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Case No: QBENF 1999/0931/A2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(MR T STOW QC (SITTING AS A DEPUTY
HIGH COURT JUDGE))
Royal Courts of Justice
Strand, London, WC2A 2LL
Wednesday 19 April 2000
B e f o r e :
LORD JUSTICE SWINTON THOMAS
LORD JUSTICE BROOKE
and
LORD JUSTICE LAWS
- - - - - - - - - - - - - - - - - - - - -
|
SECURED
RESIDENTIAL FUNDING PLC
|
Appellant
|
|
-
and -
|
|
|
DOUGLAS
GOLDBERG HENDELES & CO
|
Respondent
|
- - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Thomas Putnam (instructed by HMC Legal Department, Bucks, HP13 5HN for
the Appellant)
Daniel Gerrans (instructed by Ince & Co, London EC3R JEN for the
Respondent)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE LAWS:
1. This is an appeal and a cross-appeal against findings made by Mr Timothy
Stow QC sitting as a deputy High Court Judge on 29 July 1999, when he
determined two preliminary issues which had by consent been ordered to be tried
as such by Master Hodgson on 5 February 1999. Both appeals are brought with
permission granted by the trial judge. The Claimant/Appellant, Secured
Residential Funding plc ("SRF"), appeal against the judge's ruling on the
second preliminary issue. The Defendant/Respondent, Douglas Goldberg Hendeles
& Co ("the Solicitors"), appeal against his ruling on the first
preliminary issue.
2 The claim in the action was for damages for professional negligence against
the Solicitors.
3 It is convenient first to trace the relevant factual history, before
identifying the issues which arise for this court's determination.
4 SRF are a mortgage company or finance house. At the relevant time they
shared office premises and staff with another mortgage company, Household
Mortgage Corporation plc ("HMC"). SRF and HMC are associated companies; the
ultimate owner of both of them is the Abbey National Plc. On 20 April 1989 a
lady by name Mrs Alison Marks ("the Borrower") applied to HMC for a mortgage
advance of £82,000 in order to purchase a dwelling house property in North
London at a price of £102,000. The application named the defendant firm
as the Borrower's solicitor. On 5 May 1989 HMC issued a formal offer of
advance to the Borrower. The offer was made on HMC's headed paper, and was
signed "on behalf of Household Mortgage Corporation plc".
5 In the light of the argument which has been addressed to us, it is necessary
to set out some of the conditions which were attached to the offer. Under the
heading "General Conditions" these provisions appear:
"Any Advance made pursuant to the Offer of Advance is and shall remain
subject to the following terms and conditions but in the event of any conflict
with the provisions of the mortgage deed and the Standard Mortgage Conditions
of the Company in use from time to time... the provisions of the Mortgage shall
prevail.
1 WITHDRAWAL OR VARIATION BY THE COMPANY
(a) The Company has the right to vary or withdraw the Offer of Advance at
any time before the completion of the Mortgage.
....
4 PURCHASE PRICE
It is a condition of the proposed Advance by the Company that the Applicant
pays the balance of the purchase price for the Property from the Applicant's
own resources... In particular, the Applicant is reminded that no second or
further charge may be created over the Property without the Company's consent.
...
10 CHARGE
The property will be charged to the Company as security on the date the
Advance is made by First Legal Mortgage in the form of the Mortgage Deed
supplied by the Company to your solicitor. The Property will be free from any
charge or encumbrance or other matter which may affect either the value of the
Property or its security value.
...
18 ENTIRE CONTRACT
The terms of the Mortgage, these General Conditions and together with any
Special Conditions contained in the Offer of Advance constitute the entire
terms and conditions of the agreement between the Company and the Applicant in
relation to the Mortgage. The Applicant's acceptance of the Offer of Advance
shall constitute acceptance that in entering into such agreement the Applicant
is relying on no other statement or representation in connection
therewith".
The offer document itself contains certain further conditions. One was a
variation of one of the general conditions. It related to interest:
"Interest will be charged monthly in arrears from the date of despatch of
the Advance on the total Advance then outstanding..."
6 On the same day, 5 May 1989, HMC sent a copy of the Offer to the solicitors.
The covering letter, on HMC headed paper and signed on behalf of HMC, invited
the solicitors to "accept this letter as authority to act on our behalf
subject to your confirming that you are in receipt of instructions to act for
the Applicants". Then the letter continued:
"Attached is the appropriate documentation to enable you to proceed. When
you submit the Report on Title please ensure that the applicant has returned
the necessary acceptance, direct debit mandate and all other acknowledgements
as indicated within the offer, to ourselves. Please note that the Report on
Title should be received by HMC not less than seven days before
completion."
7 Unfortunately, there was a mishap relating to the enclosures sent with this
letter. What the letter refers to as "the appropriate documentation" in fact
consisted of what has been called a "mortgage pack". By mistake, it was SRF's
mortgage pack that was sent to the solicitors, and not HMC's. This mistake was
the genesis of all the sorry tale that was to follow.
8 The mortgage pack included a copy of the offer of advance, "standard
instructions" to solicitors, a form of Report on Title, and a mortgage deed.
All of these, in the form in which they were sent to the Solicitors, named the
lender or proposed mortgagee as SRF. By way of example, in the instructions to
solicitors the word "Company" plainly refers to SRF, whose full name is set out
on the front sheet. In this document the solicitors are instructed that
"the Company's standard documents should be used... the Solicitor must
advise the Company if at any time before completion it is discovered that the
Borrower wishes or is intending to effect a second charge to secure any part of
the balance of the purchase price... Interest will be charged for the date of
despatch of funds by the Company". Thus throughout the references, on
their face, are to SRF. The standard form of Report on Title is addressed to
SRF; and when completed and returned, it would contain the assurance that the
conditions in the Offer of Advance had been satisfied, that the mortgage deed
had been or before completion would be executed by the Borrower, and that the
solicitors had complied with the standard instructions. It also contained a
request to forward the advance in time for completion, and recited this
undertaking:
"We [sc. the solicitors] undertake not to part with the Advance until
the Mortgage and Assignment of life insurance policy have been duly executed
and to apply the Advance only in the acquisition of good and marketable
title to the Property and to return the sum despatched if completion does not
take place within 14 days of its receipt."
The mortgage deed (which was, of course, to be executed by the Borrower) would
provide:
"The Borrower as Beneficial Owner charges by way of legal mortgage ALL THAT
the Property and the interest of the Borrower therein with the payment of all
monies payable by the Borrower to the Company".
Again, the reference to "the Company", in the form of the document sent to the
Solicitors, was to SRF.
9 On 5 May 1989 the offer of advance was of course sent to the Borrower and
well as to the Solicitors. The covering letter to the Borrower was also on HMC
headed paper and stated:
"We have pleasure in enclosing our Formal Offer in duplicate. Please sign
one copy as acceptance, and return it in the envelope provided."
In due course on 6 June 1989 the Borrower signed the Offer document. It is
thus beyond contest that there was a concluded contract between the Borrower
and HMC acting as principal, and not on behalf of anyone else, by which HMC was
to advance £82,000 to the Borrower upon the conditions set out in the
offer documentation. On the same day, 6 June 1989, the Borrower signed a MIRAS
form relating to tax relief: on it the lender was named as HMC.
10 On 20 June 1989 contracts were exchanged for the purchase of the property.
The next day, 21 June, the Solicitors sent the Report on Title to SRF.
However the document was unsigned, and the life policy details required were
not included in it. There followed a request from HMC for a further
copy of the Report on Title, bearing a signature: but on 23 June the
Solicitors faxed a signed copy - to SRF.
11 On 27 June 1989 (at least that is the most likely date on the evidence) HMC
telephoned the Solicitors and told them that the wrong documentation had been
sent out. It seems to be clear that until then the error had not been picked
up. Certainly it had not been picked up by the Solicitors. The lady dealing
with the case at the Solicitor's Office was a Mrs Sidhu. She gave live
evidence before the Judge, whose findings about her testimony were as follows
(transcript, 12-13):
"In my judgment the probability is that Mrs Sidhu always regarded herself as
instructed by HMC, never expected to be sent documents relating to another
mortgage company, did not bother to peruse the documents she was sent, and
failed to notice SRF's name. Having heard her evidence, it is unlikely in my
view that she would have failed to raise a query with HMC if she had in fact
spotted SRF's name, particularly in respect of the mortgage deeds."
There is no challenge to these findings.
12 On 29 June 1989 the sum of £82,000 was transferred from HMC's bank
account into the Solicitors' client account. On the same day HMC's completions
department wrote to the Solicitors in these terms:
"It has come to our notice that unfortunately the wrong legal documentation
appears to have been sent to you for the above. [sc. the Borrower's mortgage]
Correct papers are now enclosed which will require attention. Completion will
not be delayed but we would ask that the fresh charge/assignment is executed by
the Borrower prior to registration being effected..."
This letter, however, was not received until after completion, which took place
the next day, on 30 June. On 30 June the Solicitors remitted the full purchase
price of £102,000 to the Vendor's solicitors. Also on 30 June the
mortgage deed was executed by the Borrower - on the face of the document in
favour of SRF: and likewise the Borrower's life policy was assigned in favour
of SRF.
13 I should notice, because it is relevant to the cause of action pleaded
against the Solicitors, that the £20,000 shortfall between the HMC advance
of £82,000 and the purchase price of £102,000 was in fact made up by
a further secured loan issued by the Legal and General Insurance Company. The
Solicitors were complicit in that arrangement, since they dealt with the
documentation relating to it just as they did in relation to the advance of
£82,000 from HMC.
14 On 14 July 1989 the Solicitors replied to the letter from HMC of 29 June
1989 which had stated that the wrong documents had been sent. The Solicitors
said:
"We thank you for your letter of 29 June, which enclosed fresh Reports on
Title which you required to be completed before completion could take place.
However, this matter has already been completed and we therefore presume that
you did not require the documents retyped and sent to you."
15 At length the Borrower fell into arrears. HMC chased her in correspondence
in October and November 1989. Then on 5 January 1990 SRF was registered as
proprietor of the charge over the property at HM Land Registry. At the end of
January 1990 HMC again wrote to the Borrower about the arrears. On 6 February
1990 HMC wrote to the Solicitors stating that after an audit check it had come
to their attention that the Report on Title which the Solicitors had submitted
was in the name of SRF and not HMC. They said that the documentation should
have been completed in the name of HMC, and "since the Report on Title was
incorrect we suspect that it may be that the Mortgage Deed and Deed of
Assignment are also incorrect. It is obviously extremely important that the
correct documentation is used".
The letter enclosed what was in effect HMC's mortgage pack, and asked the
Solicitors to have that documentation executed, and as appropriate submitted to
the Land Registry. The Solicitors sent these new documents to the Borrower to
be signed by her, but she seems not to have done so. On 3 April 1990 the
Solicitors wrote to the Borrower because the documents from HMC had not been
signed. They sent a further letter on 22 June 1990. The Charge in the name of
SRF had by now been registered at the Land Registry. There was then a flurry
of events in July 1990 to which I should briefly refer. On 18 July possession
proceedings based on the alleged arrears were commenced against the Borrower:
SRF were named as plaintiffs. Also on 18 July SRF wrote to the Solicitors
asking for the Title Deeds, and on 20 July HMC wrote making the same request.
The Solicitors replied to both letters. In their letter to HMC dated 24 July
1990 they stated:
"It is evident that there has been a muddle and that because the wrong forms
were sent to us with our initial instructions the mortgage was completed in the
name of SRF. However, as the instructions emanated from your office we think
it correct that we should send you the documents of title and leave you to
resolve the problem with SRF. We therefore enclose the documents with two
copies of the schedule."
16 By mid-January 1991 the arrears were said to have risen to about
£11,000. On 18 January 1991 a possession order was made in favour of SRF
in the proceedings which had been instituted in their name. At length the
property was sold, on 14 May 1993, but only for £65,000. The sale appears
to have been conducted by SRF as mortgagees. Then in May 1994 HMC
instituted proceedings against the Borrower for what was said to be the
shortfall between the sale proceeds and the original advance: a sum of
something over £72,000. By way of amended defence in October 1994 it was
pleaded that the mortgage was in fact to secure monies payable to SRF.
17 On 21 November 1994 HMC and SRF each completed a written memorandum. The
two documents were to all intents and purposes in identical terms. Each
acknowledged that HMC had made the original advance to the Borrower, and that
SRF documentation had been sent to the Solicitors by mistake: and
"SRF was at the time of execution of the Mortgage and registration thereof
and at all times thereafter, Trustee of the Mortgage on behalf of HMC".
The last paragraph in each memorandum reads:
"Clearly the proceedings" [that is, the shortfall proceedings] should
have been brought in the name of SRF as Mortgagee and Trustee for HMC".
So it was that on 7 February 1995 leave was given in the shortfall proceedings
to substitute SRF for HMC as plaintiff.
18 On 27 September 1995 the Statement of Claim in these present proceedings was
served. The allegations of negligence centred principally upon the
circumstances relating to the top-up loan from Legal and General. The
Statement of Claim named SRF as the lender of the mortgage money. On 12
November 1996 a summons was issued for leave to substitute HMC as plaintiffs.
That was refused by Master Hodgson on 25 February 1997, since by then any claim
by HMC against the Solicitors in relation to the material events in 1989 was
barred by the Limitation Act. On 13 March 1997 Sir John Wood dismissed an
appeal. However on 1 October 1997 Master Hodgson gave leave to amend the
Statement of Claim into its present form subject to the provision of Further
and Better Particulars of paragraph 8, which were given on 13 October 1997.
19 The effect of the present pleading is to assert that the advance of
£82,000 was made by HMC on behalf of SRF. Paragraph 8 of the amended
Statement of Claim alleges:
"On or about 29 June 1989 following requests by the Solicitors and in
reliance upon the Report on Title HMC, on behalf of SRF, forwarded £82,000
of the Advance to the Solicitors' client account for the purposes of advancing
the same to or for the benefit of the Borrower on completion of the Mortgage.
At all material times the said £82,000 was held by the Solicitors for SRF
to be applied only in accordance with the instructions of SRF....".
The Particulars given of paragraph 8 are headed:
"Particulars of facts and matters relied upon to show that £82,000 was
provided by HMC on behalf of SRF so that Defendants can understand SRF's
case".
Paragraph 2 of those Particulars is in the terms:
"(1) SRF and HMC came to realise that by reason of the mistake SRF had
become legal mortgagees of the Property and legal beneficiary of a covenant by
the Borrower to repay the mortgage debt secured by the Mortgage.
(2) SRF thereafter ratified and adopted its status as legal mortgagee and
legal beneficiary of the Covenant by the Borrower to repay the mortgage debt
secured by the Mortgage beneficiary the use of its name in connection with the
transaction of the Mortgage and the instructions given by HMC to the Solicitors
to act in the completion of the Mortgage as matters arranged on its behalf and
in its name by HMC in that:-
(a) by exchange of memoranda dated 21 November 1994 between SRF and HMC, SRF
acknowledged that it was trustee of the Mortgage on behalf of HMC:
(b) on or about 18 July 1990 it commenced proceedings for possession for the
Property against the Borrower in its capacity as legal mortgagee of the
property:
(c) on or about 7 February 1995 pursuant to leave given by the Southend
County Court, SRF became the plaintiff in proceedings against the Borrower
claiming payment of sums covenanted to be paid by the Borrower to SRF pursuant
to the Mortgage."
20 The order of the learned Master by which on 5 February 1999 he directed the
trial of preliminary issues is expressed in these terms:
"It is ordered that:
1 there be a trial of a preliminary issue before the Trial Judge on the
following terms:
(i) did the Defendants owe the Plaintiff a duty to exercise reasonable skill
and care with regard to the mortgage transaction referred to in the Amended
Statement of Claim?
(ii) In the events which have happened, was the Advance (as defined in
paragraph 1 of the Amended Statement of Claim) (i) forwarded, provided and/or
made by HMC on behalf of the Plaintiff (by reason of any and if so which of the
matters alleged in paragraph 8 of the Amended Statement of Claim and in the
Further and Better Particulars thereof served on 13 October 1997) or (ii) made
by HMC as behalf as principal [sic] out of its own monies?"
The reference there to the definition of the Advance in paragraph 1 of the
amended pleading cross-referred to paragraph 1 of the amended Statement of
Claim, in which ""the Advance" means the sum of £82,742 of which
£82,000 was transferred to the client account of the Solicitors on 29 June
1989 to effect completion of the Mortgage on or before 30 June 1989".
21 That is a sufficient recital of the facts of the case, and the procedural
course of the litigation, for the purpose of deciding the issues which arise on
this appeal.
22 The learned Deputy Judge first determined the preliminary issue specified at
para (i) of the Master's Order; that is of course the issue relating to the
existence or otherwise of a duty of care owed on the relevant facts by the
Solicitors to SRF. On that issue he found in favour of SRF, and his conclusion
forms the subject of the cross-appeal. He then proceeded to the second issue,
set out at paragraph (ii) of the Master's Order, which he determined in favour
of the Solicitors. It was (inevitably) accepted on all hands that the
consequence of this latter conclusion was that the action must be dismissed.
The Judge's decision on this issue is, of course, the subject of the appeal
itself.
23 For my part I think it convenient, and with respect more logical, to take
the second issue first. If the Judge was right about it that is the end of the
case, and the issue relating to the Solicitors' duty of care would be moot.
Moreover as the Solicitors' counsel Mr Gerrans submits at paragraph 16 of his
skeleton argument, the resolution of this second issue is itself material to
the question whether the Solicitors owed a duty of care to SRF: if the true
lender of the advance was HMC, then on the face of it it is difficult to see
what proper legal space there can be for the imposition of a duty of care upon
the Solicitors owed to SRF in relation to transactions which concerned or were
triggered by the making of the advance.
24 I turn then to the second issue, which may be formulated thus: Was the
advance forwarded, provided or made by HMC as agent for SRF or as principal?
On this issue the Judge at the outset directed himself wholly correctly
(transcript page 18):
"Moving to the second issue, the parties have agreed that (1) HMC as
principal made the mortgage offer to the borrower (2) the offer was accepted by
the borrower and (3) the advanced monies were actually provided by HMC from its
own resources. In my view it must follow, therefore, that SRF can only succeed
if can be shown that by some process of law I can hold that retrospectively the
advance was in fact provided by HMC on their behalf."
25 The only "process of law" by which it is suggested that provision of the
advance by HMC is translated into provision of the advance by SRF is that of
ratification, as that term is understood in the law of agency. Now, it is as I
understand it accepted on all hands that there can at law have been no
ratification by SRF of the making of the advance by HMC unless, at the time,
the advance was made by HMC purporting to act on SRF's behalf. This is the
effect of the decision of their Lordships' House in Keighley Maxted & Co
v Durrant [1901] AC 240, whose headnote was recited by the learned Judge
and states as follows:
"A contract made by a person intending to contract on behalf of a third
party but without his authority cannot be ratified by the third party so as to
render him able to sue or liable to be sued on the contract where the person
who made the contract did not profess at the time of making it to be acting on
behalf of a principal."
26 In the course of argument Mr Putnam accepted in terms that when on 29 June
1989 the sum of £82,000 was transferred by HMC to the Solicitors' client
account, that was done by HMC as principal and in no sense as agent for SRF,
whether actually or purportedly. Accordingly this act of transferring the
funds on 29 June was not capable of any later ratification by SRF. However it
is SRF's case that the moment when the loan of £82,000 was actually made
to the Borrower was not constituted by the transfer to the Solicitors' client
account on 29 June at all; rather, it took place the next day, 30 June 1989,
when the Solicitors remitted the sum of £102,000 (which included the
£82,000) to the vendors' solicitors. If SRF are wrong on that distinct
issue, and the loan was in fact made on 30 June, they must lose the case.
27 I will deal with the arguments as to the consequences that would arise if
the true date of the loan or advance is to be taken as 30 June 1989: but I
should state my conclusion at once that the advance was in fact made the day
before on 29 June 1989, when as I have said the funds were transferred by HMC
acting as principal into the Solicitor's client account. It is convenient that
I should first justify this conclusion.
28 As it seems to me, on 29 June HMC performed their obligations under the
contract into which they had entered with the Borrower to make the advance.
Once the transfer was effected, there was nothing further for HMC to do. That
contract was constituted by the Borrower's acceptance on 6 June 1989 of HMC's
offer of 5 May 1989. In my judgment this contract was in the eye of the law
wholly distinct from the mortgage which followed: see National Home Loans v
Giffen Couch [1997] 3 AER 808, 815j - 816a; and I consider that much of Mr
Putnam's carefully constructed argument for SRF rested upon the false premise
that the two should, by some legal alchemy whose formula was never revealed to
us, be treated as a single or indivisible transaction.
29 Mr Putnam's illegitimate conflation of the loan and the mortgage is, in
truth, the engine of his argument deployed to persuade us that the loan to the
Borrower was made on 30 June, not 29 June. Para. 11(2) of his skeleton argument
reads in part:
"The moment of this payment [sc. to the vendors' solicitors on 30
June], and not before, was the time when the loan to the Borrower was made:
prior to this payment, no claim in debt could lie against the Borrower, because
prior to then, no money had been paid to the Borrower or (more accurately) to
her use and no mortgage existed. Of course, the payment of £102,000
was made by way of completion of the Borrower's purchase of the property.
The release of the £82,000 was, however, also made by way of completion
of the Mortgage. To borrow a phrase from Mrs Sidhu... this was the release of
`the completion monies' and it was for the purposes of the Mortgage."
(my emphasis)
30 None of this reasoning, in my judgment, begins to support the conclusion
that the act of making the loan by HMC took place on 30 rather than 29 June.
The fact ( if it be so) that the Borrower could not be sued in debt upon the
instant of the money being transferred to the Solicitors' client account is in
my judgment neither here nor there: it does not demonstrate that for their part
HMC had not on 29 June performed the loan contract. It is true that, upon
transferring the loan money to the Solicitors' client account, HMC retained or
acquired certain rights. Mr Putnam submitted that the Solicitors then held the
money to the order of HMC - contrary, as it happens, to what is pleaded in
para. 8 of the amended Statement of Claim: "At all material times the said
£82,000 was held by the Solicitors for SRF to be applied only in
accordance with the instructions of SRF"; however Mr Putnam stated in
terms, and in my view quite correctly, that the sum was from the moment of its
transfer on 29 June held to be applied in accordance with the instructions of
HMC. But in any event none of this derogates from the simple
proposition that in sending the money across to the Solicitors' client account
on 29 June HMC were doing all they were required to do under the loan contract.
The fact that they retained rights to recover the money, if for any reason the
purchase and mortgage transactions should fail, in my view can make no
difference. Thus the terms on which the Solicitors held the money from the
moment when they received it on 29 June cannot in my judgment mean that the
transmission of the funds to their client account on that day did not
constitute performance of the loan contract.
31 As for Mr Putnam's distinct reliance on the mortgage, para. 12 of
his skeleton puts the matter in admirably clear focus:
"... If the Solicitors completed the mortgage in the name of SRF (which they
did), and the payment of money was by way of completion of that mortgage (which
it was), then it follows that the release of the completion money was made on
behalf of SRF."
Here, the argument's conflation of the loan with the mortgage could not be
clearer: "[i]f... the payment of money was by way of completion of that
mortgage (which it was)". Then para. 13 of the skeleton proceeds to refer
to various provisions contained in the Mortgage Deed, including the covenant
"with the Company to pay the Secured Sum..." This submission follows:
"It followed that on the face of the Mortgage, SRF could sue the Borrower
under her covenants made under seal to pay the advance. In the absence of
rectification (which never occurred), SRF and not HMC was the correct party to
sue the Borrower under the Mortgage."
32 All this, of course, proceeds upon the premise that the transfer on 30 June
by the solicitors of the money in their client account to the vendor's
solicitors constituted performance by HMC of its obligations under the contract
of loan. This I have already rejected; HMC performed its contractual
obligations on the previous day. But the point is not only that after the
transfer of the £82,000 to the Solicitors' client account on 29 June,
there was nothing left for HMC to do. The deeper point is that Mr Putnam is
driven to rely on the SRF documentation, sent by HMC to the Solicitors by
mistake (as I have recounted) and thereafter completed, as proving an act done
by HMC capable of later ratification by SRF. In my judgment nothing
that was done with those documents is remotely capable of proving any such
fact.
33 First, the SRF documents are (as in a world this side of Alice's
Looking-Glass of course they would be) drafted so as to reflect the obvious
assumption that the lender and the mortgagee were the same legal person.
Because of the mistake, in this case the assumption was wrong on the facts.
There was, in the events which happened, no tie or crossover between the loan
contract and the mortgage deed. More concretely, the express obligation in the
mortgage deed - "The Borrower as Beneficial Owner charges by way of legal
mortgage ALL THAT the Property and the interest of the Borrower therein with
the payment of all monies payable by the Borrower to the Company" - had no
content: "the Company" is SRF, and there was no money payable by the Borrower
to SRF - unless Mr Putnam can point to some different event, independent
of the documents executed on 30 June, which somehow transformed HMC's payment
on 29 June into a payment by or for SRF; but there is none. Mr Putnam sought
to draw some assistance from other documents in the "mortgage pack"; but none
of them can carry him any further forward than the mortgage deed.
34 Secondly, Mr Gerrans was in my judgment right to submit that the principles
of agency have no part to play in the court's approach to the just correction
of mistakes in legal transactions, for which the law possesses a series of
effective mechanisms in the shape of such rules and remedies as rectification,
rescission, and estoppel. In particular the question whether A (here, HMC) has
acted purportedly on behalf of B (here, SRF) cannot be answered affirmatively
by reliance on a mistake. Either A in fact purported (therefore,
intentionally purported) to act on behalf of B or it did not. Logic
compels this result, for the very idea of intending to act on behalf of someone
else is inconsistent with the existence of a mistake in the actor's state of
mind.
35 Here, there was no mistake of any kind in relation to the original loan
transaction. Thereafter, everything that happened was infected by the mistake
as to the documentation sent to the Solicitors. But this was not picked up by
anyone until after 30 June, save only that HMC spotted it and wrote to the
Solicitors on 29 June (paragraph 12 above). In truth, there was no question
of any agency here at all. At no stage was there any act purportedly done by A
for B.
36 If my Lords agree with this reasoning, that is in truth the end of the case.
I do not propose to deal in any detail with Mr Putnam's arguments as to
ratification on the facts. I will summarise it thus. All the acts upon which
he relied as being capable of ratification depended on the mistake: they were
(i) completion of the mortgage by the Solicitors purportedly on behalf of SRF,
(ii) payment (on completion) of the purchase money to the vendor's solicitors,
made by the Solicitors purportedly on behalf of SRF, and (iii) use by the
Solicitors of the funds provided by HMC for the purpose of completing the
mortgage to SRF. Since, upon my earlier reasoning, none of these is capable of
being regarded as an act of HMC, the question whether any was in some sense
ratified simply does not arise. Mr Putnam's submission that these acts were in
fact ratified by SRF - (a) by the commencement of possession proceedings by
SRF, and their obtaining an order for possession, (b) by the sale of the
property by or on behalf of SRF, and (c) by the exchange of the memoranda
between HMC and SRF on 21 November 1994 - would on their merits have been
subject to formidable difficulties, given the clear requirement that an act of
ratification must be unequivocal: see Bowstead on Agency 16th edn p.80.
In fact Mr Putnam submitted that the act I have tabulated at (iii) above - use
by the Solicitors of the funds provided by HMC for the purpose of completing
the mortgage to SRF - had to be ratified by HMC: the notion of
ratification by the purported agent is, surely, on the other side of the
Looking-Glass.
37 We had the benefit of submissions as to the effect of authorities such as
Abbey National v Cann [1991] 1 AC 56 (and in particular Lord Oliver's
speech at 89D-E). I hope I may be excused from entering into the detail of any
such learning, given my conclusion that there was on the facts here no event as
respects which any act of ratification by SRF was conceivably available.
38 During the hearing Brooke LJ expressed a concern as to what was the true
effect of the executed mortgage deed in SRF's name, and the consequent
registration at HM Land Registry. For my part I would accept Mr Gerrans'
submission, that SRF thereby obtained a legal estate as legal mortgagee, but
the Borrower would have been entitled at any time to redeem it, since no money
debt owing to SRF was subject to the charge.
39 The truth is that these proceedings constitute an attempt by SRF/HMC, which
are in common cause, to escape the effect of the Limitation Act as against HMC.
It will be recalled that Master Hodgson refused on 25 February 1997 to allow
the substitution of HMC for SRF as plaintiff in these proceedings, since by
then any claim by HMC against the Solicitors in relation to the material events
in 1989 was statute-barred. It is not without interest, if only as a parting
shot on the agency issue, that the solicitor swearing an affidavit in 1996 to
support the application to substitute HMC for SRF as plaintiff in these
proceedings swore thus: "HMC was... the lender in this matter and HMC is the
party which has lost money."
***
40 In the circumstances there is nothing to say about the issue first addressed
by the judge, whether the Solicitors owed any duty of care on the relevant
facts to SRF. In light of my conclusions on the agency issue, the question is
moot. More specifically, on my view of the agency question SRF have suffered
no recoverable loss; so that as regards SRF, what the solicitors did or did not
do was neither here nor there.
41 For the reasons I have given, I would dismiss the appeal.
LORD JUSTICE BROOK:
I agree.
LORD JUSTICE SWINTON THOMAS:
I also agree.
Order: Appeal dismissed with costs; application for leave to
appeal to House of Lords refused.
(Order does not form part of the approved judgment)
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