Ipsofactoj.com: International Cases [2001] Part 9 Case 1 [CAEW]


COURT OF APPEAL, ENGLAND & WALES

Coram

Dean

- vs -

 Allin & Watts

(a firm)

LORD JUSTICE ROBERT WALKER

LORD JUSTICE SEDLEY

MR. JUSTICE LIGHTMAN

23 MAY 2001


Judgment

Mr. Justice Lightman

INTRODUCTION

  1. This is an appeal against a judgment of Mrs. Justice Arden given on the 21st December 1999 in which she dismissed the claim by the appellant Roy Dean ("Mr. Dean") against the respondent Allin & Watts ("A&W"), a firm of solicitors, for professional negligence on the grounds that Mr. Dean did not establish that A&W owed him any duty of care either in contract (under an implied retainer) or in tort. She went on to hold that, if she was wrong and any such duty had been established, she would have held that such duty had been broken, that there was no break in the chain of causation, that Mr. Dean had suffered the loss which he alleged that he had suffered, namely the agreed sum of £50,000 plus simple interest from the 1st January 1997, and that he had not been in breach of his duty to mitigate his damage.

  2. The learned judge granted Mr. Dean permission to appeal limited to the issue whether A&W owed to him a common law duty of care on the facts found by her and the inferences to be drawn therefrom, but not (without the permission of the Court of Appeal) from her findings on the primary facts. Mr. Dean has applied to the Court of Appeal for permission to appeal on the issue whether there was an implied retainer giving rise to a contractual duty of care and permission was granted at the hearing. A&W by a Respondent's Notice cross appeals on three of the issues decided by the judge against it.

  3. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 ("Section 2") provides that a contract for the sale or other disposition of an interest in land can only be made in writing and that the writing must incorporate all the terms which the parties have expressly agreed and be signed by or on behalf of each party to the contract. In United Bank of Kuwait Plc v Sahib [1997] Ch 107 on the 24th June 1994 Mr. Justice Chadwick held that Section 2 governed the validity of all dispositions of interests in land and this included the creation of equitable charges by way of deposit of title documents, and accordingly an attempt to create such a charge by making a deposit of title documents without the preparation of, and signature of the parties to, a memorandum in writing setting out the express terms had no legal effect. The Court of Appeal affirmed this decision on the 2nd February 1996.

  4. In summary, Mr. Dean agreed with a Mr. Beasey and Mrs. Young ("the Borrowers") to make a consecutive series of four loans to them (each loan replacing its predecessor) and that Mr. Dean should have as security a charge on a leasehold flat ("the Flat") of which a Mr. and Mrs. Sharman were the registered proprietors. The charge was to involve the deposit by Mr. and Mrs. Sharman of the title documents to the Flat ("the Deeds"). The loans represented a very substantial investment so far as Mr. Dean was concerned. The Borrowers instructed a Mr. Dolan of A&W as their solicitor to advise and take the necessary steps to effect the transactions. The fourth loan was of £50,000. Unfortunately Mr. Dolan was not aware of the possibility that a deposit of the Deeds by Mr. and Mrs. Sharman without execution of a memorandum signed by them might be legally ineffective. He advised the Borrowers that a mere deposit of the Deeds would be sufficient and effective. To his knowledge Mr. Dean did not intend to, and did not, instruct a solicitor to act on his behalf in the loan transactions. He knew or ought to have known that in the case of each of the loan transactions the Borrowers and Mr. Dean relied on him to ensure that Mr. Dean obtained an effective security. The Borrowers defaulted and were without any funds to repay. Mr. and Mrs. Sharman demanded and obtained without making any payment the return of the Deeds on the ground that no valid charge had been granted. In this action Mr. Dean seeks to recover his loss from A&W. The crucial question of law raised is whether in this situation Mr. Dolan owed a duty of care, not merely to the Borrowers, but also to Mr. Dean, to set in place an effective security or to warn both parties if the validity of the security was open to serious question.

    FACTS

  5. Mr. Dean has at all material times carried on the business of a car mechanic. He is not widely experienced in business. In or about 1992 Mr. Beasey first approached Mr. Dean to inject capital into a firm called Citizen Homes ("CH"), a business owned and run by an experienced business woman Mrs. Young, and in which Mr. and Mrs. Sharman were also involved. CH dealt in buying run down or repossessed houses, rebuilding or refurbishing them and then reselling. In 1993 Mr. Beasey made a second approach asking for a loan of £20,000. Mr. Sharman showed Mr. Dean some of the properties being refurbished. The Borrowers proposed to Mr. Dean that Mr. Dean lend to them for injection into CH the sum of £20,000 for two months for which the Flat should stand as security in one form or another, and Mr. Dean agreed. Security was important to Mr. Dean because he had previously lost £10,000 on an unsecured loan to another borrower. A solicitor was needed to carry out the transaction and Mrs. Young suggested that they all use A&W. Mr. Dean made it clear that he would not instruct solicitors to act on his own behalf though he did have a solicitor, a Mr. Greenwood of Hawkins Greenwood of Poole. CH had been a client of A&W since 1992. Mr. Dean had no previous connection with the firm. On or about the 9th March 1993 Mr. Beasey telephoned Mrs. Fry-Metcalf of A&W to instruct A&W to act on the transaction. Mrs. Fry-Metcalf only dealt with conveyancing matters and she passed the matter over to Mr. Dolan.

  6. On the 10th March 1993 Mrs. Young on the telephone instructed Mr. Dolan to act on behalf of CH on the transaction. She told him that Mr. Dean was to lend CH £20,000 repayable in two months with the addition of interest of £1,500; she made reference to security in the form of a deposit of the Deeds; and she said that the transaction was to be as simple as possible. Mr. Dolan suggested that the transaction take the form of a promissory note. Mrs. Young said:

    .... he just wants the comfort of knowing that there is a document there saying that his money is lodged with Citizen Homes and that we have agreed to repay him X amount at the end of two months plus his interest.

    Mr. Dolan raised the question whether additional interest should be payable on default in payment, but he advised that CH did not need to pay this. On the question of security over the Flat Mrs. Young told Mr. Dolan that Mr. and Mrs. Sharman were in Southampton and asked Mr. Dolan to proceed on the basis that they were not available to sign a charge. Mr. Dolan stated that, if it was just a deposit of the Deeds that was required, Mr. and Mrs. Sharman did not need to sign anything. Mr. Dolan summarised the transaction as follows:.

    A simple promissory note from you [i.e. Mrs. Young] to pay or repay in two months £20,000 plus £1,500 interest and the physical depositing of the title deeds to the flat.

    Mr. Dolan said that it would be normal for Mr. Dean's solicitors to hold the Deeds, but that he did not know whether Mr. Dean was instructing a solicitor. Mrs. Young replied that she did not think that he was doing so and that he would be happy for Mr. Dolan to "sit on" the Deeds. Mr. Dolan made it clear that he could not act for Mr. Dean. Mrs. Young promised to let Mr. Dolan know Mr. Dean's address and Mr. Dolan promised to prepare the promissory note that afternoon. He prepared a promissory note to be signed by Mrs. Young.

  7. The learned judge in her judgment set out her findings on the instructions given by Mrs. Young to Mr. Dolan regarding security as follows:

    20.

    Mrs. Young took the decision for the structuring of the security as a deposit of title deeds. She also specifically instructed Mr. Dolan to work round the fact that Mr. and Mrs. Sharman were in Southampton. She did not consult Mr. Dean on this. In fact there was no great difficulty in taking a deed to Mr. and Mrs. Sharman for signature. In my judgment, Mrs. Young was anxious not to have to seek Mrs. Sharman's consent because it might have led to delay or been refused. If Mr. Dolan had said that to create effective security it would be necessary for Mr. and Mrs. Sharman to execute a legal charge, that course would have been taken and a legal charge would have been obtained. In addition, Mr. Dolan told her that because it was a private mortgage and not a loan by an institution, he could act only for one party...

    In my judgment, it follows that Mrs. Young imposed constraints on what work A&W were to do. The interests of CH and Mr. Dean on these matters were not identical. Moreover, Mr. Dolan was aware that he could not act for both parties.. in his evidence Mr. Dolan ... ultimately accepted that [Mrs. Young] wanted Mr. Dean to have some effective security ... in my judgment he must have been aware from the conversation with Mrs. Young on the 10th March that Mr. Dean was an unsophisticated investor and that he would probably do what Mrs. Young suggested.

    In short the position was that Mr. Dolan was instructed to ensure that Mr. Dean obtained an effective security even if this meant requiring Mr. and Mrs. Sharman to execute a legal charge and that the transaction was to be as simple as possible consistently with the provision to Mr. Dean of an effective security.

  8. On the same day Mr. Sharman delivered to A&W the Deeds and there was another important conversation between Mrs. Young and Mr. Dolan, which Mr. Dolan recorded as follows:

    Telephoned by Gill Young.

    Mr. Dean is expecting Malcolm Beasey's name to be on the Promissory Note.

    Accordingly I am instructed to amend the Promissory Note to include both names and also to mention the fact of deposit of the Land Certificate.

    I indicated that for the deposit [of] deeds to have any real substance any documentation should be signed by Mr. and Mrs. Sharman. However in the circumstances I indicated that I would arrange for the Promissory Note to indicate that they have procured the delivery of the title deeds to Mr. Dean and leave it at that.

    She will telephone me back as soon as possible with Mr. Dean's address.

    Mr. Dolan's evidence was that by "real substance" he meant that there had to be a document signed by Mr. and Mrs. Sharman, if Mr. Dean was to have a power of sale, but that he considered that there was an effective charge even in the absence of such a document. Mr. Dolan in fact drafted a memorandum of deposit to secure Mr. Dean's loan of £20,000 to be signed by Mr. and Mrs. Sharman but because of the perceived lack of any need for such a memorandum it was not used. Also on the same day Mrs. Young or one of her staff telephoned Mr. Dolan to give him Mr. Dean's address.

  9. Mr. Dolan duly prepared the amended promissory note ("the First PN") (later dated the 11th March 1993) which read (so far as material) as follows:

    PROMISSORY NOTE

    DATE: 11th March 1993

    We MALCOLM BEASEY AND GILLIAN YOUNG of Citizen Homes 19/20 Premier Suite 26 St. Peter's Road Bournemouth Dorset promise to pay to ROY DEAN of 30 Dorchester Gardens Oakdale Poole Dorset the sum of TWENTY THOUSAND POUNDS (£20,000) value received TOGETHER WITH interest thereon of One thousand five hundred pounds (£1,500) and we have procured the deposit in the hands of the said Roy Dean as collateral security the Land Certificate title number ... and Lease ... in respect of the [Flat].

    SIGNED MALCOLM BEASEY

    SIGNED GILLIAN YOUNG

    Mr. Dolan on his own initiative inserted the words "as collateral security". The later three promissory notes followed this same format.

  10. By appointment made by Mrs. Young, on the 11th March 1993 Mr. Dean and Mrs. Young came to Mr. Dolan's office to deal with the matter of the deposit of the Deeds. There was a short meeting taking about 15 minutes. Mr. Dean was not willing to part with his money until the Deeds had been deposited to his order. Mrs. Young knew from her conversation of the 10th March 1993 that Mr. Dolan was not able to advise Mr. Dean, but Mr. Dolan did not refuse to see Mr. Dean, because (as he put it) the transaction had already been fully negotiated: the structure of the transaction was already settled and the terms of the promissory note had been agreed. At the meeting the First PN was produced and shown to Mr. Dean and Mr. Dolan fetched the Deeds to the Flat, but Mr. Dean accepted that they were the Deeds to the Flat without actually inspecting them. It is likely that there was some reference in passing to the fact that the Deeds would be deposited with Mr. Dean as security and Mr. Dolan offered to hold the Deeds for Mr. Dean and gave a solicitor's undertaking not to release the Deeds to anyone, except on his instructions. The judge held that Mr. Dolan did not give advice to Mr. Dean, let alone advice that the security was good or effective or adequate or give any other assurances. Mr. Dean gave his cheque for £20,000 to Mrs. Young. Mr. Dean would not have made that loan unless he believed that the deposit of the Deeds gave him effective security, and Mr. Dolan knew this: in any event he should reasonably have done so. It should have been obvious to Mr. Dolan that Mr. Dean was unsophisticated and did not understand the different types of security and was relying on him to ensure that he obtained an effective security. Mr. Dolan did not advise Mr. Dean to take independent legal advice. If he had done so, Mr. Dean would have consulted Mr. Greenwood. If Mr. Dean had received advice that the security was not effective or was of doubtful efficacy he would not have gone ahead.

  11. On the 23rd March 1993, Mr. Dolan wrote to Mr. Dean enclosing a photocopy of the First PN and confirming that: "As requested we are holding the relevant deeds in respect of the Flat to your order pending repayment". Mr. Dean said in his witness statement that this meant to him that his loan was adequately secured and that he did not need to worry as "I was relying on A&W to ensure that my money was safe". The judge held that Mr. Dean did indeed place such reliance on Mr. Dolan. On the 31st March 1993, Mr. Dolan sent a bill for his services to Mrs. Young.

  12. The First PN fell due for repayment on the 11th May 1993. Mr. Dolan wrote to Mrs. Young on the 18th May 1993 asking if she needed him to take any further action in the matter. There was a postscript which said:

    We have spoken today when you indicated that you had reached a further agreement with Mr. Dean in respect of additional interest. It was agreed that you would arrange for Mr. Dean to write to me to confirm the new arrangement and to confirm where the £20,000 plus interest should be paid on the basis that subsequent to such payment I will be released from the undertaking that I have given in respect of the title deeds.

    On the 18th May 1993, Mr. Dean wrote a letter typed by Mrs. Young to Mr. Dolan confirming the agreement for an extension of the loan "for a further four weeks, with an agreed interest of £200 per week from the original due date". He also confirmed that he had been paid the initial agreed interest and stated that, if in his absence over the next four weeks CH wished to repay the loan in full, he consented to the Deeds being released to CH against payment of the loan and interest and he gave details of his bank account. On the 20th May 1993, Mr. Dolan wrote to Mr. Dean querying the date when the new four week period was to begin. In June 1993, CH had discussions with a Mr. John Walters about an injection of £50,000 (later reduced to £30,000). On the 29th June 1993, Mr. Dean confirmed to Mr. Dolan the figures for interest and that the Deeds for the Flat could be released on repayment. The transaction with Mr. Walters was completed and £30,000 paid to Mrs. Young. The Flat was not in fact used as security. Mr. Dolan wrote to Mrs. Young on 6 August 1993 pointing out that no repayment had been made to Mr. Dean. Mrs. Young then proposed to Mr. Dean that he should increase his loan to £50,000. His response was that he could only put up £40,000 (inclusive of the £20,000 already lent) but that he might be able to raise another £10,000 without creating problems with his own accountants. On the 9th August 1993, Mrs. Young telephoned Mr. Dolan. She explained that Mr. Dean had agreed that his £20,000 should be left with CH. She asked Mr. Dolan to calculate the amount due in respect of interest so that she could pay it. She said that there would either be new monies put up by Mr. Dean or his £20,000 would be left in CH with another form of security and that Mr. Dolan would in due course receive from Mr. Dean confirmation that the Deeds were released from security.

  13. On the same day, Mr. Dolan wrote to Mrs. Young saying that the amount due in respect of interest to Mr. Dean was £2,571.42. The next day Mrs. Young sent a cheque for that amount to Mr. Dean, which he acknowledged. Mr. Dolan said that, if Mr. Dean was now to release the Deeds for the Flat, Mr. Dolan would need confirmation in writing. On the 16th August 1993, there was a further conversation between Mrs. Young and Mr. Dolan on the telephone of which there is a transcript. Mrs. Young explained that Mr. Dean was going to increase his loan to £50,000. There was a discussion about interest. Mr. Dean had required Mrs. Young to have a new promissory note ("the Second PN") drafted by A&W. Mrs. Young told Mr. Dolan that:

    All I have assured him is that the deeds are still held to his order because of his £20,000 and no way would you release them any way without his say so. So he is more than happy with that. So he is more than happy, I went over it with him today, he is more than happy with the exact same promissory note I think we had before.

    The parties had accordingly agreed on the structure of the transaction before Mr. Dolan was instructed to draft the Second PN for £50,000. The transaction was completed without any direct communication between Mr. Dean and Mr. Dolan.

  14. On the 22nd March 1994, Mr. Dolan received a message from a member of his staff explaining that Mr. Dean had telephoned to say that he had made a loan to CH in August the previous year which was due to be repaid on the 23rd February 1994; that CH had paid the interest but not repaid the loan; but he did not want the loan repaid. He asked for confirmation from A&W that they were still holding the Deeds. Mr. Dolan telephoned Mr. Dean and explained that the Deeds were still held by A&W. Mr. Dolan also wrote to Mrs. Young asking her whether she wanted him to take any further action in relation to repayment of Mr. Dean's loan. On the 28th March 1994, Mrs. Young wrote to Mr. and Mrs. Dean confirming that the loan had been extended to the 31st December 1994 with interest at the rate of 20% APR. She said that she would write to Mr. Dolan and explain the situation to him and that he would contact them for confirmation so that there could be a new agreement. On the 29th March 1994, Mrs. Young wrote to Mr. Dolan explaining the transaction and asking him to write to Mr. Dean for confirmation. She explained that the amount of £50,000 was to stay invested in CH "with the existing security in place". The letter concluded:

    I trust you will be writing to Mr. Dean for confirmation.

    On the 7th April 1994, Mr. Dolan wrote to Mr. Dean asking for confirmation of the transaction and stating that his understanding was that the amount of £50,000 was to remain invested in CH "with the existing security in place." Mr. Dolan added:

    I presume that you will be looking for a revised Promissory Note from Malcolm Beasey and Gill Young to reflect the new arrangement but if this is not the case please let me know.

    Mr. Dean wrote back on the 21st April 1994 confirming that the loan was to be carried on "with the same security" until 31 December 1994 at an agreed interest rate of 20% per annum. He added:

    if you think a new promissory note is required, then I would like you to obtain one for me.

    On the 22nd April 1994 Mrs. Young wrote to Mr. Dolan confirming the arrangements for payment of interest.

  15. On the 26th April 1994, Mr. Dolan, after referring to Mrs. Young's letter of the 22nd April 1994 and making no reference to any request from Mr. Dean, sent Mrs. Young a new promissory note ("the Third PN"). It was then revised in early May 1994 at Mrs. Young's request pursuant to a discussion she had had with Mr. Dean. It was also signed in May 1994. The judge held that Mr. Dolan drafted this promissory note because he had received from Mrs. Young a copy of her letter to Mr. Dean dated the 28th March 1994, which referred to a new agreement, not in response to Mr. Dean's letter of the 21st April 1994 which in turn responded to Mr. Dolan's letter of the 7th April 1994. Mr. Dean challenged this holding, but I do not think that the judge's view can be disturbed. It is however right to add that Mr. Dolan did not make it clear to Mr. Dean that he was acting on CH's instructions and Mr. Dean understood that he had obtained the Third PN "in his interests". Mr. Dolan in evidence accepted that Mr. Dean could have got the wrong impression although he did not appreciate it at the time.

  16. On the 20th May 1994, Mrs. Young paid Mr. Dean £2,500 for interest covering the period from 23 February 1994 to the 23rd May 1994. Mr. Dolan did not reply to Mr. Dean's letter of 21 April until the 24th May 1994 when he sent Mr. Dean a photocopy of the promissory note and stated that the original "will be kept with the title deeds to [the Flat] which I am presently holding to your order". On the 25th May 1994, Mr. Dolan rendered a further bill for his services to Mrs. Young.

  17. Mr. Dean then consulted his own accountants who (in the light of the very high interest rate) suggested that he should have the security checked by his own solicitor, Mr. Greenwood. Mr. Dean accordingly instructed Mr. Dolan to send the Deeds in strict confidence to Mr. Greenwood. At first, A&W would only let Mr. Greenwood see the Third PN and suggested that if Mr. Greenwood wanted to see the Deeds he would have to seek instructions from their clients (Mr. Beasey and Mrs. Young). Mr. Greenwood pointed out that Mr. Dean was entitled to see the land certificate and on the 24th October 1994 A&W sent the Deeds to Mr. Greenwood on the basis they would be returned to A&W once Mr. Greenwood had examined them. By a letter dated 27 October 1994, Mr. Greenwood advised Mr. Dean that a notice of deposit of land certificate should have been registered at the Land Registry which would give Mr. Dean some priority over other creditors or in the event of the bankruptcy of either Mr. Beasey or Mrs. Young. He added:

    Obviously I feel very strongly that someone should have advised you to get independent legal advice (and obviously you could have charged the cost to the borrowers) and although probably all will be well I still feel that at this stage you should insist on a notice of deposit of land certificate being registered at the expense of Mr. Beasey and Mrs. Young. My very strong advice is that you should insist on this being done now because if it is too late you might have a claim against Allin & Watts and if it is not too late then obviously your position has been properly protected.

    The suggestion was not that Mr. Dean received the wrong advice from Mr. Dolan, but that he had not received independent advice. Mr. Dean in consequence of Mr. Greenwood's advice asked A&W to register a notice of deposit. A&W accepted that this should be done and acted accordingly. This was not onerous and was a reasonable request. Mr. and Mrs. Sharman could not have objected to this registration and A&W acted properly in effecting it. The registration was completed on the 30th November 1994. Mr. Dean said that he thought that, "following Mr. Greenwood's advice", once this was done his loan was secure. Otherwise he would not have agreed a further extension of the loan in 1995.

  18. In January 1995, Mr. Dean wrote to Mr. Wilson, a partner at A&W stating that he had received the interest due to 31 December 1994, that the capital sum was still outstanding and that he was in negotiation with CH to decide if the loan should continue and if so on what terms. He asked them to "do nothing with the securities until further notice". Subsequently Mr. Dean agreed with CH that his loan should be extended, and, following discussions between Mr. Dean and Mrs. Young, Mrs. Fry-Metcalfe drafted a further promissory note. This ("the Fourth PN") was signed by Mr. Dean in January 1995 and sent to A&W for them to hold. Mr. Dean appears to have known nothing of the Fourth PN until it was produced to him for signature. There was no contact between him and A&W about it. Since the documentation was produced by A&W the judge was satisfied that Mr. Dean relied on them to ensure that he had an effective security although he had previously used his own solicitors to check the position.

  19. On the 31st March 1995, Mr. Greenwood asked A&W to send him the Deeds so that they could then be held by Mr. Dean's solicitors. A&W eventually agreed to hand the Deeds over in May 1995, telling Mr. Greenwood that Mr. Dean was not a client of theirs and had not wanted separate advice. In about July 1995 Mr. Greenwood advised Mr. Dean that he should have a legal charge to give him direct rights against Mr. and Mrs. Sharman.

  20. Mrs. Young was declared bankrupt on 20 April 1995 with known liabilities of some £300,000. Mr. Beasey had no funds. Mr. and Mrs. Sharman and Mr. and Mrs. Walters took over CH's business. Initially Mr. and Mrs. Sharman accepted responsibility for Mr. Dean's loan, but in March 1996 they brought proceedings against Mr. Dean for recovery of the Deeds. The proceedings were settled in October 1996 when following discussions between solicitors Mr. Dean agreed to deliver up the Deeds and to pay the Mr. and Mrs. Sharman's costs. It is common ground that by reason of the default of the Borrowers and the absence of security Mr. Dean is out of pocket for the full amount of the fourth loan, namely £50,000, and interest since the 1st January 1997. At issue is whether A&W are legally responsible to make good this loss.

    THE ISSUES

  21. The primary issue in this case is whether A&W owed to Mr. Dean in respect of the provision of effective security a duty of care. Mr. Dean contended at the trial that such a duty arose alternatively in contract or in tort. The judge rejected this contention. Mr. Dean raises this question again on this appeal. If (and only if) Mr. Dean succeeds on this issue on the appeal, it will be necessary to consider three issues decided against A&W by the judge the subject of the Respondent's Notice.

    CONTRACT OF RETAINER

  22. The primary case of Mr. Dean at the trial was that he had impliedly retained A&W to act as his solicitors in respect of each of the four loans and that accordingly A&W owed to him a contractual duty of care. Arden J rejected this case. The starting point is that A&W was retained by CH; that A&W could not in accordance with Law Society Rules act for both parties to the four loan transactions; and that on the 10th March 1993 Mr. Dolan made it clear to Mrs. Young that he could only act for CH. As a matter of law, it is necessary to establish that A&W by implication agreed to act for Mr. Dean: an implied retainer could only arise where on an objective consideration of all the circumstances an intention to enter into such a contractual relationship ought fairly and properly to be imputed to the parties. In Searles v Cann and Hallett [1993] PNLR 494 the question arose whether the solicitors for the borrowers impliedly agreed to act as solicitors for the lenders. Mr. Philip Mott QC (sitting as a deputy judge of the Queen's Bench Division) held that there was nothing in the evidence which clearly pointed to that conclusion. He went on:

    No such retainer should be implied for convenience, but only where an objective consideration of all the circumstances make it so clear an implication that [the solicitor himself] ought to have appreciated it.

    "All the circumstances" include the fact, if such be the case (as it is here), that the party in question is not liable for the solicitors fees and did not directly instruct the solicitors. These are circumstances to be taken into account, but are not conclusive. Other circumstances to be taken into account include whether such a contractual relationship has existed in the past, for where it has, the court may be readier to assume that the parties intended to resume that relationship, and where there has been such a previous relationship the failure of the solicitor to advise the former client to obtain independent legal advice may be indicative that such advice is not necessary because the solicitor is so acting: see e.g. Madley v Cousins Combe & Mustoe [1997] EGC 63. There was no such previous relationship in this case. Looking at the circumstances to which I have referred, the broad picture is not indicative of any implied retainer in this case.

  23. I next turn to each of the four transactions. In regard to each of them my view entirely coincides with that of the judge. As regards the First PN, Mrs. Young gave the instructions for its preparation on the 10th March when Mr. Dolan made clear that he could not act for Mr. Dean. At the meeting of the 11th March when Mr. Dolan had his first contract with Mr. Dean, Mr. Dolan gave no express advice about the security, and no such relationship could arise or could reasonably be thought to arise from the undertaking to hold the Deeds. As regards the Second PN, the instructions came from Mrs. Young. There was no communication between Mr. Dolan and Mr. Dean; and the situation accordingly was the same. As regards the Third PN, again this was prepared on the instructions of Mrs. Young. Mr. Dean had by letter dated the 21st April 1994 asked Mr. Dolan to obtain a promissory note for him if he thought this was necessary. But Mr. Dolan proceeded with its preparation on the instructions of Mrs. Young, and the position accordingly remained the same as in respect of the earlier notes. And again the Fourth PN was likewise prepared on the instructions of Mrs. Young.

  24. Mr. Dean submits that the judge's conclusion is difficult to reconcile with Mr. Dolan's action in sending the letter to Mr. Dean of the 7th April 1994, Mr. Dean's reply on the 21st April and Mr. Dolan's letter of the 24th May 1994 in sending to Mr. Dean a photocopy of the promissory note and stating that he would keep the original with the Deeds to his order. But all these actions are entirely consistent with Mr. Dolan's position as solicitor for the Borrowers processing matters between his clients and Mr. Dean. Mr. Dean also relies on Mr. Dolan's acceptance in cross-examination that Mr. Dean could have got the wrong impression that Mr. Dolan was acting as his solicitor, though he did not appreciate this at the time. This may be relevant to the existence of a common law duty of care, but cannot establish the existence of a contract of retainer or an estoppel precluding A&W denying the existence of such a contract. I do not think that it can be shown that the judge erred in concluding that on an objective consideration of the circumstances no implied retainer arose. Indeed the judge's decision on this issue was clearly right.

    NEGLIGENT MISSTATEMENT AND COMMON LAW DUTY OF CARE

  25. Mr. Dean's alternative case is that Mr. Dolan owed to him a duty of care not to make a misrepresentation as to the efficacy of the security and also a duty of care arising from the assumption of responsibility for putting in place an effective security, and that Mr. Dolan was in breach of both these duties. The distinct legal characters of these two duties is explained by Buxton LJ in Andrew v Kounnis Freeman [1999] 2 BCLC 641 at 654-5:

    Subsequent cases in their Lordships' House have made clear that in Caparo Industries plc v Dickman [1990] BCLC 272, [1990] 2 AC 605 the House of Lords had under review two different, but interrelated, types of case in which liability might accrue for negligently caused economic loss. The first, closely following Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] 2 All ER 575, [1964] AC 465, is where. in limited circumstances, advice is given by an adviser to an 'advisee' .... The second case is where, more generally, the defendant's conduct can be objectively analysed as involving an assumption of responsibility for the performance of a task in the course of performing or omitting to perform which he foreseeably causes economic loss to the plaintiff .... The latter and more general category of case is subject to the controlling requirement that the imposition of a duty of care be seen as being fair, just and reasonable: ... That requirement is seen as being present in any case of negligence, whether involving economic or physical damage .... However, where the specific requirements of Hedley Byrne are fulfilled that in itself establishes that the imposition of liability will be fair, just and reasonable, and there is no room for separate inquiry on that point ....

  26. Mr. Dean complains that the learned judge in her judgment deals with both of these issues together, treating the latter as merging into the former. The reasons for the judge doing so are twofold. First in his written skeleton opening and his closing submissions Mr. Dean's counsel did not articulate them as separate arguments. Second essentially the same single question arose, namely whether the professional adviser owed a duty to a person who was not his client to protect him against economic loss caused by the adviser's negligence: see Sir Brian Neill in BCCI v Price Waterhouse (No 2) [1998] PNLR 564 at 581-588 cited in paragraph 33 of this judgment. I shall however consider each of these issues separately.

    NEGLIGENT MISSTATEMENT

  27. I begin with the issue of negligent misrepresentation. The relevant allegation in the Re-Amended Statement of Claim reads as follows:

    5.14

    The representation and/or advice given by [Mr. Dolan] to [Mr. Dean] that the deposit of the deeds of the flat was effective security, was made expressly, alternatively was made implicitly as a result of:

    (a)

    the terms of the promissory note drafted by [Mr. Dolan];

    (b)

    which was shown to or explained to [Mr. Dean] on or before the 11 March; and

    (c)  

    the undertaking of [Mr. Dolan] to hold the deeds of the flat to the order of [Mr. Dean].

    The judge held that there was no express or implied representation or advice. The only question on this issue on the appeal is whether there was established (contrary to the holding of the judge) the pleaded implied representation or advice. In short the question is whether Mr. Dolan's conduct on behalf of A&W in

    1. drafting the First PN in the terms that he did,

    2. showing them to Mr. Dean on the 11th March 1993, and

    3. undertaking to hold the Deeds to his order, amounted to a misrepresentation or advice that the deposit of the Deeds was an effective security.

    If his conduct in respect of the First PN amounted to such a representation or advice, a representation or advice to like effect plainly should be implied in respect of each of the subsequent three promissory notes.

  28. In deciding whether this contention is well founded, it is necessary to examine each of these acts in their proper context and determine whether objectively viewed they constituted the misrepresentation or advice alleged. In my view the judge entirely correctly held that they did not do so. As regards the drafting and presentation to Mr. Dean of the First PN and the reference in it to the Borrowers having procured the deposit of the Deeds in the hands of Mr. Dean "as collateral security", on no basis can this amount to a representation made or advice given by A&W to Mr. Dean that the deposit of the Deeds amounted to effective security for his loan for three reasons:

    1. the promissory note simply recorded that the Borrowers had procured the deposit with the intention of providing Mr. Dean with collateral security, and it cannot be construed as making any representation or giving advice as to the adequacy or validity of the security provided by the deposit;

    2. any representation in respect of the security was made by the Borrowers alone on whose instructions the First PN was drafted and by whom it was signed; and

    3. any representation by Mr. Dolan would in the circumstances be merely to the effect that he had prepared the notes as solicitor for the Borrowers.

    The greatest caution is required in treating statements made by a solicitor in the course of conveyancing transactions and the like on or in accordance with the instructions of his client as representations made by the solicitor rather than as "conveyed" by him as (in effect) a medium of communication or messenger for his client, for this may readily be assumed to be understood to be part of his role in the transactions. The solicitor's position in such a situation is to be contrasted with his position in a situation where the solicitor makes an express unequivocal statement to a third party which is not attributable simply to performing his role as the client's adviser: for in the latter case the adviser may readily be held to have assumed responsibility to the third party, since the explanation of his acting merely as a messenger would be inapplicable: consider Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560 and McCullagh v Lane Fox [1996] 18 EG 35 at 42-4. As regards the undertaking given by A&W to hold the Deeds to Mr. Dean's order, this could not be construed as a statement or advice as to the adequacy or validity of the security provided by the deposit of the Deeds. The judge correctly so held. Indeed Mr. Dean conceded at the trial that the terms of the undertaking of themselves could not give rise to a duty owed to Mr. Dean.

    NEGLIGENCE AND ASSUMPTION OF RESPONSIBILITY

  29. Mr. Dean's case is that in, or in the course of, the dealings between Mr. Dean and the Borrowers in which Mr. Dolan acted as solicitor for the Borrowers, Mr. Dolan assumed a duty of care to Mr. Dean. The relevant passages in the Re-Amended Statement of Claim read as follows:

    5.1.1  

    In the course of various telephone conversations between [Mr. Dolan] ... and [Mrs. Young] on the 10th March 1993

    (a)  

    [Mrs. Young] instructed [Mr. Dolan] to draw up security for the said loan over the flat for the benefit of [Mr. Dean].

    (b)

    Gill [Mrs. Young] informed [Mr. Dolan] that [Mr. Dean] would not instruct a separate solicitor.

    5.1.5

    (a)

    [Mr. Dean] relied on [Mr. Dolan] to ensure that his loan was effectively secured over the flat.

    5.2.1

    ... [Mr. Dolan] owed [Mr. Dean] a duty of care by reason of the matters aforesaid.

    5.2.2

    The duty arising as a result of the matters pleaded in paragraphs 5.2.1. was a duty to explain to [Mr. Dean] that he did not have effective security over the flat alternatively that he only had doubtful security over the flat and/or a duty to advise [Mr. Dean] to obtain independent legal advice about the effect of the promissory note and deposit of deeds.

    5.4

    [Mr. Dean] would not have agreed to complete the transaction, and would not have advanced the money at all to the [Borrowers] if he had been advised or warned that the deposit of title documents did not constitute good security for the performance of the borrowers obligations under the promissory note or if he had been advised or warned that it constituted only doubtful security.

  30. It is to be noted that the duty pleaded was not a duty to set in place an effective security, but rather to warn Mr. Dean if there was any doubt about the effectiveness of the security. The distinction between the two possible duties and the possible significance of the distinction appears to have emerged for the first time in the course of the appeal hearing. As soon as it did so, Mr. Weatherill applied for permission to amend to add a plea of a duty to set in place an effective security, if success on the appeal required such an amendment. His caution was clearly guided by his concern as to the possible repercussions as to costs if such a late amendment was made. The court cannot be left to decide whether or not it is necessary to amend for this purpose and then only give permission. Mr. Dean must be put to his election once and for all whether to amend and take the risk as to costs if the amendment is allowed. The risk must be very limited if the amendment proves unnecessary. I think that Mr. Dean should be treated as having so applied unconditionally. The proposed amendment is the insertion in paragraph 5.2.2. of the Re-Amended Statement of Claim after the words "a duty to" of the words:

    provide effective security over the flat for payment of the sum due to Mr. Dean by way of principal and interest, and/or to ....

    The application to amend was opposed by A&W on the ground that at the trial counsel for A&W cross-examined Mrs. Young to undermine the pleaded case that Mr. Dolan had been expressly instructed to protect Mr. Dean's interests and that a transcript of the telephone conversation of the 10th March 1993 had been significantly altered, and that evidence of her own wishes that Mr. Dean should have effective security only emerged in re-examination. I do not however see how the late emergence of the evidence matters. It was plainly regarded at the trial by counsel for both parties and the judge as evidence of great importance in the case (see e.g. paragraph 20 of her judgment). It is not as if this evidence was irrelevant or only marginally relevant on the pleadings as they stood (and for this reason was left unexplored further) and only becomes relevant (and accordingly requires further exploration) if the proposed amendment is made.

  31. The proposed amendment to the pleadings is legally significant. The pleading as it stands seeks relief on the basis that but for the negligence Mr. Dean would not have entered into any of the transactions, with the consequent entitlement of Mr. Dean (if he succeeds) to be placed in the same position as if he had never entered into them. On the other hand, if Mr. Dean succeeds on the pleading as amended, he is entitled to be placed in the same position as if the duty to put in place effective security had been fulfilled. This distinction could prove highly significant in many cases, but on the facts of this case, in particular with the agreed limitation of Mr. Dean's recovery of damages to the £50,000 loan and simple interest from the 1st January 1997, I can see no consequence of any moment. Certainly no objection to the amendment is made on any such ground or indeed on any ground beyond that which I have previously stated.

  32. In my judgment, the request for permission to amend should be acceded to. I do not think that it is necessary to decide whether the amendment is critical to Mr. Dean's prospects of success on this appeal. In a case where there is a duty to provide effective security, it may well be that, if ineffective security is provided, there is a secondary duty to warn that this is so. But I do think that it is artificial and accordingly undesirable that the appeal should proceed on the basis pleaded when there can be no prejudice to A&W in allowing the amendment and the case to proceed on the correctly pleaded basis. Whilst an application for an amendment in the course of a hearing of an appeal requires the most critical examination and the court must be satisfied that the interests of justice require such amendment to be allowed, on the special facts and circumstances of this case, where no prejudice can be occasioned to A&W, the requirements of justice are satisfied and permission should be given. I may add that it is not immediately apparent to me that the amendment will have any significant impact on costs.

  33. In a situation such as the present where (to the knowledge of both parties) a solicitor is retained by one party and there is a conflict of interest between the client and the other party to a transaction, the court should be slow to find that the solicitor has assumed a duty of care to the other party to the transaction, for such an assumption is ordinarily improbable. But the special circumstances of a particular case may require a different conclusion to be reached. The observations of Neill LJ in Bank of Credit and Commerce International (Overseas) Ltd v Price Waterhouse No. 2 [1998] PNLR 564 at 582 provide helpful guidance:

    An examination of the cases discloses that the courts have been searching for a principle or test by which the existence or presence of liability in any particular circumstances can be tested .... It seems that the search for a principle or test has followed three separate but parallel paths.

    The first path has led to the adoption of what has been called 'the threefold test'. This was succinctly stated by Lord Griffiths in Smith v Eric S Bush [1990] 1 AC 831 as follows at 864H:

    ....In what circumstances should a duty of care be owed by the adviser to those who act upon his advice? I would answer—only if it is foreseeable that if the advice is negligent the recipient is likely to suffer damage, and there is a sufficiently proximate relationship between the parties and that it is just and reasonable to impose the liability.

    ...The second path which has been followed in decided cases uses an 'assumption of responsibility' test.

    ...The third path which has been followed in the authorities has been to adopt an incremental approach ...

    The fact that all these approaches have been used and approved by the House of Lords in recent years suggests:

    (a)

    that is may be useful to look at any new set of facts by using each of the three approaches in turn, though it may be noted that in some cases, such as Henderson (supra), the use of the incremental approach may be sufficient to show that responsibility has been undertaken.

    (b)

    that if the facts are properly analysed and the policy considerations are correctly evaluated the several approaches will yield the same result.

    The threefold test and the assumption of responsibility test indicate the criteria which have to be satisfied if liability is to attach. But the authorities also provide some guidance as to the factors which are to be taken into account in deciding whether these criteria are met. These factors will include:

    (a)

    the precise relationship between (to use convenient terms) the adviser and the advisee. This may be a general relationship or a special relationship which has come into existence for the purpose of a particular transaction. But in my opinion ... there may be an important difference between the cases where the adviser and the advisee are dealing at arm's length and cases where they are acting 'on the same side of the fence'.

    (b)

    the precise circumstances in which the advice or information or other material came into existence. Any contract or other relationship with a third party will be relevant.

    (c)

    the precise circumstances in which the advice or information or other material was communicated to the advisee, and for what purpose or purposes, and whether the communication was made by the adviser or by a third party. It will be necessary to consider the purpose or purposes of the communication both as seen by the adviser and as seen by the advisee, and the degree of reliance which the adviser intended or should reasonably have anticipated would be placed on its accuracy by the advisee, and the reliance in fact placed on it.

    (d)

    the presence or absence of other advisers on whom the advisee would or could rely. This factor is analogous to the likelihood of intermediate examination in product liability cases.

    (e)

    the opportunity, if any, given to the adviser to issue a disclaimer.

  34. The relevant acts in this case are or include the following:

    1. Mr. Dolan was instructed by CH to take the necessary steps to provide Mr. Dean with an effective security for the loans to be made by Mr. Dean to the Borrowers;

    2. neither CH nor Mr. Dean were willing to proceed with any of the transactions unless and until the effective security was in place and Mr. Dolan knew that this was the case;

    3. Mr. Dolan's instructions were given on the basis that Mr. Dean (who was not sophisticated in these matters) would not be instructing solicitors to protect his interest in this regard. (I shall consider separately the brief involvement of Mr. Greenwood);

    4. as Mr. Dolan knew or ought reasonably to have known, Mr. Dean relied on Mr. Dolan to put in place effective security;

    5. Mr. Dolan did not disclaim owing any duty to Mr. Dean or advise him to obtain independent advice;

    6. whilst there was a conflict of interest between the Borrowers and Mr. Dean in respect of many aspects of the transactions (e.g. the rate of interest before and after a default) there was an identity of interest in the provision of effective security. Mr. Dean needed the security in case (as happened) the Borrowers defaulted; and Mrs. Young was not merely anxious to fulfil her assumed obligation to provide that security, but (as a matter of law) if she failed to do so, such failure might constitute a breach of a fundamental term of the contract with Mr. Dean entitling him to demand immediate repayment;

    7. the default in providing effective security occasioned no loss to the Borrowers: the only party to suffer loss was Mr. Dean.

  35. The first stage in considering whether there is a duty in this case may be found in the authoritative statement of the law relating to professionals generally in the decision in Phelps v Hillingdon BC [2000] 3 WLR 776. The House of Lords there held that the existence of a contractual duty of care (or other duties) owed by a professional (in that case a child educational psychologist) to his employer or client did not of itself necessarily exclude the existence of a duty of care owed to those with whom he dealt in the course of his employment or engagement. Lord Slynn said (at p.790):

    ... it is long and well established, now elementary, that persons exercising a particular skill or profession may owe a duty of care in the performance to people who it can be foreseen will be injured if due skill and care are not exercised and if injury or damages can be shown to have been caused by the lack of care. Such duty does not depend on the existence of any contractual relationship between the person causing and the person suffering the damage .... The fact that the educational psychologist owed a duty to the authority to exercise skill and care in the performance of his contract of employment does not mean that no duty of care can be or is owed to the child .... It is sometimes said that there has to be an assumption of responsibility by the person concerned. That phrase can be misleading in that it can suggest that the professional person must knowingly and deliberately accept responsibility. It is clear however that the test is an objective one .... The phrase means simply that the law recognises that there is a duty of care. It is not so much that responsibility is assumed as that it is recognised or imposed by the law.

  36. The second stage is the consideration of the ambit of the duties owed by solicitors to third parties in the speech of Lord Goff in White v Jones [1995] 2 AC 207. In that case the House of Lords held that a solicitor instructed by his client to draw up his will who so delayed that the client died before executing it, could be sued in negligence by a beneficiary disappointed in not receiving the bounty the client intended to confer upon him. Lord Goff first referred to the conceptual difficulties in giving a remedy:

    (1)

    First, the general rule is well established that a solicitor acting on behalf of a client owed a duty of care only to his client. The relationship between a solicitor and his client is nearly always contractual, and the scope of the solicitor's duties will be set by the terms of his retainer. But a duty of care owed by a solicitor to his client will arise concurrently in contract and in tort: see Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384, recently approved by your Lordships' House in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. But, when a solicitor is performing his duties to his client, he will generally owe no duty of care to third parties. Accordingly, as Sir Donald Nicholls V-C pointed out in the present case, a solicitor acting for a seller of land does not generally owe a duty of care to the buyer: see Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560. Nor, as a general rule, does a solicitor acting for a party in adversarial litigation owe a duty of care to that party's opponent: see Al-Kandari v J.R. Brown & Co [1988] QB 665, 672, per Lord Donaldson of Lymington M.R. Further it has been held that a solicitor advising a client about a proposed dealing with his property in his lifetime owes no duty of care to a prospective beneficiary under the client's then will who may be prejudicially affected: see Clarke v Bruce Lance & Co [1988] 1 WLR 881.

    As I have said, the scope of the solicitors duties to his client are set by the terms of his retainer: and as a result it has been said that the content of his duties are entirely within the control of his client. The solicitor can, in theory at least, protect himself by the introduction of terms into his contract with his client; but, it is objected, he could not similarly protect himself against any third party to whom he might be held responsible, where there is no contract between him and the third party.

    In these circumstances, it is said, there can be no liability of the solicitor to a beneficiary under a will who has been disappointed by reason of negligent failure by the solicitor to give effect to the testator's intention. There can be no liability in contract, because there is no contract between the solicitor and the disappointed beneficiary; if any contractual claim was to be recognised, it could only be by way of a ius quaesitum tertio, and no such claim is recognised in English law. Nor could there be liability in tort, because in the performance of his duties to his client a solicitor owes no duty of care in tort to a third party such as a disappointed beneficiary under his client's will.

    He then went on to say that these difficulties were superable:

    Even so it seems to me that it is open to your Lordships' House ... to fashion a remedy to fill a lacuna in the law and so prevent the injustice which would otherwise occur on the facts of cases such as the present .... The present case is, if anything, a fortiori, since the nature of the transaction was such that, if the solicitors were negligent and their negligence did not come to light until after the death of the testator, there would be no remedy for the ensuing loss unless the intended beneficiary could claim. In my opinion, therefore, your Lordships' House should in cases such as these extend to the intended beneficiary a remedy under the Hedley Byrne principle by holding that the assumption of responsibility by the solicitor towards his client should be held in law to extend to the intended beneficiary who (as the solicitor can reasonably foresee) may, as a result of the solicitor's negligence, be deprived of his intended legacy in circumstances in which neither the testator nor his estate will have a remedy against the solicitor. Such liability will not of course arise in cases in which the defect in the will comes to light before the death of the testator, and the testator either leaves the will as it is or otherwise continues to exclude the previously intended beneficiary from the relevant benefit ....

    As I see it, not only does this conclusion produce practical justice as far as all parties are concerned, but it also has the following beneficial consequences.

    (1)

    There is no unacceptable circumvention of established principles of the law of contract.

    (2)

    No problem arises by reason of the loss being of a purely economic character.

    (3)

    Such assumption of responsibility will of course be subject to any term of the contract between the solicitor and the testator which may exclude or restrict the solicitor's liability to the testator under the principle in Hedley Byrne ....

    (4)

    Since the Hedley Byrne principle is founded upon an assumption of responsibility, the solicitor may be liable for negligent omissions as well as negligent acts of commission: ....

  37. The approach adopted by the House of Lords in White v Jones, was that the assumption of responsibility by an adviser (in that case a solicitor) may extend beyond the client to those whom the client intended to benefit. In the case in question the client was a prospective testator and the assumption of responsibility was to the beneficiaries under the proposed will. Later authority has established that this approach is not confined to such situations but is applicable in analogous situations. The law in this regard is most clearly stated in the decision of this court in Gorham v British Telecommunications Plc [2000] 4 All ER 867 (handed down on the 27th July 2000 some 7 months after the judgment at first instance in this case).

  38. In that case an insurance company gave negligent advice to a customer who sought its advice as to the best method of making provision on his death for his dependants. After the customer's death his dependants sued the insurance company for negligence in respect of the loss to them of the benefits which the negligence occasioned. The Court of Appeal held that, since it was fundamental to the giving and receiving of such advice that the interests of the client's dependants should be taken into account, practical justice required that in those circumstances the disappointed beneficiaries should have a remedy against the insurance company. The advice had been given in a context in which the interests of the dependants were to the knowledge of the insurance company fundamental to the transaction and a duty of care was owed to the intended beneficiaries as well as to the client.

  39. Schiemann LJ said (at p.881):

    The position of an investor who goes to a financial adviser seeking investment or pensions advice in relation to making provision for his family after his death is analogous to that of a person who goes to a solicitor seeking advice in relation to making provision by will for his family after his death. I agree with my Lords that in each of these cases, following the phraseology of Lord Goff of Chieveley in White v Jones [1995] 1 All ER 691 at 711, [1995] 2 AC 207 at 268, the advisers assumption of responsibility towards the investor extends to the intended beneficiaries who (as the financial adviser can reasonably foresee) may, as a result of the adviser's negligence, be deprived of an intended benefit and who, in a very real sense, are dependent upon the dealings between the adviser and the person seeking advice to safeguard their position.... the assumption of responsibility to beneficiaries in cases such as the present does not operate to widen the scope of the duty but merely to widen the number of those who can sue in respect of any breach. That was I believe the approach of Lord Goff, who in White v Jones [1995] 1 All ER 691 at 711, [1995] 2 AC 207 at 268, states that the assumption of responsibility will of course be subject to the terms of the contract between the solicitor and the testator.

  40. In my judgment by parity of reasoning and in the analogous situation which arose in this case, the law can and should impose a like duty of care on A&W towards Mr. Dean in respect of the provision of an effective security, the benefit of which to his knowledge the Borrowers wished to confer on Mr. Dean and which was fundamental to the loan transactions. There is the necessary foreseeability of damage and the necessary relationship of proximity for the law to impose such a duty of care and it is fair, just and reasonable that such a duty should be imposed. There are no policy reasons inhibiting recognition of the duty. The learned judge took a different view on the question of fairness, justice and reasonableness, but she did not have the benefit of the guidance provided by the decision of this court in Gorham v British Telecommunications. If she had had that guidance her conclusion might well have been different.

  41. The one cause for hesitation on my part in reaching this conclusion has been the brief role played by Mr. Greenwood who acted as Mr. Dean's solicitor in October 1994. The fact that a solicitor for one party to a transaction has advised the other party who is unrepresented to consult his own solicitors about the effect of a document which he has drafted may go to the fairness, justice or reasonableness of imposing a duty of care on the solicitor to that other party: see Hemmens v Wilson Browne [1995] Ch 223. The mere fact that Mr. Dean did consult Mr. Greenwood is also relevant. But on the findings of fact by the judge this does not and should not preclude the court from holding that the imposition of a duty in this case is fair, just and reasonable. The judge held that the reliance of Mr. Dean on Mr. Dolan continued as previously: it is not as though Mr. Dolan could or did reasonably believe that the reliance upon him had come to an end. The provision of effective security was fundamental to the transactions which Mr. Dolan was instructed to effect and in this regard there was an identity of interest (as he at all times knew) of CH and Mr. Dean. So far as a decision to this effect is a development of the law, it is incremental only and indeed it accords with the decision of the Court of Appeal of British Columbia in Tracy v Atkins [1979] DLR (3rd ed.) 632 and the recognition of such a duty in Searles v Cann & Hallett [1993] PNLR 494.

    RESPONDENT'S NOTICE

  42. The judge held that, if (contrary to her view) a duty of care had been owed by A&W to Mr. Dean, she would have given judgment in his favour for the sum claimed. In the course of doing so, she decided three issues in his favour. First she held that A&W were negligent in failing to recognise the risk of the ineffectiveness of the charge in the absence of a signed memorandum; secondly that the negligence caused the loss to Mr. Dean notwithstanding his instruction of Mr. Greenwood; and thirdly that Mr. Dean did not unreasonably fail to mitigate his loss by maintaining against Mr. and Mrs. Sharman a claim to a charge notwithstanding the absence of a signed memorandum invoking the doctrines of constructive trust or equitable estoppel. A&W in their Respondent's Notice challenge each of these three holdings. The parties made no oral submissions on these issues, but left them to be decided on the basis of their skeleton arguments. The judge dealt with each of these issues fully in her judgment and I agree with her on each of them.

    NEGLIGENCE

  43. A&W first challenge the judge's decision that A&W were negligent. This issue turns on the question whether no reasonably competent solicitor could have failed to recognise that a deposit of the Deeds without a memorandum in writing signed by Mr. and Mrs. Sharman and Mr. Dean would or might be rendered devoid of legal effect by Section. The starting point must be the legal nature of a charge by way of deposit of deeds, which in law is an agreement to create a charge on land evidenced and part performed by the deposit of the deeds. The Statute of Frauds and later section 40 of the Law of Property Act 1925 (the predecessors of Section 2) rendered unenforceable any agreement to transfer or create an interest in land unless evidenced in a writing signed by the party against whom enforcement was sought. Equity engranted a qualification on the application of the statutory provisions in the form of the doctrine of part performance which (in effect) enabled the agreement nonetheless to be enforced if part performed by the party seeking enforcement. The statutory provisions applied to the creation of an equitable charge by way of deposit of title deeds and accordingly required a signed memorandum for the charge to be enforceable. But (in the absence of such a memorandum) equity treated the deposit of the title deeds as an act of part performance enabling the agreement to be enforced and a valid equitable charge created. Section 2 replaced section 40 of the Law of Property Act 1925 with a stricter requirement for the validity (and not merely enforceability) of the agreement, namely that the agreement should not merely be evidenced in writing signed by the party to be charged, but should be contained in a writing signed by the parties to the agreement. In my view (as it was the view of the judge) on a plain reading of the Act it should have been obvious to any lawyer (and in particular any conveyancer or lawyer holding himself out as competent to advise on the creation of a charge) that an equitable charge by way of deposit of deeds in law constituted an agreement to create a charge; that it accordingly fell, or at the very least might fall, with the provisions of Section 2; and that accordingly, to be valid or at least to be unquestionably valid, such a charge needed to be created by a contract in writing signed by the parties. It is fair to say that two text books (Snell's Equity (29th ed) (1990) at pages 444-5 and Cheshire & Burn's Modern Law of Real Property (15th ed) (1994) at pages 669-670) for some obscure reason expressed the view that Section 2 did not apply to charges by way of deposit of deeds, but the passage in Cheshire & Burn refers to the doubt on the correctness of this view expressed in Emmet on Title. Emmet acknowledged that there were arguments why Section 2 should not apply, but said that it could not safely be assumed that it did not do so. The Law of Mortgages, Cousins & Ross (1989) and articles in the New Law Journal and Conveyancer likewise expressed the view that Section 2 applied or might well apply. In my view any reasonably competent lawyer practising in property should have known at the least that there was a significant question mark whether Section 2 applied and a signed memorandum was required. Mr. Dolan had read Section 2. He understood that the charge by deposit was created by an implied agreement. He had access in his office to Emmet. He did not at the time give any consideration to Section 2 and its possible application. He was in my judgment clearly negligent and in breach of his duty of care to CH and Mr. Dean. I should add that the decision of Chadwick J in United Bank of Kuwait Plc v Sahib [1997] Ch 107 was given in June 1994, some seven months prior to the fourth loan transaction entered into in February 1995. It may be (as submitted by A&W) that this judgment was not reported in a recognised set of law reports until June 1995, but I cannot help thinking that it must have been referred to in various other law reports and periodicals within that seven month period.

    CAUSATION

  44. This issue revolves around the instruction by Mr. Dean of Mr. Greenwood between the dates of the Third and Fourth PNs. Mr. Dean in his evidence stated that he believed that his loan to the Borrowers was secure following obtaining Mr. Greenwood's advice and that had this not been so he would not have accepted the Fourth PN, the entry into which was the occasion of his loss. A&W contend on this appeal that this fact precludes Mr. Dean from establishing that the conduct of A&W caused him to make the fourth loan. This contention is however not maintainable in view of the express finding on this issue by the judge amply justified by the evidence that all parties proceeded with the Fourth PN in the belief induced by Mr. Dolan's involvement that the security for Mr. Dolan's loan was effective. The duty of care of Mr. Dolan and the reliance upon him continued unabated. It may well be that A&W was entitled to claim contribution from Hawkins Greenwood who was likewise negligent, but no such claim was made in this action.

    MITIGATION

  45. Finally A&W contended at the trial that Mr. Dean failed to mitigate his loss by refusing to return the Deeds to Mr. and Mrs. Sharman and maintained that he was entitled (notwithstanding Section 2) to a valid and enforceable charge relying on the equitable doctrines of constructive trust and proprietary estoppel. The subsequent decision of the Court of Appeal in Yaxley v Gotts [1999] 3 WLR 1217 lends support to this argument. But the law was quite uncertain at the critical date when Mr. Dean faced and acceded to the demand for the return of the Deeds; the litigation would have been strenuously fought by Mr. and Mrs. Sharman whose home was at stake; Mr. Dean lacked the financial resources to conduct the litigation; and A&W did not offer to finance it. In these circumstances, the judge reached the only possible conclusion that Mr. Dean did not act unreasonably in submitting to the claim for the return of the Deeds.

    CONCLUSION

  46. For the above reasons, I would allow the appeal and enter judgment for Mr. Dean for £50,000 and simple interest from the 1st January 1997.

    Lord Justice Sedley

  47. I agree with each of the conclusions of Lightman J. Accordingly I agree that the appeal succeeds on the single ground that - as Lord Slynn puts it in Phelps v London Borough of Hillingdon [2000] 3 WLR 776, 791 - the law has imposed on Mr. Dolan a duty of care to Mr. Dean in the particular circumstances of this case. Although in the conventional vocabulary such a duty is said to be assumed by the defendant, it is a peculiar kind of assumption because it is independent of the defendant's will or knowledge. Thus Lord Devlin in Hedley Byrne v Heller [1964] AC 465, 529, spoke of acts which "implied a voluntary undertaking to assume responsibility" (my emphasis). It may assist the development of the law if, as Lord Slynn suggests, the language used by the courts acknowledges that it is the law which, independently of the volition of the actors, exacts such a duty. This in fact is how the law operates in most branches of negligence, most commonly by reason of the circumstances in which the parties are brought into contact but often too by reason of what the parties themselves have elected to do. Even the conscious assumption of a duty which would not otherwise exist is hedged by law in relation to such things as waiver and consequences.

  48. It is thus from an objective appraisal of the actors' specific relationship with one another that the law will either deduce or decline to deduce the duty. Inevitably, since no two cases are alike, this gives rise to criticism that the law is being rendered uncertain. The criticism may wound when it is applied to cases such as White v Jones [1995] 2 AC 207 and Gorham v British Telecommunications plc [2000] 4 All ER 867 so as to suggest that these are decisions driven as much by merits as by law. If so, the wounds are honourable, for they represent the constant endeavour to do justice according to law. After a century and a half of development of the law of negligence we know that there is no universal legal formula by which the presence or absence of liability can be determined, and policy has correspondingly come to fill some of the spaces. What is not always understood in this context is that the "fair, just and reasonable" test is not a gate opening on to a limitless terrain of liability but a filter by which otherwise tenable cases of liability in negligence may be excluded.

  49. Thus the final question to be asked in the present case is whether, given the relationship which had come into being between Mr. Dean and Mr. Dolan, there is in all the circumstances of the case (including the implications for the law itself) anything unfair or unjust or unreasonable in holding the latter liable for the former's consequent losses. I do not accept Mr. Weatherill's submission that once a Hedley Byrne situation is identified the answer has to be in the claimant's favour. It should by now be evident that the pigeonholing of cases is not the right way for the law to develop - by which I mean not simply to grow in ambit but to gain in coherence. What I do accept is that Mr. Dolan had knowingly undertaken to give effect to the common purpose of the borrower (his client) and the lender (the claimant) by securing repayment of the loan and the interest on it, and that in the circumstances fully described by Lightman J this placed him in a relationship with Mr. Dean into which it is fair, just and reasonable that the law should introduce a duty of care.

  50. To this end I agree that it is appropriate, if only so as to add belt to braces, to allow the amendment to which Lightman J refers. It does no injustice to the respondents. It spells out what has emerged as the sharpest of the issues already in the arena. In the end, however, the appeal in my judgment succeeds both on the unamended and on the amended pleading.

    Lord Justice Robert Walker

  51. I agree that this appeal should be allowed for the reasons stated in the judgment of Lightman J. I have had the advantage of reading his judgment in draft and I am in general agreement with it. I add some comments of my own because we are differing from the clear and thorough judgment of the judge.

  52. It can be seen, with hindsight, that in this litigation Mr. Dean has been faced with several serious obstacles (some, it must be said, of his own side's making) in establishing liability in tort against Allin & Watts ("A&W"). Apart from the court's general reluctance (for reasons spelled out in Gran Gelato v Richcliff (Group) [1992] Ch 560, 569-71) to hold a solicitor liable to someone who is not his client and is on the other side of the transaction, Mr. Dean and his advisers decided to put his claim primarily on the basis of an implied contractual retainer. That way of putting the case was doomed to failure, and it produced pleadings which (even after repeated amendment) did not put the case in negligence as clearly as it might have been put. Another serious difficulty was that although Mr. Dean himself was accepted as a frank and honest witness, much of his pleaded case depended on the evidence of Mrs. Young, who was one of the borrowers under the series of loan transactions, and whose bankruptcy had precipitated the litigation. The judge did not find Mrs. Young to be a wholly reliable witness and she rejected some important parts of Mrs. Young's evidence.

  53. The judge gave permission to appeal limited to the issue of whether, on her findings of primary fact, A&W owed Mr. Dean a duty of care. The appeal has centred on that issue (although we allowed Mr. Bernard Weatherill QC for Mr. Dean to raise the implied retainer issue, and Mr. Alistair Norris QC had a respondent's notice which he left to speak for itself). On the central issue this court has, I think, had the benefit of rather fuller and more focused argument than at the hearing before the judge.

  54. In particular, the argument in this court emphasised the distinction drawn by Buxton LJ in Andrew v Kounnis Freeman [1999] BCLC 641, 654-5 between the liability of an adviser who satisfies all the conditions stated by Lord Oliver in Caparo Industries v Dickman [1990] 2 AC 605, 638, and liability arising from a more general assumption of responsibility. Mr. Norris suggested that the liability of the Caparo-type adviser should be seen as the central core, surrounded by a penumbra of other cases in which liability would be imposed only if it was fair, just and reasonable to do so. In relation to that requirement Lord Steyn in Marc Rich & Co v Bishop Rock Marine [1996] AC 211, 235, approved what Saville LJ had said in this court:

    Thus the three so-called requirements for a duty of care are not to be treated as wholly separate and distinct requirements but rather as convenient and helpful approaches to the pragmatic question whether a duty should be imposed in any given case. In the end whether the law does impose a duty in any particular circumstances depends upon those circumstances ...

  55. A similarly broad approach was taken in the illuminating judgment of Sir Brian Neill in BCCI (Overseas) v Price Waterhouse (No.2) [1998] PNLR 564, with which Nourse and Brooke LJJ agreed. A broad approach is particularly appropriate (indeed, is almost unavoidable) in this case because that seems to be how the matter was argued below, and the judge made no specific findings as to whether Mr. Dolan of A&W was and understood himself to be a Caparo-type adviser.

  56. The judge set out her conclusions on the duty of care issue in para 91 of her judgment. Those conclusions are entitled to great respect, because the judge had seen and heard the witnesses and was in much the best position to assess the nuances of the evidence. Nevertheless it is open to this court, so long as it proceeds cautiously, to review the conclusions which the judge drew from the detailed findings of primary fact which she had made earlier in her judgment. (That is acknowledged by the judge having herself given permission to appeal.)

  57. I have come to a different conclusion from that reached by the judge. In this important part of her judgment she began, to my mind quite rightly, by recognising that in White v Jones [1995] 2 AC 207 the House of Lords was concerned with the very special problems arising from the negligence of a solicitor instructed to confer posthumous bounty. (The same is true of the recent decision of this court in Gorham v British Telecommunications [2000] 4 AER 867.) She noted that in this case, unlike White v Jones, there had been reliance on Mr. Dolan by Mr. Dean.

  58. The main factors which led the judge to her conclusion that there was no duty of care to Mr. Dean, despite his reliance on Mr. Dolan, were the view which she took of the form of the solicitor's undertaking to hold the deeds, the perceived conflict of such a duty with Mr. Dolan's undoubted duty to his own client (Mrs. Young), and a distinction (in relation to each successive promissory note) between what the parties had agreed before instructions were given to A&W, and matters which remained to be agreed.

  59. Counsel for Mr. Dean had (as appears from para 77 of the judgment) relied on the full sequence of events, starting with the telephone call on 10 March 1993. I think that was the right approach, since although there were four successive promissory notes, there was really a single sequence of events and a single developing relationship between the parties. I think that the judge may, with all respect to her, have concentrated too much on analysing the particular relevant factors which she identified, and may have failed to stand back and look at the matter in the round.

  60. Mr. Dolan and Mr. Dean had had no direct contact (as opposed to what may have been relayed through the possibly unreliable medium of Mrs. Young) before the short meeting on 11 March 1993. Mr. Dolan knew that Mr. Dean did not propose to instruct his own solicitor. The judge found that Mr. Dolan must have realised, even at a short meeting, that Mr. Dean was not experienced in business matters. Mr. Dolan did not explain to Mr. Dean (as he had to Mrs. Young the day before) that he could not act for Mr. Dean, or that Mr. Dean should consider taking independent advice. He told Mr. Dean that he would hold the deeds to Mr. Dean's order, an undertaking which he repeated in a letter to Mr. Dean on 23 March 1993.

  61. The judge gave a detailed account of Mr. Dean's evidence about the meeting (which she appears to have accepted):

    He could not remember in specific terms Mr. Dolan giving advice to the effect that the deposit of the title deeds would give him security but (according to Mr. Dean) he would have said that the loan was secured. He was happy the loan was secured before he left the building. He understood it to be that way. He could not remember the exact words. When asked before the court what he meant by security, he explained that it meant to him that he could get his money by selling the property. He had no personal experience of this type of transaction. It was a straightforward loan against deeds. He understood or assumed that if the transaction was done through a solicitor then if there were any problems they would have told him about it. He relied on the fact that a solicitor was involved. He thought the terms of the transaction had been talked through before he left the meeting.

  62. Nevertheless the judge found in relation to the meeting on 11 March (para 29(4) of the judgment):

    Mr. Dolan did not give advice that the security was good or effective or adequate or give any other assurances. The structure of the transaction was already settled and the terms of the promissory note had been agreed. Mr. Dean had never been a client of Allin & Watts and there had been no previous communication between him and Allin & Watts. ... It is likely that there was some reference in passing to the fact that the title deeds would be deposited with Mr. Dean as security but that is not tantamount to advice on the effectiveness of the security. What Mr. Dolan offered to do was to hold the title deeds for Mr. Dean. What Mr. Dean received was a solicitor's undertaking not to release the deeds to anyone, except on his instructions.

  63. The second promissory note (23 August 1993) took the matter no further (although there are some transcripts of telephone conversations between Mrs. Young and Mr. Dolan, especially one on 16 August 1993, which should have emphasised to Mr. Dolan how inexperienced and biddable Mr. Dean was in financial matters). There seems to have been no direct contact between Mr. Dean and Mr. Dolan about the second note. But by the time of the third and fourth promissory notes Mr. Dean's reliance on Mr. Dolan had intensified. On 22 March 1994 he telephoned A&W seeking confirmation that the firm still held the deeds. That was confirmed. Then on 7 April 1994, at Mrs. Young's prompting, Mr. Dolan wrote to Mr. Dean setting out what he had been told by Mrs. Young about an extension of the £50,000 loan "with the existing security in place". The letter ended,

    I presume that you will be looking for a revised promissory note from Malcolm Beasey and Gill Young to reflect the new arrangement, but if this is not the case please let me know. In any event I would be grateful if you could confirm the above arrangements in due course.

  64. Mr. Dean replied in a letter dated 21 April 1994. It is in my view a very important letter. He confirmed the arrangements described in Mr. Dolan's letter but added,

    I have had a letter from Citizens Homes confirming this arrangement but, if you think a new promissory note is required, then I would like you to obtain one for me.

    Shortly afterwards Mr. Dolan sent Mrs. Young a draft of what became the third promissory note (which seems to have been executed early in May 1994; the pleaded date of 23 February 1994 seems to have been based on an incorrectly dated copy).

  65. The judge thought it significant that Mr. Dolan produced the promissory note in response to a letter from Mrs. Young, and not in response to Mr. Dean's letter of 21 April. But to my mind the most significant feature of these exchanges was that Mr. Dean was making it clear that he was relying on Mr. Dolan for advice ("if you think a new promissory note is required, then I would like you to obtain one for me"). Mr. Dolan accepted in evidence that Mr. Dean could have got the wrong impression. In my judgment it was by then obvious, even if it had been no more than conjectural before, that Mr. Dean was relying on Mr. Dolan to look after his interests so far as the form of the security was concerned.

  66. Mr. Dolan did not reply to Mr. Dean for over a month, by which time the third promissory note had been executed. When he did reply (on 24 May 1994) he did not explain that he could not act for Mr. Dean, or that he should take independent advice. He wrote, as before, that he was holding the deeds to Mr. Dean's order.

  67. I respectfully disagree with the judge's view (in para 91(7) of her judgment) that the function of this undertaking was limited, and that its character did not change because Mr. Dean was not instructing his own solicitors. Had Mr. Dean had his own solicitors, they could have been expected to know just how much protection the undertaking gave their client, and to have given him separate advice about it. But Mr. Dolan knew that Mr. Dean was not instructing solicitors; he knew or should have known that he was not experienced in legal and financial matters; and he knew or should have known (from the meeting on 11 March 1993 and Mr. Dean's attitude at that meeting as described above) that Mr. Dean's overriding concern was to obtain reliable security.

  68. I also respectfully doubt whether the judge was right, on the facts of this case, to draw a sharp distinction between what had been agreed, and what had not been agreed between the parties before Mr. Dolan was consulted. Mrs. Young was said to be an experienced businesswoman but she seems not to have been a successful one; Mr. Dean was very inexperienced. Plainly neither knew much about mortgage securities. Mrs. Young made it fairly clear in her telephone calls that she saw legal advice as an unwelcome but unavoidable expense, in order to ensure that the transaction was not technically flawed. The transcript of the telephone conversation between Mrs. Young and Mr. Dolan on 11 March 1993 shows how what had been tentatively agreed came to be varied to meet the exigencies of the situation (in this case, Mrs. Young's wish to minimise legal fees and the Sharmans' supposed absence; but the judge accepted Mrs. Young's evidence in re-examination, that she would have obtained the Sharmans' signature if she had been advised that it was necessary). I think that the firmness of the instructions to Mr. Dolan to avoid the need for signatures may be overstated in para 91(9) of the judgment.

  69. For these reasons I agree with Lightman J that it is fair, just and reasonable to hold that Mr. Dolan did owe a duty of care to Mr. Dean. As Mr. Dolan knew or should have known, Mr. Dean was relying on him, the provision of effective security was of fundamental importance to Mr. Dean, and there was on this point a sufficient identity of interest between Mr. Dean and Mrs. Young. For my part I do not see this as an extension of White v Jones but as an example of the sort of exceptional case contemplated by the Vice-Chancellor in Gran Gelato v Richcliff (Group) [1992] Ch 560, 571-2.

  70. For my part I am not sure that the proposed amendment of the statement of claim is necessary, but I agree that permission to amend should be granted. I agree with Lightman J's reasoning and conclusions on the implied retainer point and the respondent's notice, and I have nothing to add on those aspects of the matter.


Cases

United Bank of Kuwait Plc v Sahib [1997] Ch 107; Searles v Cann & Hallett [1993] PNLR 494; Madley v Cousins Combe & Mustoe [1997] EGC 63; Andrew v Kounnis Freeman [1999] 2 BCLC 641; BCCI v Price Waterhouse (No 2) [1998] PNLR 564; Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560; McCullagh v Lane Fox [1996] 18 EG 35; Phelps v Hillingdon BC [2000] 3 WLR 776; White v Jones [1995] 2 AC 207; Gorham v British Telecommunications plc [2000] 4 All ER 867; Hemmens v Wilson Browne [1995] Ch 223; Tracy v Atkins [1979] DLR (3rd ed.) 632; Yaxley v Gotts [1999] 3 WLR 1217; Hedley Byrne v Heller [1964] AC 465; Caparo Industries v Dickman [1990] 2 AC 605; Marc Rich & Co v Bishop Rock Marine [1996] AC 211

Legislations

Law of Property (Miscellaneous Provisions) Act 1989, s.2

Authors and other references

Snell's Equity (29th ed) (1990)

Cheshire & Burn's Modern Law of Real Property (15th ed) (1994)

Emmet on Title

The Law of Mortgages, Cousins & Ross (1989)

Representations

Mr. Bernard Weatherill QC for the Appellant (instructed by Coles Miller, 44/46 Parkside Road, Poole, Dorset BH15 2P)
Mr Alastair Norris QC for the Respondent (instructed by Bond Pearce, Darwin House, Southernhay Gardens, Exeter EX1 1LA)


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