Bristol and West Building Society v Mothew

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Mothew (t/a Stapley & Co) v Bristol & West Building Society Respondant [1996] EWCA Civ 533 (24th July, 1996)

URL: https://www.bailii.org/ew/cases/EWCA/Civ/1996/533.html

Cite as:
[1996] EWCA Civ 533,

[1997] 2 WLR 436,

[1998] Ch 1,

[1996] 4 All ER 698,

[1997] PNLR 11

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MOTHEW (T/A STAPLEY & CO) v. BRISTOL and WEST BUILDING SOCIETY Respondant [1996] EWCA Civ 533 (24th July, 1996)

IN
THE SUPREME COURT OF JUDICATURE
FC3
96/5816/B

IN
THE COURT OF APPEAL (CIVIL DIVISION)

ON
APPEAL FROM THE CHANCERY DIVISION

( MR
JUSTICE CHADWICK
)

Royal
Courts of Justice

Strand

London
WC2

Wednesday,
24th July 1996

B
e f o r e:

LORD
JUSTICE STAUGHTON

LORD
JUSTICE MILLETT

LORD
JUSTICE OTTON

-
- - - - -

MOTHEW
(T/A STAPLEY & CO)

Appellant

-
v -

BRISTOL
& WEST BUILDING SOCIETY

Respondant

-
- - - - -

(Handed
down Transcript of

Smith
Bernal Reporting Limited, 180 Fleet Street,

London
EC4A 2HD

Tel:
0171 831 3183

Official
Shorthand Writers to the Court)

-
- - - - -

MR
J SIMPTON QC and MR G CAMPBELL

(Instructed by Wansboroughs Willey Hargrave WC2B SHA) appeared on behalf of the
Appellant

MR
N PATTEN QC and MR T HIGGINSON

(Instructed by Osbourne Clarke B599 7QQ) appeared on behalf of the Respondent

-
- - - - -

J
U D G M E N T

( As
approved by the Court
)

-
- - - - -

© Crown
Copyright

Wednesday,
24th July, 1996

JUDGMENT

LORD
JUSTICE MILLETT: This is an appeal brought by the Defendant with the leave of
the single Lord Justice from an Order for summary judgment given initially by
the District Judge and affirmed (for different reasons) by Chadwick J. It
raises important questions of principle in relation to a claim by a mortgagee
to recover from the solicitor who was acting for both mortgagor and mortgagee
the loss arising from the mortgagor's subsequent default.

The
collapse in the property market which accompanied the recession at the
beginning of the present decade caused mortgage lenders to suffer serious
losses. Unable to recover their advances from the borrowers or by the
enforcement of their security they have sought to recover them from the valuers
or solicitors on whose valuations or advice they have relied. In some cases
they have been the victims of a fraud to which the valuers and solicitors have
been parties. In other cases, such as the present, they have been unable to
accuse their solicitor of anything more serious than negligence. Believing that
the common law rules of causation and remoteness of damage might not enable
them to recover the whole amount of their loss they have turned to equity and
alleged breach of trust or fiduciary duty. We have thus been concerned to
decide just what is involved in these concepts.

THE
FACTS.

The
facts are not in dispute. The Defendant is a solicitor. In August 1988 he acted
for a Mr. and Mrs. Towers in the purchase of 17 Thameshill Avenue, Romford
("the property") for £73,000. In accordance with the usual practice he
also acted for the Building Society ("the Society") to which the purchasers had
applied for an advance of £59,000 in order to finance the purchase. (This
was the Cheshunt Building Society, but its rights have since vested in the
Society). In their application form the purchasers had stated that the balance
of the purchase price of £14,000 was being provided by them personally and
that they were not applying elsewhere for financial assistance towards the
purchase price.

The
Society offered to advance to the purchasers £59,000 on the security of a
first mortgage of the property on the express condition that unless otherwise
agreed in writing the balance of the purchase price was to be provided by the
purchasers personally without resort to further borrowing and that no second
mortgage or other loan was being arranged or contemplated in connection with
the purchase. The Defendant was provided with the Offer of Advance (but not
with the purchasers' application).

The
Society's standing instructions to solicitors acting for the Society required
them to report to the Society prior to completion (
inter
alia)

"(viii)
Any proposal that the applicant may create a second mortgage or enter into a
promissory note or otherwise borrow in order to finance part of the purchase
price. (ix) Any incorrect information given in the solicitor's
instructions. (x) Any other matters which ought to be brought
to the notice of the Society."

The
solicitor was required to submit a Report on Title and Request for Advance
Cheque to the Society at least five clear working days before the cheque was
required. This was done on a form by which the solicitor was asked to confirm (
inter
alia)

that the title was good and marketable and might safely be accepted by the
Society; that to the best of his knowledge and belief the balance of the
purchase money was being provided by the applicant personally without resort to
further borrowing; and that the Special Conditions attached to the Offer of
Advance had been, or would be, complied with.

Mr.and Mrs. Towers intended to provide the balance of the purchase price from
the net proceeds of sale of their existing property after discharging a
subsisting mortgage. As it happens, they owed money to Barclays Bank which was
secured by a second charge on that property. They arranged with the bank to
allow a small part of the debt (£3,350) to remain outstanding after the
sale of the existing property and to be secured by a second charge on the new
property. The Defendant was informed of these arrangements and gave an
undertaking to the bank to hold the title deeds to its order pending
registration. Unfortunately, he either failed to appreciate that, although they
related to old borrowing, they were a matter which he was required to report to
the Society, or he had forgotten or overlooked them when he made his report.

By
his Report dated 2nd. August 1988 the Defendant confirmed that to the best of
his knowledge and belief the balance of the purchase money was being provided
by the applicants personally without resort to further borrowing and that the
Special Conditions attached to the Offer of Advance had been or would be
complied with. He failed to disclose the fact that Mr.and Mrs. Towers were
making arrangements for a second mortgage in connection with the purchase.

It
is conceded by the Defendant that his statements were untrue and that his
failure to report the purchasers' arrangements for a second mortgage was a
breach of his instructions. The Society alleges that the Defendant acted
negligently and in breach of contract, and this is admitted. There is no
allegation of dishonesty or bad faith, and if any such allegation were made it
would be strongly resisted. The Society does not allege that the Defendant made
the statements in question knowing them to be untrue. It alleges only that he
"knew or ought to have known" that they were untrue, and this is consistent
with oversight.

Following
the receipt of the Report the Society forwarded a cheque for the amount of the
advance to the Defendant in readiness for completion on 30th. August.
Completion took place on that date when the mortgage advance was released to
the vendor's solicitors as part of the purchase price for the property. Mr.and
Mrs. Towers executed a first charge in favour of the Society and a second
charge in favour of the bank. On 25th. November the Defendant applied to the
Society for its consent to the registration of the second charge in favour of
the bank. The Society granted its consent on 10th. March 1989. It does not
appear that the Society was aware of the date of the bank's charge (and so was
aware that it constituted a breach of the conditions of the advance) when it
gave its consent, but it is alleged that the Society must have learned of it
shortly afterwards and nevertheless took no action.

The
purchasers defaulted after making only small repayments and the Society
enforced its security. The property was sold on 6th. February 1991 and realised
net proceeds of a little under £53,000. The Society claimed to recover the
whole of its net loss on the transaction from the Defendant, alleging breach of
contract, negligence and breach of trust. As I have already indicated, breach
of contract and negligence are admitted; breach of trust is denied.

It
has always been the Defendant's case that the Society would not have been
concerned by the purchasers' proposal to grant a second charge to the bank if
this had been disclosed to it in August 1988; that it would still have
proceeded with the transaction; and that it would have suffered precisely the
same loss in that event. It is alleged that, in the heady days of 1988, when
the property market was at its height and mortgage lenders were falling over
themselves to advance money to house purchasers, the Society would not have
been concerned by a proposal to grant a second charge to secure a relatively
trivial indebtedness which did not even represent fresh borrowing; and it is
contended that this is demonstrated by the lack of concern shown by the Society
when it was asked to give its consent to the registration of a second charge in
March 1989. Despite the submissions of the Society to the contrary, I am
satisfied that, if legally relevant, these allegations raise a triable issue.

THE
COURSE OF THE PROCEEDINGS BELOW.

It
was common ground below that no damages would be recoverable at common law for
breach of contract or tort unless the Society could show that it would not have
proceeded with the transaction if it had been informed of the facts. The
Society, however, submitted that the position was different in equity. It
alleged that the Defendant had committed a breach of trust or fiduciary duty,
and submitted that common law principles of causation and remoteness of damage
have no application in such a case so that it was not necessary for the Society
to show that it would not have proceeded with the transaction if it had been
informed of the facts.

The
District Judge accepted these arguments. In respect of the common law claims
for breach of contract and negligence she gave summary judgment for damages to
be assessed. This was apparently on the basis that the judgment would leave it
open to the Defendant to contend that no loss was caused by the breach.

The
District Judge also gave summary judgment for the Society for breach of trust
for the sum of £59,000 less the sums received by the Society on the sale
of the property, and this was affirmed by the Judge, who was satisfied that
there was no question or issue to be tried in the Action and dismissed the
appeal.

THE
COURSE OF THE APPEAL.

In
the course of the appeal the Defendant submitted that, by consenting to the
registration of the second charge, the Society waived the breaches of which
complaint is made; and that this raises a triable issue on liability which
entitles him to unconditional leave to defend in relation to all the pleaded
causes of action. In the absence of any evidence or reason to suppose that the
Society was aware of the date of the second charge when it gave its consent to
its registration, I am not persuaded that there is a triable issue on waiver,
and I would not disturb the order below on this ground.

When
the appeal was first argued before us it was still conceded by the Society that
it could not recover damages at common law for breach of contract or negligence
unless it could show that it would not have proceeded with the mortgage advance
if it had been informed of the facts. The Society, however, maintained that it
could escape this principle because the Defendant was also guilty of a breach
of trust and that common law rules of causation and remoteness of damage have
no application in such a case. The critical questions, therefore, appeared to
be whether the Defendant was guilty of a breach of trust or fiduciary duty and
if so whether the Society needed to prove that it would not still have
proceeded with the transaction if it had been told of the facts.

After
we had reserved judgment on the appeal, however, the Society informed us that
it wished to resile from its concession. Relying on the recent and still
unreported decision of this Court in
Downs
v Chappell
delivered
on 3rd. April 1996, the Society submitted that it was entitled to recover the
whole of its net loss on the transaction by way of damages for negligence at
common law without having to establish that it would not have proceeded with
the transaction if it had been informed of the facts. If correct, it submitted,
this would be determinative of the case, and it would not be necessary for the
Society to rely on any breach of trust or fiduciary duty. Before the
Defendant's advisers could respond to this speeches were delivered in the House
of Lords in

Banque Bruxelles Lambert SA v Eagle Star Insurance Co. Ltd.
[1996] 3 WLR 87 . These were relevant to the common law position. For the reasons given
by Staughton LJ, however, we decided that it was not necessary to restore the
appeal for further argument. This was because the assessment of damages at
common law is still pending. They will have to be assessed in conformity with
the decision of the House of Lords in
Banque
Bruxelles Lambert SA v Eagle Star Insurance Co. Ltd.

and not with any gloss which, in the absence of argument, we may inadvertently
have put upon that decision.

THE
CLAIMS AT COMMON LAW

The
Society has served a Respondents' Notice, in which it contends that it is
entitled to judgment for the sum claimed, and not merely for damages to be
assessed, in respect of its common law claims. If this is correct, then the
Society does not need to establish that the Defendant was guilty of a breach of
trust or fiduciary duty.

This
question depends upon an alleged difference between the tests of causation and
remoteness of damage at common law and in equity. In a case of the present
kind, however, two different questions of causation are involved and it is
necessary to distinguish between them. Where a plaintiff claims that he has
suffered loss by entering into a transaction as a result of negligent advice or
information provided by the defendant, the first question is whether the
plaintiff can establish that the defendant's negligence caused him to enter
into the transaction. If he cannot his claim must fail. But even if he can, it
is not sufficient for him to establish that the transaction caused him loss. He
must still show what (if any) part of his loss is attributable to the
defendant's negligence. This is usually treated as a question of the measure of
damages rather than causation, and for convenience I shall so treat it in this
judgment, but it must be acknowledged that it involves questions of causation.

In
Downs
v Chappell
the
plaintiffs bought a small business in reliance on trading figures contained in
a letter from the vendor's accountants which was forwarded to them by the
vendor. The vendor knew that the figures contained in the letter were false.
The plaintiffs sued the vendor for deceit and the accountants for negligence.
The judge accepted the plaintiffs' evidence that they would not have contracted
to purchase the business without verification of the figures by the
accountants. But he was not satisfied that they would not still have bought the
business even if the correct figures had been supplied, and dismissed the
action against both defendants.

This
Court allowed the plaintiffs' appeal against both defendants. Hobhouse LJ gave
the only reasoned judgment. In relation to the vendor, he pointed out that for
a plaintiff to succeed in the tort of deceit it was necessary for him to prove
(1) a fraudulent representation (2) materiality and (3) inducement. All three
elements had been proved. The judge had found that the representations did
induce the plaintiffs to enter into the transaction: they would not have done
so without them. This was sufficient proof of causation. Whether the plaintiffs
would have entered into the transaction if they had been told the truth was
irrelevant.

We
are not concerned with this part of the decision, since the present case is not
one of fraud. But Hobhouse LJ held that the position was the same in relation
to the accountants, who were charged with negligence only. Here the question
was not inducement but reliance. The relevant question was simply whether the
plaintiffs had entered into the contract in reliance upon the figures contained
in the accountants' letter. The judge had answered that question in the
affirmative: the plaintiffs would not have entered into the contract if they
had not been provided with the letter. The causal relationship between the
accountants' negligence and the plaintiffs' purchase was established. It was
not necessary to consider whether the plaintiffs would have purchased the
business if they had been supplied with the correct figures.

In
the present case the Society's claim is not for misrepresentation. Accordingly,
questions of inducement and materiality are not relevant. Its claim lies in
negligence, and the relevant concept is reliance. In considering the issue of
causation in an action for negligence brought by a client against his solicitor
it appears from

Downs v Chappell

that it is necessary to distinguish between two different kinds of case.

Where
a client sues his solicitor for having negligently failed to give him proper
advice, he must show what advice should have been given and (on a balance of
probabilities) that if such advice had been given he would not entered into the
relevant transaction or would not have entered into it on the terms he did. The
same applies where the client's complaint is that the solicitor failed in his
duty to give him material information. In
Sykes
v Midland Bank

[1971] 1 QB 13, which was concerned with a failure to give proper advice, the
plaintiff was unable to establish this and his claim to damages for negligence
failed. In
Mortgage
Express Ltd. v Bowerman

&

Partners
[1996]
2 All ER 836, which was concerned with a failure to convey information, the
plaintiff was able to establish that if it had been given the information it
would have withdrawn from the transaction and its claim succeeded.

Where,
however, a client sues his solicitor for having negligently given him incorrect
advice or for having negligently given him incorrect information, the position
appears to be different. In such a case it is sufficient for the plaintiff to
prove that he relied on the advice or information, that is to say, that he
would not have acted as he did if he had not been given such advice or
information. It is not necessary for him to prove that he would not have acted
as he did if he had been given the proper advice or the correct information.
This was the position in
Downs
v Chappell
.

In
the present case the Society makes complaints of both kinds. It alleges that
the Defendant negligently and in breach of his instructions failed to report
the purchasers' proposed arrangements with the bank prior to completion. This
is a claim of the first kind, and if it were all the Society would have to
establish that if it had been informed of those arrangements it would not have
proceeded with the mortgage advance. But the Defendant went further than this.
He did not merely fail to report the arrangements to the Society; he expressly
represented to the Society that no such arrangements existed. That brings the
case within the second category. It follows from the decision of this Court in
Downs
v Chappell
that
it is sufficient for the Society to prove that it relied on the representations
in the report. Although the Judge spoke in terms of inducement, he plainly
found reliance. The Society's procedures were designed to ensure that no cheque
would be issued in the absence of a satisfactory report from its solicitor.

In
my judgment we are bound by the decision in
Downs
v Chappell
to
hold that the necessary causal link between the Defendant's negligence and the
mortgage advance was proved.

Measure
of damages.

It
does not, however, follow from the fact that the Defendant's negligent
statements caused the Society to make the mortgage advance that the whole of
the Society's loss is attributable to his negligence. Having regard to the date
of the advance, some part at least of the Society's loss may well be
attributable to the fall in property values which had occurred by the time that
it was able to sell the property.

In
Banque
Bruxelles Lambert SA v Eagle Star Insurance Co. Ltd.

the House of Lords ruled definitively on the correct measure of damages for the
negligent provision of information on which the plaintiff relied in entering
into a transaction from which loss resulted. The only speech was delivered by
Lord Hoffmann. He distinguished between the measure of damages for (1) breach
of a contractual warranty and (2) breach of a duty (whether contractual or
tortious) to take care (i) to give proper advice and (ii) to provide accurate
information.

In
the case of breach of warranty, the comparison is between the plaintiff's
position as a result of entering into the transaction with what it would have
been if the facts had been as warranted. The measure of damages is the extent
to which the plaintiff would have been better off if the information had been
right. In the case of a breach of duty to take care the measure of damages is
the extent to which the plaintiff is worse off because the information was
wrong. Since he entered into the transaction in reliance on the advice or
information given to him by the defendant, the starting point is to compare his
position as a result of entering into the transaction with what it would have
been if he had not entered into the transaction at all.

But
that is only the starting point. Lord Hoffmann distinguished between a duty to
advise someone as to what course of action he should take and a duty to provide
information for the purpose of enabling someone else to decide upon his course
of action. In the former case, the defendant is liable for all the foreseeable
consequences of the action being taken. In the latter case, however, he is
responsible only for the consequences of the information being wrong. The
measure of damages is not necessarily the full amount of the loss which the
plaintiff has suffered by having entered into the transaction but only that
part if any of such loss as is properly attributable to the inaccuracy of the
information. If the plaintiff would have suffered the same loss even if the
facts had actually been as represented the defendant is not liable.

Accordingly,
in this class of case the plaintiff must prove two things: first, that he has
suffered loss; and, secondly, that the loss fell within the scope of the duty
he was owed. In the present case the Society must prove what (if any) loss was
occasioned by the arrangements which the purchasers had made with the bank.

The
Society was told that Mr. and Mrs. Towers had no other indebtedness and that no
second charge was contemplated. The existence of the second charge did not
affect the Society's security. The absence of any indebtedness to the bank
would not have put money in the purchasers' pocket; it would merely have
reduced their liabilities. Whether their liability to the bank affected their
ability to make mortgage repayments to the Society has yet to be established,
but given the smallness of the liability its effect on the purchasers' ability
to meet their obligations to the Society may have been negligible. It may even
be, for example, that the purchasers made no payments at all to the bank at the
relevant time, and if so it is difficult to see how any part of the loss
suffered by the Society can be attributable to the inaccuracy of the
information supplied to it by Defendant. It would have occurred even if the
information had been correct.

Conclusion

The
Society has proved the causal link between the Defendant's negligence and the
making of the mortgage advance but it has not yet established the amount of its
loss (if any) which is properly attributable to the Defendant's negligence.
Damages remain to be assessed. We are bound by the decision of this Court in
Downs
v Chappell
to
hold that the Society will not have to prove that it would not have made the
mortgage advance if it had known the true facts; but it will be required to
establish what it has lost as a result of the existence of the second charge
and the purchasers' indebtedness to the bank. It can maintain the money
judgment which it has obtained below only if it can invoke equitable principles.

THE
CLAIMS IN EQUITY.

The
Judge's reasoning.

The
Judge found that, in the events which happened, the Defendant committed a
breach of trust by applying the mortgage advance in the purchase of the
property; that he was accordingly liable to restore the trust property,
viz:
the £59,000 with interest less receipts; that no question of damages at
common law or of compensation for loss arose; and that it was irrelevant
whether, had it been told of the position, the Society might still have chosen
to make the advance notwithstanding the arrangements which had been made with
the bank. Accordingly the Judge concluded that there was no question or issue
to be tried in the Action and gave summary judgment for the whole of the
Society's claim.

The
Judge's conclusion that the Defendant had committed a breach of trust in
applying the mortgage advance in the purchase of the property was based on the
fact that he had obtained payment of the mortgage advance by misrepresentation.
The Judge said:

"...It
seems to me clear beyond argument that [the Defendant] received the cheque...
for £59,000 as a direct result of the misleading report which he had
supplied to the Society on 2nd. August 1988. The money was paid to the
Defendant as a result of a misrepresentation made to the Society by the
Defendant....
The
effect, in my judgment, was that from the moment when [the] cheque for
£59,000 was received by the [Defendant] he held it upon a constructive
trust to return it forthwith to the Society, unless authorised by the Society
to retain or dispose of it after full knowledge of the facts had been disclosed
(my
emphasis).

In
the Judge's opinion it necessarily followed that the Defendant's subsequent
application of the mortgage money in the purchase of the property constituted a
breach of trust. He said:

"In
making that payment there is, in my view, no doubt that the Defendant acted in
breach of the trust which had been imposed upon him by the circumstances in
which he had received the Society's cheque. That trust required him to return
the £59,000 to the Society. Any payment of that £59,000 to a third
party, albeit to the vendors of the property, was a breach of that trust."

The
Judge dismissed the submission that the Society had to establish that it would
not have made the advance if it had known the facts. He said:

"But
that point affords no defence to the [Society]'s claim. It is
nihil
ad rem
that
if the true position had been disclosed to the Society, the Society might or
might not have issued an amended offer of advance. Liability to repay arises in
this case because the [Defendant] received money from the Society as a result
of his own misrepresentation. He cannot be heard to say that he could retain
that money against the Society, or dispose of it to the vendors, because, in
other circumstances, the Society might have chosen to make the advance
notwithstanding the borrowing from [the bank]".

The
Judge did not explain why the consequence of the Defendant's misrepresentation
was that he held the mortgage advance on a constructive trust for the Society,
or why the Defendant's authority to apply the money in accordance with the
Society's instructions was determined, but he took the opportunity to do so
when he revisited these questions a few months later in
Bristol
and West Building Society v May & Merrimans (a firm) and Others,
[1996]
2 All ER 801 after two county court judges had declined to follow his decision
in the present case. The later case involved a number of transactions in which
the same Society had made mortgage advances and suffered loss when the
borrowers defaulted which it sought to recover from the solicitors who had
acted for both parties to the lending transactions. In some cases the solicitor
knew nothing, prior to the receipt of the cheque for the mortgage advance,
which ought to have led him to qualify his report, though he discovered the
facts afterwards and before he disbursed the money on completion. In other
cases the solicitor's breach of his instructions preceded his receipt of the
mortgage advance, as it did in the present case.

The
Judge distinguished between the two groups of cases. In relation to the first
group he reluctantly felt compelled by the decision in
Target
Holdings
[1996] 1 AC 421 to conclude that, at least for the purpose of an application for
summary judgment, it was necessary for the Society to show that it would not
have proceeded with the transaction if it had known the facts. In relation to
the second group, however, where the Society paid the cheque for the mortgage
advance to the solicitor in response to a request based upon a warranty or
representation which (as the Judge put it) the solicitor "knew or must be taken
to have known" to be misleading, he confirmed his previous decision in the
present case. He held that the Society was entitled to succeed in such cases
whether or not it would have still made the advance if it had known the facts.

In
the course of his judgment the Judge explained how the constructive trust in
question arose. It was, he said, because the solicitor had given misleading
information to his client. This constituted a breach of fiduciary duty which
enabled the Court to impose a constructive trust on the property acquired as a
result of the breach of duty. He said:

"...where
moneys have been received by the solicitor from the society following a request
based upon a warranty or representation which he knew, or must be taken to have
known, to be misleading in some material respect, equity will give a remedy in
respect of any loss which the society may suffer as a result of its payment in
reliance upon that request. That will be a remedy based upon breach of
fiduciary duty and may, where necessary, take the form of the imposition of a
constructive trust on those moneys to enforce the solicitor's obligation to
return them to the society forthwith. The constructive trust imposed by equity
to enforce the obligation to make immediate restitution overrides any express
or implied trust which might otherwise arise out of any instructions given by
[the society] when the money is paid to the solicitor. No reliance can be
placed on those instructions, because they are vitiated by the breach of duty
by which they were obtained...In the absence of some fresh instructions, given
by the society after full disclosure of the matters in respect of which it has
been misled,the only course properly open to the solicitor is to repay the
moneys to the society with interest."

The
Judge evidently considered himself to be imposing a remedial constructive trust
as the appropriate remedy for a prior breach of fiduciary duty.

The
Judge's references to the solicitor having made a representation which "he
knew, or must be taken as having known" to be misleading is not an accurate
description of the facts of the present case. It is not alleged that the
Defendant "knew or must be taken to have known" the facts, but only that he
"knew or ought to have known" them, which is a very different matter. In
explaining his decision in the present case the Judge said that the Defendant's
misrepresentation could not be described as innocent because he "clearly had
the knowledge which made the representation false." That confuses knowledge
with the means of knowledge. On the Society's pleaded case the Defendant must
be taken to have known the facts at one time but to have forgotten or
overlooked them so that they were not present to his mind when he came to
complete his report to the Society.

It
is not alleged that the Defendant deliberately concealed the arrangements
which the purchasers had made with their bank from the Society or that he
consciously intended to mislead it. Nothing in this judgment is intended to
apply to such a case. My observations are confined to the case like the present
where the provision of incorrect information by a solicitor to his client must
be taken to have been due to an oversight. In such a case his breach of duty is
unconscious; he will
ex
hypothesi
be
unaware of the fact that he has committed a breach of his instructions; and if
this means that his subsequent application of the mortgage money constitutes a
breach of trust then it will be a breach of a trust of which he is unaware. I
would not willingly treat such conduct as involving a breach of trust or
misapplication of trust money unless compelled by authority to do so, and in my
judgment neither principle nor authority compels such a conclusion.

Before
us the Defendant submits that, while he was guilty of negligence and breach of
contract, he was not guilty of a breach of trust or fiduciary duty. It is
convenient to take first the question of fiduciary duty, and then to consider
the question of breach of trust.

Breach
of fiduciary duty.

Despite
the warning given by Fletcher Moulton LJ in
Coomber
v Coomber
[1911] 1 Ch 723 at p. 728 this branch of the law has been bedeviled by unthinking
resort to verbal formulae. It is therefore necessary to begin by defining one's
terms. The expression "fiduciary duty" is properly confined to those duties
which are peculiar to fiduciaries and the breach of which attracts legal
consequences differing from those consequent upon to the breach of other
duties. Unless the expression is so limited it is lacking in practical utility.
In this sense it is obvious that not every breach of duty by a fiduciary is a
breach of fiduciary duty. I would endorse the observations of Southin J. in
Girardet
v Crease
(1987)
11 BCLR 361 where she said:

"The
word "fiduciary" is flung around now as if it applied to all breaches of duty
by solicitors, directors of companies, and so forth...That a lawyer can commit
a breach of the special duty [of a fiduciary]... by entering into a contract
with a client without full disclosure and so forth is clear. But to say that
simple carelessness in giving advice is such a breach is a perversion of
words."

These
remarks were approved by La Forest J in
LAC
Minerals Ltd. v International Corona Ltd.
(1989)
61 DLR (4th). 14 at p. 28 where he said:

"...not
every legal claim arising out of a relationship with fiduciary incidents will
give rise to a claim for a breach of fiduciary duty."

It
is similarly inappropriate to apply the expression to the obligation of a
trustee or other fiduciary to use proper skill and care in the discharge of his
duties. If it confined to cases where the fiduciary nature of the duty has
special legal consequences, then the fact that the source of the duty is to be
found in equity rather than the common law does not make it a fiduciary duty.
The common law and equity each developed the duty of care, but they did so
independently of each other and the standard of care required is not always the
same. But they influenced each other, and today the substance of the resulting
obligations is more significant than their particular historic origin. In
Henderson
v Merrett Syndicates Ltd.
[1994]
3 WLR 761 at p. 799 Lord Browne-Wilkinson said:

"The
liability of a fiduciary for the negligent
transaction
of his duties is not a separate head of liability but the paradigm of the
general duty to act with care imposed by law on those who take it upon
themselves to act or advise others. Although the historical development of the
rules of law and equity have, in the past, caused different labels to be stuck
on different manifestations of the duty, in truth the duty of care on bailees
carriers, trustees, directors, agents and others is the same duty: it arises
from the circumstances in which the defendants were acting, not from their
status or description. It is the fact that they have all assumes responsibility
for the property or affairs of others which renders them liable for the
careless performance of what they have undertaken to do, not the description of
the trade or position which they hold."

I
respectfully agree, and endorse the comment of Ipp J. in
Permanent
Building Society v Wheeler
(1994)
14 ACSR 109 at p. 157 where he said:

"It
is essential to bear in mind that the existence of a fiduciary relationship
does not mean that every duty owed by a fiduciary to the beneficiary is a
breach of fiduciary duty. In particular, a trustee's duty to exercise
reasonable care, though equitable, is not specifically a fiduciary duty."

Ipp
J. explained this at p. 158:

"The
director's duty to exercise skill and care has nothing to do with any position
of disadvantage or vulnerability on the part of the company. It is not a duty
that stems from the requirements of trust and confidence imposed on a
fiduciary. In my opinion, that duty is not a fiduciary duty, although it is a
duty actionable in the equitable jurisdiction of this court.... I consider
that Hamilton owed PBS a duty, both in law and in equity, to exercise
reasonable care and skill, and PBS was able to mount a claim against him for
breach of the legal duty and, in the alternative, breach of the equitable duty.
For the reasons I have endeavoured to express, in my view the equitable duty is
not to be equated with or termed a "fiduciary" duty."

I
agree. Historical support for this analysis may be found in the passage in Lord
Haldane's speech in
Nocton
v Ashburton
[1914] AC 932 at p. 956. Discussing the old bill in Chancery for equitable
compensation for breach of fiduciary duty, he said that he thought it probable
that a demurrer for want of equity would always have lain to a bill which did
no more than seek to enforce a claim for damages for negligence against a
solicitor.

In
my judgment this is not just a question of semantics. It goes to the very heart
of the concept of breach of fiduciary duty and the availability of equitable
remedies.

Although
the remedy which equity makes available for breach of the equitable duty of
skill and care is equitable compensation rather than damages, this is merely
the product of history and in this context is in my opinion a distinction
without a difference. Equitable compensation for breach of the duty of skill
and care resembles common law damages in that it is awarded by way of
compensation to the plaintiff for his loss. There is no reason in principle why
the common law rules of causation, remoteness of damage and measure of damages
should not be applied by analogy in such a case. It should not be confused with
equitable compensation for breach of fiduciary duty, which may be awarded in
lieu of rescission or specific restitution.

This
leaves those duties which are special to fiduciaries and which attract those
remedies which are peculiar to the equitable jurisdiction and are primarily
restitutionary or restorative rather than compensatory. A fiduciary is someone
who has undertaken to act for or on behalf of another in a particular matter in
circumstances which give rise to a relationship of trust and confidence. The
distinguishing obligation of a fiduciary is the obligation of loyalty. The
principal is entitled to the single-minded loyalty of his fiduciary. This core
liability has several facets. A fiduciary must act in good faith; he must not
make a profit out of his trust; he must not place himself in a position where
his duty and his interest may conflict; he may not act for his own benefit or
the benefit of a third person without the informed consent of his principal.
This is not intended to be an exhaustive list, but it is sufficient to indicate
the nature of fiduciary obligations. They are the defining characteristics of
the fiduciary. As Dr. Finn pointed out in his classic work Fiduciary
Obligations (1977 ed.p. 2), he is not subject to fiduciary obligations because
he is a fiduciary; it is because he is subject to them that he is a fiduciary.

(In
this survey I have left out of account the situation where the fiduciary deals
with his principal. In such a case he must prove affirmatively that the
transaction is fair and that in the course of the negotiations he made full
disclosure of all facts material to the transaction. Even inadvertent failure
to disclose will entitle the principal to rescind the transaction. The rule is
the same whether the fiduciary is acting on his own behalf or on behalf of
another. The principle need not be further considered because it is does arise
in the present case. The mortgage advance was negotiated directly between the
Society and the purchasers. The Defendant had nothing to do with the
negotiations. He was instructed by the Society to carry out on its behalf a
transaction which had already been agreed).

The
nature of the obligation determines the nature of the breach. The various
obligations of a fiduciary merely reflect different aspects of his core duties
of loyalty and fidelity. Breach of fiduciary obligation, therefore, connotes
disloyalty or infidelity. Mere incompetence is not enough. A servant who
loyally does his incompetent best for his master is not unfaithful and is not
guilty of a breach of fiduciary duty.

In
the present case it is clear that, if the Defendant had been acting for the
Society alone, his admitted negligence would not have exposed him to a charge
of breach of fiduciary duty. Before us Counsel for the Society accepted as
much, but insisted that the fact that he also acted for the purchasers made all
the difference. So it is necessary to ask: why did the fact that the Defendant
was acting for the purchasers as well as for the Society convert the
Defendant's admitted breach of his duty of skill and care into a breach of
fiduciary duty? To answer this question it is necessary to identify the
fiduciary obligation of which he is alleged to have been in breach.

It
is at this point, in my judgment, that the Society's argument runs into
difficulty. A fiduciary who acts for two principals with potentially
conflicting interests without the informed consent of both is in breach of the
obligation of undivided loyalty; he puts himself in a position where his duty
to one principal
may
conflict with his duty to the other: see
Clark
Boyce v Mouat
[1994]
1 AC 428 and the cases there cited. This is sometimes described as "the double
employment rule". Breach of the rule automatically constitutes a breach of
fiduciary duty. But this is not something of which the Society can complain. It
knew that the Defendant was acting for the purchasers when it instructed him.
Indeed, that was the very reason why it chose the Defendant to act for it. The
potential conflict was of the Society's own making: see Finn (op. cit.) p. 254;
and
Kelly
v Cooper
[1993]
AC 205.

It
was submitted on behalf of the Society that this is irrelevant because the
Defendant misled the Society. It did not know of the arrangements which the
purchasers had made with their bank, and so could not be said to be "fully
informed" for the purpose of absolving the Defendant from the operation of the
double employment rule. The submission is misconceived. The Society knew all
the facts relevant to its choice of solicitor. Its decision to forward the
cheque for the mortgage advance to the Defendant and to instruct him to proceed
was based on false information, but its earlier decision to employ the
Defendant despite the potentially conflicting interest of his other clients was
a fully informed decision.

That,
of course, is not the end of the matter. Even if a fiduciary is properly acting
for two principals with potentially conflicting interests he must act in good
faith in the interests of each and must not act with the intention of
furthering the interests of one principal to the prejudice of those of the
other: see Finn (op.cit.) p.48. I shall call this "the duty of good faith". But
it goes further than this. He must not allow the performance of his obligations
to one principal to be influenced by his relationship with the other. He must
serve each as faithfully and loyally as if he were his only principal.
Conduct
which is in breach of this duty need not be dishonest but it must be
intentional. An unconscious omission which happens to benefit one principal at
the expense of the other does not constitute a breach of fiduciary duty, though
it may constitute a breach of the duty of skill and care. This is because the
principle which is in play is that the fiduciary must not be inhibited by the
existence of his other employment from serving the interests of his principal
as faithfully and effectively as if he were the only employer. I shall call
this "the no inhibition principle". Unless the fiduciary is inhibited or
believes (whether rightly or wrongly) that he is inhibited in the performance
of his duties to one principal by reason of his employment by the other his
failure to act is not attributable to the double employment.

Finally,
the fiduciary must take care not to find himself in a position where there is an
actual
conflict of duty so that he cannot fulfil his obligations to one principal
without failing in his obligations to the other: see
Moody
v Cox and Hatt

[1917] 2 Ch. 71;

Commonwealth Bank of Australia v Smith
(1991),
102 ALR 453. If he does, he may have no alternative but to cease to act for at
least one and preferably both. The fact that he cannot fulfil his obligations
to one principal without being in breach of his obligations to the other will
not absolve him from liability. I shall call this "the actual conflict rule".

In
the present case the Judge evidently thought that the Defendant was in breach
of both the duty of good faith rule and the actual conflict rule. In
Bristol
& West v May & Merrimans
he
said:

"...there
can be no doubt that the requirement of unconscionable conduct is present where
a solicitor who is acting for both borrower and lender misrepresents to the
lender some fact
which
he knows, or must be taken to know,
will
or may affect the lender's decision to proceed with the loan. In those
circumstances the solicitor
is
abusing his fiduciary relationship with one client, the lender, to obtain an
advantage for his other client, the borrower.
It
is as much against "the dictates of conscience" for a solicitor
knowingly
to prefer the interests of one client over those of another client
as
it is for him to prefer his own interests over those of his client"(my
emphasis.)

I
respectfully agree; but no such allegation is made in the present case.

As
to the actual conflict rule, the Judge said:

"First,
in
Mothew,
the
"agent" was a fiduciary who had put himself in a position in which his duty to
the lender
was
in
conflict with the interests of his other client, the borrower" (my emphasis).

I
do not accept this. By instructing him to act for them, the purchasers must be
taken to have authorised the Defendant to complete the report without which the
mortgage advance would not have been forthcoming; and to complete it
truthfully. The Defendant was required by the Society to report on the
purchasers' title as well as to confirm the absence of any further borrowing.
The two stood in exactly the same case. The Defendant would not have been in
breach of his duty to the purchasers if he had disclosed the facts to the
Society any more than if he had reported a defect in their title.

This
proposition can be tested by considering what the Defendant's position would
have been if he had acted for the purchasers and another solicitor had been
instructed to act for the Society. He would have been required to deduce the
purchasers' title to the satisfaction of the Society's solicitor, and to
confirm to him that no further borrowing or second charge was in contemplation.
His duty to the purchasers would have required him to ascertain the facts from
them and to report them to the Society. Unless they told him the facts and
instructed him to lie to the Society, instructions which he would be bound to
refuse, his duty to the purchasers would not inhibit him in providing full and
truthful information to the solicitor acting for the Society.

In
my judgment, the Defendant was never in breach of the actual conflict rule. It
is not alleged that he acted in bad faith or that he deliberately withheld
information because he wrongly believed that his duty to the purchasers
required him to do so. He was not guilty of a breach of fiduciary duty.

The
Judge relied on
Nocton
v Lord Ashburton
and
Commonwealth
Bank of Australia v Smith
to
hold that a party who pays money to his solicitor in reliance on a
representation
known
by
the solicitor to be false has a remedy in breach of fiduciary duty. Neither
case is authority for the proposition (though its correctness is not in issue);
certainly neither is authority for the proposition that a party who pays money
to a solicitor in reliance on a representation which the solicitor
ought
to have known
to
be false has such a remedy.

In
Nocton v Lord Ashburton
a
solicitor had an undisclosed personal interest in a transaction on which he
gave his client advice which was to his own advantage and the disadvantage of
his client. The plaintiff pleaded breach of the duty of good faith. In fact
this was unnecessary; the existence of the defendant's undisclosed interest was
enough: see
Lewis
v Hillman
(1852)
3 H.L.Cas. 607. The plaintiff was entitled to receive, and thought that he was
receiving, the disinterested advice of a solicitor with no other interest in
the transaction.
Commonwealth
Bank of Australia v Smith
involved
a breach of the actual conflict rule. The defendant, who was acting for both
parties to a proposed transaction, placed himself in an impossible position by
undertaking to advise one of them on the merits of the transaction.

In
Moody
v Cox and Hatt
a
solicitor, who was acting for both vendor and purchaser, was in possession of
valuations which showed that the property was not worth the price which the
purchaser had agreed to pay. He did not disclose them to the purchaser, and
claimed that his duty to the vendor precluded him from doing so. The purchaser
was allowed to rescind. The case bears a superficial resemblance to the present
but there are two crucial differences: (i) the vendor was under no obligation
to disclose the valuations to the purchaser and did not wish his solicitor do
so; and (ii) the vendor and the solicitor tacitly agreed to conceal the
valuations from the purchaser. The solicitor was in breach of both the duty of
good faith and the actual conflict rule; his defence fell foul of the no
inhibition principle.

That
was a case of deliberate concealment. Non-disclosure and concealment are two
very different things. This has been a truism of the law from the time of
Cicero (citing Diogenes of Babylon). It is even enshrined, like other such
truisms, in a Latin tag:
aliud
est celare, aliud tacere
.

The
Society placed much reliance on a dictum by Lord Jauncey in
Clarke
Boyce v Mouet
at
p. 437F where he said:

"Another
case of breach [of fiduciary duty] is where a solicitor acts for both parties
without disclosing this to one of them
or
where having disclosed it he fails, unbeknown to one party, to disclose to that
party material facts relative to that other party of which he is aware
"
(my emphasis).

But
I do not think that Lord Jauncey meant to include an inadvertent failure which
owes nothing to the double employment. Where such failure is to the advantage
of the other party, the Court will jealously scrutinise the facts to ensure
that there has been nothing more than inadvertence, but there can be no
justification for treating an unconscious failure as demonstrating a want of
fidelity.

In
my judgment the distinction drawn by Ipp J. in
Permanent
Building Society v Wheeler
is
sound in principle and is decisive of the present case. On the Society's
pleaded case the fact that the Defendant was acting for the purchasers played
no part in his failure to report the true state of affairs to the Society. It
did not inhibit him from fulfilling his obligations to the Society. It is
consistent with its pleaded case that the Defendant would have done so but for
a negligent oversight. It would have been exactly the same if he had failed to
notice and report the existence of a defect in the purchasers' title. To
characterise either such failure as a breach of fiduciary duty because he was
acting for both parties in a situation where that fact did not contribute to
his failure is, in my opinion, to substitute a verbal formula for principle.

In
my judgment the Judge's conclusion that the Defendant was in breach of
fiduciary duty cannot be supported. It follows that it cannot be sustained as a
ground for holding the Defendant to breach of a constructive trust of the
mortgage money.

Breach
of trust.

It
is not disputed that from the time of its receipt by the Defendant the mortgage
money was trust money. It was client's money which belonged to the Society and
was properly paid into a client account. The Defendant never claimed any
beneficial interest in the money which remained throughout the property of the
Society in equity. The Defendant held it in trust for the Society but with the
Society's authority (and instructions) to apply it in the completion of the
transaction of purchase and mortgage of the property. Those instructions were
revocable but, unless previously revoked, the Defendant was entitled and bound
to act in accordance with them.

The
Society's instructions were not revoked before the Defendant acted on them, and
in my judgment there was no ground upon which the Judge could properly conclude
that his authority to apply the money in completing the transaction had
determined.

If
his judgment in the present case is considered without the benefit of his later
explanation in
Bristol
and West Building Society v May & Merrimans
,
it would appear that the Judge was of opinion that the Defendant's authority to
deal with the money was automatically vitiated by the fact that it (and the
cheque itself) was obtained by misrepresentation. But that is contrary to
principle. Misrepresentation makes a transaction voidable not void. It gives
the representee the right to elect whether to rescind or affirm the
transaction. The representor cannot anticipate his decision. Unless and until
the representee elects to rescind the representor remains fully bound. The
Defendant's misrepresentations merely gave the Society the right to elect to
withdraw from the transaction on discovering the truth. Since its instructions
to the Defendant were revocable in any case, this did not materially alter the
position so far as he was concerned, though it may have strengthened the
Society's position in relation to the purchasers.

The
right to rescind for misrepresentation is an equity. Until it is exercised the
beneficial interest in any property transferred in reliance on the
representation remains vested in the transferee. In
El
Ajou v Dollar Land Holdings
[1993]
3 All ER 717 at p. 734 I suggested that on rescission the equitable title might
revest in the representee retrospectively at least to the extent necessary to
support an equitable tracing claim. I was concerned to circumvent the supposed
rule that there must be a fiduciary relationship or retained beneficial
interest before resort may be had to the equitable tracing rules. The rule
would have been productive of the most extraordinary anomalies in that case,
and its existence continually threatens to frustrate attempts to develop a
coherent law of restitution. Until the equitable tracing rules are made
available in support of the ordinary common law claim for money had and
received some problems will remain incapable of sensible resolution.

But
all that is by the way. Whether or not there is a retrospective vesting for
tracing purposes it is clear that on rescission the equitable title does not
revest retrospectively
so
as to cause an application of trust money which was properly authorised when
made to be afterwards treated as a breach of trust.

In
Lipkin
Gorman v Karpnale Ltd.
[1991] 2 AC 548 Lord Goff said at p. 573G:

"Of
course, "tracing" or "following" property into its product involves a decision
by the owner of the original property to assert his title to the product in
place of his original property. This is sometimes referred to as ratification.
I myself would not so describe it, but it has this in common with ratification,
that it cannot be relied upon so as to render an innocent recipient a wrongdoer
(cf.
Bolton
Partners v Lambert
(1889),
41 Ch. D. 295, 307,
per
Cotton
LJ: "an act lawful at the time of its performance [cannot] be rendered unlawful
by the application of the doctrine of ratification.")"

In
the
Westdeutsche
Landesbank Girozentrale v Islington Borough Council
[1996] 2 WLR 802 case Lord Browne-Wilkinson expressly rejected the possibility that a
recipient of trust money could be personally liable, regardless of fault, for
any subsequent payment away of the moneys to third parties even though, at the
date of such payment, he was ignorant of the existence of any trust. At p. 828
he said:

"Since
the equitable jurisdiction to enforce trusts depends upon the conscience of the
holder of the legal interest being affected, he cannot be a trustee of the
property if and so long as he is ignorant of the facts alleged to affect his
conscience, ie. until he is aware that he is intended to hold the property for
the benefit of others in the case of an express or implied trust or, in the
case of a constructive trust, of the facts which are alleged to affect his
conscience."

Mutatis
mutandis
that
passage is directly applicable in the present case. The Defendant knew that he
was a trustee of the money for the Society; but he did not realise that he had
misled the Society and could not know that his authority to complete had
determined (if indeed it had). He could not be bound to repay the money to the
Society so long as he was ignorant of the facts which had brought his authority
to an end, for those are the facts which are alleged to affect his conscience
and subject him to an obligation to return the money to the Society.

Before
us the Society put forward a more sophisticated argument. The Defendant's
instructions, it pointed out, expressly required him to report the arrangements
in question "to the Society prior to completion." This, it was submitted, made
it a condition of the Defendant's authority to complete that he had complied
with his obligation. Whether he knew it or not, he had no authority to
complete. It was not necessary for the Society to revoke his authority or
withdraw from the transaction.

I
do not accept this. The Society's standing instructions did not clearly make
the Defendant's authority to complete conditional on having complied with his
instructions. Whether they did so or not is, of course, a question of
construction, and it is possible that the Society could adopt instructions
which would have this effect. But it would in my judgment require very clear
wording to produce so inconvenient and impractical a result. No solicitor could
safely accept such instructions, for he could never be certain that he was
entitled to complete.

In
my judgment the Defendant's authority to apply the mortgage money in the
completion of the purchase was not conditional on his having first complied
with his contractual obligations to the Society, was not vitiated by the
misrepresentations for which he was responsible but of which he was unaware,
and was effective to prevent his payment being a breach of trust. Given his
state of knowledge, he had no choice but to complete.

CONCLUSION

In
my judgment the Defendant was not guilty of breach of trust or fiduciary duty.
This makes it unnecessary to consider what the consequences of such a breach
would have been. I would allow the appeal and set aside the money judgment. I
would leave undisturbed the judgments for damages to be assessed for breach of
contract and negligence, but make it clear that it does not follow that the
Society will establish any recoverable

loss.

LORD
JUSTICE OTTON: I have read with advantage the judgments of Millett and
Staughton LJJ. I agree with the analysis and reasoning regarding breach of
trust and of fiduciary duty. I wish only to add a few words on the extant
common law claims.

I
am satisfied that there was sufficient evidence before the Judge to establish
negligence on the part of the defendant. There was the requisite proximity
between the parties, and there was foreseeability of damage. Thus a duty of
care arose. This duty included answering correctly such questions as were
posed by the proposed lender and which it was reasonable for him to be required
to answer. The answer sought was one of fact and not opinion. The fact sought
could have been supplied accurately by information which was within his
knowledge. If it was not at his fingertips the information was either on file
or could easily have been obtained by direct enquiry of the intending
purchaser. His breach of duty occurred when he conveyed the inaccurate
information to the plaintiffs. The duty was not simply a duty not to act
carelessly; it was a duty not to inflict damage carelessly. Damage is the gist
of the action.

The
more complex issues are whether the inaccurate information given was causative
of damage, and if so what measure. To my mind it is not necessary to adopt a
particular procedural path to find the answer. I appreciate that Lord Hoffmann
suggests that it is first necessary to decide the kind of loss to which the
plaintiff is entitled. This may be appropriate in most cases where
negligence/causation is involved. From a practical point of view in some cases
it may be more expedient to establish the causal link between the negligent act
or omission, and the reliance by the plaintiff or the course of action which he
was induced to take. The judge may find as a fact that there was no reliance
or that the plaintiff would have behaved in the same or substantially the same
manner if he had been given accurate information, in either event the
negligence had no causative potency. That is the end of the matter. The chain
is broken, there is no loss at all and there is no need to consider or
determine the kind of loss.

In
other cases it may be appropriate to identify the type or particular head of
damage claimed. This may identify damage which is too remote and for which no
remedy lies (eg economic loss), and the claim in respect of it fails in limine.
As I concur that the damages award must now be set aside the issue of the
measure of damage, if any, is now at large.

I
regard the evidence (in particular the hearsay evidence of Ms. Samantha Bennett
at paragraph 29 of Mr. Prees' affidavit) as falling short of resolving the
issues of causation or damage. It does not (for example) address the
possibility of a revised offer if the accurate and full position had been
explained to the plaintiffs.

I
do not think it necessary to conclude whether there was a breach of contract.
This cause of action probably adds nothing to the case in negligence. It is
unlikely that there is any practical difference between a breach of the duty of
care and a breach of contract, or in the issues arising on causation, or the
measure of damages. If there is any issue it can be determined by the trial
Judge, I also consider that there was no waiver.

For
these reasons I consider that there are triable issues and they should be
determined by a judge at first instance.

I
would therefore allow the appeal and remit the assessment of damages as
proposed by Staughton LJ and dismiss the respondent's notice.

LORD
JUSTICE STAUGHTON: Mr Mothew made his report to the Cheshunt Building Society
on 2nd August 1988. In it he answered one of the questions asked as follows:

Please
confirm that (to the best of your

knowledge
and belief) the balance of the

purchase
money is being provided by the
Confirmed

applicant(s)
personally without resort to

further
borrowing. If not please give

details.

That
was untrue. There were other aspects of the same error, but I need not go into
them in detail. Although Mr Mothew had the means of knowledge in his
possession, which could have brought the error to his attention, it is not said
that he acted fraudulently or in bad faith.

The
ordinary remedy of a client who has received wrong information or advice from
his solicitor is to claim damages for negligence, whether as a breach of
contract or as a tort. For such a claim to give rise to substantial damages
the Building Society would have to show that the breach of contract or
negligence caused them loss. By their Respondents' notice they seek to say
that, if they had known the true facts, they would not have lent any money to
Mr & Mrs Towers.

The
judge regarded that point as immaterial, since the Building Society succeeded
on other grounds. If it is material, in my opinion it raises a triable issue.
According to Samantha Bennett of the Society's advances department, the offer
of advance would have immediately been withdrawn if the Society had known that
even £3350 was being borrowed elsewhere. In the nature of things Mr
Mothew is unlikely to have evidence which directly controverts that statement.
But there are grounds for supposing that it may be open to question. I would
not give judgment under Order 14 on the basis that it is true. If it is
critical, the case must go to trial, perhaps with the aid of interrogatories
and discovery of documents.

However
in this particular case the Building Society were not the sole clients of Mr
Mothew; he was also the solicitor acting for Mr & Mrs Towers. That is
said to make all the difference, because Mr Mothew then became under a
fiduciary duty to the Building Society. And the argument is that for breach of
fiduciary duty the remedy does not depend on causation or remoteness; all that
is necessary is that the loss would not have occurred
but
for

the breach of duty.

It
seems to me wrong that a breach of contract or tort should become a breach of
fiduciary duty in that way. I am glad to find that the authorities relied on
by Millett LJ show that it is wrong. In my judgment Mr Mothew was in breach of
a duty of care and nothing more. True he was in a situation where he owed
duties to two clients, and those duties might conflict with each other. But he
did not prefer the interest of one client to that of another; at most he was
guilty of negligence which had that unintended effect.

Alternatively
it is said that Mr Mothew was in breach of trust because he paid away the trust
fund contrary to his instructions. He did indeed hold the £59,000 in
trust; it was not his own money. There was in my opinion an express or implied
trust, and not (as the judge held) a constructive trust. But he did not pay it
away contrary to the Society's instructions. The cheque reached Mr Mothew with
a letter dated 23rd August 1988, which in effect instructed him to use it for
completion of the proposed purchase. That was what he did.

There
being in my opinion no breach of fiduciary duty or breach of trust, it is
unnecessary to consider what remedy such a breach might have afforded.

Thus
far the appeal succeeds, but there remains judgment on the cause of action at
common law for damages to be assessed. Mr Sumption says that even that must
go, since there is a triable issue as to waiver by the Building Society. The
problem that he faces is that, although the Building Society readily agreed
when they were asked to consent to the registration of the second charge, they
are not shown to have known that the second charge was contemplated and
intended at the time of Mr Mothew's report. There has been ample opportunity
to produce evidence that they knew, if indeed they did. In my judgment there
was no waiver.

When
the argument before us was concluded on 21st May that was all that we had to
decide. But we have since been asked to consider the judgment of Hobhouse LJ in
Downs
v. Chappell
,
3rd April 1996, and the speech of Lord Hoffmann in
Banque
Bruxelles Lambert SA v. Eagle Star Insurance Co Ltd
,
20th June 1996. Such has been the volume of litigation on the topic of loss to
lenders following negligent professional advice and the collapse of the
property market that judges risk being overtaken by new authority.

The
Court of Appeal in the
Banque
Bruxelles case

began with a reference to the well known principle that damage should be as
nearly as possible the sum which would put the plaintiff in the position in
which he would have been if he had not been injured. That would lead to two
possible answers in the present case. (1) If there had been no report from Mr
Mothew to the Building Society, the money would not have been lent; the Society
would still have its £59,000. There would have been no transaction, a
phrase which I use not as a label for anything but as a description of the
fact. (2) If Mr Mothew had provided an accurate report to the Building
Society, then they might have been content to proceed on the terms previously
proposed, or they might have made a revised offer, or they might have proceeded
as in (1) above. There is a triable issue as to that. Left to myself, I would
have ruled that (2) was the appropriate situation for the judge to consider in
assessing the damages. But I have to acknowledge that Hobhouse LJ in
Downs's
case
,
with the agreement of Butler-Sloss and Roch LJJ, preferred method(1), both for
fraudulent misrepresentation and for negligence.

Lord
Hoffmann, as it seems to me, considered that either method was the wrong place
to begin:

Before
one can consider the principle on which one should calculate the damages to
which a plaintiff is entitled as compensation for loss, it is necessary to
decide for what kind of loss he is entitled.

There
follows an exposition of the problem and the answer to it, as set out in the
judgment of Millett LJ.

For
my part I feel that we should not at this stage purport to instruct the judge
who has to assess the damages by a paraphrase or interpretation of that
decision, for a number of reasons. First, we have not heard argument on it,
and our judgment is already long delayed by intervening material. I am told it
would be impractical for us to have a further hearing before October.
Secondly, the judge has yet to find the facts relating to the assessment of
damages. Thirdly, the judge must be guided by what Lord Hoffmann has said and
not by any gloss of ours.

I
would allow the appeal and remit the assessment of damages, either to Chadwick
J. or to another judge of the Chancery Division as the exigencies of business
may require. The cross-appeal should be dismissed.

Order:
Apeal allowed. Cross-appeal dismissed.

&copy 1996 Crown Copyright

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