England and Wales High Court (Technology and Construction Court) Decisions

In the High Court of Justice

Technology and Construction Court

Before: His Honour Judge Hicks QC

Case number: 1996 ORB No 217

Between

Birmingham Midshires Building Society Plaintiff

- and -

J D Wretham First Defendant

(formerly trading as Wrethams)

- and -

A N Pearce Second Defendant

(formerly trading as Wrethams)

- and -

Stapley & Co Third Defendants

(a firm)

Date of Judgment: 30 November 1998

 Limitation. Limitation Act 1980, section 14A. Mortgagee's solicitors' negligence. No requisite knowledge by Plaintiff in relation to matters complained of (substantial misdescriptions of purchase transaction) until a date within the prescribed period before Writ, but earlier knowledge of other matters (failure to warn of demolition order) alleged by the Defendants to show actionable negligence on their part but not sued on by the Plaintiff. Whether criterion of relevance is "facts sued on" or "same cause of action". If the latter, whether the above matters were within the same cause of action. Whether damage flowing from the "demolition order" negligence (i) had been pleaded by the Defendant, (ii) was proved, and (iii) appeared "sufficiently serious" (s.14A(7)) to justify proceedings.

1. The text of the judgment approved by His Honour Judge John Hicks QC is as follows.

2.  Limitation. Limitation Act 1980, section 14A. Mortgagee's solicitors' negligence. No requisite knowledge by Plaintiff in relation to matters complained of (substantial misdescriptions of purchase transaction) until a date within the prescribed period before Writ, but earlier knowledge of other matters (failure to warn of demolition order) alleged by the Defendants to show actionable negligence on their part but not sued on by the Plaintiff. Whether criterion of relevance is "facts sued on" or "same cause of action". If the latter, whether the above matters were within the same cause of action. Whether damage flowing from the "demolition order" negligence (i) had been pleaded by the Defendant, (ii) was proved, and (iii) appeared "sufficiently serious" (s.14A(7)) to justify proceedings.

3. The text of the judgment approved by His Honour Judge John Hicks QC is as follows.

Introduction

1. In 1990 the Third Defendant solicitors acted for the purchaser and for the Plaintiff mortgagee in the purchase and mortgage of a house in Plaistow. The purchaser/borrower defaulted and the Plaintiff sold the house as mortgagee in 1995 at a loss. The Plaintiff sues the Third Defendants in negligence and for breach of trust, its principal complaints (which I shall describe a little more fully later) being that the Third Defendants failed to inform it of material respects within their knowledge in which the borrower's involvement with and purchase of the property differed to the substantial detriment of the security from the information given in the mortgage application, and in that situation parted with the mortgage advance of £70,000 entrusted to them.

2. In their pleadings and in argument before me the Third Defendants have maintained that they were negligent in another respect not complained of by the Plaintiff. The reason for that apparently quixotic stance is that it entitles them, they say, to succeed in an otherwise unsustainable limitation defence, as indeed defendants have done on such grounds in two of the cases cited to me. The question before me is whether they are right.

 The pleadings

3. The Statement of Claim, in addition to the background facts already stated, pleads that the Third Defendants owed tortious and fiduciary duties to the Plaintiff, including a duty to exercise the care, skill and diligence to be expected of a reasonably competent conveyancing solicitor. It alleges that by 8 May 1990 they knew both (i) that the Plaintiff made its offer of advance on the basis that the borrower was to purchase the property for £100,000, that the advance was to be applied exclusively in the purchase and that the borrower was to provide the balance of the purchase price himself, and (ii) that in fact the property had recently been bought by the borrower and another person in equal shares for £44,500, the borrower now intended to buy out his co-owner for £42,000 with part of the advance and the balance of the advance was to be applied for other purposes.

4. Breach of contract, negligence and breach of trust by the Third Defendants are alleged in respects of which the principal heads are failure to inform the Plaintiff of the facts summarised under (ii) above and despite that failure permitting completion, stating in their report on title that the terms of the offer of advance would be fulfilled, the purchase price was £100,000 and they knew of no reason why the advance should not be made, and misapplying the monies advanced.

5. There are claims for an account and for damages for breach of the Third Defendants' tortious and fiduciary (but not contractual) obligations.

6. The Defence admits a duty in tort of due care and skill and that the Third Defendants' relationship with the Plaintiff was fiduciary, puts the allegations of breach and damage in issue and alleges that the causes of action in respect of which the Plaintiff claims relief are time barred under the Limitation Act 1980, having accrued more than six years prior to the issue of the Writ on 28 February 1997.

7. The Amended Reply disavows any claim in contract and in answer to the limitation defence relies on section 14A of the 1980 Act, alleging that the Plaintiff did not have the required knowledge of the facts giving rise to its claim until 28 September 1995, less than three years before the issue of the Writ.

8. The Third Defendants served a Rejoinder asserting that in breach of their own admitted duty of care to the Plaintiff they had failed to advise it that their search of the Register of Local land Charges prior to completion of the mortgage had disclosed that the property was the subject of a demolition order under section 265(i) of the Housing Act 1985, and that the Plaintiff knew of that in April 1991, more than three years before the issue of the Writ. Paragraph 14 reads:

The issue

9. At some date which does not appear from the papers before me it was agreed or directed that there should be a trial of the issue of limitation raised by the Third Defendants, and by Order dated 2 September 1998 directions were given for the service of evidence to be relied upon at that trial, which took place before me on 23 October 1998.

 The facts

10. Although there was no explicit direction or agreement on the point it was, as I understand it, common ground that I should, for the purpose of determining the preliminary issue, assume without deciding the truth of the Plaintiff's pleaded allegations of breach of duty. There was before me an undisputed affidavit by the Plaintiff's solicitor which included a formal verification of those allegations, but I take it that the absence of challenge in that respect was accepted to have been without prejudice to the resolution of such matters, if still in dispute, at the trial of the remaining issues.

11. The remaining evidence went to the allegations in the Amended Reply and the Rejoinder. In addition to the affidavit and its exhibits it included some correspondence. As I understand it any objections to admissibility in respect of any of this material were waived and I was to draw such inferences from it as I saw fit. On that basis I find the facts as follows.

12. In the course of their duties as purchaser's and mortgagees' solicitors the Third Defendants on 19 April 1990 submitted to the local authority, the London Borough of Newham, a requisition for search in the register of local land charges. The official certificate of search was issued by the local authority on 1 May 1990 and reached the Third Defendants in the ordinary course of post before completion of the transactions on 8 May. It showed the following entry as having been registered on 13 June 1988 in Part 3 of the register, which contains planning charges:

13. The Third Defendants did not advise the Plaintiff of that entry or take any steps to have it removed or to investigate its effectiveness, and the purchase and mortgage were completed with the entry still on the register.

14. On 4 April 1991 the local authority wrote to the Plaintiff about the demolition order, but the letter was returned because the relevant file could not be traced and the Plaintiff seems to have asked for the name and address of the borrower and the mortgage account number to enable that to be done. No copy of that letter or the Plaintiff's enquiry was in evidence. On 24 April the local authority wrote again with the borrower's name and added:

7. Section 16 of the 1976 Act entitles a local authority which considers that with a view to to performing a statutory function it ought to have information connected with any land to serve a notice to secure such information on any person who has an interest in that land as (inter alia) mortgagee.

15. The Plaintiff discovered the letter of 24 April 1991 on searching its records in October 1994, but could find no trace of any reply to it or of any further reference to the demolition order until the matter came to light in circumstances to which I shall shortly come. Nevertheless I find that it plainly knew in April 1991, in the sense that all the necessary information was in its possession (whether or not any member of its staff directed his or her mind to the matter), that the demolition order existed. It also knew, in the same sense, that the Third Defendant had not before completion reported the existence of that order or given any advice on the point and it knew, or might reasonably have been expected to have ascertained, that the order had been registered and was discovered or discoverable at the relevant date by the ordinary Local Land Charges search made by purchasers' solicitors before contract.

16. On 15 February 1994 the Plaintiff obtained possession of the property and shortly thereafter offered it for sale. A prospective purchaser was found but that purchaser's solicitors' search disclosed the registration of the demolition order and aftr some correspondence which was not before me they wrote to the Plaintiff on 26 June 1994 to say that they had spoken to the local authority, who had confirmed that the order related to the property, had not been lifted and could be removed only upon a satisfactory inspection by the local authority at the request of the current owners. It appears, although no direct evidence was before me, that such an inspection was requested and took place on 18 August 1994, when the property was found to be "fit under the current legislation", but for some unexplained reason it was not until 2 February 1995 that the local authority wrote to confirm that that was the case and that it would therefore "no longer proceed in enforcing the [demolition] order". The sale by the Plaintiff proceeded to completion on 28 April 1995.

17. Meanwhile the Plaintiff's solicitors for the purpose of that sale had written to the Third Defendants on 16 December 1994 with a copy of the relevant page of the 1990 search certificate, saying that "enormous difficulty" was being experienced and asking for any information which could assist. The Third Defendants then seem to have carried out some urgent researches, which revealed that an appeal had been lodged against the demolition order in the Bow County Court, presumably soon after it was made on 31 May 1988, and that substantial renovations were carried out to the property between 1988 and 1990, making it habitable. The appeal stood adjourned as at 25 October 1989, presumably pending completion of those works, the implication being that it had never been restored. The Third Defendants reported those findings to the Plaintiff's solicitors by letter dated 5 January 1995, adding:

18. The Plaintiff's solicitor's unchallenged affidavit deposes, and I accept, that the piece of information which made the Plaintiff aware of its (pleaded) claim against the Third Defendants was a copy of the transfer of the property dated 8 November 1989 to the borrower and another as tenants in common at the price of £44,500. That copy was obtained by the Plaintiff from the Land Registry on or about 28 September 1995 and until then the Plaintiff had no knowledge that the mortgage transaction was not founded upon a straightforward purchase of the whole property for £100,000 from an independent third party.

The statute

19. Section 14A of the Limitation Act 1980 provides, so far as material, as follows:

(8) The other facts referred to in subsection (6)(b) above are -

(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

(b) the identity of the defendant; and

(c) .... .

(9) ....

(10) For the purposes of this section a person's knowledge includes knowledge which he might reasonably have been expected to acquire -

(a) from facts observable or ascertainable by him; or

(b) .... .

The ambit of the dispute

20. Despite the initial reference in the Statement of Claim to breach of contract it is clear that no claim in contract is raised on the completed pleadings, no doubt because any such claim would unchallengeably be statute-barred.

21. There is a pleaded claim for breach of trust and the Third Defendants' skeleton argument addresses the limitation issues arising in that regard, but at the outset of the hearing before me Mr Sendall, for the Plaintiff, conceded that that claim also is statute-barred. I accepted that concession in so far as it was one of law and therefore not binding on me, and there was accordingly no argument on that issue.

22. The only issue remaining, therefore, is as to the claim in tort. The area of dispute there, moreover, is confined within narrow limits. It follows from my findings of fact, and was indeed the common basis of the submissions on both sides, that:

(1) Section 14A of the 1980 Act applies.

(2) The relevant period is that of three years under subsection (4)(b), not six years under subsection (4)(a).

(3) The Plaintiff did not until within the period of three years before the Writ have the requisite knowledge in respect of the breaches of duty for which it sues.

(4) The Plaintiff did before that period have the requisite knowledge in respect of an actionable breach of duty in relation to the registered demolition order, subject to arguments about whether damage flowing from that breach (i) has been pleaded, (ii) is proved, and (iii) appeared "sufficiently serious" to justify proceedings.

23. The questions which I have to decide are therefore, first, what is the criterion for deciding whether knowledge of such a breach as is referred to in item (4), not sued upon in the current action, is relevant, secondly what is the result of applying that criterion to the facts of this case and thirdly, if they arise, what is the outcome of arguments (i), (ii) and (iii) in item (4).

The criterion

24. The Third Defendants assert that earlier knowledge of a potential claim, not sued upon, can debar the Plaintiff from pursuing the claim on which it does sue, and of which it admittedly did not have the requisite knowledge until well within the relevant period set for the commencement of proceedings. That assertion does not strike me as having any appeal on the merits but if that is indeed the consequence, on its true construction, of section 14A, I accept that effect must be given to it. The question is whether that is the true construction. I confess that at first sight any such construction seems to me, absent authority, to meet the insuperable objection that it is flatly contradictory to the words "relevant to the current action" in subsection (6)(b) and "alleged to constitute negligence" in subsection (8)(a), which plainly direct attention to the facts alleged (which must mean alleged by the plaintiff) in the proceedings.

25. That argument was not, however, advanced by Mr Sendall, no doubt for the reason that it was implicitly rejected by the Court of Appeal in Hamlin & anor v Edwin Evans [1996] PNLR 398. The Court of Appeal there certainly rejected the appellant plaintiff's submission that the relevant knowledge is that of the "particular head of injury ..... of which the plaintiff is for the time being complaining" Pages 406C, 407C). It is true that counsel for the plaintiff is not recorded in the judgment as having relied specifically on the words quoted at the end of paragraph 24 above, but it would have been a very bold step to submit that for that reason a judge of first instance could disregard the decision as having been reached per incuriam, and since the full ramifications of this point did not strike me during the hearing I did not invite argument on it then. As I have concluded that for other reasons the Plaintiff succeeds I do not consider that it would be a justified use of time and money to do so now. I am content, therefore, to assume (probably correctly, but without formally deciding the point) that I am bound by Hamlin & anor v Edwin Evans to hold that knowledge of facts outside those relied upon by the Plaintiff can be material.

26. That, however, is only the negative aspect of the Hamlin decision - the rejection of the plaintiff's criterion. Mr Campbell, for the Third Defendants, also relies on that authority in its positive aspect for the formulation of the criterion which he propounds, namely that knowledge is material if it is of facts which relate to the same cause of action as that on which the current claim is founded. That also has its problematic facets, but since I am for present purposes following Hamlin & anor v Edwin Evans I need not and should not spend time on them. I therefore proceed on the basis that that is the criterion.

Causes of action

27. In Welsh Development Agency v Redpath Dorman Long (1993) 38 Con LR 106 I characterised the question whether there is a new cause of action as one of degree (page 118, paragraph 39), reminded myself that on the authority of Diplock LJ in Letang v Cooper [1965] 1 QB 232 at page 242 a cause of action is "simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another" and expressed the view that the point was largely one of first impression (page 119, paragraph 45). An appeal was dismissed ([1994] 1 WLR 1409, 38 Con LR 122), and although there was no specific comment on these particular passages in the judgment of the Court of Appeal I think I should assume that they were not disapproved.

28. My first impression is that the negligence alleged by the Third Defendants in their Rejoinder gives rise to a different cause of action from that alleged by the Plaintiff in the Statement of Claim.

29. A first impression is by its nature not rationalised, but in this instance it is confirmed by further reflections of which I can give some account. I think it appropriate to do so, and in particular to explain why I do not regard my conclusion as being inconsistent with those reached in the authorities on which Mr Campbell relied.

30. A solicitor acting for a purchaser or mortgagee has a number of duties, which can be categorised in more than one way. One categorisation is by the nature of the defect to be guarded against. It starts with the traditional distinction between title (whether the grantor has shown title to the estate or interest asserted) and conveyance (who must join to grant the estate or interest to be acquired by the client and whether the proposed instrument will be effective to grant it) and adds more recently developed necessities, in particular searches and enquiries as to incumbrances or other detrimental circumstances not ascertainable by investigation of title in the narrow sense. When the same solicitor acts for purchaser and mortgagee there is another, crucial, categorisation between duties owed to both jointly or equally and those which are owed to the mortgagee alone because they concern the fulfilment of the purchaser's obligations to the mortgagee.

31. Under both of these categorisations the two allegations in question are sharply distinguishable. The demolition order was a detrimental matter ascertainable by a standard search of a register not forming part of the title proper, whereas the purchaser's dealings with the property were, vis-a-vis the mortgagee, a matter of title. The sting of the demolition order had to be drawn in the interests of both the purchaser and the mortgagee, whereas the purchaser's dealings with the property were a matter of concern only to the mortgagee.

32. A further significant distinction between the two allegations lies in what the Third Defendants ought to have done. What was required in the case of the demolition order was urgent enquiry as to its provenance and current effect. A mere warning as to its existence, without such enquiry, would have been fatuous. As the enquiries in fact made in 1994/95 showed, that would have elicited information suggesting that there was no insuperable problem. What was required in the case of the borrower's activities, however, was immediate disclosure to the mortgagee which, as the Plaintiff pleads and I for present purposes assume, would have precipitated its withdrawal from the transaction.

33. That brings me to the cases relied upon by the Third Defendants, namely Hamlin & anor v Edwin Evans [1996] PNLR 398, to which I have already referred, and Horbury v Craig Hall & Rutley [1991] EGCS 81. I preface my comments on them by the general reflection that in view of the nature of the question and of the way in which it is to be approached decisions in other cases are likely to be illustrative rather than authoritative. Both cases concerned allegedly negligent surveyors' reports. In each it was held that there was a single cause of action, notwithstanding separate allegations of omissions to refer to distinct defects, discovered at widely different dates. What Mr Campbell urges on me is that here too there was a single report on title, omitting any reference either to the demolition order or to the borrower's activities. (As it happens, that submission fails on the chronology, because the search certificate was issued after the report on title was made, but I am content to address it on principle, as if those events were reversed.) It is true that the contents of the report on title are the subject of one of the ways in which the Plaintiff pleads breach, but that is only one of the ways in which the case is put, and for the reasons explained in the last paragraph above a solicitor who left either of these matters to be dealt with simply by mention in the report on title would already have committed much more material breaches of duty. The situation of a surveyor is quite different. His primary duty may well be simply to include all relevant matters in a written report, and although he may in practice give advance oral warning of particularly important discoveries a finding that there is no breach unless and until material defects are omitted from the formal report is perfectly understandable and in no way incompatible with the impression I have formed in this case.

34. Mr Sendall referred me, by contrast, to Steamship Mutual Underwriting Association Ltd v Trollpe & Colls (City) Ltd (1986) 33 BLR 77, in which defects in different parts of a building were held to give rise to different causes of action in an action against contractors and architects. That is of course consistent with the view I have formed here, but the circumstances were even further removed than those of the survey report cases and I therefore place no reliance upon it for my decision on the facts, although I note that it was the authority for my reference in Welsh Development Agency v Redpath Dorman Long (1993) 38 Con LR 106 to the question as being one of degree.

35. The final consideration which I take into account is that the answer to the question whether there are separate causes of action must, as Mr Campbell concedes, be the same whether it arises on a plea of limitation or of res judicata. It follows that if the Third Defendants are right a plaintiff who had, on the facts of this case, sued promptly for the failure to deal with the demolition order and obtained a judgment or settlement before learning of the matters now complained of would have been estopped from pursuing them. That would be a surprising and disquieting state of affairs.

36. Taking into account these further considerations I find my first impression, as set out in paragraph 28 above, confirmed. The matters relied upon in the Rejoinder are therefore a separate cause of action and knowledge of facts relating to them is to be disregarded for the purposes of section 14A.

Amendment of pleading

37. That suffices to dispose of the issue before me, but in case I am held to have been wrong in my conclusion I shall deal briefly with the further questions identified in paragraph 23 above.

38. Mr Sendall first submitted that the Rejoinder contains no alegation of loss or damage flowing from the neglect there alleged and that there was therefore no plea of tort, since damage is a necessary ingredient of the tort of negligence. Mr Campbell met that objection by an application for leave to amend, which I granted. The amendment was to insert at a suitable point in the Rejoinder the following paragraph:

Was there loss or damage?

39. Mr Sendall's next submission was that there was no such loss or damage in fact. I do not consider that that is right. As always, what must be compared is what happened in the event with what would have happened had there been no breach. What happened was completion subject to the demolition order and its later discovery, with consequential enquiries and correspondence and delay in completion of the Plaintiff's sale. What would have happened, as I find on the balance of probabilities, was that the demolition order would, without expense to the Plaintiff, have been found in 1990, as it was in 1995, to be one which the Local Authority was no longer concerned to enforce and that completion would then have occurred. It might have been a little delayed, but that would not have involved the Plaintiff in any significant loss, certainly not in comparison with that which I infer it must in the event have suffered from the delay in selling the property later. Even if the Plaintiff should have mitigated some of the loss by expediting resolution of the problem that is still sufficient damage to found a cause of action, without asssuming that the Plaintiff incurred additional legal fees in 1994 and 1995, as it may well have done but as to which there was no evidence.

40. Mr Sendall finally submitted that the knowledge relied upon by the Third Defendants was not knowledge of "material facts about the damage" for the purposes of section 14A(6)(a) because the damage was not "sufficiently serious" for the purposes of subsection (7).

41. I have set out the relevant statutory provisions in paragraph 19 above and the relevant facts in paragraphs 16 and 39. In my view the damage was not sufficiently serious to justify the Plaintiff's instituting proceedings for damages against the Third Defendants in 1995. In addition to my own assessment of the position it seems to me to be material that the Plaintiff, a substantial finance-provider with professional advice and no non-commercial motive to hold its hand that I am aware of, chose not to sue, although the conditions at the end of subsection (7) were plainly fulfilled, since there was no realistic prospect that the Third Defendants could have disputed liability and as a firm of solicitors they would be presumed to be able to satisfy a judgment, either themselves or by those insuring or indemnifying them.

42. Had I not found for the Plaintiff on the question whether there was a separate cause of action I should therefore have done so on this ground.

Conclusion

43. For the reasons set out in this judgment I find that the defence of limitation succeeds in relation to the Plaintiff's claims for breach of trust or fiduciary duty but fails in relation to the Plaintiff's claims in tort.