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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Leeds & Holbeck Building Society v Morison & Co & Ors [2000] ScotCS 237 (25 August 2000)
URL: http://www.bailii.org/scot/cases/ScotCS/2000/237.html
Cite as: 2001 SCLR 41, [2000] ScotCS 237
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OUTER HOUSE, COURT OF SESSION |
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OPINION OF LADY PATON in the cause LEEDS & HOLBECK BUILDING SOCIETY Pursuers; against ALEX MORISON & CO and OTHERS Defenders:
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Pursuers: Currie Q.C., L. Murphy; Biggart Baillie
Defenders: Moynihan Q.C., S. Wolffe; Simpson & Marwick W.S.
25 August 2000
Introduction
[1] The pursuers are the Leeds & Holbeck Building Society ("the building society"). They seek damages in respect of alleged professional negligence on the part of a firm of solicitors who acted on their behalf in connection with the granting of a loan of £373,488 to Mr. and Mrs. Prendiville. The building society maintain that their solicitors failed to disclose information material to their decision whether or not to grant the loan. They maintain that, had the information been disclosed, the loan would not have been made.
[2] At a proof before answer, the pursuers led evidence from two of their managers, Mr. Steele and Mr. Bedford, and from an expert witness Professor Robert Rennie. The defenders led evidence from Mr. Grosset, the solicitor concerned, and from an expert witness David Smith, solicitor. The Prendivilles were not led in evidence by either the pursuers or the defenders.
Blanerne House, Duns
[3] In 1986 Mr. and Mrs. Prendiville lived and worked in London. When in Scotland, they saw, liked and bought a large dwellinghouse called Blanerne House, near Duns. They did so with the assistance of a loan, initially from Barclays Bank plc, and subsequently from the Newcastle Building Society. The Prendivilles were interested in tennis, and Mr. Prendiville had a wish to transform Blanerne House into a tennis centre rather similar to the David Lloyd tennis centre at Hounslow. He obtained planning permission dated 21 July 1986 for a sports club with residential accommodation at Blanerne, all as detailed in documents numbers 18/10 to 18/12 of process. He drew up a business plan which was referred to in correspondence in September and October 1986, in letters numbers 31/1 and 31/3 of process.
[4] The Prendivilles' Scottish solicitor was Alan Grosset of Messrs. Alex Morison & Co., Edinburgh. Mr. Grosset also had an interest in tennis. He had been president of the Scottish Lawn Tennis Association in 1983-84, and also a Council Member of the Lawn Tennis Association in London. The Prendivilles had been introduced to him by the Secretary of the Scottish Lawn Tennis Association. Mr. Grosset was aware of Mr. Prendiville's wish to create a tennis centre at Blanerne. However he was more cautious and realistic than his client. He was aware of the difficulties and costs of such a venture, and the problems connected with obtaining the necessary funding. He communicated his views to the Prendivilles. The Prendivilles for their part told Mr. Grosset that, even if their tennis centre project came to nothing, they intended to live in Blanerne House, as they were very pleased with it.
[5] During the period following acquisition in 1986, Mr. Grosset's caution proved well-founded. The Prendivilles did not manage to obtain the necessary funding. They continued to own Blanerne House, and to use it for residential purposes. They carried out some repairs and refurbishment. In this connection, Mr. Prendiville sought in 1990 to remortgage the property. His reasons for doing so were recorded in several letters.
[6] In a letter to Mr. Steele, a branch manager of the building society, dated 7 February 1990 number 18/2 of process, Mr. Prendiville enclosed a mortgage application dated 6 February 1990 number 18/3 of process and wrote:
"Thank you for sending the application in January. I am enclosing it duly completed for our own property at Blanerne.
During the past year we have done an enormous amount of work on the house and this is now very near to completion. For your information I have detailed what has been done and what remains to be done.
The mortgage is currently with the Newcastle Building Society and they have been very good. The reason I wish to re-mortgage with yourselves is so that we can complete the refurbishment. Your non-status percentage is slightly better than theirs and I am therefore asking you to consider an 80% non-status [loan] on the valuation. The valuation is currently £450,000, although I realise you will wish to carry out your own survey. On that basis we would be borrowing £360,000..."
A manuscript list of refurbishment works done and to be done was attached. Mr Steele explained in evidence that a non-status loan is a loan calculated on the basis of the equity of the property, and not on the basis of the applicant's income.
[7] In a letter to Mr. Grosset dated 26 February 1990 number 12/3 of process Mr. Prendiville wrote:
"I am enclosing a map delineating the area I intend to detach for our two houses. I am at Blanerne next weekend so I shall measure the boundaries accurately and let you have them.
I am expecting the formal planning permission in the near future.
I shall be re-financing again on a residential basis very shortly prior to the whole scheme, which involves an additional 20 bedrooms plus bathrooms and leisure facilities, being funded commercially.
So long as it will not entail any lengthy legal delay I would prefer the delineated area to be separated as soon as possible. However if there is any possibility of lengthy correspondence between us and the new mortgagors (probably either the Leamington Spa or the Leeds and Holbeck) let us leave it until the commercial mortgage is done. I shall give you a call to discuss this.
The commercial funding + S.T.B. [Scottish Tourist Board] + S.D.A. [Scottish Development Agency] is planned to be in place within two/three months.
The planning application for the 20 bedroom extension is already submitted. I am doing something which I should have done a long time ago, namely I am employing the services of Aitken & Turnbull, architects, based in Duns, Hawick etc. The partner who is doing the Blanerne work is Andrew Lester. He is very business like.
One last query: do I own the salmon rights on my stretch of the river? Please check this and if I do not own them how do I acquire the rights. Just for information I am enclosing some very recent correspondence with the River Tweed Commissioners."
A planning application was in fact submitted on 30 April 1990. The application related to a bedroom extension and alterations/extension to provide leisure facilities at Blanerne. The application was granted on 27 June 1990.
[8] In a third letter to his London bank, Barclays Bank plc, dated 24 March 1990 number 12/4 of process, Mr. Prendiville wrote:
"I refer to our previous correspondence concerning the refurbishment of Blanerne house.
I am in the final stages of agreeing long term commercial finance for the property and this will be supported by the Scottish Tourist Board and the Scottish Development Agency.
These arrangements will be in place by the end of April/beginning of May.
Concurrently I have arranged a mortgage with the Leeds & Holbeck Building Society to ensure that there is a smooth transition from residential to commercial and that the essential refurbishment continues in the meanwhile.
Alex Morison & Co. have the Leeds and Holbeck offer of advance and this is now being processed ...
Currently I am up to my £10,000 unsecured limit ...
My reason for explaining the details and background to the transaction is to ask you to increase my facility to £22,000 until Monday 16 April ..."
The building society loan
[9] Mr. and Mrs. Prendiville completed two applications in connection with re-mortgaging Blanerne House, dated respectively 6 and 19 February 1990, numbers 18/3 and 18/5 of process. The latter became the effective application, but in each application, in Box 13, the questions and answers were identical and were in the following terms:
"Will any part of the property be let or used for business purposes? - No"
"Will you use the property wholly for residential purposes? - Yes"
There was no mention of Mr. Prendiville's desire to create a tennis centre, nor of his proposed time-table involving commercial funding all as set out in his letters dated 26 February and 24 March 1990. Mr. Grosset did not see the applications or copies of them, and was accordingly unaware of their content.
[10] Mr. Steele, the building society's branch manager in Glasgow, dealt with the Prendivilles' application dated 19 February 1990. He approved it in principle and sent it to the head office in Leeds where it was processed by Mr. Bedford, the New Advances manager. Surveyors (John Sale Ltd.) had, in a report dated 20 March 1989 number 18/6 of process, valued the property as a residential property at £330,000, with a projected value after renovation of about £450,000. These surveyors were instructed by the building society. In a re-inspection report dated 13 March 1990, number 29/3 of process, the surveyors advised the building society that renovation work was continuing, but that six items of work remained to be done, and a retention of £30,000 would be necessary. On the basis of the information available to them, the building society offered a loan of £373,488, comprising a principal sum of £370,000 and a mortgage indemnity guarantee premium of £3,488.
[11] The Offer of Advance dated 16 March 1990 number 32/4 of process stated that the loan was to be a repayment loan (i.e. both interest and capital were to be repaid during the period of loan). The period of loan was to be 18 years. The offer contained certain terms and conditions. In particular, condition 10 provided:
"Special conditions
The attention of the solicitor/licensed conveyancer is drawn to the enclosed booklet "Notes to solicitors and licensed conveyancers, Mortgage Conditions 1988 (England and Wales) and Rules on the additional mortgage conditions for properties situated in Scotland and Northern Ireland ..."
A booklet number 32/1 of process entitled "Additional Mortgage Conditions and Notes to Solicitors (Properties situated in Scotland and Northern Ireland)" contained the following conditions:
"1.2 The offer of advance is ... subject to the property not being used for business purposes.
1.4.4 If ... there is any matter relating to the property which may affect its value, please revert to the society.
4.2 The society reserves the right to withdraw the offer of advance at any time and without reason."
The Rules number 12/6 of process contained the following:
"13(15) Every applicant for an advance shall at the time of making application for same give to the Society a statement in writing of the present or intended use of the property proposed to be mortgaged and every part thereof and of any other matter or thing which would in any way affect the validity of any policy of insurance or the amount of any premium payable in respect thereof and if at any time after an advance shall have been made any act or thing shall be done or happen on the premises or any part thereof which would have the like effect the member shall give to the Society a like statement in writing including proof of planning permission. A member shall immediately notify the Society of any planning proposals including development schemes which may affect the mortgaged property and send copies to the Society of any notices received by him within seven days of the receipt thereof.
15 Redemption of mortgages
(1) If a member wishes to repay the whole or any part of an advance before the time agreed, he may do so and in the case of a repayment in full he shall pay to the Society all sums owing in respect of such advance by way of principal, interest, costs, arrears, fines and insurance together with the Society's expenses connected with such repayment and the member shall in addition pay to the Society a redemption fee of such reasonable amount as the Board may from time to time determine and further if such repayment is made within five years from the date of such advance the member shall as the Board from time to time determine pay to the Society in addition to all other moneys due from him a sum not exceeding three months' interest on the balance of the principal ascertained to be due according to the books of the Society."
[12] The building society were content to instruct the Prendivilles' solicitor Mr. Grosset to act on their behalf in the investigation of title and the preparation and constitution of the standard security, as Mr. Grosset's firm was listed on the building society's panel of approved solicitors. They sent him a copy of the Offer of Advance number 34/2 of process together with the Additional Mortgage Conditions and Notes to Solicitors (Properties situated in Scotland and Northern Ireland) and Rules, numbers 32/1 and 12/6 of process.
[13] Mr. Grosset and his assistant prepared a Report on Title dated 30 April 1990 number 13/3 of process, which they sent to the building society. The Report stated inter alia in paragraph 6:
"I/we confirm that any special conditions referred to in the society's instructions have been complied with."
Mr. Grosset and his assistant also prepared the necessary deeds. On 4 May 1990, loan funds of £339,985 were released, £3,488 having been applied to the mortgage indemnity guarantee premium, and £30,000 having been retained in respect of the six remaining items of work listed in the surveyors' report dated 13 March 1990. Work on Blanerne House continued. On 24 May 1990, after re-inspection and a further report dated 16 May 1990 from John Sale Ltd., the retention was also released. The disposal of the funds was detailed in a Statement of Account dated 1 June 1990 prepared by Mr. Grosset number 24 of process, p.103. A sum of £316,016 was paid to the Newcastle Building Society in redemption of their loan; approximately £1,333 was absorbed by various expenses; and the Prendivilles received £52,607.
Repossession of Blanerne House, and loss suffered by building society
[14] The evidence established that, after payment of one instalment in June 1990, the Prendivilles failed to pay their mortgage instalments. No evidence was led explaining the reason or reasons underlying the Prendivilles' default. The building society had to repossess and sell Blanerne House. They incurred costs and expense in so doing. They were able to realise only £200,000 on the re-sale in 1992. There was some evidence that the property market, which had been experiencing a boom in the 1980s, went into a decline at about the time of the Blanerne House transaction, and that property values dropped. However it was not clear on the evidence that the market decline was the reason (or the only reason) for the shortfall suffered by the building society on the realisation of their security.
[15] The losses suffered by the building society as a result of the Blanerne House transaction were agreed in a Joint Minute in the following terms:
"In the event of the defenders being found liable to make reparation to the pursuers due to the defenders' breach of contract et separatim fault the amount of the pursuers' loss and damage (including interest to 21 February 2000) is £458,055.46."
Parties were agreed that in the event of decree being pronounced in favour of the pursuers, interest at judicial rates should run on £458,055.46 from 21 February 2000 until payment.
The building society's complaint against their solicitors
[16] The building society subsequently became aware of inter alia the information contained in Mr. Prendiville's letters dated 26 February and 24 March 1990. They raised the present action, averring professional negligence on the part of Mr. Grosset in respect that it was his duty "to report any fact of a material nature which might affect the pursuers' decision to lend" (Article 4 of Condescendence at p.21C). The building society aver inter alia that Mr. Grosset had a duty to advise them of the short term nature of the borrowing (Article 4 of Condescendence at p.21C-D). He had a duty to disclose to the building society factors which were individually and collectively of a material nature, including the Prendivilles' intention to develop Blanerne House as a "sporting hotel"; the fact that the Prendivilles had undertaken an analysis of the feasibility of the subjects as a sporting hotel; the fact that the Prendivilles required and had previously sought commercial funding for such a hotel; the fact that the Prendivilles had compiled a business plan relating to the "Borders Sporting Hotel"; the fact that the Prendivilles intended to undertake commercial development; and all the facts contained in the letter dated 26 February 1990 (Articles 3 and 4 of Condescendence at pp.14C-15C and 21D respectively). Further he had a duty to disclose to the building society prior to their completing the advance that -
- the loan period was to be 2-3 months
- the loan was to be replaced by a commercial loan in 2-3 months
- the intended use of the property was commercial and not wholly residential
- a planning application for a twenty bedroom extension had been made in relation to the subjects, and
- this was a new venture
(Articles 3 and 4 of Condescendence at pp.15D-E and 21D respectively). Items (1) and (2) of that list were obvious and necessary inferences from the Prendivilles' plans and time-scales as outlined in their letters dated 26 February and 24 March 1990, as they would have had to terminate the mortgage with the building society in order to avoid breaching conditions 1.2, 1.4.4 and 4.2 of the conditions of loan, and rule 13(15) of the rules.
[17] The building society also aver that failing disclosure, Mr. Grosset had a duty to report a conflict of interests to the building society, and to advise them to take advice from an alternative source (Article 4 of Condescendence at p.21E-22A). The building society conclude by averring that "No solicitor of ordinary competence exercising ordinary care at the time would have failed to draw one or all of said factors to the attention of the [building society]" (Article 4 of Condescendence at p.22C).
Building society's state of knowledge prior to release of funds on 4 May 1990
[18] During the proof, it was established that the building society received the two mortgage applications completed by the Prendivilles dated 6 and 19 February 1990 numbers 18/3 and 18/5 of process, with Box 13 indicating that the property would not be let or used for business purposes, and would be used wholly for residential purposes. In the covering letter to the building society dated 7 February 1990 (quoted above), Mr. Prendiville explained that the purpose of the application was to re-mortgage to enable him to complete ongoing refurbishment work to Blanerne House. He enclosed a list of the refurbishment work done and to be done. The building society also received the Report on Title from Mr. Grosset, and two surveyors' reports from John Sale Ltd. dated 13 March and 16 May 1990. None of the documents received by the building society disclosed an intention on the part of the Prendivilles to use the building society's loan for a short period only, thereafter replacing it with a commercial loan to fund a tennis centre.
[19] A disputed question of fact arose from Answer 2 at pp.11E-12C, where the defenders aver:
"On or about 12 February 1990 Mr. Prendiville spoke to Mr. Steele by phone. Mr. Prendiville told Mr. Steele the background to the application. In particular, he told him that though a residential loan was being sought there would be a change to a commercial loan in due course after the refurbishment work was completed and funding had been arranged with the Scottish Tourist Board and the Scottish Development Agency. Mr. Steele told Mr. Prendiville that he would have to submit the application to Head Office for approval but that when the time was appropriate there could be a changeover to a commercial loan."
Mr. Steele was asked to look at manuscript jottings (not in his handwriting) appearing on a letter dated 10 February 1990 number 18/4 of process. The jottings appeared to record:
"12.2.90 Phoned Robin Steele. Told him situation re residential leading to comm. in due course. He likes look of it. Submit to H.O. Transfer to comm. m'gage when other money in place."
Mr. Steele indicated that he did not know what the jottings were. He stated that no such conversation had taken place. No such information had been imparted. Mr. Prendiville did not give evidence. On the basis of the evidence before me I conclude that the defenders have failed to proved knowledge on the part of Mr. Steele or the building society of the type averred at pp.11E-12C.
[20] In all the circumstances, I find it established on the evidence that the building society had no knowledge prior to the release of funds on 4 and 24 May 1990 of any suggestion, wish or plan on the part of the Prendivilles to transform Blanerne House into a tennis centre with the assistance of a commercial loan which was planned should replace the building society loan within a month or two of the release of funds.
Mr. Grosset's state of knowledge prior to release of funds on 4 May 1990
[21] The evidence established that certain facts were not known to Mr. Grosset. He had not seen copies of the two mortgage applications with Box 13 completed by the Prendivilles. He had not been involved in the Prendivilles' negotiations with the building society prior to the Offer of Advance being issued. Further, contrary to the suggestion in paragraph 3.7 of Mr. Smith's report dated 7 February 2000, number 34/1 of process, Mr. Prendiville had not said anything to Mr. Grosset about having told the building society about the tennis centre project, the planning application, and the intended commercial use.
[22] On the other hand, the evidence established that certain facts were known to Mr. Grosset prior to the release of the building society funds on 4 May 1990.
[23] Mr. Grosset received the building society's Offer of Advance and instructions number 32/4 of process which stated inter alia:
"Loan and mortgage details
6.1 Amount of advance £373,488
6.2 Interest rate 15.7 (variable - see note 7)
6.3 Repayment period 18 years
6.4 Type of loan repayment".
He also had a copy of the building society's Standard Mortgage Terms and Conditions, and a copy of the Additional Mortgage Conditions and Notes to Solicitors (Properties situated in Scotland and Northern Ireland) and Rules. He accordingly knew that a substantial amount of money was to be lent on the basis of a residential mortgage, with the period of loan being 18 years. He was aware that building societies tend to fix different rates of interest and different terms and conditions depending on the period of loan and the type of loan (for example, residential or commercial), and that it would be important to the building society to have accurate information about inter alia the intended period of loan and the intended use of the property.
[24] Mr. Grosset also had knowledge of the tennis world. He had experience of dealing with bodies such as the Scottish Lawn Tennis Association. He had knowledge and experience of trying to obtain financial backing in the tennis context. He knew the procedures and time-scales involved in obtaining grants from the Scottish Lawn Tennis Association, the Scottish Tourist Board, local authorities, and other similar bodies. He was aware of the reluctance of each such body to be committed unless and until others were committed and appropriate undertakings, securities and ranking arrangements were in hand. By 1990 he was of the view that the availability of funds for a development such as that proposed by the Prendivilles was certainly no better than it had been in 1986 - if anything, probably worse. For example, Mr. Grosset explained that the approach taken by the Lawn Tennis Association in relation to offering funding after 1985 was such that any funding was designed to work with local authorities and not with private individuals. That development effectively "closed that door of principal grant aid for Mr. Prendiville". Mr. Grosset had advised Mr. Prendiville at that stage that, without tennis money, it would be very unlikely that the Tourist Board and the Scottish Development Agency would agree to assist him.
[25] Finally, in relation to the Prendivilles, Mr. Grosset had knowledge of the contents of Mr. Prendiville's letters dated 26 February and 24 March 1990, both of which he received and read shortly after they were written. He had no discussions with the Prendivilles during January to March 1990, and he made no inquiries prior to the release of the building society funds into the Prendivilles' activities or the extent to which they were succeeding with their efforts to obtain sports or tourist grants or commercial funding. Having made no independent inquiries, he was not, at any time prior to the release of the building society funds, in a position to dispute the truth of any of the factual statements contained in the letters dated 26 February and 24 March 1990. On the other hand, Mr. Grosset had, by 1990, known the Prendivilles for several years. He had personal experience of their ambitious plans in 1986, their optimism, and their subsequent inability to make any progress in putting together the financial package necessary for their tennis centre project. He knew that, despite having obtained planning permission in 1986, nothing had happened at Blanerne to suggest that anything would be done to carry out the planning permission. His assessment of Mr. Prendiville was that, had Mr. Prendiville managed to achieve any indication of financial support for the tennis centre project, he would have "shouted from the mountain tops that he'd got an offer of loan or grant or whatever", and news of the promised financial backing would have reached Mr. Grosset. No such news had reached him. Nor had Mr. Grosset been involved, during the months prior to the release of the loan funds, in the preparation of any sort of documentation relating to agreements, undertakings, securities, or rankings, in connection with a sports or tourist grant or commercial funding for a tennis centre project at Blanerne.
[26] Obviously in the months following the release of the building society funds on 4 May 1990, certain further information came into Mr. Grosset's possession. For example, in late June 1990 Mr. Grosset received a copy of a business plan which had been prepared by Mr. Prendiville. At about the same time, he was aware that Mr.Prendiville was still searching for potential sources of funds, as Mr. Prendiville prevailed upon Mr. Grosset to write to the Clydesdale Bank by letter dated 29 June 1990 number 13/4 of process, introducing Mr. Prendiville to the bank in the context of seeking funding. By mid-July 1990 Mr. Grosset was aware that the Clydesdale Bank had been unable to give Mr. Prendiville a concrete answer, all as recorded in a letter from Mr. Grosset dated 12 July 1990, number 24 of process, p.115. Further by mid-July 1990 Mr. Grosset was aware that Mr. Prendiville was not obtaining any firm commitments from potential sources of funding, as by letter dated 14 July 1990 number 24 of process, p.120, Mr. Prendiville advised Mr. Grosset of "non-committal" responses, and asked Mr. Grosset if he knew of any private investors who might be willing to provide funds. In that letter Mr. Prendiville enclosed copies of letters from the Scottish Tourist Board and the Scottish Development Agency, number 24 of process, pp.118-119, which indicate interest of a preliminary nature but without commitment.
Building society's attitude had they known of tennis centre project
[27] Mr. Steele, the Glasgow branch manager, and Mr. Bedford, the Leeds Advances manager, were clear that they had not been informed of the Prendivilles' intention to create a tennis centre and in so doing replacing their residential mortgage with a commercial mortgage a few months after the Leeds & Holbeck funds had been released to them. If they had known of that intention, they would not have granted a loan, for the following reasons: firstly, the building society did not offer short-term loans: their profit depended upon the long-term nature of the mortgages; secondly, in relation to commercial loans, their policy in 1990 was not to grant commercial loans in Scotland. Had the building society been properly informed, they would not have offered the Prendivilles a loan. The risk was too great.
[28] On the evidence before me, I am satisfied that had any or all of the factors outlined in Articles 3 and 4 of Condescendence been brought to the building society's attention prior to the release of their funds on 4 May 1990 such as to alert them to the Prendivilles' intention as outlined above, the building society would have withdrawn their offer of loan and would not have released the funds to the Prendivilles.
Mr. Grosset's position
[29] Mr. Grosset stated his position in a letter dated 17 June 1992 number 12/2 of process, addressed to solicitors acting for the building society. He also gave evidence in the course of the proof. On the evidence, I found it established that Mr. Grosset considered the Prendivilles to be unrealistic about the feasibility of their tennis centre plan, particularly in relation to obtaining the necessary funding. They had not managed to achieve anything in 1986, and by 1990, to Mr. Grosset's knowledge, sources of funding were even less accessible or available. Mr. Grosset had received Mr. Prendiville's letter dated 26 February 1990, and a copy of Mr. Prendiville's letter dated 24 March 1990, but did not believe that the steps and time-scales narrated therein would be achieved. He had not heard from Mr. Prendiville that any funding body had agreed, even in principle, to fund the project. Knowing Mr. Prendiville as he did, he would have expected Mr. Prendiville to be so jubilant about achieving financial backing that news of his success would have reached Mr. Grosset. Nor had Mr. Grosset been asked to prepare any documentation which tended in his experience to be required by funding bodies such as the Scottish Tourist Board, local authorities and other similar bodies. While therefore Mr. Grosset could not state categorically that the contents of the letter dated 24 March 1990 were untrue, he considered the statements to be over-optimistic and he did not think that the project would ever materialise. He did not accordingly consider that the information contained in the letters dated 26 February and 24 March 1990 was material or significant for the building society. He did not disclose the contents of the letters to the building society.
Expert evidence
[30] Expert evidence was led from Professor Rennie, a partner in Messrs. Ballantyne & Copland, Solicitors, and Professor of Conveyancing at the University of Glasgow, and from David Smith, a partner of Messrs. Shepherd & Wedderburn. Neither expert had personal knowledge or experience of Mr. and Mrs. Prendiville.
[31] Professor Rennie agreed that it might be a matter for the judgement of a solicitor whether, in the particular circumstances which had arisen, disclosure should be made to the building society. He agreed that if a solicitor judged that long-term commercial finance had no chance of materialising, and if his judgement was clearly supported by material or information available to him, there might be something to suggest that no disclosure was necessary. He accepted that he personally had no knowledge of the procedures and time-scales involved in obtaining grants or funds from bodies such as the Scottish Lawn Tennis Association and the Scottish Tourist Board. But Professor Rennie was of the opinion that it would be difficult to dismiss Mr. Prendiville's correspondence in 1990 as speculative or unrealistic. In particular, his letter dated 24 March 1990, which was addressed to a bank, contained representations of fact, and had as its purpose the extension of credit facilities. It would be difficult to classify the content of such correspondence as a mere desire or aspiration or dream, even against a background of a similar attempt in 1986 which had come to nothing. As Professor Rennie put it: "Between 1986 and 1990 there is a four year gap, and things might well have changed." The 1990 correspondence seemed to indicate a more optimistic view, and to be couched in factual terms, with reference to the instruction of architects, planning permission for twenty bedrooms, and other similar matters. The letter dated 24 March 1990 indicated that the true nature of the loan so far as the borrowers were concerned was not an ordinary building society loan over a long term, but a short term bridging loan. In other words, the borrowers had a very different view of the lending from the lenders. While a mortgage for a period of 18, 20, or 25 years was not a guarantee that the loan would exist for that number of years (as there could be a sale, a bankruptcy, a death, an early redemption), the letter dated 24 March 1990 was a clear indication that this loan was not even going to last for six months. The type of lending transaction envisaged by the borrowers was materially different from the type envisaged by the lenders. Building societies in 1990 did not provide bridging finance of this nature. A solicitor of ordinary competence in 1990, exercising reasonable care and skill, would have realised that the intended short term nature of the loan would play a material part in the building society's decision whether or not to lend such a significant sum of money. A solicitor of ordinary competence, exercising reasonable care and skill, would have disclosed the contents of the letters to the building society. It could not safely be assumed that the borrowers would have told the building society. Accordingly Professor Rennie criticised Mr. Grosset's failure to advise the building society as falling below the standard to be expected of an ordinarily competent solicitor exercising reasonable care and skill.
[32] Mr. Smith, partner of Messrs. Shepherd & Wedderburn W.S., was the conveyancing expert led by the defenders. He provided a report dated 7 February 2000 number 34/1 of process, and also gave evidence in court. He confirmed that, in a transaction in which a solicitor was acting for both a building society and a borrower, if there was a material difference between the loan instructions and relevant and material facts known to a solicitor, there might be a duty on the part of the solicitor to disclose the discrepancy to the lenders. A very simple example might be where a solicitor became aware that the client intended to use the loan funds, albeit adequately secured by the heritable property, for a purpose other than that for which the loan had been granted. In such a situation, a solicitor would probably advise the borrower that he (the borrower) was not entitled to do so, and that the solicitor could not act for him in the circumstances which had arisen. Solicitors practising in 1990 had perhaps wrongly assumed that proper practice was to regard the borrower as the principal client and to regard the solicitor's duty to the lender as no more than a duty firstly, to identify any obvious conflict of interest which would preclude the solicitor from acting for both borrower and lender, and secondly to complete the security documentation competently. In fact a solicitor's duties of disclosure were probably greater than had been thought in 1990. But there was still an element of judgement involved, as indeed Professor Rennie noted in his work "Solicitors' Negligence" (1997), in particular in a passage at paragraph 5.05 where it is stated that there are still occasions when a solicitor is entitled to exercise his own professional judgement as to the disclosure to a lender of information which he possesses in his capacity as solicitor for the borrower. In certain obvious situations, such as the discovery of previous sales at much lower figures, there would be something which ought to be drawn to the lender's attention. In other cases however it was a matter of judgement whether to disclose information which the solicitor had acquired in his capacity as solicitor for the borrower. In the present case, an important factor in assessing the exercise of that judgement by Mr. Grosset was the fact that Mr. Grosset had always had major reservations about the viability of the Prendivilles' proposals. If Mr. Grosset read the letter to Barclays Bank dated 24 March 1990, and made no further inquiries about the actual state of affairs at that time, he was exercising his judgement as to whether it was a letter which was sufficiently material as to be relevant to the loan, or whether, consistent with his previous state of knowledge, it was no more than a hope which the client might genuinely believe was going to come to fruition, but about which the legal adviser felt far less confident. A solicitor who decided not to tell the building society about the contents of the letters dated 26 February 1990 and 24 March 1990 without making further specific inquiry into the accuracy or otherwise of the representations of fact contained in the letters would be exercising his professional judgement on the basis of the circumstances before him. In particular in relation to the letter dated 26 February 1990, Mr. Prendiville had been talking about a commercial development for three or four years prior to that letter. Mr. Grosset had taken the view that, however worthy the Prendivilles' intentions were, it was unlikely that they would achieve success commercially because people would not be willing to lend money on the basis of their proposals. The letter disclosed a continuing desire on the part of Mr. Prendiville to advance his commercial dreams, but the reality of the situation was that he had bought a house, a private residence, and was borrowing on security of that house. In relation to the letter to the bank dat
Professional negligence: submissions
[33] Counsel for the pursuers invited me to sustain the pursuers' second plea-in-law, and to grant decree in terms of the Joint Minute. He submitted that the position adopted by the Prendivilles in the letters dated 26 February and 24 March 1990 was highly material to the decisions to be taken by the building society managers Mr. Bedford and Mr. Steele. Had the building society managers known of the content of these letters, no loan would have been granted. Counsel was no longer seeking to argue that the Leeds & Holbeck loan had been obtained for an intended commercial use: rather it was the short-term nature of the loan sought which was significant. Thus although the pursuers had averments at p.17A-B relating to the number of bedrooms and the type of refurbishment being carried out, it was no longer contended that the refurbishment was referable to commercial development or to commercial development alone. What was being argued was that the refurbishment- the "essential refurbishment" mentioned in the letter of 24 March 1990 - was being carried out as an essential prerequisite to any commercial development. The loan obtained from the building society released about £50,000 to the Prendivilles, which permitted them to complete the refurbishment, a necessary prerequisite of the commercial venture.
[34] Counsel for the pursuers made it clear that it was the pursuers' position that any knowledge acquired by Mr. Grosset subsequent to the release of the building society funds on 4 May 1990 was irrelevant when assessing whether or not there had been negligence on the part of Mr. Grosset in not disclosing to the building society prior to the release of funds the position being adopted by the borrowers in the letters dated 26 February and 24 March 1990.
[35] Counsel divided the pursuers' submissions into five chapters:
Letters founded on by pursuers as giving rise to a duty to disclose:
The pursuers founded on the two letters dated 26 February and 24 March 1990. These letters contained material and unequivocal representations of fact by Mr. Prendiville, to the effect that commercial funding would be in place by the end of April or the beginning of May 1990, and that the Leeds & Holbeck lending was to be short-term. These letters expressed not merely vain hopes or aspirations, such as had been expressed shortly after acquisition in 1986, but representations of fact. Mr. Grosset had not made any inquiries about the contents of the letters. He had no discussion with the Prendivilles during the period January to March 1990. He had no direct information that the contents of the letters were untrue. Accordingly the defenders had failed to prove their averments at p.19E-20B, viz. "At no time did the Prendivilles receive any indication of financial support from any investor, venture capital, financier or other source of loan finance to develop the subjects for a sporting hotel or other commercial purposes. At no time did Mr. Prendiville obtain any offer of finance which would allow for developments such as the addition of 20 bedrooms plus bathrooms and leisure facilities." Against that background it was Mr. Grosset's duty, as set out at p.21C-D, "to report any fact of a material nature which might affect the pursuers' decision to lend. In the event that he was aware that the borrowers did not intend to comply with the terms and conditions of the advance he had a duty to report this fact to the pursuers. He had a duty to advise the [pursuers] of the short term nature of the borrowing. Those factors mentioned in Article III of the Condescendence, including the defenders' knowledge of the continuing refurbishment, were individually and collectively of a material nature and ought to have been disclosed to the pursuers." Conditions 1.2, 1.4.4, and 4.2 of the building society's conditions of offer made it clear that, given the Prendivilles' position as stated in the letters ("long term commercial finance ... supported by the STB and SDA ... will be in place by the end of April/beginning of May"), the borrowers would shortly have to repay the mortgage in order to avoid breaching the terms of the loan. Thus the short-term nature of the borrowing was clearly revealed. Had the information contained in the letters dated 26 February and 24 March 1990 been made available to the building society, the building society would not have made a loan to the Prendivilles. Mr. Grosset had accepted in evidence that if the matters contained in the letters were true, or even possibly true, there was a duty to disclose the information to the building society.
Context in which the letters were written and received by Mr. Grosset:
Counsel for the pursuers submitted that the letters dated 26 February and 24 March 1990 had to be viewed in context. It was certainly the case that, on acquisition in 1986, the Prendivilles had an idea about developing a hotel and leisure complex. There had been an appropriate condition in the missives. Planning permission had been sought. Inquiries had been made. Mr. Grosset had at that time advised the Prendivilles that their plans were unrealistic, and the matter had died away. But matters started afresh in 1990. The Prendivilles had decided to complete the essential refurbishment. A new planning application had been submitted. According to the letters, architects had been instructed. Prima facie, matters were significantly different from the situation in 1986. Yet Mr. Grosset made no inquiries, and had no discussions with the Prendivilles.
Mr. Grosset's reasons for not disclosing the contents of the letters to the building society:
Counsel for the pursuers submitted that when giving evidence, Mr. Grosset did not appear to have a clear idea of the nature and extent of his duties to the building society. He had ultimately accepted that, had the contents of the letters been true, he was under a duty to disclose the contents to the building society. For Mr. Grosset to say that he had "seen it all before, and it would come to nothing" was not an adequate basis for his decision not to disclose. It was the building society's money, and they had the right to decide on the basis of relevant information, whether or not to make a loan. It was not legitimate to equiparate the situation in 1986 with the situation in 1990.
Expert evidence:
Both Professor Rennie and Mr. Smith had given evidence that, if there was any difference between the loan instructions and what the solicitor ascertained to be the nature of the transaction, the solicitor may have a duty to disclose the difference to the building society. Professor Rennie's view of the two letters dated 26 February and 24 March 1990 was that they disclosed an intention to obtain a loan not for 18 years, nor for a lesser period which might arise in ordinary course (for example, on early redemption, or on redundancy, or on death or transfer). On the contrary, the letters disclosed an intention to obtain a bridging loan for two months. Professor Rennie's view was that the latter was a materially different transaction, the nature of which had to be reported to the potential lenders. Any solicitor who failed to do so was negligent. On the evidence, the Prendivilles' position was not a vague aspiration: they were applying for planning permission, instructing architects, and stating as a fact that a commercial loan would shortly be in place. The decision was not one for the solicitor, but for the building society. Mr. Smith, the expert instructed by the defenders, had accepted that it would be a "bold solicitor" who would choose, in the circumstances, not to pass on the information contained in the letters to the building society, although admittedly Mr. Smith had not accepted that such a solicitor would also be professionally negligent. Wherever Mr. Smith's evidence differed from Professor Rennie's, Professor Rennie's should be preferred.
Authorities:
In citing authority relating to the duty of a solicitor to disclose information to a building society, counsel for the pursuers accepted that each case has to be determined on its facts, with the assistance of expert evidence. Both the pursuers' and the defenders' counsel accepted that there was a duty of disclosure where the loan instructions did not match the facts found by the solicitor. The narrow issue of dispute in the present case was whether in the light of the whole circumstances there had been a duty upon Mr. Grosset to disclose to the potential lenders the position being adopted by the borrowers in the two letters dated 26 February and 24 March 1990. Counsel referred to Hunter v Hanley, 1955 SC 200; Midland Bank plc v Cameron, Thom, Peterkin & Duncans, 1988 S.L.T. 611; Bank of East Asia Ltd. v Shepherd & Wedderburn W.S., 1995 S.L.T. 1074; Mortgage Express Ltd. v Bowerman & Partners [1996] 2 All E.R. 836, especially the dicta of the Master of the Rolls at p.842 referring to conveyancing practice and standards applicable in 1990:
"A client cannot expect a solicitor to undertake work he has not asked him to do, and will not wish to pay him for such work. But if in the course of doing the work he is instructed to do the solicitor comes into possession of information which is not confidential and which is clearly of potential significance to the client, I think that the client would reasonably expect the solicitor to pass it on and feel understandably aggrieved if he did not.
... if, in the course of investigating title, a solicitor discovers facts which a reasonably competent solicitor would realise might have a material bearing on the valuation of the lender's security of some other ingredient of the lending decision, then it is his duty to point this out".
Counsel also referred to Leeds & Holbeck Building Society v Alex Morison & Company and others, February 11, 1999 (Lord Cameron) especially pp.18 et seq. In all the circumstances, the pursuers' second plea-in-law should be sustained, and decree granted for £458,055.46 with interest at judicial rates from 21 February 2000 until payment.
[36] Counsel for the defenders submitted that the defenders should be assoilzied. The refurbishment had been legitimately carried out under the residential mortgage, and was consistent with the terms and conditions of that mortgage. The pursuers had failed to prove their averments that the Prendivilles had breached their mortgage conditions. The loan was applied to the stated purposes i.e. redeeming the previous mortgage and completing the refurbishment work. The retention was released only when the surveyors gave approval. The completion of the refurbishment work funded by the loan increased the value of the house which was the basis of the building society's non-status loan. No case of professional negligence satisfying the Hunter v Hanley test had been made out. There was little difference in principle between Professor Rennie and Mr. Smith. The defenders accepted that a solicitor acting for both the borrowers and the lenders had a duty that extended beyond the completion of the standard security. In certain circumstances, the solicitor could come under a duty to disclose information to the lender. It was a matter of judgement. A competent solicitor knowing of a possible, speculative development could justifiably not disclose that fact if he had material available to him leading him to the conclusion that the project did not have a realistic prospect of progressing. Mr. Grosset clearly reached that conclusion, on the basis of all the information known to him. Professor Rennie put the 1986 experience out of account, postulating that "things might well have changed": but Mr. Grosset not only had knowledge of the Prendivilles' efforts in 1986; he also had knowledge of the funding necessary for such developments, including the fact that, by 1990, funding agencies were less willing to lend than they had been before. In all the circumstances, Mr. Grosset was entitled to exercise his judgement as he had. He had been proved correct. Negligence had not been proved. The court should accept the evidence of Mr. Smith that, viewed as an exercise of judgement, and based on the whole knowledge available to Mr. Grosset, there had been no negligence.
Professional negligence: opinion
[37] It is well established that the exercise of professional judgement in a particular way may, or may not, constitute professional negligence. Professional negligence occurs only where no ordinarily competent solicitor exercising reasonable care and skill would have done or omitted to do what was done or omitted to be done: Hunter v Hanley, 1955 SC 200.
[38] In the present case, each expert agreed that the question (whether or not to disclose to the building society the position being adopted by the borrowers in the letters dated 26 February and 24 March 1990) involved an exercise of judgement on the part of Mr. Grosset. Counsel agreed that the question whether Mr. Grosset had acted negligently in the exercise of his judgement had to be determined on the basis of the particular facts of this case.
[39] In my view, Mr. Grosset was peculiarly well-qualified to make assessments of and judgements about the Prendivilles, their property at Blanerne House, their tennis centre project, and funding possibilities for such a project. Not only was he a lawyer who had several years experience of the Prendivilles (and in particular Mr Prendiville), such that he was able to make an assessment of their characters, style, and method of operating, but also he was someone with knowledge of the tennis world and the ways in which financial support is raised in that context. He had experience of dealing with bodies such as the Scottish Lawn Tennis Association. He knew the procedures and time-scales involved in obtaining grants from the Association, the Scottish Tourist Board, local authorities, and other similar bodies. He was aware of a tendency on the part of fund providers to be slow to undertake any commitment unless and until others were involved and appropriate undertakings, securities and ranking agreements were in hand. He knew how difficult it was to put together a financial package such as would be required to launch a tennis centre project at Blanerne.
[40] Against that background, I agree with counsel that the question of any duty of disclosure on the part of Mr. Grosset cannot be assessed on a construction of the letters dated 26 February and 24 March 1990 in isolation. The letters have to be read in context, as part of the overall picture available to Mr. Grosset prior to the release of the loan funds in May 1990. When the letters are placed in context, I consider that Mr. Grosset was entitled to exercise his professional judgement as he did, concluding that the contents of the letters amounted to unrealistic, over-optimistic thinking on the part of the Prendivilles. Identical words written by a different individual against a different history and in a different context might well have brought home to Mr. Grosset a duty to advise the building society immediately of the contents of the letters. But I do not consider that the circumstances of this case, when viewed as a whole, gave rise to such a duty. Nor do I consider that the circumstances gave rise to a duty to report a conflict of interests, or to make independent inquiries into the content of the letters.
[41] Further, even if, contrary to the above, there were thought to be a duty to advise the building society of the content of the letters (or to report a conflict of interests, or to make independent inquiries), in the particular circumstances of this case and bearing in mind Mr. Grosset's knowledge of the Prendivilles, the tennis world, and the difficulties, procedures, and time-scales involved in obtaining funding for tennis projects, I am unable on the evidence to conclude that no ordinarily competent solicitor in Mr. Grosset's place would have acted as he did. On the contrary, it is my view that other competent solicitors in Mr. Grosset's place, having Mr. Grosset's particular knowledge, expertise, and experience, and acting with reasonable care, would have viewed the letters exactly as Mr. Grosset did, and acted the way he did.
[42] As noted above, counsel for the pursuers took the view that any information acquired by Mr. Grosset following upon the release of funds on 4 May 1990 was irrelevant when assessing whether or not Mr. Grosset had been negligent. I consider however that the events following upon the release of the building society funds on 4 May 1990 are of some relevance in that they can, to some extent, be used as a measure of the soundness of the professional judgement which Mr. Grosset displayed when he did not draw the attention of the building society to the position being adopted by the borrowers in the letters dated 26 February and 24 March 1990. In my view, subsequent events vindicated Mr. Grosset's professional judgement. For example, the letters from the Scottish Tourist Board and the Scottish Development Agency dated 29 June 1990 and 13 July 1990 respectively (number 24 of process, pp.119 and 118) contain only preliminary expressions of interest, and do not give any commitment even in principle, far less in a form which might encourage other bodies to give grants. A letter from Mr. Grosset to the Clydesdale Bank dated 29 June 1990, number 13/4 of process, makes it clear that, as at that date, Mr. Prendiville was still at the preliminary stage of searching for potential sources of funds. A letter from Mr. Grosset dated 12 July 1990 number 24 of process, p.115, records that the Clydesdale Bank felt unable to give Mr. Prendiville a concrete answer. A letter from Mr. Prendiville to Mr. Grosset dated 14 July 1990 number 24 of process, p.120, describes "non-committal" responses from possible financial sources, and asks Mr. Grosset if he could identify any private investors who might be willing to provide funds. None of the letters referred to support the grandiose statement made by Mr. Prendiville to his bank in his letter dated 24 March 1990 that he was "in the final stages of agreeing long term commercial finance ...", a fortiori bearing in mind the amount of money apparently required for the Prendivilles' project (estimated in mid-July 1990 at about £1.486 million, as detailed in document number 24 of process, p.117).
Causation
[43] Although the conclusion reached above is sufficient for the determination of this case, it is necessary to consider a further argument advanced by counsel for the defenders, namely that even if there was negligence on the part of Mr. Grosset, the negligence did not cause any loss.
[44] Counsel for the defenders contended that the two factors which the pursuers claimed should have been disclosed to the building society (namely the short-term nature of the loan, and the intention to change to a commercial use with commercial funding) did not as a matter of fact lead to the non-payment of the mortgage, the calling up of the loan, the re-selling of the house and the ultimate losses suffered on re-sale. It was contended that the pursuers had not established in evidence the reason underlying the Prendivilles' failure to pay their mortgage instalments. The failure to make payments, the repossession of the house, and the ultimate re-sale at a figure substantially lower than the loan, had not been proved to have been caused either by the short-term nature of the loan or by the Prendivilles' intention to set up a commercial venture having replaced the loan with a commercial loan. This case was not therefore similar to cases where the building society had been misled as to the value of the property, had lent a certain sum on the basis of a wrong valuation, and had subsequently suffered a short-fall on realising the security. Rather the circumstances in the present case should be assessed by applying the dicta of Lord Hoffmann in Banque Bruxelles Lambert S.A. v Eagle Star Insurance Co. Ltd. [1997] AC 191, at p.213-214:
"Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy. Normally the law limits liability to those consequences which are attributable to that which made the act wrongful. In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of the information being inaccurate.
I can illustrate the difference between the ordinary principle and that adopted by the Court of Appeal by an example. A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee.
On the Court of Appeal's principle, the doctor is responsible for the injury suffered by the mountaineer because it is damage which would not have occurred if he had been given correct information about his knee. He would not have gone on the expedition and would have suffered no injury. On what I have suggested is the more usual principle, the doctor is not liable. The injury has not been caused by the doctor's bad advice because it would have occurred even if the advice had been correct.
The Court of Appeal [1995] Q.B. 375 summarily rejected the application of the latter principle to the present case, saying, at p.404:
'The complaint made and upheld against the valuers in these cases is ... not that they were wrong. A professional opinion may be wrong without being negligent. The complaint in each case is that the valuer expressed an opinion that the land was worth more than any careful and competent valuer would have advised.'
I find this reasoning unsatisfactory. It seems to be saying that the valuer's liability should be restricted to the consequences of the valuation being wrong if he had warranted that it was correct but not if he had only promised to use reasonable care to see that it was correct. There are of course differences between the measure of damages for breach of warranty and for injury caused by negligence, to which I shall return. In the case of liability for providing inaccurate information, however, it would seem paradoxical that the liability of a person who warranted the accuracy of the information should be less than that of a person who gave no such warranty but failed to take reasonable care.
Your Lordships might, I would suggest, think that there was something wrong with a principle which, in the example which I have given, produced the result that the doctor was liable. What is the reason for this feeling? I think that the Court of Appeal's principle offends common sense because it makes the doctor responsible for consequences which, though in general terms foreseeable, do not appear to have a sufficient causal connection with the subject matter of the duty. The doctor was asked for information on only one of the considerations which might affect the safety of the mountaineer on the expedition. There seems no reason of policy which requires that the negligence of the doctor should require the transfer to him of all the foreseeable risks of the expedition.
I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.
The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong."
[45] Counsel for the defenders submitted that Lord Hoffmann was in effect distinguishing a causa causans from a causa sine qua non. Thus in the mountaineering example, the doctor's erroneous advice was a causa sine qua non but not the causa causans. Similarly in the present case, the non-disclosure of the short-term nature of the loan and the intention to change to commercial funding did not constitute the causa causans of the pursuers' loss: the true cause of the collapse of the Prendivilles' mortgage was, on the evidence, unknown. In such circumstances, in the absence of precedent precisely in point, the dicta of Lord Hoffman should be applied, and any negligent failure on the part of Mr. Grosset to disclose the short-term nature of the loan and the intention to change to commercial use and funding would be injuria sine damno.
[46] Counsel for the pursuers argued that, on the contrary, had appropriate disclosure been made, the building society would not have made a loan at all. Accordingly they would not have been put at risk, and would not ultimately have suffered any loss. This was not a case of "losses which would have occurred even if the information which [the Prendivilles or their agents] gave had been correct", to quote Lord Hoffmann at p.214D-E. On the contrary, had the building society received the appropriate information, they would not have granted the loan, and they would not have been exposed to any risk of loss. Counsel referred to Bristol & West Building Society v. Rollo Steven & Bond, 1998 S.L.T. 9; Haberstich v McCormick & Nicholson 1975 S.C.81; Bristol & West Building Society v Fancy & Jackson [1997] 4 All.E.R.582.
[47] I consider that the contention of counsel for the pursuers is well-founded. Lending money exposes the lender to risk. While steps may be taken to reduce the risk by obtaining securities, bonds, undertakings, and other similar safeguards, the realisation of securities and calling up of bonds and undertakings does not always provide full reimbursement. In Lord Hoffmann's example, the patient entered the area of risk (mountaineering) because he had already decided to do so: it was his chosen sporting activity. He would only have been deterred from doing so if, for example, he had been advised by his doctor that his knee rendered him unfit. The true causa causans of his indulging in a hazardous activity and thus exposing himself to risk was not the doctor's erroneous advice, but the patient's own love of climbing. By contrast the building society in the present case did not have a pre-determined desire to lend the Prendivilles a large sum of money (even if it is accepted, as evidence from Mr. Smith suggested, that in 1990 there was considerable competition amongst building societies and a general aim on their part to fill their mortgage books). On the contrary, it was the Prendivilles who requested the building society to grant them a loan. The building society were at the stage of considering whether or not to make that loan. Their decision ultimately depended upon their being satisfied about certain facts, including the projected term of the loan, the purpose of the loan, and the degree of risk attached to the loan. A significant factor in the building society's decision to lend to the Prendivilles was their understanding that the property was to be used for residential purposes, and that the period of loan was intended to be 18 years. Had the building society known that the borrowers had a plan to develop a tennis centre - a plan which, prima facie at least, appeared to have certain consequences such as relegation of the building society loan to the status of a short term bridging loan to be replaced by a commercial loan, their decision would have been not to grant the loan. In such circumstances I consider that the true causa causans of the building society's decision to expose themselves to risk by lending a large sum of money to the Prendivilles, albeit secured over heritable property, was the request made by the Prendivilles coupled with the information given to the building society by or on behalf of the Prendivilles and the advice contained in the Report on Title. In such circumstances, any material omission or inaccuracy in the information which had the effect of leading the building society to lend when, on the basis of fuller, more accurate information, they would not have lent, caused the building society's exposure to risk, albeit protected to some extent by the heritable security, and ultimately their loss.
[48] For these reasons, had I found that there had been professional negligence on the part of Mr. Grosset, I would have held that there was a sufficient causal connection between the negligence and the loss ultimately suffered by the building society.
Conclusion
[49] On the whole matter, for the reasons given above, I shall repel the pursuers' second plea-in-law, sustain the defenders' third and fourth pleas-in- law, and assoilzie the defenders.