Conveyancing — Solicitors — Undertaking to bank — ‘Good marketable title’ — Meaning of undertaking — Meaning of ‘good marketable title’ — Whether breach of undertaking — Whether qualified or absolute liability
In each of the
cases with which the appeals were concerned, a solicitor in the respondent
firms gave an undertaking in relation to a conveyancing transaction to the
appellant bank. The standard form of undertaking stated, inter alia,
that any sums received from the bank or the bank’s customer will be applied
solely for acquiring a good marketable title to the respective property. In
each case the bank claimed that the solicitor parted with money on completion
of the purchase of the relevant property, but failed to obtain a title to the
property which provided satisfactory security for the bank. In the first action
the property was subject to a right of way which precluded its development; in
the second there were insufficient rights of drainage and other services; and
in the third there had been a failure to obtain consent of one of three
vendors. In each case the bank did not ask the solicitor to provide a report on
title, and the solicitor was not paid for his services. The first and the third
actions were dismissed on the basis that there was no breach of the
undertaking; in the second action a breach of the undertaking was found. The
bank appealed.
given by the judge in the second action were varied in accordance with the
judgment of the court. The undertaking is a contractual undertaking which
sounds in damages. Parting with money otherwise than in accordance with the
undertaking constitutes a breach of a contractual undertaking and a breach of
trust. ‘A good marketable title’ describes the quality of the evidence which
the purchaser is bound to accept as sufficient to discharge the obligation of
the vendor to deduce sufficient title to the property which he has contracted
to sell; it describes the title and not the property. ‘A good marketable title’
refers to the property described in the undertaking, and not to the interest
which the purchaser is acquiring. The property is described in the undertaking
sufficient to identify the transaction; there is no obligation on the solicitor
to set out the full particulars of the property together with the rights with
and subject to which it is being sold in the undertaking. The undertaking is to
be construed as an undertaking not to part with money except for a good
marketable title to the property that is the subject-matter of the transaction
briefly described in the document. The undertaking subjects the solicitor to
qualified obligations only; it is not absolute and liability depends on the
solicitor’s own default.
The following
cases are referred to in this report.
Cato v Thompson (1882) 9 QBD 616
Investors
Compensation Scheme Ltd v West Bromwich Building
Society [1998] 1 WLR 896; [1998] 1 All ER 98, HL
MEPC Ltd v Christian-Edwards [1981] AC 205; [1979] 3 WLR 713; [1979]
3 All ER 752, HL
Pyrke v Waddingham (1853) 10 Hare 1
Reardon
Smith Line Ltd v Yngvar Hansen-Tanger [1976]
1 WLR 989; [1976] 3 All ER 570; [1976] 2 Lloyd’s Rep 621, HL
Spollen
and Long’s Application, In re [1936] 1 Ch 713
Timmins v Moreland Street Property Co Ltd [1958] Ch 110; [1957] 3
WLR 678; [1957] 3 All ER 265
Barclays
Bank plc v Weeks Legg & Dean and others
This was an
appeal by the plaintiff, Barclays Bank plc, from a decision of Mr John Toulmin QC,
sitting as a deputy judge of the Queen’s Bench Division, who had dismissed an
action for damages by the plaintiff against the defendants, Weeks Legg &
Dean, Dudley John Dean, David Howard Barling, Nicholas John Provost Perkins and
Joanna Margaret Ward.
Barclays
Bank plc v Layton Lougher & Co
This was an
appeal by the plaintiff, Barclays Bank plc, from a decision of Judge Hicks QC,
sitting as an official referee, who made certain determinations in an action
for damages by the plaintiff against the defendants, Layton Lougher & Co.
Barclays
Bank plc v NE Hopkin John & Co
This was an
appeal by the plaintiff, Barclays Bank plc, from a decision of Judge Moseley
QC, sitting as a judge of the High Court, who had dismissed an action for
damages by the plaintiff against the defendants, NE Hopkin John & Co.
Simon Berry QC
and Jonathan Nash (instructed by Lovell White Durrant) appeared for the
appellant bank; Mark Hapgood QC and Richard McManus (instructed by Blake
Lapthorn, of Fareham) represented the respondent solicitors.
Simon Berry QC
and Nigel Jones (instructed by Eversheds, of Cardiff) appeared for the
appellant bank; Mark Hapgood QC and Peter Cranfield (instructed by Wansbroughs
Willey Hargrave, of Bristol) represented the respondent solicitors.
Simon Berry QC
and Michael Sullivan (instructed by Eversheds, of Cardiff) appeared for the
appellant bank; Mark Hapgood QC and Teresa Peacocke (instructed by Morgan
Bruce, of Cardiff) represented the respondent solicitors.
Giving the first
judgment, MILLETT LJ said:
These three conjoined appeals concern the proper construction of a standard
form of undertaking given to Barclays Bank plc (the bank) by solicitors to
facilitate the completion of contracts for the purchase of land. The undertaking
is in a form agreed between the Law Society and the banks. It is reproduced in
annex 24H to the Guide to the Professional Conduct of Solicitors and is
in the following terms:
Undertaking
by Solicitor
To send
Deeds/Land Certificate to Bank on completion of a purchase, the Bank and/or the
Customer having provided the purchase monies.
to barclays bank plc
If you provide
facilities to my/our client … for the purchase of the Freehold/Leasehold
property …
I/We
undertake:
(a) that any
sums received from you or your customer for the purpose of this transaction
will be applied solely for acquiring a good marketable title to such property
and in paying any necessary deposit legal costs and disbursements in connection
with such purpose. The purchase price
disbursements is not expected to exceed £ …
(b) after the
property has been acquired by … and all necessary stamping and registration
completed to send the Title Deeds and/or Land Certificates and documents to you
and in the meantime to hold them to your order.
In each of the
cases with which these appeals are concerned, the bank has brought an action
against the solicitor who gave the undertaking (the solicitor) for damages for
breach of the undertaking. In each case the bank claims that the solicitor
parted with the money on completion of the purchase of the relevant property,
but failed to obtain a title to the property which provided satisfactory
security for the bank. In the first action this was because the property was
subject to a right of way which precluded its successful development. The judge
(Mr John Toulmin QC, sitting as a deputy judge of the Queen’s Bench Division)
held that the solicitor was not in breach of the undertaking, and dismissed the
action. In the second action it was because there was no access to the property
and there were insufficient rights of drainage and other services to allow for
its development. The judge (Judge Hicks QC, sitting on official referees’
business) held that the solicitor had committed a breach of the undertaking in
both respects. In the third action the property was owned by three co-owners.
One of them had not consented to the sale and her signature on the conveyance
of sale was forged. The judge (Judge Moseley QC, sitting as a deputy judge of
the Chancery Division) held that the solicitor had applied the money in
accordance with the undertaking even though, through no fault of his own, no
title was obtained, and he dismissed the action.
In reaching their
decisions the three judges adopted radically different approaches to the effect
of the undertaking. In the first action the property was sold subject to the
right of way in question. Mr Toulmin QC held that it was sufficient that the
purchaser had obtained a good title to that which he had contracted to buy.
Distinguishing that decision on the facts in the second action, Judge Hicks QC
held that the undertaking was to be construed without reference to the terms of
the purchase contract. He held that a piece of land which was inaccessible
could not properly be described as ‘marketable’, however good the title to it
might be. He found that the solicitor was negligent in his investigation of
title, but this was not the basis of his decision. He held that the undertaking
imposed an absolute obligation on the solicitor; the only question was whether
a good marketable title was in fact acquired: and it was not. In the third
action Judge Moseley QC refused to follow Judge Hicks in this respect. He said
that this was to confuse purpose with effect, and held that it was sufficient
that the solicitor applied the money for the purpose of acquiring title to the
property even though, through no fault of his own, this purpose was not in the
event achieved.
In each case
the judge was concerned with liability only. As matters stand, pending the
outcome of these appeals, therefore, the first and third actions have been
dismissed, and in the second action liability has been established with a trial
on quantum to follow. In the first and second actions the bank has sought leave
to amend the pleadings to allege breach of a duty on the part of the solicitor
to advise the bank as to the vendor’s title. We refused leave, in the first
action because it was too late, and in the second because it was unnecessary.
Facts
The facts can
be summarised as follows.
First
action
The purchaser
was a property development company and a customer of the bank. It approached
the bank for facilities to assist in the purchase of a development site at 12
Nevill Road, Rottingdean. The site was being offered for sale by public auction
with the benefit of planning permission for a development of five houses with
car parking spaces. The bank agreed, in principle, to finance the purchase to
the extent of an advance of £155,000, to be secured by a first legal charge on
the property. The auction took place on June 23 1987 when the purchaser was the
successful bidder at a price of £200,000.
The special
conditions of sale provided that the land was sold subject to a right of way in
favour of an adjoining owner. The purchaser appears to have been unaware of
this. It is not clear whether the purchaser had taken the trouble to read the
conditions of sale, but the bank evidently had not: the proceedings have been conducted
throughout on the footing that at the date of completion the bank knew nothing
of the subject-matter of the purchase and its own intended security beyond the
address of the property and the fact that its customer was buying it for
development. It is not alleged, and there is no reason to suppose, that the
solicitor was aware of the paucity of the information on the basis of which the
bank was content to make a secured advance to its customer.
On June 24
1987, that is to say the day following the auction, the solicitor was
instructed to act for the purchaser. The date fixed for completion was July 21
1987. The bank spoke to the solicitor for the first time on July 17. Following
this conversation the bank forwarded a form of undertaking to the solicitor
under cover of a letter which stated that the bank had agreed to assist the
purchaser and:
in
consideration, we shall be obliged to receive from you on the enclosed form
your undertaking to hold the title deeds to our order and forward them to us in
due course.
On July 20
1987 the solicitor signed and returned a copy of the undertaking. In the
undertaking the property was briefly described as ‘Nevill Road’ (not ’12 Nevill
Road’) and neither of the alternatives ‘Freehold/Leasehold’ was deleted. The
undertaking did not mention the right of way or any of the other rights subject
to which the property was being acquired; but neither did it state that the
property was free from incumbrances.
The bank
remitted the necessary funds on July 21 1987 and, despite the existence of the
right of way, the purchaser completed its purchase on the following day as it
was contractually bound to do.
Following
completion the purchaser proceeded with the development of the property and
endeavoured to deal with the difficulties caused by the existence of the right
of way by negotiating with the adjoining owner. The bank made substantial
further advances to the purchaser to assist in the development, some (and
perhaps all) of which were made after it had discovered the existence of the
right of way. The development was eventually completed with the co-operation of
the adjoining landowner and the development was completed and sold to him. The
total loss to the bank with interest as at December 20 1995 is estimated to be
some £689,000, all of which the bank seeks to recover in the action.
Second
action
The
purchasers, who were also customers of the bank, approached the bank for
facilities to enable them to purchase and develop unregistered land at
Talygarn. They gave the bank the name of the solicitor who was acting for them,
and the bank forwarded a form of the undertaking to him. The solicitor signed
and returned it on October 19 1988. As in the first action, neither of the
alternatives ‘Freehold/Leasehold’ was deleted and the property was identified
only by its address, viz Talygarn Farm, Pontyclun, Mid Glamorgan. No
reference was made to any rights of way or other rights which were being
acquired with the farm. The undertaking differed from that in the first action
in that it contained a further para (c) in the following terms:
(c) To
register Bank’s charge and obtain Charge certificate
but nothing
turns on this.
Shortly before
signing and returning the undertaking the solicitor had received from the
vendor’s solicitors a draft contract for approval together with copies of the
documents of title. The draft contract provided that the property was sold
subject to the rights and easements and with the benefit of the rights and
easements contained or referred to in a conveyance dated February 16 1977.
The 1977
conveyance referred to a specific right of drainage reserved for the benefit of
the property in an earlier conveyance of August 24 1970, and granted a right of
way at all times and for all
track which abutted the property and thence by means of a lane to the public
highway. The 1970 conveyance had reserved a specific right of drainage along an
identified covered drain and the free passage of water, soil, gas and
electricity through the drains, pipes, wires and sewers then running under
adjoining land. The judge held that these rights had passed to the vendor, but
were limited to the passage of services through the drains, pipes, wires and
sewers existing in 1970. These were sufficient to serve a farmhouse, but not a
substantial residential development.
Contracts were
exchanged on December 12 1988. Their terms did not materially differ from those
of the draft contract. The vendor was, therefore, contracting to sell and
convey the farm together with a right of way over the track and lane leading to
the public highway and the right of drainage reserved by the 1970 conveyance,
but without the benefit of any further easements beyond this. In an exemplary
and painstaking judgment, to which I would like to pay respectful tribute, the
judge found that the vendor had failed to deduce title to the right of way over
the track because he was unable to show that the vendor to the 1977 conveyance
had any title to the servient land. He also found that the solicitor’s failure
to appreciate this and his consequent acceptance of the vendor’s title were
negligent. There is no appeal against these findings.
The judge
distinguished the decision of Mr Toulmin QC in the first action on the ground
that in the case before him the undertaking was given before exchange of
contracts. He held that the undertaking must be construed without reference to
the contract, because when it was signed by the solicitor and received by the
bank there was no binding contract in existence and the bank did not know, and
was never afterwards informed, of the terms, whether of the draft contract or
of the contract as exchanged.
This gave the
judge a problem, since he could not found liability on the solicitor’s failure
to obtain title to the right of way as part of the property contracted to be
sold. He recognised that there was no defect in the title to the land itself,
meaning the property described in the undertaking, but rather an absence of an
appurtenant interest in other land. He overcame this difficulty by holding that
‘in no practical sense is a piece of inaccessible land marketable’. He held
that the absence of adequate easements for services had the same effect as the
lack of a right of access.
Accordingly,
the judge found that the solicitor had committed a breach of the undertaking in
parting with the money on completion. There was also an issue whether the
solicitor had been retained more generally to act for the bank in relation to
the transaction. The judge found that he was not, except for the limited
purpose of registering the bank’s charge and obtaining the charge certificate.
He held that the solicitor had no duty to advise the bank, either generally in
relation to the transaction or the vendor’s title.
Third
action
The bank
agreed to lend money to its customers to enable them to buy a property in
Cardiff. The legal estate in the property was vested in Mr Fahiya, his ex-wife,
Mrs Mohammed, and their son Ibrahim Fahiya. Unknown to Mrs Mohammed, who no
longer resided at the property, Mr Fahiya and his son, together with an unknown
woman impersonating Mrs Mohammed, agreed to sell the property to the purchasers
and instructed a firm of solicitors to act for them. The purchasers instructed
the solicitor, who gave the undertaking to the bank. Although the fact is not
material in this case, it may be observed that (apart from the deletion of the
word ‘Leasehold’) the property was identified in the undertaking in the same
manner as in the other cases; that is to say, merely by its address.
On completion,
the transfer was executed by Mr and Mrs Fahiya and the impostor. It was not
executed by Mrs Mohammed. It was therefore not effective to transfer Mrs
Mohammed’s one-third beneficial interest or the legal estate.
The bank was
made one of the defendants to proceedings brought by Mrs Mohammed to establish
that she was not bound by the transfer. The bank joined the solicitor as third
party. It is these third party proceedings which form the subject-matter of the
appeal.
The bank
alleged that the solicitor was in breach of the undertaking because he had
parted with the completion money and failed to acquire a good marketable title
to the property. The bank did not allege any failure to exercise proper care on
his part in accepting the conveyance executed by the impostor. It appears to
have been common ground that the solicitor was not at fault. He had no means of
verifying Mrs Mohammed’s signature; she was not his client. He would have to
rely on the vendors’ solicitors for this purpose.
Judge Moseley
QC construed the words ‘for acquiring’ in the undertaking as meaning ‘for the
purpose of acquiring’. He held that money could be expended for the purpose of
acquiring a good marketable title to property, even though, in the event, such
a title was not acquired. He accordingly dismissed the action.
Features
common to all three actions
The three
actions have these features in common:
(1) In each
case the bank was lending money to its own customer for a particular
transaction known to the bank.
(2) The
transaction is briefly described in the undertaking.
(3) The extent
of the bank’s knowledge of the transaction was not known to the solicitors.
(4) Except in
the second action, and then only in relation to the registration of its
security, the bank did not instruct the solicitors to act for it in the
transaction.
(5) The bank
did not ask the solicitors to provide a report on title or to advise in
relation to any aspect of the transaction.
(6) The
solicitors were not paid by the bank for their services.
Issues
The issues
raised in these appeals are: (i) the meaning to be attributed to the expression
‘for acquiring a good marketable title to such property’; (ii) whether the
obligation which the solicitors assumed by giving the undertaking is an
absolute or a qualified obligation; and (iii) whether any of the solicitors
undertook a duty to advise the bank, either generally in relation to the
transaction in question or in relation to the vendor’s title. I shall deal with
each of these issues in turn. Before doing so, however, I should say something
about the purpose and function of the undertaking.
Purpose
and function of the undertaking
The
undertaking is in a standard form designed for a common situation. Its effect
in any particular case, however, depends upon the circumstances in which it is
used and the manner in which it is completed. Subject to such variable factors
by which it may be affected, the court should approach its construction with
the situation for which it was designed in mind.
From the
bank’s point of view, the undertaking is intended to facilitate the completion
of a transaction to which its own customer is already committed. Although
capable of being included in a general retainer, it is designed to stand alone
as the only communication passing between the solicitor and the bank. In such a
case the scope of the solicitor’s obligations is determined exclusively by the
terms of the undertaking.
The
undertaking is a contractual undertaking which sounds in damages. It is not a
warranty of title. Although positive in form, it is negative in substance. The
only obligation undertaken by the solicitor is not to part with the money
except in the circumstances prescribed. Although it may be provided at any
stage of the transaction, it is clearly designed to be provided to the lender
on the eve of completion and to become effective only when the completion money
is received.
The function
of the undertaking is to prescribe the terms upon which the solicitor receives
the money remitted by the bank. Such money is trust money which belongs in
equity to the bank, but which the solicitor is authorised to disburse in
accordance with the terms of the undertaking, but not otherwise. Parting with
the money otherwise than in accordance with the undertaking constitutes at one
and the
which the money is held.
Construction
‘A good
marketable title’
The bank
submits that this means ‘a freehold title free from incumbrances’; and that
such a title is better than ‘a good title’ since it must be both ‘good’ (in the
sense of being without blemish) and ‘marketable’ (in the sense of relating to
property which is readily saleable). Both propositions are quite untenable.
They are the product of a growing unfamiliarity with the language which was
once the common currency of conveyancers of unregistered land. They confuse the
subject-matter of the sale (what has the vendor agreed to sell?) with the
vendor’s duty to prove his title to the subject-matter of the sale (has the
vendor sufficiently deduced title to what he has agreed to sell?).
These are two
quite separate questions. They are dealt with separately in Emmett on Title
(19th ed) at para 2-072, where the editors deal with open contracts for the
sale of land as follows:
The following
miscellaneous terms or conditions will be implied where there is no condition
to the contrary:
(a) That the
sale is of an estate in fee simple in possession free from incumbrances …
(b) That the
vendor will show a good title …
The first of
these conditions was in issue in Timmins v Moreland Street Property
Co Ltd [1958] Ch 110, where the court had to consider the effect of a note
or memorandum evidencing the sale of a property described as ‘6, 8 and 41,
Boundary Street, Shoreditch (freehold)’. Jenkins LJ said at p118:
A description
of this kind is to be taken as extending to the whole of the vendor’s interest
in the property, so that the memorandum on the face of it records an agreement
for the sale and purchase of the while of such interest. Moreover, unless the
contrary appears, such interest is to be taken as comprising the fee simple in
possession free from incumbrances, and the purchaser will be entitled to reject
any less interest than that …
The second
condition concerns the obligation of the vendor to deduce a good title to that
which he has contracted to sell. He is not, however, required to show a perfect
title; that is to say, he is not required to produce perfect evidence of his
title. From time to time, therefore, the question arises whether the vendor has
shown a sufficiently good title to the property which he has contracted to
sell: see MEPC Ltd v Christian-Edwards [1981] AC 205, at p220, per
Lord Russell of Killowen. A purchaser is entitled to be satisfied:
that his
vendor is seized of the estate which he is purporting to sell, in this case the
fee simple, and that the vendor … is in a position … without the possibility of
dispute of litigation, [to pass that fee simple] to the purchaser (Re
Stirrup’s Contract [1961] 1 WLR 449, at p454, per Wilberforce J)
Where the
title shown is less than perfect, the question is whether the risk is:
so remote or
so shadowy as to be one to which no serious attention need be paid … the test
must always be, would the court, in an action for specific performance at the
instance of the vendors, force a title containing the alleged defect upon a
reluctant purchaser? (Manning v Turner [1957] 1 WLR 91, at p94, per
Sir Leonard Stone V-C.)
A title which,
though technically defective, is one which the purchaser is bound to accept, is
known as ‘a good marketable title’. The meaning of the expression is well
established. In Pyrke v Waddingham (1853) 10 Hare 1, Turner V-C
said at p8:
The rule
rests upon this, that every purchaser is entitled to require a marketable
title; by which I understand to be meant a title which, so far as its
antecedents are concerned, may at all times, and in all circumstances, be
forced on an unwilling purchaser … and that this is the true rule to be applied
in such cases is, I think, the more apparent from the repeated decisions that
the Court will not compel a purchaser to take a title which will expose him to
litigation or hazard …
In In re
Spollen and Long’s Application [1936] 1 Ch 713 Luxmoore J said at p718:
The purchaser
having bought under an open contract, was entitled to have a good marketable
title, which, as I understand it, is a title which will enable him to sell the
property without the necessity of making special conditions of sale restrictive
of the purchaser’s rights.
The obligation
of a vendor is to deduce sufficient title to the property which he has
contracted to sell. The expression ‘good marketable title’ describes the
quality of the evidence which the purchaser is bound to accept as sufficient to
discharge this obligation. It says nothing about the nature or extent of the
property contracted to be sold to which title must be deduced. The expression
is a compendious one which describes the title and not the property. It is used
in contra-distinction to ‘a good holding title’, by which is meant a title
which a willing purchaser might reasonably be advised to accept, but which the
court would not force on a reluctant purchaser.
‘To such
property’
It follows
from what I have said so far that the expression ‘a good marketable title’
leaves open the question ‘a good marketable title to what?’. Where the
expression is contained in a contract for the sale of land, it must mean ‘to
the property contracted to be sold’. It can have no other meaning. Where the
contract is an open contract, that is to say one which describes the property
in general terms without mentioning whether it is freehold or leasehold and
without stating that it is subject to incumbrances, it means ‘to the fee simple
free from incumbrances’: see Cato v Thompson (1882) 9 QBD 616.
In the present
case it is not contained in a contract for sale or in a communication between
vendor and purchaser, but in a separate document provided by the purchaser’s
solicitor to a third party. The bank submits that the undertaking is to be
construed as free-standing and without reference to the contract of sale. Good
marketable title ‘to such property’, it rightly says, refers to the property
previously described and not to the interest in the property which the
purchaser is acquiring. If the property which is being acquired is subject to a
right of way or other incumbrance, it submits, this should be stated in the
description of the property in the undertaking itself.
In my
judgment, these submissions misconstrue the undertaking and are based on a misunderstanding
of the reason why a description of the property is included in the document.
The description of the property occurs at the outset in the passage which
relates to the provision of facilities:
If you provide
facilities to my client … for the purchase of [description of property]
I undertake
that any sums received from you … for the purpose of this transaction …
What follows
is not a report on title. It is not intended that the bank should rely on the
document to ascertain the nature and extent of the property which its customer
is acquiring. It must already have agreed, at least in principle, to provide
facilities to enable its customer to acquire the property. If it has not
already satisfied itself as to the nature and value of the property in question
and the sufficiency of the security which it will provide, it can do so if it
wishes before it makes facilities available to its customer. It is only when it
remits the money expressly ‘for the purpose of this transaction’ that the
solicitor’s undertaking takes effect.
In my
judgment, the property is described in the undertaking in order to enable the
parties to identify the transaction to which the undertaking relates, not the
property which the purchaser is acquiring. It is not necessary for the full
particulars of the property, together with the rights with and subject to which
it is being sold, to be set out in the undertaking, any more than it is
necessary for them to be set out in the letter under cover of which the bank
later remits the money. It is sufficient in either case that the property is
described in terms sufficient to enable the relevant transaction to be
identified. Far from it being incumbent on the solicitor to set out the full
particulars of the property in the undertaking, it would be most unwise for him
to do so,
sale and those of the undertaking, it would be impossible for the transaction
to be completed. A document intended to facilitate completion would frustrate
it.
Effect of
the undertaking
In my
judgment, therefore, the undertaking is to be construed as an undertaking not
to part with the money except for a good marketable title to the property that
is the subject-matter of the transaction briefly described in the document. The
bank submits that such a construction fails to give it adequate protection. But
this misunderstands the nature of the protection which the bank needs. It needs
an assurance that in return for its money it will obtain the security which it
expects. The value of the security depends on the nature and extent of the
property which is acquired, the value of the property and the bank’s ability to
realise its security by sale if necessary. The first two matters are within its
own control. If it wishes to do so it can call for a copy of the contract (and
of any later variations which may since have been agreed with the vendor) and
commission a valuation before it parts with the money. But the third matter is
not within its control. Its ability to realise its security depends upon it
obtaining a good marketable title, that is to say, a title which, in the event
of a sale, it can compel a reluctant purchaser to accept. Its customer,
however, is likely to be a willing purchaser, and all the more so if he is not
risking his own money. There is a danger that he may instruct the solicitor to
accept the vendor’s title despite the existence of a defect to which he would
be entitled to object. He may be willing to accept a good holding title (or
worse), but even a good holding title would not satisfy the bank’s
requirements. The bank needs an assurance that it will obtain a good marketable
title to the property. This assurance is what is provided by the undertaking.
Absolute
or qualified obligation?
The next
question is whether the obligation which the solicitors assume by giving the
undertaking is absolute or qualified, that is to say, whether they undertake to
be liable if they part with the money without in fact obtaining a good
marketable title to the property, even though this is through no fault of their
own, or whether they undertake to be liable only if such failure is the result
of their own default.
Judge Moseley
QC considered that this depended on whether the expression ‘for acquiring …
title’ meant ‘for the purpose of acquiring … title’. He held that it did, and
that money can be laid out for the purpose of obtaining something, even though,
in the event, that something is not in fact obtained.
I do not think
that this kind of linguistic analysis yields a solution to the problem. I am
disposed to accept the bank’s submission that in the present context the expression
‘for acquiring’ simply means ‘in exchange for’. But, in my opinion, it would
make no difference if it were taken to mean ‘for the purpose of acquiring’, for
the test must be an objective one, and I do not accept the proposition that
money is expended objectively for the purpose of obtaining something if it is
laid out in exchange for a document which is incapable of providing that
something.
In my
judgment, the question turns on what it is that the solicitors undertake to
obtain in exchange for the money. Is it, as the bank submits, ‘what is in fact
a good marketable title?’. Or is it, as the solicitors submit, ‘what reasonably
appears to be a good marketable title?’. The actual words of the undertaking
are obviously capable of either construction.
I was at first
disposed to think that the undertaking should be construed literally, and that
the construction for which the solicitors were contending required too much to
be implied to be accepted. On further reflection, however, I have changed my
mind, though I would substitute the formulation ‘what a reasonably competent
solicitor acting with proper skill and care would accept as a good marketable
title’. My reasons are as follows:
(1) It is
inconceivable that the parties should expect the solicitor to assume a more
onerous obligation to the bank, which is not his client and is not being
charged for his services, than he has assumed towards his own client.
(2) The
undertaking relates to the investigation of the vendor’s title as well as to
the due execution of the conveyance by the vendor. But it is impossible for a
purchaser’s solicitor to give an unqualified guarantee of the vendor’s title.
He is not entitled to call for evidence of the vendor’s title earlier than the
root of title, yet a defect in his title may be discoverable only by examining
the preroot title. If such a defect is discovered before completion, the
purchaser may refuse to complete; but he may well not discover it and complete
in ignorance of its existence. The purchaser’s solicitor should not readily be
assumed to have accepted liability in such circumstances.
(3) Similarly,
the purchaser’s solicitor can take reasonable precautions to ensure that the
legal charge is properly executed by his own client. But it is difficult to see
what steps he can take to ensure that the conveyance to his client is properly
executed by the vendor. He must rely on the vendor’s solicitor for this
purpose.
(4) Given that
the purpose of the undertaking is to prescribe the terms on which the solicitor
is authorised to part with trust money which belongs in equity to the bank, it
is difficult to see why he should assume a more onerous obligation in contract
than he assumes by virtue of the trust. Theoretically, his liability as a
trustee is strict, but in practice it is not, for if he acts honestly and
reasonably and ought to be excused from liability, the court will grant him
relief under section 61 of the Trustee Act 1925. The court has no similar
relieving power in contract; but it is not to be supposed that, by entering
into the undertaking, the solicitor was intending to disentitle himself to such
relief.
In my
judgment, therefore, the undertaking ought to be construed as subjecting the
solicitor to qualified obligations only. This will bring his obligations under
the undertaking into conformity with his obligations to his own client as well
as with his trust obligations to the bank, and will not involve exposing him to
a liability which no solicitor could be properly advised to accept.
Application
to the present actions
It remains to
apply these principles to the three actions in which the present appeals have
been brought.
First
action
There is
nothing in the documentation or surrounding circumstances to render the
ordinary construction of the undertaking inappropriate. The property is
described as ‘Nevill Road’ not ’12 Nevill Road’ and neither of the alternatives
‘Freehold/Leasehold’ has been deleted. It is not possible to construe the
undertaking without reference to the purchase contract.
The
transaction consisted of the sale and purchase of a freehold property subject
to a right of way. The vendor deduced a good marketable title to the property
contracted to be sold. The bank obtained the security which it was entitled to
expect; the solicitor was not in breach of the undertaking; and the judge was
plainly right to dismiss the action.
Second
action
Judge Hicks QC
distinguished the first action on the ground that, at the date when the
undertaking was signed, there was no binding contract of sale in existence. In
my judgment, this was irrelevant. Even if the undertaking fell to be construed
as at the date it was signed, what mattered was the identification of the
transaction to which it referred. This did not depend on whether binding
contracts of sale had been exchanged. The undertaking could be given full
effect by reference to the draft contract in the solicitor’s hands, which was
afterwards approved without material alteration.
It is not,
therefore, strictly necessary to decide whether the undertaking falls to be
construed as at the date it is signed, but I doubt that this reflects the true
position. I am strongly inclined to think that, whenever signed, it speaks as
from the date the completion money is received. Where necessary, the
solicitor’s authority to make an earlier
The relevant
transaction was the sale of a property with the benefit of a right of way to
which the vendor was unable to make title. In this respect the bank did not
obtain the security which it was entitled to expect. The judge made the
necessary finding that this was because the solicitor did not investigate the
title with proper skill and care; he was therefore in breach of his qualified
undertaking; and to this extent liability has been established.
The vendor
did, however, show a good title to the easements for services mentioned in the
contract of sale. The fact that these were inadequate to enable the property to
be successfully developed did not put the vendor in breach of the contract of
sale or the solicitor in breach of his undertaking. The judge treated the word
‘marketable’ as qualifying the property and not merely the title. In this
respect the judge fell into error.
Third
action
The judge
found that the solicitor’s failure to obtain a properly executed conveyance was
not due to any want of skill and care on his part. Although the bank did not
obtain the security which it was entitled to expect, this was not the fault of
the solicitor. The bank failed to establish liability, and the judge was right
to dismiss the action.
Liberty to
amend the proceedings
In the first
action the bank applied to us for leave to amend the proceedings in order to
allege a duty on the part of the solicitor to advise the bank in relation to
the title offered. We refused leave on the ground that it was impossible to
derive such a duty from the terms of the undertaking itself; that it would be
necessary to establish the existence of such a duty by further evidence; and
that it was far too late to allow an amendment which could succeed only on the
basis of fresh evidence.
In the second
action Judge Hicks QC refused to allow a similar amendment, and the bank
appealed to us from his refusal. We dismissed the appeal on the ground that no
amendment was necessary. The issue was properly raised before the judge and was
decided by him on the evidence. His conclusion that there was no such duty was
one to which he was entitled to come; indeed, we are satisfied that he was
plainly right.
Conclusion
The appeals in
the first and third actions must be dismissed. Where necessary the answers
given by the judge in the second action should be varied to accord with this
judgment.
Agreeing, PILL LJ said: The undertaking is in
a standard form agreed between Barclays Bank plc (the bank) and the Law
Society. It is in general use. It is for use when a customer of the bank
intends to purchase property with the help of money lent to him by the bank
upon the security of the property to be purchased. If the customer has a
solicitor, the duties of the solicitor to his client are likely to include upon
completion the payment of the purchase price to the vendor or his solicitors.
They will also include obtaining from the vendor or his solicitors the
appropriate title deeds or land certificate. The bank will know that it is the
solicitor who performs these tasks. The bank can be expected to protect itself
by ensuring that the money they have lent is applied for, and only for, the
purpose of the transaction they are financing, and that the title deeds or land
certificate are passed to them. It is not surprising that they seek such
protection. They obtain it by way of an undertaking from their customer’s
solicitor, which can be relied upon because of solicitors’ professional
standards and, if necessary, recourse to the Law Society.
It is common
ground that solicitors do not charge for giving the undertaking in the standard
form. They give it as a part of the service to their client.
It is also
common ground that the bank sometimes obtains a report on title with respect to
the property. They may also obtain a valuation. For the first of those purposes
they instruct a solicitor and for the second a valuer, in each case for a fee.
By giving them assurances as to title and as to value, such reports will
protect them against an improvident transaction by their customer, which could
put their money at risk.
What the bank
seeks to do in the present cases is to construe a document headed ‘Undertaking
by Solicitor to send Deed/Land Certificate to the Bank on completion of a
purchase, the Bank and/or its customer having provided the purchase money’ as a
guarantee by the solicitor that he will pay the money to the vendor only in
return for a good marketable title. By means of the undertaking, they claim a
guarantee from the solicitor that its customer will obtain a good marketable
title.
In construing
this standard form contract between the bank and solicitor, it is important to
keep in mind the statement of Lord Wilberforce in Reardon Smith Line Ltd
v Yngvar Hansen-Tanger [1976] 1 WLR 989 at p996. Lord Wilberforce
stated:
In a
commercial contract it is certainly right that the court should know the
commercial purpose of the contract and this in turn presupposes knowledge of
the genesis of the transaction, the background, the context, the market in
which the parties are operating.
In Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1
All ER 98, Lord Hoffmann referred to the effect of the speech of Lord
Wilberforce in Reardon Smith Line, and stated as the first of several
principles as to how contractual documents should be construed at p114g:
Interpretation
is the ascertainment of the meaning which the document would convey to a
reasonable person having all the background knowledge which would reasonably
have been available to the parties in the situation in which they were at the
time of the contract.
On behalf of
the bank, it is submitted that to receive assurance as to title the bank can go
as well by what counsel described as the ‘undertaking’ route as by the ‘report
on title’ route. Upon the construction of the undertaking which they advocate,
they obtain as good if not better protection by this form of undertaking than
they do by obtaining a report on title, which instruction would impose the duty
to take reasonable care upon a solicitor providing it.
I regard it as
inconceivable that a document for general use, which has obvious and sensible
purposes in a property transaction, can have been intended by the parties to
provide the bank with a guarantee as to title and put the solicitor in the
position of the bank’s insurer for the purposes of title. In context, and for
the reasons given by Millett LJ, I agree that the words ‘good marketable title’
in the undertaking must be qualified in the manner proposed by Millett LJ. In
the circumstances, that qualification must be implied. The undertaking must be
read as achieving objectives in the course of a property transaction, which are
important but limited in that way.
It was
conceded on behalf of the bank that a qualification not expressed in the
standard form must, on the bank’s view of the document, be implied. That is the
qualification that the undertaking does not cover defects in title of which the
bank was aware. The bank accepts that, in the event of a defective title, it
could not enforce the undertaking against a solicitor who could establish that
the bank was aware of the defect. That is a concession rightly made, because an
agreement under which the bank could obtain damages for a defect of which they
are aware would be repugnant to business morality and sense.
I cannot
accept that the extent of the implication should be limited to that conceded by
the bank. The liability of the solicitor would depend on the conduct and
knowledge of the bank of which the solicitor could not be expected to be aware,
and the bank, could achieve a guarantee as to title upon the undertaking by declining
to ask for or even receive information as to title offered to it. The bank
would have every incentive not to receive information as to title which might
be readily available to it. I cannot accept that the parties intended to create
such a situation.
It is,
however, common ground that it is necessary to imply some words additional to
those of the undertaking to give it business efficacy. Once the inadequacy of
the wording is exposed, it is easier to construe it so as to reflect what, I am
in no doubt, was the intention of the parties, that is to impose a duty to take
reasonable care as to title before departing with the money, but not to make
the solicitor the bank’s insurer.
Judge Moseley
QC, in the Hopkin John case, has attempted to achieve the same result by
reading an additional ‘for the purpose of’ into the wording of the undertaking.
He arrived at the correct result in that case, in my view, but I prefer to
achieve it by implying a term to reflect the intentions of the parties rather
than by adding words and construing them literally.
I agree with
the orders proposed by Millett LJ.
MAY LJ also
agreed and did not add anything.
In the first
action: application for leave to amend and appeal dismissed with costs.
In the second
action: the answers given by the judge to question 12(ii) and 12(iv) will be
answered ‘yes’. Application for leave to appeal dismissed. Costs order in
favour of the bank below unaltered. No order for costs on the appeal.
In the third
action: appeal dismissed with costs.
Leave to
appeal to the House of Lords in all three actions refused.
