Mortgage Express v Abensons Solicitors
Limitation – Breach of fiduciary duty – Section 32 of Limitation Act 1980 – Postponement of limitation period for deliberately concealed breach of duty – Defendant firm of solicitors acting for both borrower and claimant mortgage lender in relation to land transactions – Claimant amending claim against defendant to add allegations of breach of fiduciary duty – Whether amendments properly allowed – Whether limitation defence necessarily precluded by section 32(2) – Appeal allowed
In 2010, the claimant mortgage lender issued a claim against the defendant firm of solicitors for breach of contract and negligence in relation to several land transactions in 2004 and 2005, in which the claimant had advanced loans to a borrower to fund the purchase of several properties on a new development. The defendant had acted for both the borrower and the claimant on the transactions. After obtaining disclosure of the defendant’s accounts files in 2011, pursuant to an order of the court, the claimant applied to amend its particulars of claim to add a new claim for breach of fiduciary duty.
The claimant alleged that the defendant had deliberately withheld information, preferred the interests of the borrower over those of the claimant and continued to act after an actual conflict of interest had arisen. It claimed that the defendant had failed to disclose certain facts about the transaction, which, if disclosed, would have led the claimant to refuse the loans; these included the fact that the borrower was a shareholder and director of the developer and the registered freeholder of the development site, had sold the properties to the developer for nil consideration and had then repurchased them on the same day, partly funded by the claimant’s loans. The defendant opposed the amendment on the ground that it would effectively deprive it of an arguable limitation defence in relation to the 2004 transactions.
The amendment was allowed by a master, who held that the cause of action required proof of deliberate breach of duty by the defendant, which, if made out, would also mean that the defendant had deliberately concealed the breach such that the limitation period was postponed pursuant to section 32 of the Limitation Act 1980. He based his decision on section 32(2), under which deliberate commission of a breach of duty, in circumstances in which it was unlikely to be discovered for some time, was deemed to amount to deliberate concealment of the facts involved in that breach of duty.
The defendant appealed. He contended that deliberateness was not a necessary ingredient of all breaches of fiduciary duty such that section 32(2) would not necessarily apply.
Held: The appeal was allowed.
A limitation defence would only be blocked by section 32(2) of the 1980 Act if the defendant was shown to have been aware, at the time of the alleged breach of duty, that what it did or omitted to do amounted to a breach of duty: Cave v Robinson Jarvis & Rolf [2002] UKHL 18; [2003] 1 AC 384; [2002] 19 EG 146 (CS) applied. The limitation defence would be blocked in relation to the alleged breach of duty consisting of preferring the interests of the borrower over those of the lender. To establish that breach, the claimant had to show that the defendant was conscious of an obligation owed to the claimant to do or refrain from doing something, but that it felt, rightly or wrongly, that it was inhibited in complying with that obligation by reason of the fact that it was also acting for the borrower: Bristol & West Building Society v Mothew [1998] Ch 1; [1996] EGCS 136 applied. Acting in ignorance of the obligation would not suffice, even where the ignorance was negligent. Accordingly, where liability for that type of breach was made out, that would mean that the defendant had known that it was committing a breach of duty, sufficient to overlap with the requirements of section 32(2) of the 1980 Act and preclude the defendant’s limitation defence.
However, section 32(2) would not necessarily apply to the “actual conflict of interest” ground. It was arguable that a solicitor did not have to be aware of the conflict of interest in order to breach the relevant duty: Mothew and Leeds & Holbeck Building Society v Arthur & Co [2001] Lloyd’s Rep PN 649 considered. The claimant’s pleadings covered any actual conflict of interest that might arise if, for instance, it were found at trial that the defendant had failed to disclose a matter because of the borrower’s instructions not to do so. There was a risk that such findings might be held to establish liability even if the defendant had not appreciated at the time that it was in breach of duty to the claimant. The fact that the claimant expressly pleaded “deliberate” breach would not necessarily limit the cause of action if it was not so limited as a matter of law.
Accordingly, the master had erred in holding that there could be no circumstances in which the permitted amendments could deprive the defendant of an arguable limitation defence. His order should be set aside in relation to the 2004 transactions. A separate claim, corresponding to the disallowed amendments, could still be consolidated and tried with the instant proceedings with any point of limitation being determined at trial in the light of the facts found.
William Edwards (instructed by Jeffrey Green Russell) appeared for the claimant; Dan Stacey (instructed by Plexus Law) appeared for the defendant.
Sally Dobson, barrister
Limitation – Breach of fiduciary duty – Section 32 of Limitation Act 1980 – Postponement of limitation period for deliberately concealed breach of duty – Defendant firm of solicitors acting for both borrower and claimant mortgage lender in relation to land transactions – Claimant amending claim against defendant to add allegations of breach of fiduciary duty – Whether amendments properly allowed – Whether limitation defence necessarily precluded by section 32(2) – Appeal allowedIn 2010, the claimant mortgage lender issued a claim against the defendant firm of solicitors for breach of contract and negligence in relation to several land transactions in 2004 and 2005, in which the claimant had advanced loans to a borrower to fund the purchase of several properties on a new development. The defendant had acted for both the borrower and the claimant on the transactions. After obtaining disclosure of the defendant’s accounts files in 2011, pursuant to an order of the court, the claimant applied to amend its particulars of claim to add a new claim for breach of fiduciary duty.The claimant alleged that the defendant had deliberately withheld information, preferred the interests of the borrower over those of the claimant and continued to act after an actual conflict of interest had arisen. It claimed that the defendant had failed to disclose certain facts about the transaction, which, if disclosed, would have led the claimant to refuse the loans; these included the fact that the borrower was a shareholder and director of the developer and the registered freeholder of the development site, had sold the properties to the developer for nil consideration and had then repurchased them on the same day, partly funded by the claimant’s loans. The defendant opposed the amendment on the ground that it would effectively deprive it of an arguable limitation defence in relation to the 2004 transactions.The amendment was allowed by a master, who held that the cause of action required proof of deliberate breach of duty by the defendant, which, if made out, would also mean that the defendant had deliberately concealed the breach such that the limitation period was postponed pursuant to section 32 of the Limitation Act 1980. He based his decision on section 32(2), under which deliberate commission of a breach of duty, in circumstances in which it was unlikely to be discovered for some time, was deemed to amount to deliberate concealment of the facts involved in that breach of duty.The defendant appealed. He contended that deliberateness was not a necessary ingredient of all breaches of fiduciary duty such that section 32(2) would not necessarily apply.Held: The appeal was allowed. A limitation defence would only be blocked by section 32(2) of the 1980 Act if the defendant was shown to have been aware, at the time of the alleged breach of duty, that what it did or omitted to do amounted to a breach of duty: Cave v Robinson Jarvis & Rolf [2002] UKHL 18; [2003] 1 AC 384; [2002] 19 EG 146 (CS) applied. The limitation defence would be blocked in relation to the alleged breach of duty consisting of preferring the interests of the borrower over those of the lender. To establish that breach, the claimant had to show that the defendant was conscious of an obligation owed to the claimant to do or refrain from doing something, but that it felt, rightly or wrongly, that it was inhibited in complying with that obligation by reason of the fact that it was also acting for the borrower: Bristol & West Building Society v Mothew [1998] Ch 1; [1996] EGCS 136 applied. Acting in ignorance of the obligation would not suffice, even where the ignorance was negligent. Accordingly, where liability for that type of breach was made out, that would mean that the defendant had known that it was committing a breach of duty, sufficient to overlap with the requirements of section 32(2) of the 1980 Act and preclude the defendant’s limitation defence.However, section 32(2) would not necessarily apply to the “actual conflict of interest” ground. It was arguable that a solicitor did not have to be aware of the conflict of interest in order to breach the relevant duty: Mothew and Leeds & Holbeck Building Society v Arthur & Co [2001] Lloyd’s Rep PN 649 considered. The claimant’s pleadings covered any actual conflict of interest that might arise if, for instance, it were found at trial that the defendant had failed to disclose a matter because of the borrower’s instructions not to do so. There was a risk that such findings might be held to establish liability even if the defendant had not appreciated at the time that it was in breach of duty to the claimant. The fact that the claimant expressly pleaded “deliberate” breach would not necessarily limit the cause of action if it was not so limited as a matter of law.Accordingly, the master had erred in holding that there could be no circumstances in which the permitted amendments could deprive the defendant of an arguable limitation defence. His order should be set aside in relation to the 2004 transactions. A separate claim, corresponding to the disallowed amendments, could still be consolidated and tried with the instant proceedings with any point of limitation being determined at trial in the light of the facts found.William Edwards (instructed by Jeffrey Green Russell) appeared for the claimant; Dan Stacey (instructed by Plexus Law) appeared for the defendant.
Sally Dobson, barrister
