England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
His Honour Judge Richard Seymour QC sitting as a High Court Judge
[2009] EWHC 1099 (QB)

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/03/2010

Lord Justice Rimer :

Introduction

1. This appeal, by Richard Mason, is against the dismissal on 15 June 2009 by His Honour Judge Richard Seymour QC, sitting as a judge of the Queen's Bench Division, of his claim for damages for professional negligence against Richard Freeman & Co ('Freeman'), solicitors. Mr Mason's complaint is that in two respects Freeman breached duties they allegedly owed him, duties which, if performed, would have prevented him committing breaches of contract and trust that later landed him with a judgment for £200,000 in favour of Henrik Kjellin. In effect, he claimed an indemnity against Freeman for the loss he suffered as a result of his breaches.
2. One of Freeman's responses to Mr Mason's claim is that it is barred as being tainted with turpitude. They also say, as the judge accepted, that they anyway owed him neither of the alleged duties. It is the latter point that has been the focus of Mr Mason's appeal. The judge's judgment ([2009] EWHC 1099 (QB)) contains a comprehensive account of the facts, but those relevant for the disposition of the appeal can be explained relatively shortly.

The facts

3. Mr Mason was engaged in a relationship with Sally Pitman between about 1985 and 1991. Following its termination, he continued to provide her with occasional financial support. Mrs Pitman was adjudicated bankrupt on 19 September 1997. In March or April 2000, still undischarged from her bankruptcy, she formed a wish to buy a flat at 42A Cranley Gardens, London SW7 from a Mr Tillotson. As an undischarged bankrupt, she foresaw practical difficulties in doing so. She approached Mr Kjellin, the father of a friend of one of her daughters, who agreed to contribute £200,000 towards the purchase. She also approached Mr Mason who agreed that the flat would be bought in his sole name and that he would be its sole mortgagor under a mortgage securing a loan that would provide (at least) the balance of the purchase price. Mr Mason had considerable experience of property matters, having formerly been the managing director of Keith Cardale Groves. Only Mrs Pitman was going to occupy the flat.
4. By April 2000 Mrs Pitman had agreed a price of £375,000 for the flat. In early April Mr Mason instructed Freeman to act on the purchase, a firm he knew. Freeman also knew Mrs Pitman, having previously acted for her. The conveyancing was handled by Stephen Mazzier, a partner. Mr Mason was Freeman's client for the purposes of the transaction although Mr Mazzier's evidence, which the judge accepted, was that all instructions were to come from Mrs Pitman, as they did.
5. Mr Mason sought a mortgage loan from Capital Home Loans Limited ('Capital'), apparently on the false basis that the purchase was to be a 'buy to let' one. Capital offered a loan of £242,990 by a letter of 2 June 2000. On 25 May and 8 June 2000 Mr Kjellin remitted a total of £200,000 to Freeman's client account with Mr Mason.
6. On 30 and 31 May 2000 Mrs Pitman, Mr Kjellin and Mr Mason signed a home-made document ('the May agreement') the drafting of which we were told was probably Mrs Pitman's work. It explained their respective beneficial interests in, and mutual obligations in relation to, the flat. There is no need to summarise all of it. It provided that the flat was to be owned as to (i) 50% by Mrs Pitman and Mr Mason, whose 'share is funded by a mortgage', and (ii) 50% by Mr Kjellin. The mortgage was to be in the name of Mr Mason 'for a period of six months upon such time the mortgage will be wholly transferred to [Mrs Pitman]'. At that point, any claim to the flat by Mr Mason was to cease and Mrs Pitman was to become 'liable for all repayments, insurance, maintenance and all other costs for the property until such time as her death or the property is sold.' The parties agreed that 'the Deeds of the flat will never be second charge for any purpose whatsoever, other than securing the initial mortgage of £243,000' (a reference to the proposed Capital mortgage). They agreed that Mrs Pitman could only sell the flat at a price in excess of 'the initial purchase price of £400,000 [sic: the price was in fact £375,000]. In all other eventualities, the decision on the sale of the Property will rest exclusively with [Mr Kjellin]'. It was, I consider, implicit in the agreement that when Mr Mason transferred the mortgage to Mrs Pitman during the six-month period, he would also transfer the flat into her name and that she would then hold it as a trustee for herself and Mr Kjellin.
7. Mr Mason accepted Capital's mortgage offer on 16 June 2000, confirming that he would not be occupying the flat, but would let it. That was untrue. He was not going to let it.
8. Contracts for the purchase of the flat for £375,000 were exchanged on 21 June 2000, with completion on the same day. Mr Kjellin had provided £200,000 towards the price and the net amount of Capital's loan was £231,351.87. The mortgage was one under which the monthly payments would be of interest only, and Mrs Pitman was to provide the money with which to make them. After Freeman's costs of the purchase, a balance of £54,360.49 remained which they paid to Mr Mason. Why he should have received it is something of a mystery but not one that needs to be solved.
9. That concludes Part 1 of the story. Freeman are said to have committed a material breach of duty during it, to which I shall return.
10. Part 2 took place in 2002, Mrs Pitman having in the meantime been discharged from her bankruptcy on 19 September 2000. Part 2 was the sale of the flat by Mr Mason to Mrs Pitman for £375,000, a transaction upon which they agreed in March 2002. The May agreement had assumed that by then the flat would already be in Mrs Pitman's name, but it was not. What it did not contemplate was a purported purchase by Mrs Pitman from Mr Mason of both the legal and whole beneficial interest in the flat and at a price of less than £400,000. Mr Kjellin's interest as a 50% beneficial co-owner appears to have been ignored, Mr Mason and Mrs Pitman having apparently concluded that he did not need to be consulted about the transaction, nor that a penny piece ought to be paid to him out of the sale proceeds.
11. Mr Mason and Mrs Pitman instructed Freeman to act on the sale, and they were satisfied that they could act for both. Once again Mr Mazzier handled the conveyancing. There was no evidence that he or anyone at Freeman had ever seen the May agreement. Mr Mason wrote a letter of instruction to Mr Mazzier on 25 March 2002, of which I must quote the material part:

'As to the sale of the above [the flat] to Sally Pittman [sic] I am agreeable to proceeding to exchange of contracts at the agreed price of £375,000 subject to the following conditions:-

a) There must be no remaining liability in this property on my part after completion.

b) All vendor's costs in respect to this transaction i.e. mortgage redemption costs, legal fees etc to be borne by Mrs Pittman.

c) Provision for an outstanding debt in the round sum of £16,000 owed to me by Mrs Pittman to be settled by your offices on completion and indeed completion to be conditional on such settlement (please note that the amount of this debt might be affected by any delay in completion and I would like to make a final calculation on being given the confirmed completion date.)' (Emphasis supplied)

The emphasised provision is the critical one upon which the argument in relation to Freeman's second alleged breach turns.

12. Exchange of contracts for, and completion of, the sale to Mrs Pitman took place on 31 May 2002. The price was £375,000, towards which Mrs Pitman had raised a £300,000 loan from Kensington Mortgage Company on a mortgage of the flat. After taking into account Freeman's costs and various fees, Mrs Pitman had to find a further £87,863.48 to complete the purchase, which Mr Mason lent her. After the receipt of the £375,000 and the deduction of £259,709.29 required to redeem Capital's mortgage (the right to redeem it early came at a price), there was a balance of £115,290.71, which Freeman paid to Mr Mason.
13. Mr Kjellin had put £200,000 into the flat and had a 50% beneficial interest in it. The flat had, however, since been purportedly sold to Mrs Pitman and he had received nothing out of its proceeds. His beneficial interest in the flat was not protected by the registration of any entry against the title and he was not occupying it. Whether, following the sale to Mrs Pitman, he could have maintained a claim to a beneficial interest in the flat is not an issue before us. In the event, Mrs Pitman defaulted upon her obligations to Kensington and eventually sold the flat for £405,000, of which she paid £52,000 to Mr Kjellin.
14. Mr Kjellin's £200,000 investment in the flat had thus proved to be a bad one and he was displeased. In 2006 he sued Mr Mason for breach of trust and contract, a claim which Mr Mason settled by a consent order dated 1 June 2006 for the payment of £200,000. That was followed by Mr Mason's claim against Freeman for professional negligence. The first head of his claimed damages was the said £200,000, although Mr Stagg, who represented Mr Mason before us (but not before the judge), submitted that the true measure of his loss required the crediting against that figure of the £115,000 Mr Mason received on the sale, and adding the £87,000 he had lent Mrs Pitman to enable the sale to happen. In round terms, that reduced the claimed loss to £172,000.

Freeman's alleged breaches of duty

A. The first alleged breach

15. The first breach that Mr Mason levelled at Freeman relates to their conduct during Part 1 of the story – the purchase of the flat. The basis of the complaint is that Mr Mazzier said, and the judge accepted, that whilst he knew that the flat was being purchased in the name of Mr Mason, instructions for the purchase were to be given by Mrs Pitman. Mrs Pitman did not give evidence. Mr Kjellin, however, had made a witness statement on 30 November 2008 and also gave oral evidence. In paragraph 12 of his witness statement, he said this:

'I received a phone call from Sally Pitman sometime between 25^th May 2000 and the exchange of contracts (10^th June 2000). I remember this call clearly, receiving it in a rather crowded kitchen in Empshott, where I was doing some building work. Sally Pitman said she was phoning from [Freeman's] offices, and that her solicitor wanted to know how I wanted my ownership registered on the Deeds, pointing out that if I were joint owner, I would have to be involved in the mortgage. I said I did not want to be involved in the mortgage, but asked if the Agreement could be charged against the Deeds, in the same way as a Bank enters a second charge to secure a loan. At this point Sally Pitman deferred to the solicitor she was with (I assume Stephen Mazzier), and I heard her relay my words to him. I heard him clearly agreeing to this suggestion, and he confirmed that this "would be fine", so I instructed him to go ahead with registering the Agreement as a Charge on the Deeds.'

16. In the event the purchase of the flat was completed without any such registration being made. The result was that the title to the flat was unencumbered by any charge, restriction or notice protecting Mr Kjellin's 50% interest. That enabled Mr Mason to sell the flat to Mrs Pitman for £375,000 and to transfer a clear title to it to her, without accounting to Mr Kjellin for any part of the proceeds. Mr Mason, who was a party to the May agreement and thus knew all about Mr Kjellin's interest in the flat, ought not to have sold the flat for less than £400,000 without his prior consent; and he knew, or ought to have known, that Mr Kjellin was anyway entitled to a share of the proceeds. Mr Mason, however, ignored both considerations. That led to Mr Kjellin's claim against him for breach of contract and trust.
17. Mr Mason's consequential claim against Freeman was based in part on the assertion that their omission to protect Mr Kjellin's interest in the manner referred to by Mr Kjellin in his witness statement was the direct cause of his breaches of contract and trust. His point was that, but for such omission, he could not and would not have been able to commit them and would not have had to compensate Mr Kjellin. His complaint is that Freeman thereby breached the duty of care they owed him as their client on the purchase of the flat and that they should (in effect) indemnify him against his outlay.
18. It is not the most attractive of arguments but it gave rise to an issue before the judge as to whether Mr Mazzier had been given instructions to effect a registration protecting Mr Kjellin's interest in the flat. Mr Mazzier was cross-examined about his alleged conversation with Mrs Pitman whilst she was on the telephone to Mr Kjellin. He said that he had participated in no conversation concerning the registration of a charge in favour of Mr Kjellin. Mr Kjellin was also cross-examined about the conversation and the judge regarded him as a witness of honesty and reliability. In paragraph 38 of his judgment the judge had set out the whole of paragraph 12 Mr Kjellin's witness statement (cited above); and in paragraphs 69 and 70 he made these findings:

'69. I accept that Mr Kjellin did indeed speak to Mrs Pitman on about 25 May 2000 whilst she was with Mr Mazzier about whether Mr Kjellin wished to be named as a purchaser of the Flat. I accept that Mr Kjellin did indicate during that conversation that he wished his interest in the purchase to be protected by a charge and that Mr Mazzier said something to the effect that that would be fine. I find that Mr Mazzier had simply forgotten about the visit of Mrs Pitman and the telephone conversation, probably because the outcome, from his point of view, was that he was not required to do anything. Mr Kjellin's name did not require to be added as a purchaser. Having seen and heard Mr Mazzier give evidence, it seemed to me that he is an experienced conveyancing solicitor, but one who is inclined to adopt a rather literal approach to carrying out his instructions. In this case, I think, he would have thought, and have been correct in thinking, that his client was Mr Mason, who was purchasing the leasehold interest in the Flat. If Mr Kjellin was not a joint purchaser, he was not Mr Mazzier's client. Consequently, if Mr Kjellin wished to register a charge against the leasehold interest in the Flat that was possible and acceptable ("That would be fine", or words to that effect), but something for Mr Kjellin to arrange with his own solicitor, not something for Mr Mazzier to do.

70. Consequently, as it seems to me, Mr Mazzier was not given express instructions by or on behalf of Mr Mason to register a charge in favour of Mr Kjellin against the leasehold interest in the Flat. However, even if he had been, Mr Mason suffered no loss in consequence of Mr Mazzier not doing so. The only effect of a charge would have been that it would have been necessary, as a practical matter, on the sale of the leasehold interest in the Flat to Mrs Pitman, for that charge to be discharged in order for Mrs Pitman to obtain a loan from Kensington on the security of the leasehold interest in the Flat. However, the absence of a charge did not prevent Mr Mason paying Mr Kjellin the sum properly due to Mr Kjellin on the sale of the Flat by Mr Mason, if, as I find he was not, Mr Mason was otherwise inclined to perform his obligations under the Agreement.'

19. Mr Stagg's criticism to us of those conclusions is that, having found Mr Kjellin to be an honest and reliable witness, the judge appears nevertheless to have accepted only part of his evidence in paragraph 12 of his witness statement. In particular, in paragraphs 69 and 70 the judge made no reference to the evidence contained in the second half of Mr Kjellin's last sentence: 'I heard him clearly agreeing to this suggestion, and he confirmed that this "would be fine", so I instructed him to go ahead with registering the Agreement as a Charge on the Deeds.' (Emphasis supplied)
20. Mr Stagg's submission was that there was no basis for an inference that the judge had implicitly rejected the truth of those closing words. Since the judge had accepted Mr Kjellin's evidence as honest and reliable, he must have accepted – or intended to accept - that part of it as well. That was said to lead logically to the conclusion that the judge's finding that Mr Mazzier was not given express instructions to register a charge protecting Mr Kjellin's interest was wrong. The submission was that, in the circumstances, this court can and should substitute for that finding one to the effect that Mr Mazzier was given such instructions. If that were to be done, it would, the argument proceeded, follow that Mr Mazzier breached the duty he thereby assumed, a breach of which Mr Mason, as Freeman's client, was entitled to complain. Alternatively, said Mr Stagg, the case should be remitted for a re-trial so that there could be a proper finding upon the question of whether or not Mr Kjellin did give such instructions to Mr Mazzier.
21. I agree with Mr Stagg at least to the extent that, having accepted Mr Kjellin as an honest and reliable witness, the judge ought not to have made the findings he did in paragraphs 69 and 70 without also explaining why the closing words of paragraph 12 of Mr Kjellin's statement did not require a different finding. But I would reject Mr Stagg's submissions that we can and should now make and substitute a different finding; or, alternatively, order a re-trial.
22. Whilst the judge dealt with the matter less than comprehensively, it is clear that his assessment of Mr Mazzier's and Mr Kjellin's evidence as a whole was that, at the conclusion of the relevant telephone conversation, there was no question of Mr Mazzier having assumed any duty towards Mr Kjellin to effect a registration directing at protecting his interest in the flat. We do not have a transcript of Mr Kjellin's oral evidence and so I have an instinctive reluctance to question the soundness of the finding that the judge in fact made in paragraphs 69 and 70. The judge made it having not merely read Mr Kjellin's statement but having also heard his oral evidence, as well as the oral evidence of Mr Mazzier. This court is not in a position to conclude that his assessment of the totality of that evidence did not fully justify the findings he made.
23. Quite apart from that consideration, the suggestion that the outcome of the relevant conversation was that Mr Mazzier had assumed an obligation towards Mr Kjellin to effect a registration directed at protecting his beneficial interest in the flat appears to me improbable. First, whilst Mr Kjellin asserted in his paragraph 12 that he gave such an instruction to Mr Mazzier, he must have meant that he asked Mrs Pitman to pass such instruction on to Mr Mazzier. Mr Kjellin did not, however, say that. Nor did he say that he heard her passing his instruction on. Nor did he say that he heard or was told that Mr Mazzier had agreed to carry it out. There was, therefore, a material lacuna in Mr Kjellin's evidence: it did not prove what Mr Stagg claims to derive from it.
24. Secondly, it is improbable that these things did happen. Mr Kjellin was not Mr Mazzier's client and one, quite natural, interpretation of the outcome of the conversation was – as the judge found – that all that Mr Mazzier ever conveyed via Mrs Pitman was that Mr Kjellin was himself entitled to effect any registration he considered appropriate to protect his interest.
25. Thirdly, and related to this, if Mr Mazzier had assumed an obligation to effect some registration for Mr Kjellin, it is unlikely that he would have left the matter in the way Mr Kjellin describes. He would on that hypothesis have been agreeing to take on a new client and to assume a duty of care towards him. Had he done so, he would have wanted chapter and verse from Mr Kjellin as to the basis on which he was seeking a protective registration and would have asked for it. There was no evidence that Mr Mazzier ever saw the May agreement and so he would have wanted to know the basis of Mr Kjellin's interest. He would have needed, and would have sought, specific instructions about it but he did not. The suggestion that by the end of this conversation Mr Mazzier had accepted instructions from Mr Kjellin to effect a registration directed at protecting his interest is one I find wholly improbable. I do not accept that solicitors ordinarily accept instructions from someone they do not know based merely on what that person is relaying by telephone to someone in front of them. The judge implicitly rejected the suggestion and I can identify no principled basis upon which this court can disturb his finding on the point.
26. In my judgment, therefore, Mr Mazzier assumed no duty – either to Mr Kjellin or to Mr Mason – to effect a registration protecting Mr Kjellin's interest. As follows, he – and therefore Freeman – committed no breach of any such duty. It may be that if a registration had been effected, it would have changed the course of history and prevented Mr Mason from selling to Mrs Pitman without Mr Kjellin's consent and without accounting to him for his share of the proceeds. But as I regard the challenge to the judge's decision on the duty point as mistaken, it is unnecessary to consider this.

B. The second alleged breach

The second duty that Mr Mason asserted that Freeman owed him was based on his letter of instruction to them of 25 March 2002 in connection with the sale of flat to Mrs Pitman. The relevant part read 'There must be no remaining liability in this property on my part after completion.' As written, it does not make perfect sense but I read it as meaning that 'There must be no remaining liability in respect of this property on my part after completion'.

27. Mr Mazzier gave evidence that he read that as meaning that Mr Mason wanted to ensure that the Capital mortgage would be redeemed on completion. Mr Mason's case, however, was that it went far wider than that. It was to the effect that he was instructing Freeman to ensure that, upon completion, he would remain under no liability to anyone as a consequence of his involvement with the flat, including in particular to Mr Kjellin. He was, it was said, imposing on Freeman a duty to ensure that everyone to whom he might owe some obligation relating to the flat was satisfied; and, if that could not be done, it was Freeman's duty to say so to Mr Mason. Mr Mason's case is that Freeman breached the duty so imposed on them because following completion Mr Kjellin sued him successfully for breach of contract and trust.
28. The judge found that it was manifestly impossible – as Mr Mason knew when he wrote his letter – for a sale at £375,000 to Mrs Pitman to yield sufficient proceeds both to redeem the Capital mortgage (the required amount proving to be £259,709.29) and also to pay whatever might reasonably be needed in order to meet Mr Kjellin's demands, which were ultimately satisfied at £200,000. The judge found that, given the arithmetical impossibility of Mr Mason's case as to the sense of his instruction, it cannot sensibly be read as meaning more than that he wanted to ensure that, upon completion, he would be released from further obligations under the Capital mortgage. The judge went on to hold that, if he was wrong on that, and the instruction did bear the wider meaning contended for, the failure to achieve it by satisfying Mr Kjellin's demands was not because of Freeman's failure to comply with the instruction but because they were provided with insufficient funds with which to do so.
29. The judge's conclusions on this are also challenged on this appeal. In my view there is nothing in the challenge. The instruction has to be interpreted against the relevant factual background known to the parties in which it was given. That background included that Mr Mason and Mr Mazzier both knew that the flat was encumbered with the Capital mortgage of which Mr Mason was the sole mortgagor. The reasonable man would have no difficulty in interpreting the instruction as directed at ensuring that, upon completion, Mr Mason was to be released from further obligations under the mortgage. Precisely what Mr Mazzier knew about Mr Mason's obligations, as a trustee of the flat, towards Mr Kjellin may be uncertain. But other relevant background facts, of which Mr Mason was or ought to have been aware, were (a) that he was selling the flat at under £400,000 without Mr Kjellin's knowledge or consent, and was thus proposing a breach of the May agreement; and, whatever the financial consequences of that might be, (b) that he would also be accountable to Mr Kjellin on the sale for a share of the gross proceeds (after costs) – because Mr Kjellin had bought his 50% for cash – yet proposed to pay him not a penny.
30. Had Mr Mason actually thought about all this, he would have known that the sale proceeds would be insufficient to satisfy both Capital and Mr Kjellin. Since there can be no question of Mr Mason having expected Freeman to make up the difference themselves, the reasonable man would conclude that Mr Mason's suggested interpretation of the instruction was absurd, as I consider it is. The suggestion that implicit in his instruction to Freeman was a requirement that, upon completion, any claims that Mr Kjellin might have against him would be satisfied is one I find impossible to accept.
31. For these reasons, in my judgment Mr Mason's suggested interpretation of the instruction is wrong. The judge was right to conclude that it imposed no duty upon Freeman to ensure that Mr Mason was, upon completion, discharged from any further obligation to Mr Kjellin.
32. I would dismiss Mr Mason's appeal.

Sir Scott Baker :

33. I agree.

Lord Justice Wall :

34. I have had the opportunity to read Rimer LJ's judgment in draft, and like him, I would dismiss the appeal. The manner in which Rimer LJ has addressed the issues between the parties, with which I respectfully agree, renders it unnecessary for us to address the respondents' argument that the appellant's claim was barred as being 'tainted with turpitude', and I accordingly do not propose to say anything about it.