Ucb Bank Plc (Plaintiff) v Clyde & Company (A Firm)
| Jurisdiction | England & Wales |
| Judge | JUDGE BUTTER |
| Judgment Date | 16 October 1998 |
| Judgment citation (vLex) | [1998] EWHC J1016-7 |
| Date | 16 October 1998 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | 1996-U-No.81 |
[1998] EWHC J1016-7
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
His Honour Judge Butter Q.c.
1996-U-No.81
MISS G. ANDREWS and MR. N. PILLOW (instructed by Messrs. Mishcon de Reya) appeared on behalf of the Plaintiff.
MR. J. NASH (instructed by Messrs. Reynolds Porter Chamberlain) appeared on behalf of the Defendant.
(As approved by the Judge)
Friday, 16th October 1998
The plaintiff bank sues the defendant firm of solicitors for breach of contract and negligence in respect of the latter's failure in February 1990 to heed the fact that a purported guarantee did not contain the name of the borrower. The effect of this was that, on the face of it, the plaintiff could not enforce the guarantee by reason of s.4 of the Statute of Frauds 1677, which provides so far as is material:
"No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of other person unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing signed by the person to be charged therewith or some other person thereunto by him lawfully authorised."
Liability has been admitted in this case to the following extent: the defendant admits that it was a breach of its contractual duty to exercise reasonable skill and care and also a breach of the tortious duty of care owed by it to the plaintiff that its employee Lynn Critchley (now Murray) did not ensure that the guarantee executed on or about 6th February 1990 by David Bourne, Isabel Bourne and D.L. Bourne Developments Limited included the name of the principal debtor. The defendant, however, denies any loss or damage flowing from this admitted breach.
The question for my determination, therefore, is what loss, if any, the plaintiff has sustained as a result of the admitted breaches of duty on the part of the defendant.
The background can be summarised quite shortly. The plaintiff's main business at the material time was to lend money to third parties secured by a mortgage, guarantee or other form of security. It had a panel of firms of solicitors which it retained. In the latter part of 1987 and early 1988 it had decided that it wished to retain the defendant firm to assist the plaintiff's Guildford branch. The defendant agreed so to act. There is a dispute as to the terms of the retainer and instructions which I shall deal with shortly.
Early in 1990 the plaintiff was minded to lend £300,000 to a company called BourneHeating Limited ('Heating') with security consisting of a mortgage over the office premises, Bourne House; a second charge over the private residence, 41 Shalbourne Rise; and personal guarantees from the directors, Mr. and Mrs. Bourne, and an associated company, Bourne Developments Limited ('Developments')—see p.356 of the core bundle. Consequently a deed of guarantee—see p.406—the plaintiff's standard form, was signed on behalf of Developments and by Mr. and Mrs. Bourne personally and the document was sent to the defendant by David Squire & Co. on 6th February 1990—see p.371—which enclosed with it various documents. The letter states, referring to a guarantee:
"Guarantee duly signed by Developments and executed by Mr. and Mrs. Bourne."
It goes on to say:
"We confirm that all purported signatures to the enclosed mortgages and guarantee are authentic and have been properly witnessed."
Unhappily, Mrs. Lynn Murray (then Lynn Critchley) did not notice that the name of the principal debtor had been left out. She had no explanation for this failure and rightly, albeit at a remarkably late stage, the defendant firm, through its advisers, admitted liability to the extent referred to earlier. The plaintiff duly lent the money and for a time all appeared to go well.
In January 1991 the plaintiff was persuaded to release the second charge on 41 Shalbourne Rise. This was in the context of the Bournes selling such property with the intention of buying other land and building a new home—see p.597.
In August 1995, however, the plaintiff felt it necessary to make demands under the guarantee. Subsequently it became plain to the plaintiff and to Mr. and Mrs. Bourne's solicitors that the guarantee was defective. The present writ was issued on 9th February 1996. On 16th February—see p.2441—the solicitors acting for Mr. and Mrs. Bourne wrote saying in respect of the copy guarantee, which after some delay had been sent to them:
"Nowhere in the document can we see that the borrower has been identified. Ourclients therefore dispute your client's claim against them."
Writing long afterwards on 3rd November 1997 the solicitor instructed by the plaintiff wrote to Mr. and Mrs. Bourne saying, inter alia:
"I have advised my client that the previous lawyers' failure to prepare legally enforceable guarantees, the bank is unable to enforce the guarantees against you because they are defective."
What advice was given to the plaintiff at or about the time of the issue of the writ is not clear, but one may reasonably infer that it was on the same lines as that referred to in this letter.
The plaintiff's case is that as a result of the defendant's breach of contract and negligence a loss of approximately £167,000 has been sustained, to which should be added substantial interest. The defendant says that no loss has been sustained and that the plaintiff would only be entitled to nominal damages, alternatively that for various reasons, a substantial deduction requires to be made in respect of the plaintiff's alleged losses.
I turn to deal with the specific issues. The first concerns a dispute as to whether the defendant received the standard instructions prior to this transaction. The plaintiff's letter of 27th November 1987 to the defendant states expressly at p.120:
"We have some standard instructions which we use so that all parties are aware of what is expected and a copy is enclosed."
The reply at p.122 contains no suggestion that documents had been omitted from the earlier letter and although Mrs. Murray did say in evidence that she did not believe that standard instructions had been sent, or sent then, I consider that the probabilities are, and I so hold, that they were indeed sent at that time.
It is argued for the plaintiff that the effect of the standard instructions was that they imposed a strict—in effect, an absolute—liability on the defendant quite apart from the ordinary contractual liability of solicitors. Reliance is placed upon the wording—see at the top of p.103:
" STANDARD INSTRUCTIONS TO SOLICITORS
" COMMERCIAL MORTGAGES
"The purpose of this note is to record UCB's expectations from the solicitors it instructs to act on its behalf in relation to commercial mortgages. It is also hoped that many of the queries, which otherwise may have been referred to UCB for instructions, will be answered, thus making the process easier and quicker."
Under para.9 under the heading "Title—searches, etc" at p.110 of the bundle it provides:
"UCB relies upon its solicitors to ensure that it obtains a fully enforceable charge over a fully marketable title to the property valued, and a fully enforceable agreement with the borrower and all guarantors etc., and expects that its solicitors will do whatever is necessary to achieve this position."
Suppose, however, that a signature had been fraudulently obtained and there was nothing to put the solicitors on inquiry, would they automatically be liable? I do not think so. There must, I think, be some implied qualification to what solicitors are expected to do. I consider and so hold that the obligation of the solicitors was to do all that could reasonably be expected of the solicitors to achieve the desired result. I do not consider incidentally that the plaintiff should be criticised for failing to check the documents in question.
I turn next to the question as to whether the plaintiff could or should have enforced the guarantee. The defendant raises a number of arguments which, on one view, go to the question of causation; and on another go to the question of mitigation. One of the main points advanced on behalf of the defendant is that the plaintiff acted unreasonably in that it should have pursued the guarantors rather than claiming against the defendant. The argument can be summarised under a number of different heads. Section 4 of the Statute of Frauds is evidential only and will not bar an action on the guarantee unless the guarantor chooses to rely upon the statute—see Maddison v. Alderton (1883) 8 A.C. 1467, a decision of the House of Lords; and Fraser v. Pape [1904] 20 T.L.R. 708, a decision of the Court of Appeal.
Here it is said that the evidence does not show that the point would have been maintained if litigation had taken place. I cannot agree. In view of the solicitor's letter at p.2441 I regard it as highly probable that the point would have been taken and indeed maintained.
Further, it is argued that if the plaintiff had started proceedings against the Bournes, and included a claim for rectification, the court would probably have granted that relief. Indeed, it is contended that a summons for summary judgment would probably have been successful because Mr. Bourne would have admitted who the borrower was.
I do not believe that it is anything like as simple as that. It is necessary to avoid the wisdom of hindsight and to try to consider the position as it was, or seemed to be, in the eyes of the plaintiff and its legal advisers many years ago. It is argued that there...
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