Negligence — Solicitors — Mortgage loan — Duty of care — Summary judgment — Solicitors acting for lender in shared ownership scheme — Whether solicitors failed to obtain written approval to mortgagee protection clauses — Whether solicitors have triable defence
The plaintiff,
Halifax, engaged the defendant solicitors to act on its behalf as prospective
mortgagee of ‘shared ownership leases’ granted to lessees by housing
associations. The housing association’s form of shared ownership lease included
a mortgagee protection clause (MPC), providing a lender security in respect of
its loans if both the lender and the terms of the mortgage had been approved by
the housing association in writing prior to the mortgage. Under the clause, the
lender could recover outstanding moneys out of the net proceeds of sale
including out of that part referable to the lessor’s share of the property.
Halifax’s instructions to the solicitors expressly required them to obtain the
approval but none did so. This omission was discovered by Halifax when the
mortgagors defaulted and Halifax sought to enforce the MPC against the housing
associations, each of whom challenged the action on the ground that prior
written approval to Halifax, as mortgagee, or to the terms of the mortgage had
not been given. Halifax accepted that contention and commenced an action in
negligence against the solicitors for failing to obtain the approval of the
housing associations before committing them into the respective mortgages.
Halifax obtained summary judgment on its claims against the solicitors in
negligence. The solicitors appealed against that decision contending, inter
alia, that approval to the MPC had been given and that there was a triable
case.
admission of fresh evidence, notwithstanding that it could have been obtained
and put before the court below. There was a triable issue as to whether it was
within the solicitor’s retainer that they should concern themselves with the
relations between Halifax and the housing associations. On the evidence
available, the solicitors have an arguable defence on the merits of the
‘tripartite factual matrix’ (‘the tripartite relationship’ of housing
association, lessee and Halifax) of the transaction, the absence of written
approvals was not fatal to the activation of the MPC on assignment of the lease
to Halifax. The solicitors’ evidence in the court below, and now supplemented
by fresh evidence, shows that the solicitors’ pursuit of a trial of the issue
as to the true agreement or understanding between Halifax and the housing
associations is not one that was ‘all surmise and Micawberism’. The evidence
showed a triable defence on the issue of causation, turning on what Halifax or
the housing associations would have said or done if the solicitors had raised the
matter of approvals with either of them at the time.
The following
cases are referred to in this report.
Amalgamated
Investment & Property Co Ltd v Texas
Commerce International Bank Ltd [1982] QB 84; [1981] 3 WLR 565; [1981] 3
All ER 577; [1982] 1 Lloyd’s Rep 27, CA
Bown v Gould & Swayne [1996] PNLR 130
Carradine
Properties Ltd v DJ Freeman & Co (1989)
5 Const LJ 267, CA
Investors
Compensation Scheme Ltd v West Bromwich Building
Society (1977) CLC 1243
Ladd v Marshall [1954] 1 WLR 1489; [1954] 3 All ER 745, CA
Langdale v Danby [1982] 1 WLR 1123; [1982] 3 All ER 129, HL
Liverpool
City Council v Irwin [1977] AC 239; [1976] 2
WLR 562; [1976] 2 All ER 39; (1976) 74 LGR 392; [1976] 1 EGLR 53; [1976] EGD
282; 238 EG 879, HL
London
& South of England Building Society v Stone
[1983] 1 WLR 1242; [1983] 3 All ER 105; [1983] 2 EGLR 131; [1983] EGD 921;
(1983) 267 EG 69
Midland
Bank Trust Co Ltd v Hett, Stubbs & Kemp
[1979] Ch 384; [1978] 3 WLR 167; [1978] 3 All ER 571
National
Home Loans Corporation plc v Giffen Couch &
Archer [1998] 1 WLR 207; [1997] 3 All ER 808, CA
Pilkington v Wood [1953] Ch 770; [1953] 3 WLR 522; [1953] 2 All ER 810
Reeves v Thrings & Long [1996] PNLR 265
Saif Ali v Sydney Mitchell & Co [1980] AC 198; [1978] 3 WLR 849;
[1978] 3 All ER 1033, HL
Scottish
Power plc v Britoil (Exploration) Ltd
unreported November 18 1997, CA
Tennant
(Lady Anne) v Associated Newspapers Group Ltd
[1979] FSR 298
Weller v Dunbar unreported January 27 1984, CA
Williams v Attridge unreported July 8 1997, CA
This was an
appeal by the defendants, Gould & Swayne and others, against the order of
Parker J granting the plaintiff, Halifax plc, summary judgment on its claim
against the defendants for damages.
Rupert Jackson
QC and Sue Carr (instructed by Wansboroughs Willey Hargrave) appeared on behalf
of the appellant; Anthony Mann QC and Derek Holwill (instructed by Hammond
Suddards, of Leeds) represented the respondents.
Giving the
first judgment, AULD LJ
said: This is an appeal, by leave of this court (Evans and Mantell LJJ), of the
four defendants (the solicitors) against an order of Parker J of June 27 1997
granting the plaintiff (Halifax) summary judgment on its claim against each of
them in negligence.
Halifax’s
claims, which are typical of many others that it has made against other
solicitors, arise out of its engagement from 1989 to 1991 of the solicitors to
act on its behalf as prospective mortgagee of ‘shared ownership leases’ granted
to lessees by housing associations. A shared ownership lease is a form of
hybrid tenure introduced by the Housing Act 1980. It is the grant of a ‘share’
in a lease in a property for a premium less than its initial market value and
the payment of rent proportionate to the balance of that value not covered by
the premium. Typically, the lease contains ‘staircasing’ provisions enabling
the lessee later to increase his ‘share’ in the lease up to 100% by paying
further capital sums and securing proportionate reductions in his rent down to
the payment of only a peppercorn rent.
Such a
transaction was of particular interest to housing associations and first-time
buyers, who respectively sought to market and acquire homes at the lower end of
the market. It was good business for the former and enabled the latter to make
a start on the housing ladder with little capital. It was also good business
for building societies to lend money for the purpose against the security of
the leases. However, given the incompleteness of the lessees’ ownership of
their leases, at least in the early years, it was important to building
societies properly to secure their interests. In the main, this could be done
in one of two ways:
1. by the
building society entering into a mortgage insurance guarantee policy (MIG) to
protect it against default by the lessee under the mortgage, an additional
expense to would-be lessees of slender means and thus an impediment to
marketing properties under shared ownership schemes; or
2. by
inserting in the lease a mortgagee protection clause (MPC), under which the
lessee assigned to the mortgagee the benefit of the ‘staircasing provisions’,
thus enabling the mortgagee in the event of the lessee’s default under the
mortgage to secure its position by acquiring the full equity in the property on
payment to the lessor of the value of its retained proportion of the equity,
and selling it in the open market for full value.
The MPC seems
to have been the favoured approach of many marketing and financing shared
ownership schemes. It involved no additional initial cost to would-be lessees and,
if properly drawn and incorporated in the leases, gave mortgagees reasonable
security. In outline, it enabled a building society, in the event of default of
the lessee under the mortgage, to ‘staircase’ as assignee of the lease at a
reduced price to the 100% required for its sale of the property, so as to
enable it to recover, subject to certain conditions and limits, the moneys due
to it under the mortgage and its costs in realizing the security. Put another
way, it enabled the building society to recover such outstanding moneys out of
the net proceeds of sale, including out of that part referable to the lessor’s
retained share of the property.
The Housing
Corporation, the body established by the government to administer the funding
of housing associations and to supervise and guide them, produced a model form
of shared ownership lease containing a MPC after consulting the Building
Societies Association, major housing associations and leading lenders including
Halifax. The four leases in this case, and in most of the other similar claims
of Halifax, are in that model form.
The MPC in
each lease provided that Halifax could rely on it to enforce its security for
the principal and up to one year’s unpaid interest due under the mortgage if it
(Halifax) and the terms of the mortgage had been approved by the housing
association in writing prior to the mortgage. The material words in the
somewhat complicated provision are at its start:
If a
mortgagee of the Leaseholder (who shall have been approved and terms of the
mortgage to such mortgagee shall have been approved in writing prior to the
Mortgage) exercises the right to purchase a new lease of the premises …
Halifax’s case
is that the solicitors whom it instructed in writing ‘to act for … [it] in the
transaction’, negligently failed, before committing it to the mortgage, to
secure the written approval of the respective housing associations to it as
mortgagee or to its terms. It maintains that it discovered the failures when,
following defaults under the mortgages by the lessees, it sought to rely on the
MPC against the housing associations, each of whom challenged its entitlement
to do so on the ground that it had not given prior written approval to it as
mortgagee or to the terms of the mortgage. Each maintained that Halifax had
thereby failed to comply with a condition precedent to the operation of the MPC
and, therefore, was not entitled as assignee of the lease to recover any of the
outstanding mortgage moneys out of the housing association’s retained share of the
property.
Halifax
accepted that stance, leaving each housing association with its full share of
the sale proceeds and itself out of pocket to a greater extent than otherwise
would have been the case.
Each of the
firms of solicitors has served a defence. Their case in the broadest outline is
that, although there was no individual written approval of Halifax and/or of
the terms of the mortgage in any of the four cases, the evidence before Parker
J, supplemented by the fresh evidence admitted by this court, shows that the
housing associations had in fact approved Halifax as mortgagee and the terms of
the mortgages. Alternatively, they maintain that Halifax and the housing
associations had proceeded throughout on the basis that they had so approved.
In all four
cases Halifax gave its standard form of written instruction to the solicitors.
So far as material, it read:
Mortgage
Instructions
The Society
has made a mortgage offer as shown below. Please act for the Society in the
transaction …
Special
Conditions
…
2. The
advance is offered under a Shared Ownership Scheme approved by the Society and
the applicants are to purchase … % of the market value of the property.
The Option or
Options in the lease of the property are to be assigned to the Society … .
Points To Note
…
5. Title
deeds and documents will not be examined by the Society which will only
check that the title deeds and documents listed on the Schedule of Documents
have been sent.
For the
purpose of this appeal it is accepted that in one, and arguably in two other,
of the four transactions in issue, Halifax also sent to the solicitors
‘Guidance Notes’, including the following passage and a copy of a specimen MPC
with which the MPC featuring in each of the four corresponded:
Mortgagee
Protection Clause
If the
landlord is a housing association registered with the Housing Corporation the
lease must incorporate what is commonly known as the ‘mortgage protection
clause’. Enclosed is a specimen of such a clause for use in connection with a
house and a flat which is acceptable to the Society …
However, it is
common ground that the provision of such guidance notes where it occurred is
not a material distinction, since the presence in the draft lease of the MPC
and its effect were evident to the solicitors in each of the four cases. As
Parker J observed, in all material respects each case raises the same issues.
Halifax did
not expressly instruct the solicitors to obtain written approval from the
respective housing associations of it as mortgagee or of the terms of the
mortgage before completing the transaction, and none of them did so. In each
case: there is no evidence that any of the housing associations did give the
required approvals; Halifax, in due course, had occasion to enforce its
security and sell the property; the lessee’s indebtedness under the mortgage
exceeded the net proceeds of sale referable to his interest in it, but the
housing association, relying on the absence of its prior written approval to
Halifax as mortgagee and the terms of the MPC in the lease, required it to
account to it for
I have said, Halifax agreed with that stance and sought to recover its losses
by suing the solicitors in, inter alia, negligence and breach of
contract for their alleged failure to secure for it the benefit of the MPC.
There are five
main issues before the court on the question of whether in each of the four
claims Parker J properly ordered summary judgment:
1. whether the
solicitors were negligent in failing either to obtain the written approvals of
the housing association to Halifax as mortgagee and to the terms of the
mortgage or to alert Halifax to the need for such approvals;
2. whether, as
a matter of construction of the MPC, Halifax was entitled to enforce the MPC
against the housing association;
3. whether, if
the solicitors were negligent, it caused damage to Halifax;
4. whether, if
the solicitors, by their negligence, caused damage to Halifax, it should have
mitigated its damage by litigation if necessary, against the housing
association to estop it from relying on the strict wording of the MPC; and
5. whether, if
the solicitors, by their negligence, caused damage to Halifax, it contributed
negligently to the damage.
The question
for Parker J and for this court is whether, in the words of RSC Ord 14, r 3(1)
the solicitors have shown ‘there is an issue or question in dispute which ought
to be tried’ — a triable issue. By their respective defences, supported by
affidavit evidence, supplemented as I have indicated for the purpose of this
appeal, the solicitors maintain that it is sufficient before the court to show
a number of triable issues. They refer to the probability of more supporting
evidence if a trial is permitted. As to that, I guard against ‘surmise and
Micawberism’, as counselled by Megarry V-C in Lady Anne Tennant v Associated
Newspapers Group Ltd [1979] FSR 298.
Before I turn
to each of the issues, I should say something about the fresh evidence of the
solicitors on the hearing of the appeal. The court gave them leave to adduce
such evidence. It was arguably relevant to each of the first four issues. It
went to the solicitors’ argument that the background to Halifax’s instructions
to them was that it and the housing associations, by their general dealing and
obvious readiness to act with one another in these transactions, had dispensed
with the need for approval in each case and/or that the housing associations
had waived their entitlement to rely on any non-compliance with the approval
requirements in each MPC or were estopped from doing so.
The evidence
before Parker J, though sketchy and indirect, prompted him to say when dealing
with the issue of causation at p12E–F of the transcript of his judgment:
the
background material placed in evidence by the defendants … establishes beyond a
peradventure that written approval would have been forthcoming.
The fresh
evidence was to like effect, but stronger and more direct. It consisted of
material showing that each of the four housing associations and another, also a
housing association, had liaised closely with Halifax in promoting the
developments in question and in the use of standard leases containing the MPC.
In all four cases it showed or suggested that the housing associations had made
arrangements to direct potential lessees to Halifax for the purpose of
obtaining mortgage finance. In one, it indicated that the properties were being
marketed on behalf of the housing association ‘[i]n [a]ssociation with Halifax
… ‘ and would not require MIG premiums, a clear indication, observed Mr Rupert
Jackson QC, on behalf of the solicitors, that the housing association knew and
agreed that Halifax would rely on the MPC in each lease. In short, the evidence
suggested that the shared ownership schemes were marketed by the housing
associations in varying degrees as something of a ‘package deal’ between them
and the Halifax.
Although the
solicitors’ representatives could have obtained this additional material for
the purpose of the hearing before Parker J, they did not do so because they had
been of the view that they already had sufficient to demonstrate that the
solicitors had a triable defence on the issue of waiver by and/or estoppel of
the housing associations. This Court took the view that, although in Langdale
v Danby [1982] 1 WLR 1123 at p1133B–F the House of Lords held that the Ladd
v Marshall* principles, applied, albeit somewhat less rigorously, to an
appeal from a summary judgment as they do to an appeal from judgment after a
full trial, the interest of justice required the admission of the fresh
material into evidence. There are decisions of this Court illustrating its
readiness in appeals from summary judgment, and other orders in proceedings not
amounting to a trial on the merits, to admit evidence regardless of lack of
compliance with the Ladd v Marshall test of reasonable diligence.
See eg Weller v Dunbar, CA, unreported January 27 1984 (Stephenson
and Dunn LJJ); and Williams v Attridge, CA, unreported July 8
1997, (Potter and Brooke LJJ).
*Editor’s
note: Reported at [1954] 1 WLR 1489
Our view was
that the interest of justice required the admission of this evidence
notwithstanding that it could have been obtained and put before Parker J
Halifax has given no discovery on the matter. As a result, the solicitors’
representatives had gone to some trouble to obtain and put before him evidence
in support of a defence of waiver and estoppel available to Halifax in response
to the housing associations’ denial to them of the benefit of the MPC. It was
not enough to satisfy him that there was a triable issue, and he observed that
it was speculative as to what, if any, further evidence might become available
if discovery were to take place and the matter were to proceed to trial in the
ordinary way. In the light of that observation, and deprived for the time being
of the avenue of discovery for testing the matter, they redoubled their
inquiries with the result that they are now able to put forward further and
stronger evidence to the same end. It is potentially important evidence,
particularly on the issues of causation and mitigation of damages, but also
possibly on the questions of the ambit of the retainer and construction of the
MPC.
Nature and
scope of the duty of care
The first and
central issue is the nature and extent of the solicitors’ duty to Halifax.
Parker J held that Halifax’s instructions to them ‘to act for … [it] in the
transaction’ imposed on them a plain duty to ensure that it obtained a valid
and effective security. Such security, he said, included the benefit of the MPC
either by the solicitors obtaining the approvals themselves or by alerting
Halifax to the need for them, and that, by failing to do either, the solicitors
were plainly in breach.
Mr Jackson and
Miss Sue Carr submitted that the judge was wrong to find such a plain duty
since, in the circumstances of the instructions and the proposed transactions,
it did not fall within the scope of Halifax’s retainer of the solicitors. They
observed that a solicitor has no general duty to proffer helpful advice,
especially where the client is experienced in the field of activity under consideration.
They referred to a passage in the judgment of Oliver J in Midland Bank Trust
Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384, at pp402H–403E,
including the following words at p402H:
The extent of
… [a solicitor’s] duties depends upon the terms and limits of … [his] retainer
and any duty of care to be implied must be related to what he is instructed to
do.
They cited as
further examples of this basic proposition Carradine Properties Ltd v DJ
Freeman & Co (1989) 5 Const LJ 267, CA, and Reeves v Thrings
& Long [1996] PNLR 265, CA. They stressed the need to keep in mind the
boundary, often not easily drawn, between an error of judgment that a
reasonably well informed and competent member of a profession might have made
and negligent conduct; see Saif Ali v Sydney Mitchell & Co
[1980] AC 198, HL, per Lord Diplock at pp218E and 220D. They argued that
the circumstances before Parker J were simply insufficient to enable him to
properly conclude that Halifax had established as a matter of construction of
the retainer and as a matter of breach of duty that no reasonably well informed
and competent solicitors would have acted as these solicitors did.
Mr Jackson
emphasised that Halifax did not expressly instruct the solicitors to seek the
written approvals. He submitted that there was no
benefit of the MPC was not essential to the validity and effectiveness of
Halifax’s security and, therefore, the solicitors had no duty to obtain
approvals for it; (2) Halifax gave detailed express instructions on many other
matters, supplemented in three cases in the guidance notes, but not on this;
and (3) Halifax was, as the solicitors well knew, a sophisticated lender with
experience of shared ownership schemes, the instant ones, which, according to
its instructions to them, it had approved and for which they might well have
reasonably believed it had already obtained general approval from the housing
associations. He cited the leading authority of Liverpool City Council v
Irwin [1977] AC 239*, HL; and Carradine, per Donaldson LJ
at p813D; and National Home Loans Corporation plc v Giffen Couch
& Archer [1997] 3 All ER 808, CA.
*Editor’s
note: Also reported at [1976] 1 EGLR53; (1976) 238 EG 879
Mr Jackson
also sought to rely under this head on all the material now before the court
and on as yet undiscovered material that might, if the action were to proceed,
indicate that Halifax had in discussions with the Housing Corporation and/or
various housing associations, considered and proceeded upon the basis of
general approvals from the housing associations involved with it in shared
leasing schemes. He relied, in particular, on evidence showing that Halifax had
at least discussed such a possibility in February 1989 (that is, before any of
the four transactions in issue) with representatives of the Building Societies
Association and the Housing Corporation. In short, he argued that the evidence,
when fully deployed and examined at a full trial on the merits, could well show
that the parties proceeded upon a common assumption that Halifax already had the
necessary approvals in all four cases.
Mr Anthony
Mann, QC, for Halifax, referred to its basic instruction to the solicitors ‘to
act in the [mortgage] transaction’. He submitted that if they had been
competent they would have known, by a simple reading of the draft lease, that
Halifax required for that purpose the benefit of the MPC. He relied on the
words of Peter Gibson LJ, with whom Leggatt and Hobhouse LJJ agreed, in National
Home Loans Corporation plc v Giffen Couch & Archer [1997] 3 All
ER 808, CA at p813 a case in which the mortgage society’s instructions to its
solicitors were to act for it ‘in the preparation of a mortgage …’ :
Any solicitor
of ordinary competence and experience would realise that the defendants’
primary function was to make sure that the plaintiff received a valid and
effective first mortgage on the property …
He said that
any such solicitor would know that this unusual clause in the lease conferred a
valuable additional protection on Halifax and that, without it, the security would
not be fully effective.
Mr Mann
emphasised that the issue is not about the solicitors’ failure to advise but
about their failure to do, namely to use reasonable care and skill having
regard to the terms of their retainer. He said that it was clearly implicit in
that retainer, when coupled with the terms of the proposed lease, the MPC
clause in particular, that they would take reasonable steps to secure for
Halifax the benefit of the clause in each case, either by obtaining the written
approvals themselves or by checking with Halifax the need for them. They were
an essential part of the security.
He submitted
that there is no evidence nor any realistic possibility of any that the housing
association in any of the four cases approved in writing of Halifax as
mortgagee and the terms of the mortgage. He distinguished between the
possibility of an inference from certain material relied upon by the solicitors
that Halifax and each of the housing associations were happy to do business in
conjunction with one another in this way (a ‘generic approval’), from approval
on a lease by lease basis of terms specific to the respective supporting
mortgages. He argued that such terms, including, for example, the amount
secured, the term of the loan and the interest charged, could be of importance
to the housing associations depending on the extent to which they exposed them
to loss under the proposed MPC.
The existence
and extent of a legal duty in any given circumstances is a matter of law for
the court: see Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp
[1979] 1 Ch 384, per Oliver J at p402, cited with approval in Bown
v Gould & Swayne [1996] PNLR 130, CA, per Simon Brown LJ at
p133. However, differing circumstances producing different conclusions of law
are, albeit said softly, often matters of impression or feel, not capable of
fine legal analysis by way of justification. In my judgment, on the terms of
Halifax’s written instructions, on the evidence already available, and that
which it is not fanciful to consider may become available of its dealings with
the housing associations, there is a triable issue under this head. It is
whether it was within the solicitors’ retainer that they should concern
themselves with the relations between Halifax and the housing associations, in
particular as to the existence and form of the latter’s approvals for the
purpose of the MPC.
Construction
and effect of the MPC
The issue of
the construction and effect of the MPC, which goes both to the nature and
extent of the duty of care and to causation, is whether it made the obtaining
of approvals a condition precedent to the inclusion of the MPC in the lease or
whether it was merely ‘a procedural requirement’. Although the issue was
canvassed before the Parker J, he appears to have concluded, without expressly
ruling on the matter, that the requirement to obtain approvals was a condition
precedent.
Mr Jackson
submitted that the MPC itself is not so clearly worded as to make the obtaining
of approvals a condition precedent to it taking effect. He maintained that the
only way of determining its true function was ‘in the context of the tripartite
relationship’ of housing association, lessee and Halifax, by which he meant the
indications in the evidence of general collaboration between Halifax and these
and other housing associations in the promotion of shared ownership schemes. He
maintained that it was implicit in the general business relationship between
the various housing associations and Halifax — ‘the factual matrix’ of each
lease — that they not only approved of it and the terms of its mortgages in
support of their leases, they positively welcomed them.
Mr Jackson
submitted in the alternative that if the obtaining of approvals did amount to a
condition precedent to the inclusion of the MPC in the lease, it would have
been satisfied by written evidence of approval by the housing association of
Halifax as mortgagee where the mortgage was upon its standard terms for shared
ownership mortgages and/or its standard terms already known to them. On such an
approach individual written approval of each mortgage was not required to give
effect to the MPC in the lease. He said that further discovery from Halifax,
which would follow if the actions were to proceed, might well disclose general
arrangements or understandings between the housing associations and Halifax,
dispensing with the requirement for expressing written approvals in each case.
Mr Mann,
submitted, first, that the true construction of the MPC is not essential for
determination of Halifax’s claim to summary judgment, since it was conceded by
the solicitors before Parker J that any litigation by Halifax against the
housing associations to enforce it might have been ‘difficult, costly, time
consuming and uncertain’. He submitted that that concession was plainly correct
and that, as Halifax’s dilemma — to sue or not to sue the housing associations
— resulted from the solicitors’ negligence, it was not reasonably bound to
litigate to mitigate its loss. I shall return to that part of his argument later
in this judgment.
Mr Mann
submitted that, in any event, the words of the MPC in each case are clear and
that obtaining approvals amounted to a condition precedent to its inclusion in
the lease. They contain the word ‘shall’ in relation to each required approval;
they define the type of mortgagee entitled to rely upon it by reference to the
obtaining of written approval; and they are of importance to housing
associations because they carry with them a potentially significant detriment
to them and benefit to Halifax. He challenged Mr Jackson’s entitlement to rely
on the material already before the court or to seek discovery of
general arrangements’, if any.
On the
question of whether such arrangements are an aid to construction of the MPC as
part of ‘the factual matrix’, he commended to the court Staughton LJ’s recent
strictures in Scottish Power plc v Britoil (Exploration) Ltd, CA,
unreported November 18 1997 at p4 of the transcript, that that notion should be
limited to:
the immediate
context of the contract, facts which both parties would have had in mind and
known that the other had in mind at the time when the contract was made.
(Compare Lord
Hoffmann’s more generous approach to the notion in his speech in Investors
Compensation Scheme Ltd v West Bromwich Building Society (1977) CLC,
1243 at p1257.) Mr Mann pointed out that in each case in this appeal the
lessee, one of the parties to the contract in question — was not a party to
such discussions or arrangements as there may have been, and Halifax was not,
at the stage of negotiation of the lease, a party to it. He submitted that a
contract cannot be construed, even in part, by reference to matters of which
one of the contracting parties does not, and cannot, know.
He made one
final and alternative point, namely that if, contrary to his first submission,
such material is admissible as an aid to construction, by its demonstration of
the importance to Halifax of the MPC as a protection, it underlines the
importance to it of ensuring it was included in each of the leases.
In my
judgment, there is a triable issue on the effect of the requirement of
approvals in the MPC to give it effect as between the housing associations and
Halifax as assignee of the lease in the event of default by the lessee. The
clause, although part of a contract — the lease — which Halifax was not a party
to, at the time of its execution, only came to life when it did become a party
as a result of such default. It seems to me that, on the evidence already
available, the solicitors have an arguable defence on the merits that in what
Mr Jackson has called ‘the tripartite factual matrix’ of the transaction, the
absence of written approvals is not fatal to the activation of the MPC on
assignment of the lease to Halifax. That is because, so the argument runs, the
two parties with real interest in its operation when it came to life had been
concerned with that contingent event from the start in their general collaboration
in marketing the property on the basis of an agreed form of model lease and
Halifax, as mortgagee, was providing finance for it. In my view, this defence
deserves proper factual and legal examination after full discovery and thorough
testing in a trial on the merits.
Causation
Mr Jackson and
Miss Carr complained that Parker J assumed, without expressly ruling on the
matter, that the duty and breach of it that he found had caused Halifax damage.
They submitted that whether he was right so to assume turned on one or other or
both of two issues: first, if the solicitors had queried the matter with
Halifax, what would it have instructed them to do; and, second, if the
solicitors had sought approvals from the housing associations, what would they
have said?
First, there
was the attitude at the time of Halifax. Mr Jackson and Miss Carr said that
there is an issue of fact for resolution, on which there is as yet no evidence,
namely whether it expected the solicitors to obtain written approval,
regardless of any duty to do so that may be derived from a proper construction
of their retainer. For example, they submitted, Halifax may have considered
that, as a result of its head-office contacts and marketing arrangements with
the housing associations, it already had sufficient general approvals and that
no more were necessary. They pointed out that, despite considerable affidavit
evidence filed on behalf of Halifax, there was no evidence, save in the most
general terms, for its pleaded case that it was in reliance upon, inter alia,
its belief that the solicitors had obtained the approvals, that it advanced the
mortgage moneys in each case. In short, they submitted, there was no or no
sufficient evidence on an application for summary judgment upon which Parker J
could find that Halifax had acted in reliance on a belief that the solicitors
had obtained written express approvals on a transaction by transaction basis.
As to the
attitude of the housing associations at the time, Mr Jackson and Miss Carr made
the following submissions. If the housing associations had been asked for their
individual approvals to these transactions, they would have given them or would
have said that they were not necessary. (As I have said, the former was
certainly Parker J’s view on the material before him.) The further alternative
of refusal was highly unlikely in the circumstances. The general dealings
between Halifax and the housing associations showed collaboration with each
other on the mutual assumption that it and its terms of mortgage were approved.
Mr Mann
submitted that it was pure speculation as to what Halifax would or might have done
if alerted by the solicitors to the requirement for approvals or as to what the
housing associations would have said or done if asked for them. He repeated his
earlier submission that the MPC imposed an obligation, not to advise or report,
but to do, namely to obtain for Halifax the benefit of the MPC. As to the
evidence to support Halifax’s case on causation, Mr Mann relied in each case on
a general statement by Halifax’s solicitor, in his affidavit in support of the
application for summary judgment, of his information and belief of the truth of
its pleaded claim, in accordance with RSC Ord 14 r 2. The relevant part of the
pleaded claim for this purpose was that, in reliance upon the solicitors’
advice and report on title and in the belief that they had complied with their
obligations, Halifax advanced the moneys the subject of the mortgage.
Mr Mann
acknowledged that the housing associations, if asked at the time, would no
doubt have approved Halifax as mortgagee. But he maintained that their approval
could not be so readily assumed as to the terms of the individual mortgages, by
which he had in mind the commercial details of each transaction, for example,
the amount borrowed, the interest charged and the period of the mortgage. He
cautioned against confusion of general agreement of the scheme with the giving
of the required approvals in each case.
In my
judgment, the solicitors’ evidence before Parker J, and as now supplemented by
the fresh evidence before this court, shows that the solicitors’ pursuit of a
trial of the issue as to the true agreement or understanding between Halifax
and the housing associations is not one that is ‘all surmise and
Micawberism’ (as per Megarry V-C in the Tennant case). The
evidence shows a triable defence on the issue of causation, turning on what
Halifax or the housing associations would have said or done if the solicitors
had raised the matter of approvals with either of them at the time.
Causation/failure
to mitigate
The
solicitors’ case was and is that whether their failure (assumed for this
purpose to be a breach of duty) to obtain the approvals deprived Halifax of the
benefit of the MPC, depended on: (1) whether the housing associations, by their
dealings with Halifax, were estopped as against it from denying that the MPC
was part of the lease or have waived their entitlement to do so; and (2)
whether in the light of such dealings, and whatever evidence there might be of
potential loss to Halifax from delay in selling the properties, it would have
been unreasonable to require it to litigate the matter with the housing
associations. The solicitors maintain that these questions cannot be properly
resolved until Halifax has pleaded and has called evidence of the reasons for
its decision not to litigate and as to its reasonableness.
Halifax’s case
on this issue is that, on the evidence now and possibly available, there was no
such estoppel. Alternatively, it says that, even if it had had an arguable case
for it, it would have been unreasonable to expect it to litigate the matter
with the housing associations.
Mr Jackson and
Miss Carr submitted that Halifax had, as against the housing associations, an
argument based on an estoppel by convention, which would have prevented them
from denying it the benefit of the MPC. Mr Jackson took the Court to the
judgments of Eveleigh and Brandon LJJ in Amalgamated Investment &
Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB
84, who in turn adopted, at p126A–B and pp130H–131A respectively, the
description of the concept in Spencer Bower and Turner, Estoppel by
Representation, 3rd ed (1977) at p157:
This form of
estoppel is founded, not on a representation of fact made by a representor and
believed by a representee, but on an agreed statement of facts the truth of
which has been assumed, by the convention of the parties, as the basis of a
transaction into which they are about to enter. When the parties have acted in
their transaction upon the agreed assumption that a given state of facts is to
be accepted between them as true, then as regards that transaction each will be
estopped against the other from questioning the truth of the statement of facts
so assumed.
Mr Jackson
argued that, although Halifax was not an immediate party to each lease, the
housing associations and Halifax clearly envisaged that it was the basis of a
contractual relationship between them in the event of the lessee defaulting
under the mortgage. He submitted that this would have been an obvious and
unanswerable riposte by Halifax to any later attempt by the housing
associations, based on the absence of individual written approvals, to deny it
the benefit of the MPC.
Mr Mann
submitted that the material before the court does not support an argument based
on such an estoppel. He said that it shows at the most that the lessors were
content to deal with Halifax as a mortgagee whom they might be prepared to
approve in particular cases and that Halifax was prepared to lend money against
the security of a mortgage if it received the benefit of the MPC.
Parker J did
not think much of the estoppel argument, though it was put slightly differently
to him. He said at p15A–E of the transcript of his judgment:
As to the
suggestion of a possible case of waiver or estoppel, that suggestion appears to
me to be purely speculative. In particular, the fact that at one stage in the
discussions leading to the settling of the model form of lease there was a
suggestion that a blanket approval might suffice for the purposes of the
mortgagee protection clause does not assist the defendants, since … in its
final form the mortgagee protection clause still requires a specific written
approval.
To allow
these actions to proceed to discovery on the off-chance that some document
might turn up on which it could be said that Halifax might be able to found an
allegation of waiver or estoppel would … be to sanction a fishing expedition…
there is no substance in the contention that Halifax has failed to mitigate its
loss.
In my view, it
is arguable on the material before the court that Halifax had a case of
estoppel or waiver as against the housing associations. That is, there is in
the existing material — and there may well be more forthcoming on discovery —
indications that the housing associations and Halifax may have agreed and
proceeded upon the basis that the incorporation of the MPC into these and other
shared ownership leases, in which they were jointly involved, was essential to
the their successful marketing of such properties and to Halifax’s protection
in financing them.
As to the
reasonableness of requiring Halifax to have litigated with the housing
associations, the judge mistakenly credited the solicitors with acceptance of
the proposition that litigation ‘would have been difficult, costly,
time-consuming and uncertain’ (my emphasis). In fact their then counsel’s
skeleton argument on which he drew for that concession was that such litigation
‘might have proved to be difficult … [etc] although it might also have
been successful’ (my emphasis). He referred to the well known dictum of
Harman J in Pilkington v Wood [1953] Ch 770 at p777 that there is
no duty to mitigate by embarking on complicated and difficult litigation
against a third party, and continued at p14D of the transcript of his judgment:
Litigation by
Halifax against the vendors would, in my judgment, be complicated and
difficult, to put it at its lowest …
I reject Mr
Gibson’s submission that Halifax must plead and prove its reasons for deciding
not to litigate, and the reasonableness of that decision. The reasonableness of
the decision is … a matter for objective evaluation. The extent of a party’s
duty to mitigate cannot … be affected by his subjective state of mind… . on an
objective test, the decision of Halifax not to litigate against the vendor was
… manifestly reasonable.
Mr Jackson and
Miss Carr have repeated the submissions made to Parker J, underlining in
relation to each the need, before final disposal of the matter, for Halifax to
give full discovery of its dealings with the housing associations as to the
general use of the MPC. They have also continued to rely on the submission to
the judge of the absence of, and need for, particulars and evidence from
Halifax about its decision not to litigate with the housing associations and as
to its reasonableness. Without some evidence of the circumstances of and the
reasons for its decision, they argued, the court cannot, even on the objective
basis to which Parker J referred, form a view as to the reasonableness of the
decision.
On the Pilkington
v Wood test, Mr Jackson made four main submissions: first, Halifax had a
strong legal claim against the housing associations on the merits either on the
construction of the MPC or as the result of an estoppel; second, it was well
equipped to conduct the litigation; third, it would not have been difficult or
costly litigation — one test case would have been sufficient; and, fourth, Pilkington
v Wood is readily distinguishable because, there, the claim was
uncertain and the plaintiff was in desperate need for an urgent recovery.
Mr Mann’s
submission was that, even on the solicitors’ qualified concession that
litigation by Halifax against the lessors ‘might have proved to be
difficult … [etc.]’ (my emphasis), Parker J’s decision was correct. He
submitted that, on the basis of such a concession, it was plainly reasonable of
Halifax not to litigate. There was no need, therefore, for the safeguard of
further discovery and a full trial before determining whether the solicitors
had an arguable defence of failure to mitigate. He said that the burden was on
the solicitors to show both that Halifax had a good prima facie case
against the housing associations and that it could have been advanced easily,
cheaply, quickly and without argument, and that on the material before Parker J
and this court, it could do that. He mentioned, in particular, the need for
speed in resolution of the matter because of the limitation of the MPC’s
protection to Halifax of only one year’s unpaid interest. Accordingly, he
challenged the first and third of Mr Jackson’s four main submissions; as to the
second, the ability of Halifax to litigate, he submitted it was irrelevant; as
to the fourth, he maintained that Pilkington v Wood was not
materially distinguishable on the basis that, there, the plaintiff was
desperate.
Mr Mann
characterised the solicitors’ case, as Parker J did, as an attempt at a fishing
expedition in the hope that something might turn up on discovery and/or at
trial that might suggest that Halifax had a stronger claim against the housing
associations than is now apparent. His argument in summary was that, had the
solicitors not failed in their duty to obtain the requisite approvals, such
uncertainty would have been removed and Halifax would have had an unanswerable
claim to the benefit of the MPC against each of the lessors.
Mr Mann also
submitted that if, as must be assumed for the purpose of this issue, the MPC
did impose as a condition precedent to its application the obtaining of the
approvals, it is illogical to take into account any possible pre-lease dealings
between Halifax and the housing association since those dealings must have been
superseded by the terms of the lease. Further, he pointed out that transaction
concerned in each case — the lease — was between the housing association and
the lessee, whereas the alleged course of dealing relied on by the solicitors
was between the housing association and Halifax.
The burden of
proof is on the solicitors to show that Halifax should have litigated to
mitigate its damage: see London & South of England Building Society
v Stone [1983] 1 WLR 1242, CA. My conclusion is that there is a triable
case on this issue. It flows largely from my conclusions on the earlier issues
that, on the present and possible evidence, the solicitors have shown a triable
issue that there was a general approval by the housing associations to Halifax
and its mortgage terms so as to activate the MPC in each of the cases before
the court. In fact, for this purpose the solicitors do not need to go that far;
it is sufficient for them to show a triable issue as to existence of something
less than approval standing as a proxy for the written approvals prescribed by
the MPC, namely that they had both acted in
would not stand on the strict wording of the leases.
Halifax’s
financial strength and its commercial ‘clout’ vis-à-vis the housing
associations are, in my view, material to an assessment whether it would be
reasonable to expect it to have litigated with them. As to the contrast with
the desperate position of the plaintiff in Pilkington v Wood, and
of its materiality, Harman J’s approach in that case as one of general
application has stood the test of time, but it is not an exhaustive code of
criteria. The circumstances, and the weight of them, in each case going to the
reasonableness or otherwise of expecting a party to have litigated to mitigate
damage must depend on its own facts. I regard it as at least arguable that
Halifax’s financial ability to litigate and its commercial clout vis-ˆ-vis
the housing associations is a material circumstances for consideration in this
context.
Contributory
negligence
Parker J
dismissed the solicitors’ contention that it was reasonably arguable that
Halifax was or might have been contributorily negligent in failing expressly to
instruct them to seek the approvals or in failing to realise that no approval
had been obtained or in failing to obtain them itself. He said, at pp16C and
16D–17C:
the allegation
is that Halifax ought to have made its instructions clearer … there is no
substance in the contention that Halifax was at fault in the way in which it
expressed its instructions. As I have already held, the terms of the
instructions plainly imposed on the defendants a duty of care in relation to
the requirement for written approval in accordance with the mortgagee
protection clause. In the circumstances, it does not lie in the mouth of the
defendant to complain that their client was at fault in not spelling out their
duties more clearly.
As to the
suggestion that Halifax may itself have been negligent in failing to realise
that no written approval had been obtained, or alternatively in failing to
obtain such approval itself, in the first place the plain inference is that it
was expecting the defendants to take care of that. And in the second place, the
defendants cannot … seek to hold their client partly responsible for their own
failure to carry out their instructions with due care, by contending that their
client ought to have done what they themselves failed to do.
Mr Jackson
submitted that the judge should not have made such findings on a summary basis
and without investigation as to why Halifax, through its legal department,
failed to follow up the possibility of blanket approval of a normal loan or to
instruct the solicitors that it was for them to obtain the approvals. He
suggested that it was not a matter that could be resolved on paper.
Mr Mann’
response to this submission was that as contributory negligence can only arise
where liability is established, it cannot arise in these circumstances where a
finding of liability necessarily involves a finding that the solicitors should
have obtained, and did not obtain, the requisite approvals. He said that it
would be illogical to allow the solicitors to argue that Halifax was
contributorily negligent in not checking whether they had done what they were
under a duty to do, and no amount of further discovery or evidence about
pre-lease dealings between Halifax and the housing associations could change
that.
Given my
conclusion on the first four issues, it follows that, in my judgment, there
should not be summary judgment and the solicitors’ appeals should be allowed.
It is, therefore, not necessary for me to express a view on this final issue of
contributory negligence. I say only that I share Parker J’s difficulty in the
circumstances of reconciling a finding of breach of duty by the solicitors with
the notion that Halifax contributed to that breach by failing to do what it had
instructed them to do. I note that Evans LJ, in his judgment in support of
leave to appeal, was of the view that there was at least room for argument on
the matter. No doubt, if there is any life in this part of the case, it can be
investigated at the trial.
Accordingly,
in each case, I would allow the solicitors’ appeal, set judgment aside and
grant them unconditional leave to defend the action.
Agreeing, BUXTON LJ said: I agree with the
order proposed by my lord; but since I have found that conclusion rather more
difficult than he has, and also because on some issues I with diffidence have
reached a different conclusion from his, I feel constrained to add some words
of my own. In so doing I gratefully adopt my lord’s statement of the facts and
his account of the issues, though I have in some respects arranged the latter
in different order.
The advocacy
in this appeal was of a high order, on the part both of leading counsel and of
Miss Carr, who replied in the absence of Mr Jackson. The same cannot be said
without reserve of the evidence. Both parties chose to confine their evidence
to affidavits sworn by persons who had not had the conduct of the transactions
of which or in connection with which complaint is made; and who, moreover, did
not appear to have taken instructions from anyone who had actually made any
decisions about those transactions. That approach was the more striking on the
part of the defendants. I confess to some surprise that solicitors accused of
neglect of the order alleged in this case did not take steps to make clear what
they did and why they did it. And, more generally, the state of the evidence
gave the case at times an unreal or almost academic feeling. But, as Miss Carr
pointed out, if there are deficiencies in the evidence, or if the court feels
imperfectly informed about any particular issue, that is likely to redound to
the disadvantage of the plaintiff, who by proceeding under Ord 14 accepts the
risk of issues emerging that if they cannot be disposed of without argument
will have to proceed to trial.
That said,
however, almost all of the defences or arguments advanced by the defendants
seemed to me to be without substance.
First, the
solicitors’ retainer was to ‘act for the Halifax in the transaction’. That
retainer was issued in writing. There was no indication at all from the
solicitors that the writing relied on by Halifax was not a complete statement
of the retainer. One of the elements in the transaction, not collateral to it
but part of it, was the MPC. I agree with the judge that that retainer did not
give the solicitors liberty, without more, simply to do nothing about the
landlord’s approval required by clause 8 of the lease. Contrary to the
defendants’ contention, that is not a matter of implying a term into the
contract of retainer, or of imposing on the solicitors a general duty over and
above the terms of that retainer. It is simply a question of construction of a
written document, of what the ‘transaction’ was in which they were instructed
to act. The collateral dealings of Halifax with the housing associations may,
as I discuss below, provide the solicitors with an argument as to why Halifax
cannot, in the event, recover damages for any failure on the part of the
solicitors to fulfil their retainer, but they cannot, in my respectful view,
affect what the terms of that retainer were.
Second, I
agree with Mr Mann QC that the defendants’ attack on the second part of the
judge’s formulation, to the effect that there is no evidence as to what the
local representatives of Halifax would have done or said had the solicitors
drawn the need for written approval to their attention and asked for
instructions, is fanciful. The client’s obvious reaction to such an approach
would have been to ask the solicitor for his advice. I do not think that it is
open to a solicitor instructed as these solicitors were to ask the court to
assume otherwise, and do not think that disproof of that assumption is a burden
that should be placed on the solicitor’s client. The solicitor would then be
obliged to make proper enquiries as to whether consent had in fact been
obtained. Moreover, although there is no specific evidence from Halifax on this
point, it strains assumption too far to think that if the issue had been properly
put to it by its solicitors, Halifax would have assured them that everything
had been attended to: or that evidence to that effect will be elicited at a
trial.
Third, I had
great difficulty with the argument that the long-standing and much-quoted case
of Pilkington v Wood [1953] Ch 770 should not apply in this case,
so as to oblige Halifax to litigate with the housing associations before having
recourse to their solicitors. I set aside whatever may or may not have been
conceded below, as to which there is some uncertainty. I also agree that Pilkington
v Wood does not lay down any general rule, save the obvious rule that
each case must be viewed in the light of its own facts. In the present case,
however, it was argued that Halifax should have pursued against the
housing associations, or at least against one of them, the contention that the
MPC was merely a procedural provision, and not a condition precedent; and also
the arguments about estoppel that played so large a part in the argument before
us. As to the first, while the litigation might, and I say only might, have
been resolved on a short construction summons, I for my part see no prospect of
its being resolved in favour of Halifax; but, since my Lord takes a different
view, I have for present purposes to concede doubt on the issue. I say more
below about the estoppel argument. What, however, I am quite clear about in the
present context is that the argument is both difficult in law and on the
evidence so far to hand not obviously well based in fact. I am not prepared to
accept that it is reasonable to expect Halifax to embark on that litigation in
order to try to mitigate the damage caused to it by its solicitors.
I would add
two points. First, it was argued that Halifax was in a different position from
the plaintiff in Pilkington v Wood, in that it was a rich and
well advised corporation, that could well bear the burden of litigation. The
individual position of Mr Pilkington played no part in Harman J’s reasoning. I
would leave open the issue of whether, in a case where it might be reasonable
to expect a corporation to litigate, an individual, or at least some
individuals, might be excused. But I am very doubtful whether the converse can
be the case. Just because a corporation has a broad back, that is no reason for
its solicitors to require it to undertake litigation that is inherently
uncertain. Second, no indemnity as to costs was offered at any stage. That
appears to have been seen by Harman J in Pilkington v Wood as a
necessary condition of an obligation to mitigate by litigating. While I might
not go quite that far, I would certainly expect an indemnity to have been
offered in this case. No explanation of that failure was offered on behalf of
the solicitors, even though they were well aware of this point. If they were
serious in this argument they should at least have advanced reasons as to why
an indemnity was not appropriate.
If the Pilkington
v Wood point were the only issue in the appeal, I would for the reasons
that I have stated find some considerable difficulty in acting on it, while of
course giving great weight to the view of my lord in what is essentially a
matter of judgment. But I am just about persuaded that it should be open to the
solicitors to investigate before the Court of Appeal the limits of the Pilkington
principle and its application to the facts of this case.
Fourth, there
is no room in this case for the doctrine of contributory negligence. The issue
is the meaning of the solicitors’ retainer. If it has the meaning alleged by
the plaintiffs, the defendants are, subject to other defences, liable without
more. If it does not require the solicitors to act in regard to the MPC the
plaintiffs fail because they did not tell their solicitors to do that which
they have not done. Any other failing on the plaintiffs’ part is irrelevant.
Fifth, it was
argued, as I think it had not been before the judge, that since at least four
firms of solicitors had acted in the same way, there was at least the germ of a
contention that they had been following some sort of general professional
practice; to the extent, as I understood Mr Jackson to submit at one stage,
that it must be for the plaintiffs to demonstrate the absence of any such
practice. This argument fails on a simple point of logic, similar to that which
is fatal to the plea of contributory negligence. The complaint against the
solicitors is that they did not obey the terms of their retainer, and the
obvious proposition was agreed by the defendants’ counsel that there could be
no valid professional practice justifying such a failing. The issue is
therefore as to the construction of the retainer, and on that point the views
of the solicitors, or of the profession generally, are not relevant; though, as
I observed at the start of this judgment, on the evidence that they have chosen
to put forward we have no reason to think that these particular solicitors in
fact gave any thought to the meaning of that retainer.
I now pass to
the matter that does persuade me to allow this appeal, which can be called, for
purposes of identification only, the estoppel issue. This issue seems only to
have been ventilated in outline terms in front of the judge, and it is a
striking fact that it receives no mention in the substantial skeleton argument
that Mr Jackson and Miss Carr prepared for this court. I am however prepared to
accept that the more generalised complaints to be found in para 8 of the
Grounds of Appeal do lay sufficient foundation for the argument. Those
complaints were reinforced before us when, as my lord has described, Mr Jackson
applied to adduce further evidence going to this issue: an application that was
opposed on the part of Halifax.
But what is
the argument, and what is the estoppel? It appears that before the judge Mr
Jackson argued for an estoppel in somewhat general terms. Before us, he
contended that the estoppel was by convention. He relied in particular on the
passage in Spencer Bower & Turner (3rd ed) at p157, that was cited
with approval in the Amalgamated Property case by both Eveleigh LJ and
Brandon LJ, [1982] 1 QB 84 at pp126B and 130H respectively:
When the
parties have acted in their transaction upon the agreed assumption that a given
state of facts is to be accepted between them as true, then as regards that
transaction each will be estopped against the other from questioning the truth
of the statement of facts so assumed.
Mr Jackson
never formulated the exact terms of what he said had been or might have been
agreed or assumed. For him to succeed in this argument, however, it would be necessary
to demonstrate that each housing association had agreed with Halifax, or had
let Halifax assume, that where the lender was Halifax no written approval would
in fact be required in the terms of clause 8; or, alternatively, that such
approval would be assumed to have been given. Mr Mann said that the evidence
went nowhere near to establishing any such thing. To do so, given the wide
variety of housing associations involved, there would have to have been an
overall agreement that covered all of them. We could safely assume that had
there been any such agreement, Halifax would have immediately used it against
the housing associations when the latter attacked Halifax on grounds of lack of
authority.
As to the
latter point, Halifax chose to give no evidence relevant to this issue.
Although the precise plea of estoppel only took its final form before us,
Halifax has known throughout that the defendants sought to investigate its
dealings with the housing associations, and the broad terms in which those dealings
were said to be relevant. If there was indeed no agreement or understanding of
the nature identified as required to found an estoppel by convention, it would
have been a simple thing for Halifax to have so sworn. I see no reason why
assumptions of the order that we were invited to make in this case should be
made in favour of an applicant under Ord 14.
None the
less, I tend to agree with Mr Mann that the evidence, even taken at its likely
highest, would not found an estoppel by convention. The case does not seem to
fit happily into that particular jurisprudence, which, as the citation above
shows, directs itself at assumptions as to fact, rather than, as here,
to the alleged fulfilment by other means, or the abandonment of, specific
contractual requirements. If the matter rested there I would, albeit with some
considerable hesitation, not be minded to withhold judgment.
There is,
however, another way of looking at the considerable evidence amassed by the
defendants. In his affidavit seeking the admission of further such evidence,
the defendants’ solicitor submitted that it was relevant to the Defendants’
contention of waiver as well as of estoppel. In my opinion, that was correct,
in that the material before the court lays sufficient foundation for an argument
that, by reason of the prior transactions between them, the housing
associations had waived their right to insist on separate approval of Halifax
as a lender, as required by the strict terms of the contract. This argument is
not constrained by the narrow requirements of estoppel by convention, but
rather appeals to broader considerations of reasonableness: see Chitty on
Contract (27th ed), paras 22-037 and 22-038. The material before the court
already indicates a close relationship between the associations and Halifax, on
which such a waiver might be argued to be based in some or all cases; and I
have an uneasy feeling, based on more than speculation, that further such
material may emerge at a trial.
The force of
these arguments at this stage of the investigation is different from their
force in connection with the mitigation defence. They are sufficiently
uncertain for it only to have been very doubtfully indeed an unreasonable
failure to mitigate for Halifax not itself to have litigated them against the
associations. The question now, however, is whether the waiver argument is so
clearly not open to Halifax, and thus not open to the solicitors in contending
that Halifax has suffered no loss, that it is safe to enter judgment for
Halifax without waiver being considered further. For the reasons that I have
indicated I cannot take that view; and for that reason in particular I would
allow this appeal and permit the case to proceed to trial.
Appeal
allowed with costs. Leave to appeal refused.
