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…”
Interference with the performance of a contract, and assistance in a breach of trust, lie central to a matter involving two solicitors and a property developer, whose triangulated relationship resulted in financial abuses and ethical ignorance by those expected to conduct themselves with nothing less than self-discipline and professionalism.
Having owned and operated a number of business ventures, the respondent had ventured to obtain a business loan for the purposes of acquiring further properties, however at the time of inquiry his bank was unable to commit to lending the money, therefore he made contact with the plaintiffs, so as to borrow the sum of £1m, to which the plaintiffs requested that the loan agreement be underwritten by a qualified solicitor.
Upon consultation with the appellant his request was denied, and so with time against him he approached another law practice, whose second partner had a business history with the defendant, and through which the partner had become liable to the defendant to the sum of £1.5m.
In order to repay the debt owed, the partner then agreed to become principle debtor to the loan by way of its underwriting, while keeping the truth of their arrangement from the plaintiffs, and so when signing the loan agreement, they were now legally subject to its terms, in which sections 1 and 2 read:
“1. The loan moneys will be retained by us until such time as they are applied in the acquisition of property on behalf of our client.
2. The loan moneys will be utilised solely for the acquisition of property on behalf of our client and for no other purpose.”
While s. 4 further read that:
“We confirm that this undertaking is given by us in the course of our business as solicitors and in the context of an underlying transaction on behalf of our clients which is part of our usual business as solicitors.”
However once the money had been loaned, the partner contacted the appellant, and asked that he retain the funds in a client account until such time that the plaintiff required it. While both solicitors were aware that such a transfer was tantamount to a breach of s.1, the money was nonetheless accepted and then released by the appellant to the respondent with no proof that any of the money was being used for the purchase of properties, as per s. 2 of the agreement.
At the point of initial litigation, the plaintiffs sued for recovery of the funds following non-payment by the now dissolved partner on grounds of breach of trust, and for dishonest assistance on the part of the appellant when holding the money and paying it to the respondent upon his request, despite knowledge of the initial breach prior to his receipt of the funds from the partner.
While in the first instance the Court of the Queen’s Bench dismissed the claim on grounds that the appellant had merely acted recklessly in the course of his duties, the Court of Appeal reversed the judgment on grounds that the appellant had knowingly received money destined not for the purchase of property, and thereby in breach of s.2, and that he had wilfully closed his eyes to the facts when agreeing to both hold and transfer the funds to the respondent.
Upon appeal to the House of Lords, the appellant argued that his involvement in the matter was certainly naive and remiss but in no way unlawful, and so the House agreed to examine the details of the case for the purposes of clarity.
Turning first to Royal Brunei Airlines Sdn Bhd v Tan, the House noted that the Court of Appeal had explained how:
“A fraudulent and dishonest design is not confined to personal gain. It is sufficient if the stranger knowingly assists in the use of trust property in a way which is not permitted by the trust.”
And that in its simplest form:
“[A] trust is a relationship which exists when one person holds property on behalf of another. If, for his own purposes, a third party deliberately interferes in that relationship by assisting the trustee in depriving the beneficiary of the property held for him by the trustee, the beneficiary should be able to look for recompense to the third party as well as the trustee.”
Thus in its conclusion, the court had held that:
“[D]ishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation.”
And so it was clear that when the appellant acquiesced to the instructions of the partner, he had, whether intentionally or not, become complicit in the misuse of what was held to be trust property of the plaintiffs, while the House also also referred to Gilbert v Gonard in which the Court of Chancery had also held that:
“[I]f one person makes a payment to another for a certain purpose, and that person takes the money knowing that it is for that purpose, he must apply it to the purpose for which it was given. He may decline to take it if he likes; but if he chooses to accept the money tendered for a particular purpose, it is his duty, and there is a legal obligation on him, to apply it for that purpose.”
Although the House drew the distinction that unlike civil courts, equity relies less upon the mens rea of a man and more on his behaviour, and while the appeal was founded upon a breach of trust and dishonest assistance, there was insufficient evidence to suggest certainty as to the mind of the appellant when carrying out his part of the agreement. However, the House did conclusively note that under the circumstances there was ample grounds for a liability under wrongful interference with a contract and for assisting in a breach of trust, therefore the court of appeal judgment was upheld and reversed in part, while the House held that:
“[E]quity looks to a man’s conduct, not to his state of mind.”
“Where a third party with knowledge of a contract has dealings with the contract breaker which the third party knows will amount to a breach of contract and damage results, he commits an actionable interference with the contract…”
Sadly as can sometimes happen, the mediation by a solicitor can prove the undoing of bargaining between parties, when for one reason or another, the third party attempts to manipulate matters to the detriment of those he was initially employed to serve.
On this occasion, a shareholder sale agreement was drafted by two company co-directors, who upon his retirement, the respondent had decided to relinquish his stake holding for a sum of around £347,000. During the preliminary stages of the contract, numerous oral agreements were made with little to no conflict, however as time progressed, the matter became complicated through the construction of a draft agreement, which had been worded by a second firm of solicitors.
At the point of litigation, communication had deteriorated to a quick succession of emails between the respondent and the solicitor alleged to be acting for both parties. Within these exchanges were a number of comments and misinterpretations that ultimately derailed the negotiations, however for the purposes of the clarification the timeline was as follows:
(1) A draft agreement was made on behalf of both parties, subject to mutual consent to document wording.
(2) The respondent’s solicitors suggested an amendment to the terms of the agreement.
(3) The suggestion was construed by the appellant as a rejection of the agreement.
(4) The mediating solicitor construed from a telephone conversation, that the respondent was refusing to sign the agreement without knowledge of the appellant’s future plans.
(5) The respondent expressed that he perceived the appellant to be contractually obliged to purchase the shares.
(6) The respondent denied he had any interest in the future of the company or the appellant.
(7) The mediating solicitor imposed a time restriction for acceptance of the draft agreement.
(8) The mediating solicitor withdrew his services upon expiration of the time restriction.
(9) The respondent later agreed to sign the agreement, despite his earlier reservations.
In the first hearing, the judge found that the discussions within the first and last email were tantamount to a binding contract, and so awarded accordingly. However, at the Court of Appeal, a reexamination of the facts and the chronology of events, painted quite a different picture.
Here, it was held that while the contract itself was not subject to time penalties, the position adopted by the ‘mediating’ solicitor was one that implied how all terms of the bargain were now defined through his presence, therefore by the imposition of a threshold upon which to contract, the eventual acceptance by the respondent was both after the fact and thereby null in effect, thus it was for that reason (and perhaps unnecessary element of the negotiation), that the appeal was upheld and judgment awarded to the appellant, while holding that:
“[T]here is a distinction between a counter-offer or a refusal, which does put an end to an offer, and a request for further information which does not amount to a new offer but is to an investigation of the offering party’s position.”
Profiting from a fiduciary position, while not expressly forbidden, is a feature that requires careful consideration by both trustees and beneficiaries, and so in this matter the billing of fees for legal services proved both offensive and damaging for the party accused.
In 1895, the Governor of the Yorkshire College took issue with the vice-chairman after discovering that he had for a period of fourteen years, been providing legal function as a solicitor whilst holding a position based upon a voluntary footing. Incensed at this opportunistic behaviour, the now appellant wrote a lengthy letter to the respondent, accusing him of breaching his fiduciary duty to the institution her served, while stressing that he had:
“[U]sed religious, educational and philanthropic schemes as a hypocritical cover for the purpose of serving his own ends.”
The respondent argued that the terms of the memorandum of association had provided him with rights to both charge and profit from his work, a contention that remained largely unproven at the point of litigation. In the first hearing, the judge underemphasised the importance of the accusation levelled, instead focussing on the libellous tone used in the letter, which at the time, was circulated amongst three hundred other college governors.
Having convinced the jury that the respondent was justified in his collection of payment for legal services, the judge again placed greater weight upon the damaging effects of the written statements, after which the jury returned a verdict in favour of the respondent, and with damages set at a lofty 600l.
Upon appeal, the appellant was left facing a similar outcome after the Court agreed that the libel charges remained as effective as they would have should the respondent have been proved wrong, thus prompting a final plea before the House of Lords.
Here, the roots of the matter were revisited, along with Order XXXIX r.6 of the Rules of the Supreme Court 1883, which explained how:
“[A] new trial shall not be granted on the ground of misdirection or of the improper admission or rejection of evidence,…unless in the opinion of the Court to which the application is made some substantial wrong or miscarriage has been thereby occasioned in the trial…”
It was thus uniformly agreed by the House that from the outset, the nature of the action had been grossly overlooked in favour of aspersions, and that the trial judge had clearly failed to acknowledge the gravity of a fiduciary breach, which if proven correct, went some way to justifying the claims made by the appellant at the start. It was for this reason that the House held that there had been a clear miscarriage of justice, and that in failing to recognise this, the Court of Appeal had conversely erred in judgment.
In light of these collective mishaps, the House duly reversed the Court of Appeal’s decision, directed a re-trial under the Supreme Court Rules, and ordered repayment of all courts costs and damages to the appellant.
Testamentary capacity and the long-term effects of a debilitating terminal illness, are central to a case where despite numerous witness accounts and medico-legal opinion, the power to reach an exacting judgment remained elusive to the end.
Having been diagnosed with multiple sclerosis in 1980, an equine stud owner and racehorse trainer was left with virtually no direct means of communication at the time his revised will underwent drafting and execution. This change in disposition was such that precluded his two daughters from inheritance, and which led to costly litigation in contention of a perceived rejection.
During the twenty-so years of his decline, the testator had been supported by a number of close friends and acquaintances through employment, legal services, medical assistance, 24-hr care and lifelong companionship. At the outset of his condition, the testator was able to communicate without detriment, yet as the years passed, his only means of dialogue was through mechanical devices, gestures and blinking.
This resulted by extension of the crippling effects of the disease, which according to medical data, was accompanied by progressive weakening of the cognitive faculties, as often found in cases similar to this. While the original will dated February 1997 made arrangements for his two daughters to benefit from his £1m estate, he decided in 2001, to revise the will in favour of his two primary employees, who had both remained loyal to him for a period of over twenty-five years.
This came at a time when those closest had begun to voice concerns as to his mental state, along with his long-standing reliance upon medication to accommodate the increasingly painful symptoms. After a number of consultations with his trusted solicitor, doctor and friends, the revised will was drafted and executed in full accordance with legal procedures, and on the understanding that while the removal of his daughters from the will was prima facie absolute and seemingly out of character, there was simply no evidence to suggest the testator was anything less than lucid and of sound mind.
Upon his death, the matter was brought before the court, whereupon the daughters claimed their father lacked testamentary capacity at the time the new will was drafted, and that under the principles used in the Banks v Goodfellow test which reads:
“It is essential to the exercise of such a power that a testator [a] shall understand the nature of the Act and its effects; [b] shall understand the extent of the property of which he is disposing; [c] shall be able to comprehend and appreciate the claims to which he ought to give effect; and, with a view to the latter object, [d] that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties – that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not have been made.”
The will was void, therefore the 1997 will must stand. Having presented the evidence to a discerning jury, the case was made using expert testimony from both a Professor of Neuropsychiatry and a highly qualified Neurologist, who between them argued both for and against the testator’s capacity to instruct and bequeath his estate. Despite the compulsion of the two professional reports, neither party had met the deceased, nor been present when the revised will was prepared. This mitigating element was contributive to the granting of an appeal after the jury decided against the 2001 will, whereupon it was presented again to the Supreme Court.
While the previous judge had found himself contradicting the viewpoint of the Professor on a number of points, the Court chose to rely upon the argument that in keeping with medical expectations, the deterioration of brain function within multiple sclerosis cases would be representative of a man unable to hold himself fully accountable when preparing a will at the stage the testator had reached when doing the same; while emphasis was also placed upon the long-term drug usage of the deceased, which had incidentally ceased sometime before the revision occurred.
It was this, along with the sudden reversal of fortune for the testator’s employees, that solidified the verdict to dismiss the appeal before noting that while subjective opinion of those witness to testator requests frequently conflict with that of medical data, the words of Lord Cranworth in Boyse v Rossborough remind us all that:
“There is no possibility of mistaking midnight from noon, but at what precise moment twilight becomes darkness is hard to determine.”
Amendments to an existing will by the hand of an unwitnessed solicitor, brings with it grave concerns within the courts, and on this occasion, there was little to endorse the legitimate redirection of assets from the testatrix’s named charities and extended family members, to that of a sole executor assigned to promote fair and transparent dispositions.
Having herself become wealthy through the acquisition of property and funds resulting from deaths of those close to her, the now deceased testatrix turned to the professional and perhaps personal advice, of a solicitor whose father before him had served the family’s legal needs.
During the decade preceding her death, there were a significant number of alterations made to her existing will and codicil, primarily through repeated consultation with the now respondent solicitor. At the outset of their working together, the respondent had become responsible for the management of the deceased’s estate, following the death of her brother a year previous.
It was around this time that several liaisons occurred, during which the testatrix was claimed to have requested that both the Bank of Westminster and the respondent were to act as joint executors, with the responsibility of issuing annuities to close relatives and local named charities.
It was also admitted that throughout the course of events, the deceased knew little or nothing of the extent of her estate, while it was well known to those familiar, that she was also of reasonably low intelligence and lacking any substantive business acumen or financial insight. It was for this reason that the court was reluctant to endorse later alterations involving the removal of the bank and charitable gifts, in lieu of the respondent gaining sole executorship for the estate, along with the power to determine all pecuniary legacies at his discretion.
There was also mention that the deceased had grown concerned that a lack of funds would prevent her from securing her younger sister’s annuity, and so with little objection from the respondent, this bequest was also removed, despite him having sound knowledge as to the actual value of her estate, and abundance of funds to hand.
All of these (and other) inexplicable changes resulted in an estate worth £115,000, which in 1947 was no small sum, especially when it was noted that the deceased had taken the initial decision to leave the residual estate to the respondent, which had since increased from less than £1000 to now over £100,000.
It was this questionable outcome that prompted legal action for the recovery of the deceased’s estate on grounds that the will was void, due to the unwitnessed interactions between the testatrix and the respondent, and the reliance upon his deposition as evidence, however at no point was fraud properly alleged. When heard before a jury, the judge gave direction accordingly, at which point the will was held to be valid and beyond reasonable doubt.
Taken to the Court of Appeal, the Court upheld the previous findings, before the case arriving at the House of Lords. Here emphasis was placed upon the seeming reluctance by the first judge to approach the case with sufficient suspicion, as was traditional in these circumstances. It was also argued that there were numerous reasons for the House to question not the mental fragility of the deceased, but her vulnerability in maters of property, wealth and estate administration.
And so it was, after careful examination of the facts, uniformly decided that both the will and codicil were to be held as invalid, and that referral to the High Court of Justice (Probate Division) on those grounds would be made for the purposes of a resubmission, but with the absence of beneficial rights granted to the respondent.
When a man of standing sought to create a trust for the purposes of a relative’s benefit, he was careful enough to provide specific instructions to his trustee, but unfortunately erred in putting them into action.
A number of years after his death, the beneficiary challenged the assigned executor on grounds that his written desire for her to gain lawful receipt was sufficient enough to constitute an enforceable covenant and that the courts were inter alia wrong to deny it.
In 1852 the settlor drafted a deed-poll that enabled fifty shares of his stock held in the Louisiana Bank to be transferred to his associate (who had become his appointed trustee) on the proviso that under a number of specific conditions he was to hold the shares upon trust for the benefit of his beloved niece.
He also stipulated that during the time between his grant and the date of her marriage or his death, the trustee was to manage the trust and pay any profits arising from the dividend interest to the beneficiary.
During this period the settlor also granted the trustee power of attorney over all of his financial matters, and so while it was possible for the trustee to complete the request, he never managed to fully execute transferral under the banking practice policy, which required the participation of either the settlor himself or a qualified solicitor, and where neither was found, that the power of attorney rested not with the trustee but the bank.
In the first instance the presiding judge awarded that by virtue of the deed construction, a valid trust had existed, and that the fifty shares were to be reissued by the executor to the existing trustee, where they would be again held upon trust for the niece (as had been the case before the settlor’s death).
However under appeal the Court took the equitable view that a legally incomplete gesture cannot be enforced (equity will not perfect an imperfect gift), and so held that it was impossible for the settlor to become a self-appointed trustee for the shares discussed.
Rather it was declared that the funds were to be held upon trust by the executor until amendments could be made to the deed that provided for redistribution in the manner first intended, or until the trustee and beneficiary chose to take individual action against him, while the court reminded both parties that:
“[I]n order to render a voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him.”