PNBA

Gabriel v Little

Supreme Court: Permission to Appeal Granted, Hearing Forthcoming
Court of Appeal: [2013] EWCA Civ 1513

Subject:

Solicitors; Duties of Care; Remoteness; Recoverable Losses

Summary:

The Supreme Court has granted permission to appeal as to the solicitors’ liability part of the Court of Appeal’s recent decision in Gabriel v Little [2013] EWCA Civ 1513. It looks as if this must have been because there is an arguable point of general public importance in relation to the application of the House of Lords’ decision in Saamco, with regard to the scope of the solicitors’ duty to the claimant and the extent to which the damage claimed fell within that scope.

Abstract:

Mr Gabriel knew Mr Little. Mr Little and Mr Gabriel had a chat in the Red Hart public house in November 2007. They discussed Mr Little’s plan to develop a building at Kemble airfield. They discussed in outline the possibility that Mr Gabriel would make a loan of £200,000, with interest of £70,000, in connection with the development of the building.

The effect of the findings of the deputy judge (Robert Englehart QC) was that there then followed a series of misunderstandings. A company called Whiteshore was set up to undertake the development. Mr Gabriel proceeded to lend the £200,000, thinking that it would all be used to develop the property. In fact the position was that (i) Mr Little in effect controlled Whiteshore; (ii) Whiteshore was buying the property for £150,000 plus VAT; (iii) Whiteshore had no other source of funds, so Mr Gabriel’s money was mostly going to fund the purchase; (iv) Whiteshore bought the property from another company controlled by Mr Little. The judge, however, rejected the suggestion that Mr Little had misled Mr Gabriel. They must have been at cross-purposes.

Mr Gabriel instructed solicitors called BPE to act for him in the transaction. BPE realised that Mr Gabriel’s money would largely be used for Whiteshore to purchase the property, but, in breach of duty, they failed to make this clear to Mr Gabriel. So again, Mr Gabriel was at cross-purposes, this time with his solicitors.

Whiteshore defaulted. Mr Gabriel had a first legal charge over the property. As a result it was sold in July 2010 but only for £13,000. Mr Gabriel therefore suffered a large loss and he sued Mr Little and BPE.

Mr Gabriel had lent the £200,000 without realising the true nature of the transaction. That was due to BPE’s breach of duty in failing to explain it to him. As to causation, the judge held that, if he had realised the true nature of the transaction, Mr Gabriel would not have lent. Subject to arguments as to the scope of duty and Saamco, Mr Gabriel would therefore have been able to recover his loss from the solicitors BPE.

The judge applied Saamco, and considered whether Mr Gabriel’s loss fell within the scope of BPE’s duty. He said at [91]:

“In the present case [BPE]’s breach of duty meant that Mr Gabriel was not able to know the true nature of the loan transaction into which he was entering. He was thus deprived of the choice whether or not to enter into the transaction with knowledge of its true nature. As I have concluded, he would not have entered into the loan if he had known what was known to [BPE]. In these circumstances, it seems to me that it was quite foreseeable that if BPE’s duty was broken in the way which occurred Mr Gabriel would be likely never to recover his loan and have to depend on recovery from disposal of a wholly undeveloped property in a poor state of repair. Doubtless, the fall in property values in 2008 made this disposal more problematic, but it cannot be said that it was that fall which caused Mr Gabriel’s loss. It is my view that in the particular circumstances of this case Mr Gabriel is, subject to any questions of contributory negligence and mitigation, entitled to recover all his losses from having entered into this transaction. In coming to this conclusion, I have endeavoured to follow the approach of Chadwick J in Bristol West Building Society v Fancy Jackson [1997] 4 All ER 582, [1997] NPC 109 (insofar as he addresses the case of Steggles Palmer) and of the Court of Appeal in Portman Building Society v Bevan Ashford [2000] PNLR 344 .”

This is a reference to the Steggles Palmer case, which suggests that, where a lender’s solicitors fail to report to the lender information tending to the show that the borrower is someone to whom it would not wish to lend, all of the lender’s loss falls within the scope of the solicitor’s breach of duty; hence all the loss is recoverable. The result of the trial was, therefore, that Mr Gabriel was able to recover all his loss from the solicitors BPE: it all fell within the scope of their duty to him.

On appeal, counsel for the solicitors (Roger Stewart QC) persuaded the Court of Appeal to take the opposite view as to the application of Saamco.

Gloster LJ, giving the only reasoned judgment, agreed at [73] that BPE had owed Mr Gabriel a duty to inform him that the loan money was going to be immediately applied in Whiteshore’s purchase of the property from its owner High Tech, and in the discharge of a charge over it. BPE had breached that duty.

She then considered the application of Saamco. She held at [80] that it was not possible to characterise Mr Gabriel’s losses as the foreseeable consequences of the information supplied by BPE being wrong. She added at [82] that

“This was not a case (contrast Steggles Palmer) where the information as to the destination of the loan monies (i.e. in discharge of the Lloyds TSB charge) would have shown Mr Little to have been a fraudster. The judge’s findings of fact in relation to Mr Little do not permit of that result.”

Gloster LJ’s view was, in summary, that the cause of Mr Gabriel’s loss was his own decision to invest his money in the project without taking elementary precautions first, such as obtaining a valuation of the property before lending. At [84] she listed various other steps which he should have taken.

Comment:

The appeal to the Supreme Court raises the prospect of that court considering in detail the distinction, applying Saamco, between cases where either none or part of the claimant’s loss falls within the scope of the defendant’s duty, and those in which all of that loss falls within the scope of that duty. At the recent PNBA and Tecbar joint seminar Dr Janet O’Sullivan remarked that the application of ‘scope of duty’ principles is particularly difficult in tort cases, since there is no statute or contractual provision setting out the scope of the rule which imposes liability. Lords Mance, Carnwath and Hodge granted permission to appeal. They must have considered that it was arguable that the principle which the Court of Appeal applied was wrong. That leaves open the enticing possibility of a wholesale reconsideration, in the Supreme Court, of the application of the Saamco principle.

William Flenley QC

Hailsham Chambers