Solicitors providing loan to client otherwise unable to complete purchase of restaurant – Solicitors failing to disclose certain minor matters relating to the loan – Subsequent failure of restaurant venture – Whether solicitors liable for all losses sustained – Client’s appeal dismissed
In 1991 the second defendant, Mrs Harrison, owned and lived in Warwick Place, Leamington Spa, a house then worth £175,000. Her son wished to acquire and run as a family business a restaurant, the Aylesford, which was advertised for sale at £240,000. Mrs Harrison agreed to fund the purchase and refurbishment by raising £180,000 on the security of Warwick Place and £100,000 on the Aylesford, the latter having been informally offered by Bank Brewery. Having instructed the plaintiff solicitors, she obtained a loan of £180,000 from NHLC, and on July 1 1991 exchanged contracts to buy the Aylesford in her name for £220,000, putting down a deposit of £44,000.
During the following weeks she spent substantial sums refitting the restaurant. Shortly before the agreed completion date in August, Bank Brewery withdrew its offer. With no prospect of obtaining bridging finance elsewhere, and needing £75,000 to complete, she accepted an offer from the plaintiff solicitors of a two-month loan of that amount, secured by a first charge on the Aylesford at a rate of 5% over base rate, plus an arrangement fee of £1,000. In effecting that transaction, the plaintiff chose not to disclose that: (a) the difficulty in obtaining finance stemmed from the poor credit record of Mrs Harrison’s son, Mark; (b) the £75,000 was provided by the firm’s own bank, which had agreed to split the arrangement fee. The restaurant business was a failure from the start. In late 1992 the NHLC sold Warwick Place, which had fallen in value, leaving a shortfall on that loan of £55,000. Some months later the second defendant transferred the Aylesford to her other son, the first defendant, leaving the plaintiff’s mortgage outstanding. In subsequent proceedings by the plaintiff for possession, the second defendant counterclaimed for damages to compensate for all losses sustained, basing her claim on negligence and/or breach of fiduciary duty on the plaintiff’s part. That claim failed in the county court and Mrs Harrison and the first defendant appealed.
Held The appeal was dismissed.
1. While the plaintiff was undoubtedly in breach of fiduciary duty in failing to disclose the two matters in issue, that breach was limited to the making of the bridging loan and did not operate as the cause of Mrs Harrison’s misfortune. On the basis that damages should put the victim in the position he would have been but for the wrong complained of, Mrs Harrison could show no loss since there was no alternative to the ‘lifeline’ offered by her solicitors.
2. It would have been otherwise if the plaintiff’s conduct had amounted to fraud, or breach of equitable duty tantamount to fraud, since the appropriate award aims to restore the victim to his position before the wrong was committed. However, the plaintiff’s conduct was not such. The arrangement with its bank concerned a modest unauthorised profit. No harm was done by withholding the reason why alternative finance was not forthcoming. Without fraud the need to establish causation applied to common law and equitable claims alike: see Target Holdings Ltd v Redferns [1996] AC 421 HL.
Edward Bannister QC and Isabel Hitching (instructed by Wright Hassall & Co, of Leamington Spa), Gregory Stone QC and Adam Oyebanji (instructed by Hall Reynolds, of Bidford on Avon) appeared for the appellants; Duncan Matheson QC and Stephen Neville (instructed by Alsters, of Leamington Spa) appeared for the respondents.
