Verity v Lloyds Bank Plc [QBD]

JurisdictionEngland & Wales
JudgeJudge Robert Taylor
Judgment Date04 September 1995
CourtQueen's Bench Division
Date04 September 1995

Queen's Bench Division.

Judge Robert Taylor (sitting as a High Court Judge).

Verity & Anor
and
Lloyds Bank plc

The plaintiffs appeared in person.

Gregory Mitchell (instructed by Dibb Lupton Broomhead) for the defendants.

The following cases were referred to in the judgment:

Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1995] CLC 410; [1995] QB 375.

Black & Decker Inc v Flymo LtdUNK [1991] FSR 93.

Derby & Co Ltd v Weldon (No. 10)WLR [1991] 1 WLR 660.

General Accident Corp v TanterWLR [1984] 1 WLR 100.

Goldsworthy v BrickellELR [1987] Ch 378.

Great Atlantic Insurance Co v Home Insurance CoWLR [1981] 1 WLR 529.

Hayes v DoddUNK [1990] 2 All ER 815.

Konigsberg (a bankrupt), ReWLR [1989] 1 WLR 1257.

Lloyds Bank plc v Cobb (unreported, 18 December 1991, CA).

Nea Karteria Maritime Co Ltd [1981] Com LR 138.

Williams & Glyn's Bank v Barnes [1981] Com LR 205.

Woods v Martins Bank LtdELR [1959] 1 QB 55.

Negligence — Breach of contract — Mortgage — Private investor wanted to buy second property to renovate and sell at a profit — Bank pamphlet offered free financial advice on starting a business — Advice of bank sought and given — Bank approved investment — Loan granted — Fall in property market — House sold at loss — Whether bank owed duty of care in giving advice — Whether bank was in breach of duty.

This was an action for loss and damages allegedly caused by the negligent advice of the defendant bank.

The plaintiffs, “S” and “V”, were clients of the defendant bank. In October 1987 they purchased a property to be their home and were granted a loan by the bank of £70,000 which was secured by a mortgage on the property. In May 1988 the plaintiffs approached the bank about V's son acquiring a property. However the bank advised that the son did not qualify for MIRAS relief and therefore that the application fell outside the bank's home loan guidelines. During these dealings V was given a copy of the bank's pamphlet called “Starting your business”, which advertised that the bank gave free advice on the financial aspect of starting a business.

In March 1988 the plaintiffs approached the bank with the idea of buying a second house, improving it and selling it at a profit. Subsequently the bank and the plaintiffs inspected a property but the bank thought that it would not make a profit. Another property was found and the bank agreed it would make a financially viable project and agreed to give a loan of £152,500 partly secured on the property. However, the work on the property took longer than expected and cost nearly £16,000 more than estimated, and by the time the plaintiffs came to sell the property house prices were falling. After the property was sold the plaintiffs still had significant debts to the bank. The plaintiffs claimed that they would not have purchased the house but for the negligent financial advice given by the bank.

Held, giving judgment for the plaintiffs:

1. The plaintiffs had known from the pamphlet that they were entitled to go to the bank for free advice. The bank had not simply decided whether or not to make the loan but had acted as an adviser encouraging the plaintiffs to proceed and therefore owed them a duty of care.

2. The problems the plaintiffs experienced were reasonably foreseeable. However, there was no margin of safety built into the financial calculations and the project amounted to a huge risk for a couple who lacked the liquid resources to meet any significant failure and therefore it was especially incumbent on the bank to advise as to the risks. No reasonably careful adviser in the bank's position could have taken the view that the project was viable or sensible for the plaintiffs to undertake and therefore the bank were in breach of their duty of care.

JUDGMENT

Judge Robert Taylor:

Introduction

In this action the plaintiffs claim damages for loss and damage allegedly caused by negligence and breach of contract on the part of the defendants, their servants or agents. The defendants deny liability and counterclaim sums of money allegedly due in respect of overdrawn accounts held by the plaintiffs with the defendants.

The plaintiffs' claim principally arises out of the purchase by them of a dwellinghouse at 7 Grey's Hill, Henley upon Thames in 1988, in respect of which they were made an initial loan of £152,500 by the defendants. The plaintiffs contend that they purchased this house as a business venture and in reliance on negligent financial advice given to them by the then manager of the defendants' Beaconsfield branch, Mr Maurice Hunt. They further contend that this venture was a disaster, as a result of which they suffered various financial losses, including loss of earnings, and severe emotional distress. They also have a subsidiary claim arising out of an admitted overcharge of overdraft interest by the defendants.

The hearing of this action took place before me on a total of 12 days in the period 9 May 1995 to 9 June 1995, at the conclusion of which I reserved judgment.

As a result of an order made by Kay J on 23 March 1995, if I determine that the plaintiffs are entitled in principle to make any claim for loss of earnings, the amount of such claim will be tried subsequently. At the conclusion of the hearing before me, I made a similar order in respect of the plaintiffs' claim for damages for emotional distress. During the course of this hearing, it was agreed between the parties that the defendants' counterclaim should be adjourned for determination at a later date.

Accordingly the issues which I am called upon to decide in this judgment are essentially these:

  1. (1) whether the defendants are liable to the plaintiffs; if so,

  2. (2) the amount of any financial losses suffered by the plaintiffs as a result of the matters for which the defendants are liable, excluding any loss of earnings; and

  3. (3) whether, in principle, the plaintiffs are entitled to recover damages in respect of either;

    1. (a) loss of earnings, or

    2. (b) emotional distress.

Background and history

The full background and history of this action is lengthy and complex. A considerable body of evidence was put before me during the hearing, including the testimony of eight witnesses and ten bundles of documents. What follows at this stage is a summary of those matters which were not (for the most part) seriously in dispute and which seem to me to be most relevant to the issues which I have to determine. I shall then go on to consider in greater detail significant disputes of fact and other matters of crucial importance.

The plaintiffs

The female plaintiff, Mrs Julia Verity, is now aged 55. She has qualified as a nursery and primary school teacher; and also as a masseuse. She married Mr Gurney in 1961 and was divorced from him in 1982. She has two adult sons, Hugh aged 28 and Robert aged 24. She has lived with the male plaintiff since 1984.

The male plaintiff, Mr Richard Anthony Spindler, is a single man now aged 36. He has qualifications as a metallurgist and also as an acupuncturist.

The plaintiffs' other properties

From about 1965 to 1983 Mrs Verity and her husband Mr Gurney were the joint owners of a house at 4 Ryecroft Close, Wargrave. Over the years Mrs Verity carried out various repairs and decorations to this house, but made no major alterations. In 1983, as part of her divorce settlement, Mrs Verity became the sole owner of this house. In about 1986 Mr Spindler went to live with Mrs Verity at this house, and also practised as an acupuncturist from there.

In July 1987 Mr Spindler acquired a house of his own at 4 Gravel Hill, Henley. As I understand it, this house was in part a gift from a close friend of his mother's called Rowan Stainton. Mr Stainton had purchased this house for £61,000 in May 1986, but he transferred it to Mr Spindler on the basis that he replaced the existing mortgage of £30,000 with one of his own. Mr Spindler then started to use part of this house as an acupuncture clinic; and Mrs Verity also worked there, both as Mr Spindler's receptionist and as a masseuse on her own account.

In October 1987 the plaintiffs purchased a house at 7 King's Road, Henley. The purchase price was £99,950 and the house was conveyed into their joint names. Prior to purchase, this house had been surveyed on the plaintiffs' behalf by Mr Jonathan Bowman. At about the same time 4 Ryecroft House was sold for about £102,000. The plaintiffs went to live at 7 King's Road and Mr Spindler also carried on his acupuncture practice from there. However, Mr Spindler still retained 4 Gravel Hill, so that he would have his own home in the event of the plaintiffs splitting up. In February 1988 a firm of solicitors (Cooper Son & Caldecott), acting on the instructions of the plaintiffs, prepared a deed of ownership in respect of 4 Gravel Hill and 7 King's Road, in which the beneficial interests of Mrs Verity and Mr Spindler in both properties were declared to be 80 per cent and 20 per cent respectively.”

On moving into 7 King's Road, the plaintiffs decorated two rooms. They also had the electricity rewired and a damp-proof course put in, as recommended in the surveyor's report.

The plaintiffs' earlier dealings with the defendants (to March 1988)

On 21 September 1983 Mr Spindler opened an account with the defendants at their Beaconsfield branch. On 16 July 1985 he introduced Mrs Verity to Mr Watson, who was then the branch manager, and her name was added to the account. The plaintiffs, were granted joint overdraft facilities of £1,500.

On 16 June 1986 Mr Spindler opened a separate business account with the same branch, and was granted an overdraft facility on that account of £6,000.

On 3 November 1986 Mr Watson agreed to make the plaintiffs a joint personal loan of £10,000, repayable over five years. This loan was secured by a second mortgage on 4 Ryecroft Close, which was already subject to a mortgage of £6,000.

During the second half of 1987 the plaintiffs had various...

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