Defendant solicitor acting for both claimant lender and borrower – Borrower falsely stating that he intended to use property as personal residence – Solicitor proceeding on negligent but honest assumption that claimant had consented to letting of property – Whether solicitor in breach of fiduciary duty – Whether claimant able to rely on sections 32 or 14A of the Limitation Act 1980
In 1989 the defendant firm was instructed to act for the claimant building society in a mortgage transaction in which it also acted for the borrower, a Nigerian doctor, who sought an advance of £118,000 towards his intended purchase of a flat for £130,000. In his loan application the borrower had described the purpose as “home purchase” and had written “Yes” where required to state whether he would use the property wholly for residential purposes. The partner, RH, who attended to the matter, had known the borrower for two years and was aware that he spent most of his time in Nigeria. Under the terms of its retainer, the defendant was required, inter alia, to ensure that the borrower intended personally to reside in the property and to report immediately any discrepancy between the actual transaction and the terms of the mortgage offer, which included a restriction on letting without the claimant’s consent. In correspondence with the borrower, RH explained various financial details but made no mention of the restriction or the personal residence requirement. Completion took place on 5 January 1990 after RH, in a report on title dated 20 December 1989, had confirmed that all the conditions of the claimant’s offer would be complied with.
From the outset, the borrower defaulted with his instalment payments. By letter dated 30 October 1990 the defendant informed the claimant’s solicitors that the problem had arisen from a failure by the borrower’s agents to credit the borrower with “rents they had received”. Over the following 12 months the claimant and its solicitors learned from the borrower and others that the borrower was resident in Nigeria and was seeking to fund the mortgage debt from rental income. Despite subsequent payments, arrears continued to mount. On 10 January 1995 the claimant obtained possession of the flat, which it sold four months later for £65,000.
In November 1996 RH, responding to the claimant’s request, furnished the claimant with his file on the borrower. On 20 March 1998 the claimant issued proceedings against the defendant alleging breach of fiduciary duty, breach of contract and negligence. The first allegation was contested. The defendant admitted negligence and breach of contract, but maintained that, because each cause of action had accrued on completion of the conveyance (some eight years before the issue of the writ), the claims were statute-barred. On the latter issue, the claimant contended that: (i) the start of the limitation period should be deferred, under section 32 of the Limitation Act 1980, by reason of the claimant’s belated discovery of facts that had been deliberately concealed by the defendant; and/or (ii) the period should be extended, under section 14A of the Act, for a period of three years running from the calling-in of the file, as that was the earliest date on which it acquired the knowledge necessary for bringing an action for damages against the defendant.
In the course of his judgment, the judge found as a fact that RH had proceeded throughout in the honest belief that the borrower had obtained the claimant’s consent to letting the flat.
Held: The claim was dismissed.
1. In the light of the assumption honestly, albeit foolishly, made by RH, the claimant had failed to establish breach of fiduciary duty, which required proof that the defendant had intentionally preferred the interests of the borrower to the prejudice of the lender: see, generally, Bristol & West Building Society v Mothew [1998] Ch 1 and Nationwide Building Society v Balmore Radmore [1999] EGCS 15; [1999] PLSCS 23.
2. By making the same assumption, RH necessarily considered that there was nothing to conceal. Accordingly, there was no case for deferring the start of the limitation period under section 32 of the Act.
3. In order to rely on section 14A, the claimant had to show that only upon receipt of the file had it acquired knowledge of such facts about the damage as, in the language of the section, “would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings…”. However, it was plain from the early correspondence that the claimant had come into possession of all the relevant facts as early as May 1991, it being immaterial that these had come to the attention of arrears staff, rather than those who decided whether or not to sue. Accordingly, the section did not assist the claimant: Nash v Eli Lilley & Co [1993] 1 WLR 782; Forbes v Wandsworth Health Authority [1997] QB 402 considered.
Hugh Jackson (instructed by Eversheds, of Cardiff) appeared for the claimant; Ian Ridd (instructed by Barlow Lyde & Gilbert) appeared for the defendant.
Alan Cooklin, barrister
