Bristol and West Building Society v Mothew

Bristol and West Building Society v Mothew  [1998]

Breach of contract, negligence and breach of fiduciary duty prove central to a solicitor’s misgivings when for atypical reasons a lender sought recovery of their loss through equitable principles after other options failed.

In the late 1980s the respondents entered into a mortgage arrangement with a couple looking to secure a second property for £73,000, however due to market instability the respondents expressed that the £59,000 loaned was subject to the mortgagors paying the balance of the property from existing capital in order to reduce the risk of default, after which the acting appellant solicitor knowingly agreed to undertake the conveyance and provide a full report as contained in their contract. 

Prior to completion of the purchase the mortgagors took out a small charge against their existing property for £3,350 in order to raise the funds needed to secure the mortgage, and aware that the debt would be later secured against the new house, and yet the appellant continued with the purchase without reporting the change in financial circumstances to the respondents.

Following a successful transaction the mortgagors honoured only a handful of repayments before lapsing into default, whereupon the new house was sold as part of the repossession process, however the property crash had diminished the property’s value short of satisfying the debt by £6,000, thus the respondents sought equitable damages from the solicitor on grounds of breach of fiduciary duty through non-disclosure of the loan terms.

In this instance the court ruled in favour of the respondents and awarded damages to the effect of £59,000, less the funds raised from the sale, whereupon the appellant challenged the judgment in the Court of Appeal, who upheld the appeal on grounds that appellant’s oversight did not constitute a breach of fiduciary duty to either the mortgagees or the respondents, as the appellants had been consciously acting in good faith toward both parries throughout the disposition, therefore any lapse of skill or appreciation was accidental and not premeditated as required under the rules of equity, while the Court also reminded the parties that:

“[I]f a fiduciary is properly acting for two principals with potentially conflicting interests he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other…”