for Mr Wilson to execute a charge over the house in favour of Bristol & West to enable the transaction to be completed. In the result, Bristol & West advanced £75,293. All issues in relation to quantum have now been compromised, and accordingly all it is necessary to say is that the major part of that sum was paid to Mr Brill as part of the purchase price, enabling him to pay £31,769.78 pursuant to his undertaking to the Bradford & Bingley, and the remainder on the instructions of Mr Penn to Barclays Bank. The sum paid to Barclays Bank, unbeknown to Mr Brill, went without Mrs Penn's knowledge or consent in discharge of Mr Penn 's business indebtedness.


During the Summer of 1991 Mrs Penn discovered what had happened and in October 1991 commenced proceedings.


Summary of proceedings


Mrs Penn claimed inter alia against Bristol & West a declaration that their purported charge over the house was null and void; against Mr Wilson, a declaration that the contract and transfer to him was null and void; damages against Mr Penn and Mr Wilson for Mr Penn's breach of trust and Mr Wilson's assistance in that breach; and damages in negligence against Mr Brill. Bristol & West in their turn counterclaimed first against Mrs Penn to be subrogated to Bradford & Bingley's interest in the house, and to a declaration that they were entitled to a charge over 50% of the equity of redemption in addition to their rights of subrogation; damages against Mr Wilson and Mr Penn for their part in the fraud; and damages against Brill & Co. for breach of warranty of authority.


The Judge held (1) that Mrs Penn's signatures had been forged; (2) that the transfer to Mr Wilson was ineffective as was the charge in favour of Bristol & West; (3) that Mr Wilson and Mr Penn were liable in damages to Mrs Penn, and were liable in damages to the Bristol & West; (4) that Mr Brill was liable in negligence to Mrs Penn; (5) that Bristol & West were subrogated to the rights of Bradford & Bingley, but not entitled to a charge over 50% of the equity of redemption; and (6) that Bristol & West were entitled to succeed against Mr Brill for breach of warranty of authority. He further held that the argument on behalf of Mr Brill on causation that if there was a breach of warranty, no loss was suffered, (the argument being that the loss was caused by the forgery of Mrs Penn's signature), was misconceived. The judge finally made rulings as to the costs. Mrs Penn obtained an order for costs with specific directions as to the basis of taxation against Mr Wilson, Mr Penn and Brill & Co (not against Bristol & West). Bristol & West obtained an order for costs against Brill & Co. "of all proceedings in this action including the counterclaim to be taxed if not agreed on a standard basis save that (Bristol & West's) costs of defending (Mrs Penn's) claim, and (Bristol & West's) costs of counterclaiming against (Mrs Penn) are to be taxed if not agreed on the indemnity basis."


Issues on the appeal


The first issue is whether the Judge was right to hold that Brill & Co warranted to Bristol & West that they had the authority of Mrs Penn to negotiate the sale of the house.


The second issue is whether the Judge was right to hold that if there was a warranty given, the loss suffered by Bristol & West was caused by breach of that warranty as opposed to Mr Penn's dishonest conduct in forging Mrs Penn's signature.


The third issue is whether the Judge's exercise of his discretion in ordering Brill & Co. to pay the costs of Bristol & West in Defending and counterclaiming against Mrs Penn should be paid on an indemnity basis, was wrong.


Warranty of Authority


By Article 107 of Bowstead and Reynolds 16th Edition the general principle is stated as follows:

"Where a person by word or conduct, represents that he has authority to act on behalf of another, and a third party is induced by such representation to act in a manner in which he would not have acted if that representation had not been made, the first mentioned person is deemed to warrant the representation is true, and is liable for any loss caused to such third party by a breach of that implied warranty, even if he acted in good faith, under a mistaken belief that he had such authority".


Chitty on Contracts, 27th Edition paragraph 31–093 puts it slightly differently as follows:

"One who expressly or impliedly warrants that he has the authority of another is liable in contract for breach of warranty of authority to any person to whom the warranty is made and who suffers damage by acting in the faith of it, if in fact he had no authority. This is a specific type, in fact probably the original type, of collateral contract: the agent offers to warrant his authority in return for the third party's dealing with his principal"


Mr Jackson Q.C. for Mr Brill accepts the statements of general principle as far as they go, but submits that in order to found liability the warranty express or implied must have been given to the plaintiff, and further submits that the transaction into which the plaintiff was induced to enter must have been some form of dealing with the supposed principal. He submits that the whole basis for implying a warranty rests on the fact that the plaintiff has been induced to deal with the purported principal, by the words or conduct of the agent. He gains some support for this second contention from the last sentence of the general principle stated in Chitty, and indeed, so far as I can see, from the text of Chitty thereafter. But Bowstead and Reynolds at p.596 quote the following passage from Lord Esher...

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