Preliminary Issues
Cases
Shiel v McKeon
[2006] I.E.H.C. 194,Shiel v McKeon [2006] I.E.H.C. 194
JUDGMENT of Mr. Justice Clarke delivered 31st May, 2006.
1. Introduction
1.1 Both the plaintiff (“Mr. Shiel”) and the defendant (“Mr. McKeon”) had an interest in purchasing a property at Carrowhubbock, Enniscrone, Co. Sligo (“the property”). The property concerned had been in the ownership of the Sproule family for some time. The property consisted of a house with surrounding garden backing onto a further plot of land which in turn backed onto the sea. Mr. Shiel is a solicitor who owned a holiday home just across the road from the property. Mr. McKeon’s family were from Enniscrone and owned lands directly adjacent to the property. Mr. McKeon had purchased those lands from his father and secured a planning permission for a significant retail and residential development for the development of his lands. His interest in the property dated back some years when the property was owned by a Mr. Ken Sproule with whom he had some contact in relation to a possible purchase. Sadly Mr. Sproule died in April 2005. There can be little doubt but that, subject to obtaining a suitable planning permission, the portion of the property nearest the sea could have been easily incorporated into the development for which Mr. McKeon had already obtained planning permission.
1.2 It will be necessary to set out in more detail the precise attempts which both parties made to purchase the property. Suffice it to say that there was a time when it is clear that both were actively pursuing the property. During that time a meeting between the parties took place on the 14th August, 2005, as a result of which Mr. Shiel contends that an arrangement was entered into whereby Mr. McKeon would purchase the property, would retain the rear portion for himself but would hold the front portion (which consisted of the Sproule house and the gardens immediately around it), on trust for Mr. Shiel. Any such arrangement is strenuously denied by Mr. McKeon.
1.3 However it is in the context of such an alleged arrangement that these proceedings are brought.
1.4 It will be necessary to turn in due course to the nature of the trust claimed and the legal principles applicable. However before doing that I should set out the uncontroversial facts which led to the meeting of the 14th August.
2. The Facts
2.1 While it would appear that both parties knew of each other, there does not seem to have been any direct contact between them until Thursday 11th August, 2005. The history of events concerning the possible purchase of the property up to that date needs to be outlined.
2.2 It would seem that Mr. McKeon had approached Mr. Ken Sproule some considerable time earlier with a view to a possible purchase of the property. However at that stage Mr. Sproule had, unfortunately, been diagnosed with a serious illness from which he, sadly, died. In the circumstances no further progress in relation to the matter occurred until July 2005 when the property was advertised for sale through Sherry Fitzgerald.
2.3 It should also be noted that there was a potential issue between Mr. McKeon and the Sproules as to the precise boundary between the neighbouring property which Mr. McKeon owned (and in respect of which he had obtained planning permission) and the property. While the amount of land concerned was not, in itself, very significant, the line of the boundary between the properties had the potential to be of some significance to Mr. McKeon because of access to public drainage facilities. If the boundary was where Mr. McKeon asserted it to be, then he would have had ready access to the public drainage. If the boundary was where it appeared on the ground then it might have been somewhat more difficult for Mr. McKeon to secure such access. There was some debate in the course of the hearing as to the extent to which there might have been other alternatives for Mr. McKeon. It was not possible, on the basis of the evidence before me, to reach any clear view as to the viability of alternative sources of access. I can do no more than conclude that securing that the boundary was where he (Mr. McKeon) suggested it ought to be was an issue of at least some importance to him. In that context Mr. McKeon arranged for his solicitor (Mr. Gordon) to write to Ms. Nuala Feeney of Sherry Fitzgerald in respect of the boundary.
2.4 It would also appear that prior to the 11th August Mr. McKeon had made a number of offers in respect of the property to Ms. Feeney and had, it would seem, agreed in principle to purchase the property for €435,000 on Monday or Tuesday the 8th or 9th August. No booking deposit had been paid by the time the events which are in controversy between the parties occurred. Still less had any formal contract been entered into.
2.5 I should note that neither side called Ms. Feeney to give evidence. Therefore much of the evidence given respectively on behalf of Mr. Shiel and Mr. McKeon concerning their dealings with the property (other than in relation to each other) was largely dependent on their own accounts and were not controverted. In the absence of any evidence to the contrary I can see no basis for not accepting those accounts. I merely note the fact that Ms. Feeney did not give evidence in fairness to her, for the purposes of pointing out that it is possible that she might have a different account in respect of some of the matters.
2.6 So far as Mr. Shiel is concerned it would appear that he had asked a Mr. Noel Jacob to bid on the property for him. Mr. Jacob had known Mr. Shiel for at least 10 years prior to these events and had phoned Mr. Shiel for the purposes of informing him that the property was for sale. It would appear that a number of bids were put on the property by Mr. Jacob on behalf of Mr. Shiel. It was Mr. Jacob’s evidence, which I accept, that at the time when he made what was, for him, the highest bid of €415,000, it was his understanding that it was the top bid as of that time. He did not disclose to Ms. Feeney that he was bidding on behalf of Mr. Shiel. After making the bid of €415,000 and communicating that fact to Mr. Shiel, Mr. Jacob was no longer directly involved. It would appear that on 11th August Mr. Shiel came to understand that the property was to be sold to another party. In those circumstances he contacted a member of the Sproule family (Mr. Glen Sproule) directly rather than contacting Ms. Feeney the Estate Agent. As a result of that initial contact, it would appear that Mr. Shiel had a subsequent conversation with Ms. Feeney where he was informed that he would have to offer €500,000 for the property if he was to secure it. It would also appear that at that stage he offered €450,000.
2.7 The position which existed immediately prior to the initial contact between the parties was, therefore, that from Mr. McKeon’s perspective he had an agreement to purchase the property (admittedly subject to contract and, indeed, subject to him paying a booking deposit in order to secure that the Estate Agents would treat the property as no longer on the market) and found that Mr. Shiel was attempting to interfere with that sale. However from Mr. Shiel’s perspective, he had made what he considered to be the highest offer on the table at the time of the making of his offer of €415,000 and found that the property had, apparently, been sold without giving him a chance to up his bid. Due to the absence of any witnesses from either the Sproule family or the Estate Agents acting on their behalf, it is impossible to know with any precision how that undoubtedly difficult situation arose. However it is easy to see how, from the perspective of both parties, there was a feeling that things had not been properly dealt with. That fact should be noted before passing on to the controversial series of dealings between the parties which occurred between Thursday 11th August and Sunday 14th August to which I will turn in due course. It may also go some way towards explaining the level and force of the accusations directed at the hearing against both parties. However before going on to analyse the course of dealing between the parties it is necessary to turn, first, to the legal principles by reference to which those facts need to be assessed.
3. The Law
3.1 In Pallant v. Morgan (1953) 1 Ch. 43 Harman J. had to consider the legal implications of an agreement reached between the agents of two neighbouring land owners in an auction room immediately before an auction. One agent agreed that he would refrain from bidding on the basis that there would be a division of the land according to a formula which left certain details to be agreed later. The parties subsequently failed to agree on those details and the aggrieved party claimed specific performance or alternatively a declaration of trust. In respect of the claim for specific performance the court held that the arrangements between the agents were not sufficiently precise (having left matters of some substance over for further agreement) to permit specific performance. There was, the court held, “too much left undecided”. However, at p. 48 Harman J. went on to say the following
“Is the result then that the plaintiff must fail? In my judgment not so. To allow the defendant to retain lot 16 under these circumstances would be tantamount to sanctioning of fraud on his part and I find the following in Fry on Specific Performance 6th Ed. at p. 184, para. 386, at the end of the chapter in which the author is dealing with what he styles the “uncertainty of the contract”: “the same certainty”, he says, “will not be required in cases where there is an element of fraud, as in simple cases of specific performance of a contract. Thus where A. agreed with B. in effect that if B. would not try to buy a certain estate, A would try to buy, and in case of success would seed a portion of the estate to B. at a certain price: and B. acted on his bargain and allowed A. to purchase: and A. having purchased refused to perform his part and set up the uncertainty of the part to be seeded: the court held that the defence could not avail and directed an inquiry to ascertain the portion to be given up and the price. It seems that if this could not have been ascertained, B. might have claimed the whole estate”.
3.2 The court then went on to note that the relevant paragraph from Fry is based on Chattock v. Muller 8 Ch. T 177 and proceeded to apply the principle to the facts of the case before it.
3.3 The Court of Appeal in the United Kingdom returned to the issue in Banner Homes plc v. Luff Developments Limited and Another (2000) Ch 372. In applying Pallant Chadwick L.J. (speaking for the court) and having reviewed extensively all relevant authorities stated the following at p. 397:
“Equity must never be deterred by the absence of precise analogy, provided that the principle invoked is sound. Mindful of this caution, it is, nevertheless, possible to advance the following propositions.
(1) A Pallant v. Morgan equity may arise where the arrangement or understanding on which it is based precedes the acquisition of the relevant property by one party to that arrangement. It is the pre-acquisition arrangement which colours the subsequent acquisition by the defendant and leads to his being treated as a trustee if he seeks to act inconsistently with it. Where the arrangement or understanding is reached in relation to property already owned by one of the parties, he may (if the arrangement is of sufficient certainty to be enforced specifically) thereby constitute himself trustee on the basis that “equity looks on that as done which ought to be done”, or an equity may arise under the principles developed in the proprietary estoppel cases. As I have sought to point out, the concepts of constructive trust and proprietary estoppel have much in common in this area. Holiday Inns Inc. v. Broadhead, 232 E.G. 951, may perhaps, best be regarded as a proprietary estoppel case; although it might be said that the arrangement or understanding, made at the time when only the five acre site was owned by the defendant, did, in fact, precede the defendant’s acquisition of the option over the 15-acre site.
(2) It is unnecessary that the arrangement or understanding should be contractually enforceable. Indeed, if there is an agreement which is enforceable as a contract, there is unlikely to be any need to invoke the Pallant v. Morgan equity; equity can act through the remedy of specific performance and will recognise the existence of a corresponding trust. On its fact Chattock v. Muller, 8 Ch.D. 177, is perhaps, best regarded as a specific performance case. In particular, it is no bar to a Pallant v. Morgan equity that the pre-acquisition arrangement is too uncertain to be enforced as a contract – see Pallant v. Morgan [1953] Ch. 43 itself, and Time Products Ltd. v. Combined English Stores Ltd., 2 December 1974 – nor that it is plainly not intended to have contractual effect – see Island Holdings Ltd. v. Birchington Engineering Co Ltd., 7 July 1981.
(3) It is necessary that the pre-acquisition arrangement or understanding should contemplate that one party (“the acquiring party”) will take steps to acquire the relevant property; and that, if he does so, the other party (“the non-acquiring party”) will obtain some interest in that property. Further, it is necessary that (whatever private reservations the acquiring party may have) he has not informed the non-acquiring party before the acquisition (or, perhaps more accurately, before it is too late for the parties to be restored to a position of no advantage/no detriment) that he no longer intends to honour the arrangement or understanding.
(4) It is necessary that, in reliance on the arrangement or understanding, the non-acquiring party should do (or omit to do) something which confers an advantage on the acquiring party in relation to the acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It is the existence of the advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which leads to the conclusion that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the arrangement or understanding which enabled him to acquire it. Pallant v. Morgan [1953] Ch. 43 itself provides an illustration of this principle. There was nothing inequitable in allowing the defendant to retain for himself the lot (lot 15) in respect to which the plaintiff’s agent had no instructions to bid. In many cases the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market. That will usually be both to the advantage of the acquiring party – in that he can bid without competition from the non-acquiring party – and to the detriment of the non-acquiring party –in that he loses the opportunity to acquire the property for himself. But there may be advantage to the one without corresponding detriment to the other. Again, Pallant v. Morgan provides an illustration. The plaintiff’s agreement (through his agent) to keep out of the bidding gave an advantage to the defendant – in that he was able to obtain the property for a lower price than would otherwise have been possible; but the failure of the plaintiff’s agent to bid did not, in fact, cause detriment to the plaintiff – because on the facts, the agent’s instructions would not have permitted him to outbid the defendant. Nevertheless, the equity was invoked.
(5) That leads, I think, to the further conclusions: (i) that although, in many cases, the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market, that is not a necessary feature; and (ii) that although there will usually be advantage to the one and correlative disadvantage to the other, the existence of both advantage and detriment is not essential – either will do. What is essential is that the circumstances make it inequitable for the acquiring party to retain the property for himself in a manner consistent with the arrangement or understanding on which the non-acquiring party has acted. Those circumstances may arise where the non-acquiring party was never “in the market” for the whole of the property to be acquired; but (on the faith of an arrangement or understanding that he shall have a part of that property) provides support in relation to the acquisition of the whole which is of advantage to the acquiring party. They may arise where the assistance provided to the acquiring party (in pursuance of the arrangement or understanding) involves no detriment (in pursuance of the arrangement or understanding) involves no detriment to the non-acquiring party; or where the non-acquiring party acts to his detriment (in pursuance of the arrangement or understanding) without the acquiring party obtaining any advantage therefrom”.
3.4 It seems to me that the above passage represents the current state of development of the law in this area in the United Kingdom.
3.5 There does not seem to be any direct Irish authority on the matter. In The MacGillicudy of the Reeks v. Joy and Another [1959] I.R. 189 this court was concerned with an agreement entered into by the parties to the effect that they would join in the purchase of a farm. The case would appear to have turned on whether the agreement entered into was enforceable for a variety of reasons including an allegation of uncertainty, an alleged absence of consideration or intention to create legal relations an absence of a provision dealing with land commission consent for subdivision and an alleged absence of a sufficient note or memorandum to satisfy the statute of frauds. The plaintiff having satisfied the court that none of the above prevented an enforceable arrangement having been entered into, the court declared that the defendant held the appropriate portion of the lands on trust for the plaintiff. However it is clear that the case was argued on the basis of contract rather than a trust per se.
3.6 I see no reason not to follow the logic of the decisions in Pallant v. Morgan and Banner Homes and hold that, independent of an entitlement to enforce a contract, there exists an equitable entitlement in the circumstances detailed in those authorities to the enforcement of an arrangement which may fall short, in some respects, from the requirements for the enforcement of a contract. As was pointed out in Banner Homes there would be no need for a Pallant v. Morgan equity in circumstances where there was an enforceable contract because the aggrieved party could simply seek specific performance.
3.7 It is important to emphasise that the Pallant v. Morgan equity arises in circumstances where two persons may be engaged in a joint venture to purchase a property from a third party. It has no application to the more straightforward case where one party is engaged with the other in negotiations for a direct sale of the property. In the latter case a contract will only be enforceable if all of the elements necessary for the creation of contractual relations have been established and if there is a sufficient note or memorandum to satisfy the Statute of Frauds or a sufficient act of part performance or where, as noted in Banner Homes, a proprietary estoppel arises. However the principle behind the doctrine of part performance is that the Statute of Frauds cannot be used as an instrument of fraud. Similarly the Pallant v. Morgan equity derives from the principle that it would inequitable for a person who obtains a benefit (such as the withdrawal of a competitor from a bidding process) to retain the benefit without conceding the substance of the arrangement. I am therefore satisfied to follow Pallant v. Morgan and Banner Homes.
3.8 Having considered all of the relevant authorities I am therefore satisfied that the issue which I must consider on the facts of this case is as to whether there was an arrangement or understanding between the parties as to the purchase of the property such that the circumstances make it inequitable for Mr. McKeon to retain the property in its entirety for himself. It is not necessary that the arrangement or understanding has to be contractually enforceable. Against that background it is now necessary to turn to the contact between the parties which occurred on and after the 11th August, 2005.
4. The Facts in Controversy
4.1 The first actual contact between the parties would appear to have occurred when Mr. McKeon received a phone call, at his house, on Thursday 11th August, from Mr. Shiel. While there are some minor disputes as to what was said on that occasion it seems clear that Mr. Shiel indicated his active interest in the property, but Mr. McKeon was annoyed by this fact, and that the telephone call ended abruptly.
4.2 Mr. Shiel had earlier left a voice message for Mr. McKeon. Subsequently Mr. McKeon made a further phone call to Mr. Shiel which was taken by Mr. Shiel on his mobile phone as he was driving back to Dublin from Enniscrone in the company of his son. There are again some disputes as to precisely what was said during the course of that conversation. However it does not seem to me that anything specifically turns on that conversation in itself save to the extent that it may cast some light on the crucial discussions which took place the following Sunday.
4.3 In that context it is important to note that a great number of issues were explored in the course of the hearing not because they were questions of fact which in themselves had the potential to impact on the final decision in the case but rather were matters which either went to the credit of either of the parties or might be said to make it more likely that one or other contention as to what actually transpired on the Sunday was actually correct. It does not seem to me to be necessary to address each and everyone of those matters in the course of this judgment.
4.4 In any event it seems clear that the second telephone conversation started with Mr. Shiel indicating that he was not prepared to continue with the conversation unless Mr. McKeon apologised for the abrupt termination of their earlier phone call. Such an apology was ultimately tendered. Thereafter it would seem that Mr. McKeon indicated that his primary interest was in the rear portion of the property while Mr. Shiel indicated that his primary interest was in the house and surrounding garden. It appears to be common case that the parties agreed to meet when Mr. Shiel was back down in Enniscrone on the following weekend. As it happens it would appear that the meeting was originally intended to take place on the Saturday but did not, in fact, take place until the Sunday.
4.5 In the intervening period one matter of note occurred. It is clear that Mr. Shiel arranged for his partner, David Fowler, to ring Ms. Feeney on the following day (Friday) for the purposes of telling her that Mr. Shiel would not be available until Monday. It would appear that Ms. Feeney told Mr. Fowler that if Mr. Shiel did not confirm, by close of business on that day (Friday), that Mr. Shiel was prepared to pay €500,000, the property would be sold to Mr. McKeon. It should be said that Mr. Shiel had first given the impression in evidence that nothing of any substance had occurred between the telephone calls on the Thursday and the meeting on the Sunday, but then conceded, under cross examination, that the conversation carried out on his behalf by Mr. Fowler with Ms. Feeney had occurred and, perhaps more importantly, that the substance of that conversation was to the effect that unless Mr. Shiel were to make a bid of €500,000 by close of business on Friday the property would be sold to Mr. McKeon.
In the same context the content of an affidavit sworn by Mr. Shiel on the 21st October, 2005 in an application made earlier in these proceedings needs to be noted. At para. 12 of that affidavit Mr. Shiel conveys the strong impression that he had no contact with Ms. Feeney between Thursday and the Sunday meeting. While this is technically true, in the light of his concession about the contact made on his behalf and the substance of the communication with him (to which I have referred) the paragraph is, regrettably, a long way short of the whole truth.
Of even greater concern are the contents of para. 15 of the affidavit which attempts to convey the impression that Mr. Shiel had outbid Mr. McKeon by offering €450,000 without mentioning that that bid had been rejected and that he had failed to bid €500,000 by close of business on the Friday as he was told by Ms. Feeney he was required to do to avoid a sale to Mr. McKeon.
It is, unfortunately, difficult to avoid the conclusion that Mr. Shiel attempted to conceal the adverse developments with Ms. Feeney on the Friday.
4.6 It is clear that Mr. Shiel was aware of that conversation (and that he had not, in fact, met the deadline of close of business on Friday), when he met with Mr. McKeon on the Sunday. It is equally clear that Mr. McKeon was not aware of the fact that Mr. Shiel had not met a deadline imposed by Ms. Feeney.
4.7 Much of what occurred at the meeting on the Sunday is common case. The parties had an initial meeting at Mr. Shiel’s house, went to visit the site which was, of course, just across the road, and returned for further discussions in Mr. Shiel’s house. On Mr. McKeon’s account he was only there to listen and almost all of the running was made by Mr. Shiel. It is common case that Mr. Shiel suggested that Mr. McKeon would purchase the whole property but in trust for Mr. Shiel as to the house and garden portion. It is further common case that when the parties went to visit the site some discussion as to the appropriate boundary between the property as it might be divided took place. In relation to this aspect of the matter, Mr. McKeon accepts that he suggested that the boundary would need to be placed somewhat nearer the house than it actually appeared on the ground (in line with the neighbouring rear boundary). It is also accepted that Mr. Shiel agreed that Mr. McKeon would be entitled to connect (for the purposes of his planned development) into the sewer passing through the garden at the back of the property (the proposed boundary would have left the sewer on the portion to be allocated to Mr. Shiel). Finally, so far as the substance of the arrangements being contemplated is concerned, it would be appear to be accepted by Mr. McKeon that Mr. Shiel suggested that he (Mr. Shiel) would pay €275,000 of the total purchase price together with a proportionate share of the expenses (including stamp duty) connected with the purchase.
4.8 Of some particular relevance to the issues which I have to decide is that it seems to be common case that Mr. Shiel put forward details as to the mechanism by which the transaction contemplated might be effected. In particular he made suggestions as to the execution of a declaration of trust on the completion of the sale from the Sproules to Mr. McKeon which would have the effect of saving an exposure to double stamp duty. It was also suggested that there would be appropriate wayleaves to provide for connections from Mr. McKeon’s development into the sewer.
4.9 There does not appear to be any dispute but that all of the above matters were referred to at the meeting between the parties. What is in contention is as to whether anything was agreed. Mr. Shiel’s case is that he made it clear that in the event that agreement was not reached it was his intention to engage in a further attempt to purchase the property on the following Monday. On his case all of the above matters were agreed subject only to one question. Mr. Shiel accepts that Mr. McKeon wanted to take expert advice on the question of connections into the sewer.
4.10 On Mr. McKeon’s case his only intervention in the discussions of any substance was to suggest that the line of the boundary between the portion which he was to retain (if agreement was reached) and the portion which was to go to Mr. Shiel was to be along the line of the back garden of the house on the left hand side of the property. In all other respects it is Mr. McKeon’s case that he simply listened to Mr. Shiel’s proposals. Indeed he goes further and says that in particular when Mr. Shiel began discussing the legal technicalities of how any arrangement might be implemented he indicated in strong terms that he did not understand such matters and that Mr. Shiel should discuss same with his (that is Mr. McKeon’s) solicitor.
4.11 In the context of the dispute between the parties two further aspects of what transpired are relevant. It is common case that Mr. Shiel went to get a pen and paper for the purposes of recording the arrangements but that Mr. McKeon declined to have matters so recorded. The only matter which was in fact written down was the particulars of Mr. Shiel’s solicitor. Mr. McKeon says that the reason why nothing was written down was because there was no agreement. Mr. Shiel is adamant that the absence of a written record does not in anyway imply that no agreement had been reached.
In the same vein Mr. Shiel contends that the parties shook hands on a number of occasions as Mr. McKeon was leaving. Mr. McKeon denies this.
4.12 While the case turns on whether any sufficient arrangement had been arrived at, at the meeting which I have just described, so as to make it inequitable for Mr. McKeon not to treat the relevant portion of the property as being held on trust for Mr. Shiel, some of the events which occurred subsequently are material to an assessment of which account of that meeting is, on the balance of probabilities, to be preferred.
4.13 Firstly it should be noted that on the following day, Mr. McKeon paid the booking deposit and thereafter a letter in a usual form issued from Sherry Fitzgerald (dated Monday 15th August, 2005) to the vendor’s solicitors indicating that the property had been sold subject to contract and specifying the terms.
4.14 On the same day, the 15th August, Mr. Shiel contacted Mr. Andrew Turner of Hamilton Turner Solicitors who was the person indicated by Mr. McKeon on the previous day as acting for him. That phone conversation was followed up exactly a week later by a letter of 22nd August, 2005 from David Fowler (whom, as I indicated, is a partner of Mr. Shiel) referring to the conversation had between Mr. Shiel and Mr. Turner the previous week, and setting out the understanding which Mr. Shiel (and through him Mr. Turner) had of the arrangement in the following terms:-
“I understand the arrangement is as follows:
1. Peter is conclude his negotiations with the vendor for the acquisition of the entire property on the basis that John had agreed that he will withdraw from his negotiations with the vendors for the acquisition of the property by him.
2. Peter’s acquisition of the entire property is in trust for John as to the house and the back garden. The back garden is to be along the line of the back gardens of the house on the left hand side of the house.
3. Peter is to transfer at no cost to John any portion of the garden area at the back of the house which may be on Peter’s title.
4. I understand there is a mains sewer passing through the garden at the back of the house and that Peter will require 1/2 connections into this pipe for the purpose of undertaking the apartment development on his adjoining site and possibly also for the purpose of undertaking a development on the site at the back of the house in sale. It is agreed that Peter shall be entitled to make two separate connections to the public sewer as it traverses the garden.
5. Peter has agreed that the upon completion of the connections to the public sewer he shall make good the garden and re-seed to John’s reasonable satisfaction. Upon the completion of the making of the connections to the sewer Peter will construct at his own expense a 2 metre wall to be capped and plastered on John’s side.
6. John will pay €275,000.00 of the total purchase price for the house and the site and Peter will pay the balance. John will discharge his proportion of the deposit upon the signing of the Contract and the balance upon completion.
7. At the time of the signing of the Contract Peter will enter into a Declaration of Trust in John’s favour in respect of the house and the garden.
8. Upon the completion of the acquisition of the property Peter will execute a Deed of Transfer of the house and the garden to John so that John may have the Deed of Transfer adjudicated exempt from stamp duty based upon the Declaration of Trust.
9. John has agreed that there will be executed and delivered to Peter the appropriate wayleaves and easements so that Peter has for the benefit of the adjoining site for the apartments and the site at the rear of the house rights to connect into the public sewer and thereafter to repair and maintain (sic). These easements will be registered as burdens on the title that John will hold to the property.”
4.15 It will be seen from that letter that the arrangements correspond with the matters which, it is common case, were raised by Mr. Shiel at the meeting some eight days earlier. It is clear that in both his initial phone conversation with Mr. Turner and the letter written on his behalf which I have just quoted, Mr. Shiel clearly asserts that an agreement or arrangement along those lines had been entered into.
4.16 The letter of the 22nd August was replied to by a letter of 30th August from Mr. Turner to Mr. Fowler, the operative part of which reads as follows:-
“From the discussion I had with your client and from the instruction received from my client it is apparent to me that no agreement is in existence in relation to the above mentioned property. Having regard to the content of your letter I am instructed that our client does not at this stage wish to proceed along the lines as indicated by you”.
Thereafter the proceedings commenced.
4.17 It is important to note that prior to the receipt of the letter of 22nd August Mr. McKeon went to meet with Mr. Turner, on Wednesday the 17th August. An attendance of that consultation was produced on discovery and Mr. Turner was called by the plaintiffs to give evidence in respect of it. No privilege was claimed in relation to the matter. The attendance gives an account which, insofar as concerns the lead up to the Sunday meeting, is consistent with the evidence of Mr. McKeon. In relation to that meeting itself the memorandum reads as follows:-
“He met him on Sunday. He instructed John that he did not wish any notes to be taken and didn’t want any agreements to be produced in writing. He said that he needed to discuss the matter with his solicitor and architect that they would discuss the property and the proposals for the property. They informally agreed to divide the property into two lots. Peter will take the land at the bank (sic). And John would take the house at the front. Peter would pay €160,000 and John Shiel would pay €275,000 for the house. There was a small section that would be transferred from Peter to John Shiel and John Shiel would in return grant rights for the easement and access to the sewage. The foregoing represents the basic leads (sic) of an agreement but subject to Peter taking legal advice and advice from his architect”.
4.18 One further matter noted in the memorandum of the consultation should be referred to. The memo ends with the following passage:-
“In relation to John Shiel I have been instructed to delay matters until the contract comes in but if he pushes me on the issue I have been advised that I should notify him that we intend to purchase the property in our own name and to indicate to him that we have no real designs on the house and it is our client’s view that he will on balance probably sell the property to him at a later stage”.
4.19 It should be pointed out that in evidence Mr. Turner indicated that the phrase “informally agreed” was his interpretation of the matter and did not represent a specific comment made by Mr. McKeon.
4.20 The second matter that transpired was that prior to the letter of rejection of 30th August, a signed contract for sale of the property became available to Mr. McKeon by, at the latest, the 29th. Thus by the time the formal letter of rejection was sent Mr. McKeon had in fact a binding contract.
4.21 In assessing the evidence I should firstly say that while Mr. McKeon questioned some aspects of the memorandum of his conversation with Mr. Turner, it seems to me that there is no basis for rejecting Mr. Turner’s account of the consultation. On that basis it seems to me that I must hold that whatever language was used by Mr. McKeon in describing the meeting on Sunday the 14th, same was such as conveyed to Mr. Turner an impression that there was at least an informal agreement. It is clear that Mr. Turner, correctly, advised Mr. McKeon that there was no binding contractual arrangement between Mr. McKeon and Mr. Shiel. However that is not the issue in this case. The issue is as to whether there was an arrangement between the parties such as would render it inequitable for Mr. McKeon not to treat the property as being held, as to the appropriate part, in trust for Mr. Shiel. In the circumstances it seems to me that I must, on balance, hold that whatever language was used by Mr. McKeon at the meeting of the 14th it was such as was likely to have reasonably led Mr. Shiel to the belief that there was at least an informal agreement between them. If Mr. McKeon gave that impression to his own solicitor at a meeting some time three days later then it seems to me to be equally likely that he conveyed the same impression to Mr. Shiel. It is also of note that the recorded description of the “informal agreement” corresponds, to a very large extent, with the contents of the letter subsequently received on behalf of Mr. Shiel.
4.22 I am therefore satisfied, as a matter of fact, that Mr. McKeon indicated a sufficient level of agreement to the arrangements proposed by Mr. Shiel at the meeting on 14th August to lead Mr. Shiel to believe, reasonably, that they had entered into an arrangement sufficient to permit Mr. Shiel to withdraw from a consideration of whether he would attempt to reactivate his bid for the property on the following Monday. While Mr. Shiel had not, I am satisfied, made up his mind as to whether to bid again on the Monday, I am satisfied that the arrangement reached on Sunday influenced his decision not to contact Ms. Feeney and attempt to re-activate his interest in the property.
I am also satisfied that Mr. McKeon was concerned about the legal and engineering consequences of what was proposed and indicated that he needed professional advice on those matters. However those issues were concerned with the method of implementation of the arrangements rather than their substance. While I am, therefore, satisfied that the matters agreed to be discussed professionally were wider than those contended for by Mr. Shiel (and extended to questions concerning the legal methods of implementation) I am nonetheless satisfied that Mr. McKeon conducted himself at the meeting in such a way as conveyed the impression that, subject to those issues of implementation being capable of satisfactory resolution, an arrangement would be entered into.
4.23 I am also satisfied that Mr. McKeon was aware that his position was not secure until he had a formal legally enforceable contract signed by the vendor. It seems clear that he wished to keep, if at all possible, Mr. Shiel from becoming aware of the fact that he did not wish to go through with the arrangement until after he had secured a signed written agreement. While in fairness it should be noted that there was no suggestion that, if pressed, Mr. Shiel would not be told the true position, nonetheless it is clear that the desired position was that Mr. Shiel would not discover the true position until it would have been too late for Mr. Shiel to seek to do anything about it. That such a matter is a factor in determining whether a Pallant v. Morgan equity may be said to exist can be seen from item (3) in the passage from Banner Homes referred to at para. 3.3 above. Also that fact is only consistent with knowledge on the part of Mr. McKeon that it was likely that Mr. Shiel would refrain from any further attempt to bid on the property until such time as Mr. Shiel was told that all bets were off. It can only be to that end that it was decided to attempt to delay Mr. Shiel receiving that knowledge until after a signed contract was available to Mr. McKeon.
4.24 In all the circumstances it seems to me that I must conclude that at least an informal arrangement was entered into between the parties which led Mr. Shiel to the reasonable belief that Mr. McKeon would in fact purchase the property in part trust on his behalf and which led Mr. McKeon to the belief that Mr. Shiel would refrain from actively pursuing the property.
5. Some Other Issues
5.1 In his closing submissions on behalf of Mr. McKeon, counsel sought to draw a distinction between the authorities following Pallant and the facts of this case by reference to the events which occurred on the Friday (and thus prior to the meeting on the Sunday). On that basis it was contended that Mr. Shiel was already out of the picture by the Sunday (by virtue of having failed to offer €500,000 by close of business on the Friday). However it does not seem to me that that fact is, of itself, necessarily decisive. The test as set out in Banner Homes is as to whether there was detriment to Mr. Shiel or benefit to Mr. McKeon. Mr. Shiel’s position was, undoubtedly, more difficult as of the Sunday than it had been at a time when he might reasonably be described as having been involved in negotiations. However he had already secured an entry into the negotiating process at a time after a sale had been agreed, subject to contract, with Mr. McKeon. The fact that Mr. Glen Sproule would, apparently, have been prepared to accept an offer of €500,000, notwithstanding there having being a previous agreement with Mr. McKeon at €435,000, shows that until such time as there were binding legal arrangements between Mr. McKeon and the Sproules, Mr. Shiel retained an opportunity to buy the property.
5.2 Whatever views may be held in relation to a party attempting to outbid a competitor whose offer has been accepted (and there has been much recent debate about so called “gazumping”), the fact remains that on the current state of the law in this jurisdiction a party is legally entitled to make a bid up and until the time when legally enforceable relations are entered into with another party. The very fact that Mr. McKeon was not anxious that Mr. Shiel be aware that he had no intention of going ahead with their arrangement until after he (Mr. McKeon) had in his possession a legally enforceable contract, shows that keeping Mr. Shiel off-side was considered by Mr. McKeon to be of some value to him. In the circumstances it seems to me that the test of benefit or detriment as set out in Banner Homes is met.
5.3 However it seems to me that I need to consider the undoubted fact that Mr. Shiel, in going into the meeting on the Sunday, was aware that his position had been significantly damaged by his failure to make the required bid by close of business on the previous Friday and, most importantly, that Mr. McKeon was not aware of that fact, under another heading.
5.4 Obviously so far as the formulation of contractual relations are concerned parties are not under any obligation to reveal facts which might place them at a negotiating disadvantage save in the limited exceptional cases in respect of which utmost good faith is required and subject to the requirement not to engage in misrepresentation. If this case were concerned with the specific performance of a contract then the fact that Mr. Shiel acted in that fashion would be of no relevance whatsoever. However in this case Mr. Shiel seeks to enforce an equitable remedy. It is an old adage that “he who seeks equity must do equity”. In the circumstances I have to consider whether it would be inequitable for Mr. McKeon not to comply with the informal arrangement which, I am satisfied, was arrived at on the Sunday. However in assessing whether that would be inequitable, I must also have regard to whether it would be inequitable to allow Mr. Shiel to benefit from such an arrangement where it was entered into by him in circumstances where he was aware that Mr. McKeon was under a misunderstanding as to Mr. Shiel’s negotiating position.
5.5 Under this heading I am satisfied that the distinction which counsel for Mr. McKeon sought to draw between this case and the other cases in which a Pallant v. Morgan equity have been found to exist, is correct. In all the other cases the parties were competing bidders at arms length where neither party had, apparently, any particular advantage in the negotiations or in respect of an upcoming auction. Indeed item (4) in the passage from Banner Homes referred to at para. 3.3 above speaks of a detriment to seeking to acquire the property on “equal terms”.
5.6 Where a party, such as Mr. Shiel, wishes to rely on equitable principles then it seems to me that he must also be shown to have done equity. While there may be reason to understand his attempt to gazump Mr. McKeon (on the basis that he was aggrieved at not being reverted to having been, at one stage, so far as he concerned, the highest bidder) it does not seem to me that he can invoke equitable principles when he procured the arrangement upon which he relies in circumstances where he was aware that Mr. McKeon was unaware of the fact that his position was far weaker than might otherwise be believed.
6. Conclusion
6.1 In all those circumstances I am satisfied that equity does not require that Mr. McKeon comply with the terms of the informal arrangement. That arrangement was procured in circumstances where one party was, to the knowledge of the other party, unaware of a significant weakness in that party’s position. While under no legal obligation to reveal that weakness, Mr. Shiel does not seek to enforce a legal entitlement. It seems to me that Mr. Shiel has lost his entitlement to resort to equity to pursue the matter by reason of his failure to disclose his weakened position at the meeting on Sunday 14th. While the parties were not, on any view, on equal terms prior to the meeting of the 14th the extent of that inequality was concealed by Mr. Shiel.
6.2 In all the circumstances of the case I therefore dismiss the plaintiff’s claim.
Rosbeg Partners v LK Shields (a Firm)
[2018] IESC 23
Judgment of O’Donnell J delivered the 18th of April 2018
1 This case raises, in a neat way, a difficult issue as to the calculation of damages for professional negligence occurring in the context of a property market that experienced considerable fluctuations in value. The case also illustrates a truth about litigation that is not always apparent from the reported decisions of appellate courts. It is not always the case that the issue upon which the case is ultimately decided is present and recognised as central at the outset of the case or during the trial. On the contrary other issues, often factual, may loom larger in the trial and engage the focus and energies of the parties and the court. It is important therefore when addressing the important issues of law in any case, to have an appreciation of the range of other issues which were agitated at the trial and which shaped the evidence before the court, and the approach of the court to the case.
2 The claim here is one of professional negligence brought by a client against its former solicitors. Nothing, for present purposes, turns on whether it is viewed as a claim for breach of a contractual duty or a parallel duty in tort arising out of the parties’ professional relationship. It is not, and was not in dispute at the trial, that the defendant firm was clearly negligent and in breach of its duty in carrying out an important though routine task on behalf of its client, the plaintiff company, which was itself blameless.
3 The facts are set out very succinctly in the judgment of the High Court (Peart J). In February 1994 the plaintiff company had agreed to buy property known as Unit 520 Western Industrial Estate, Naas Road, Dublin 12, for a sum of £765,000 from a company called Packaging Resources Limited (“PRL”). The defendant firm acted as solicitors for the plaintiff company in the conveyancing transaction. The property was bought with a loan from AIB, and it was accordingly necessary to complete the conveyancing of the property from PRL to the plaintiff and to deliver title to AIB as security. There was nothing unusual about this. The purchase price was paid and the transaction closed on the 6th of May 1994. There remained some outstanding matters to be completed, which were covered by undertakings provided by the vendor’s (PRL) solicitors. Again, this was unexceptional. In the event however, some of these subsequent steps were not completed by the defendant firm, and that has given rise to these proceedings.
4 The title to Unit 520 comprised five lots which were made of five separate titles. Lot 1 was registered title, Lots 2 and 4 were unregistered title, Lot 5 was possessory title and Lot 3, which was the source of the difficulty in this case, was partly registered and partly unregistered. It was never in dispute that the vendor, PRL owned and had title to all the property and had agreed to sell it to the plaintiff company.
5 The registered portion of Lot 3 was itself a part of the property contained in Folio 23011F County Dublin. Accordingly, it was necessary to register the purchasing company, the plaintiff herein, as the owner of that portion. That involved opening a new folio in respect of that portion of the property purchased by the plaintiff and leaving the balance in Folio 23011F in the ownership of PRL. Given the fact that the transaction had been effected, the registration of the plaintiff’s title to the portion of Folio 23011F ought to have involved little more than the lodging of the deed of transfer and a clear map with the Land Registry, and this the defendant firm set about doing. PRL’s solicitors had given an undertaking to facilitate Land Registry queries and assist in that process. It appears that papers were indeed lodged by the defendant firm with the Land Registry in 1996. As it happens, a prior deed of transfer from an earlier owner, Pension Nominees to PRL, had itself not been registered at this time, and accordingly the defendant firm undertook the registration of that transaction as a necessary part of the registration of the plaintiff’s title.
6 However, an issue arose because the Land Registry rejected the map submitted. The defendant firm wrote to PRL’s solicitors asking them to furnish another map, which, of course, that firm was obliged to do, since it had undertaken to deal with Land Registry queries. Again, this sequence is not unusual. However, the process dragged on with the defendant firm pursuing the issue sporadically over the next few years. I infer, perhaps wrongly, that the very routine nature of the task, and the fact that the transaction had closed, the purchase money had been paid, and that there was no dispute that the plaintiff company was the owner and occupier of the entire property, meant that the completion of these matters was not a matter of priority for the vendor company, its solicitors, and increasingly for the defendant firm. This is not however an excuse. Professional firms are retained, and paid, to carry out just those formal, tedious, routine, but important, tasks. Part of the service which a client is entitled to expect from a solicitor is attention to those tedious, technical, but important, issues of detail. After further fitful, but in the event, unavailing, attempts to obtain action from the vendor’s solicitors, the defendant’s firm file fell silent in or about the year 2000. During this same time period there had been correspondence by the defendant firm with the plaintiff’s bankers AIB, forwarding all the existing documentation and informing the bank that the matter of registration was being dealt with by the Land Registry and once the plaintiff company was registered, the appropriate documentation would be forwarded to the bank. That correspondence too petered out.
7 This then was the position in 2007 when the events giving rise to these proceedings occurred, with one additional complicating element. As already observed, the position at all times was that there was never any doubt but that the plaintiff company was the owner, and in occupation, of Unit 520. It had however not been registered as the owner of that portion of Folio 23011F contained in Lot 3. It was not, and never was in doubt, that it was entitled to be so registered. However, in 2005 PRL sold the balance of the lands in Folio 23011F to Bank of Ireland Trust Services. This transaction was effected by a simple transfer of that folio. Accordingly the documentary title purported to show Bank of Ireland Trustees as the owner of the entirety of the land in the folio. Once again it should be said that this was an issue of paper title only. Bank of Ireland trustees did not assert any entitlement to the land in Folio 23011F occupied by the plaintiff company and in relation to which the application for registration had been made but not completed by the defendant firm. As already observed, clearly the defendant firm was in breach of its duty to Rosbeg, but so long as nothing was done in relation to the transfer of ownership of the land, there was no necessary impact on Rosbeg, or indeed, as it happened, any awareness on the plaintiff’s part of the issue, since it was not contemplating sale and because it was not under pressure to complete the details of the conveyancing. However, around 2007 as the market climbed to new heights, the plaintiff began to consider selling what it had purchased in 1994, that is, Unit 520.
8 It is not disputed that the defendant was negligent in failing to secure the registration of the plaintiff’s title. There was therefore, in colloquial terms, a title problem. It is important however to identify clearly the problem, such as it was. There are many cases of solicitors’ negligence in conveyancing transactions which can result in a permanent title defect which is not capable of being remedied. In such a case, a client may have expended monies and obtained a title which is effectively worthless. This can lead to substantial damages, particularly if the market is rising. That however is not the case here. It was common case that the problem here was a failure to take certain steps in any reasonable time scale. But the transactional steps which were left undone, were always capable of being carried out and were eventually completed (by other solicitors retained by the plaintiff) when the problem came to light. Indeed it was agreed by the conveyancing experts who gave evidence that the state of the documentary title as of 2007 did not prevent Unit 520 from being sold. It would have been possible to offer a contract with a special condition covering that portion of the title and addressing the question of the registration of the portion of Folio 23011F, providing perhaps that such a registration would be effected by the closing date. The problem, though real, was curable, and even while it existed was not such as to preclude the possibility of selling the property to a willing purchaser, and in a rapidly rising market in particular it is not difficult to imagine such a transaction. This after all was what had occurred in effect, on the sale from PRL to Rosbeg.
9 It is important to recall that 2007 marked what in retrospect can be recognised as the zenith in the property boom in Ireland. Property had been increasing in value at dizzying pace, and this land was no exception. The plaintiff company had borrowed €5.9 million from AIB in 2005, and as a term of that borrowing had agreed that there would be a reduction in borrowings of €8 million by January 2007 from the proposed sale of Unit 520. There is no sense however that the plaintiff was being pressurised to sell by that date, which indeed passed without any such sale. It may be that both Rosbeg and the bank were comfortable with the fact that the plaintiff was the owner of an asset which at that time was extremely valuable and appreciating. Nevertheless, it is clear that by this stage a sale was being actively considered, and architects were retained to advise on the manner in which the site’s development potential, and therefore value, could be maximised.
10 The principal of the plaintiff company was a Mr Bob Stewart, an experienced businessman. The plaintiff company was represented in property matters by Mr Ben Pearson, an agent who was very familiar with this property. The property immediately adjoining Unit 520 had recently been sold at a very good price to the late Mr Pino Harris, a well known businessman who had substantial property interests in the area. Mr Harris was an obvious potential purchaser, and indeed given his ownership of the adjoining land and desire to engage in development, quite possibly a special purchaser who would pay the best price for the site. Mr Harris for his part was represented by Mr William Harvey, a property agent. Mr Harvey and Mr Pearson knew each other, and indeed were very familiar with the land. They had acted for the respective parties, Mr Harvey for PRL and Mr Pearson for Rosbeg, when PRL had sold Unit 520 to the plaintiff company. Mr Harris had a right hand man, Mr John Burns, whose function it was to engage with, and deal with, the detail of transactions. For its part the plaintiff company had a financial controller Mr McConvey who was also involved in discussions within the company, and with the bank. Much of the factual dispute which occupied so much of the hearing of the High Court, was concerned with the dealings between these six people and the evidence which they gave.
11 In 2006 a verbal offer of €6.5 million was received by Mr Pearson from Mr Harvey on behalf of Pino Harris. The plaintiff company did not accept that offer or pursue it as Mr Stewart felt that the value was increasing and he was prepared to wait. The plaintiff company had a valuation from DNG of €10 million and Mr Stewart apparently believed that the property could achieve a price of €15 million. The High Court found that Mr Stewart subsequently told Mr Pearson that he would like to get €12 million but the backstop figure was €10 million.
12 In September 2007 Mr Harvey contacted Mr Pearson with a formal offer of €10 million. This was put in writing in an email from John Burns to Ben Pearson on Friday 21st of September 2007:
“I wish to confirm Mr Harris’ offer to purchase the above property for €10 million (ten million euro), subject to contract and subject to confirmation of a total site area of 2.56 acres. We would envisage completing and closing the contract quickly, subject to satisfactory completion of the legal work. In the event of the Vendor wishing to remain in occupation Mr Harris is willing to enter into a short term letting agreement to rent the premises back to the Vendor (term to be discussed and agreed) at a quarterly rent equal to the three month deposit rate available from Anglo Irish Bank on the €10 million offer price for the property (currently 4.8%) plus rates and services charges (if applicable). This offer remains open for five working days and lapses if not accepted by 5pm Friday 28th September 2007.
If you need any clarification please let me know.”
13 A number of things may be observed about this communication. Most importantly it was “subject to contract” and therefore even if accepted would not have constituted a binding and enforceable contract. It did not itself raise any question of title and although it referred to a specific site area, all that was required in this regard was confirmation of the area. On the other hand the letter is clear evidence that the property was actively on the market and could have been sold, speedily indeed, all other things being equal. The offer was discussed within the plaintiff company. The trial judge found that Mr McConvey was deputed to get a map from the defendant firm and Mr Pearson gave evidence that he recollected that he had been told that Mr Stewart wanted to proceed. Mr Pearson gave evidence that he rang Mr Harvey and informed him that he had instructions to accept the offer, but wanted more time. The deadline for acceptance was extended by a week to the 5th October 2007.
14 There was considerable debate in the High Court as to whether there was ever any agreement, even subject to contract, at a price of €10 million. As it happens, the Harris side were prepared to give evidence on behalf of the defendant firm. The thrust of their evidence was that the plaintiff company had never reached the point of even tentative agreement on a price, let alone an agreement to sell. However the trial judge did not consider it was necessary to go so far as to find there had been a communicated agreement. He was satisfied that a decision had been made by the plaintiff company to sell Unit 520 for €10 million at this time, and he was also satisfied, that other things being equal, and if the problem with the title had not emerged, a contract would have been entered into and the property sold at that price, relatively soon thereafter. Accordingly, this fixed a value for the property which the court considered could realistically have been achieved but for the admitted negligence of the defendant. It is necessary now to turn to consider the impact the defendant’s negligence in failing to secure the registration of Rosbeg in respect of that portion of registered land contained in Lot 3 was found to have had upon this state of affairs, as found by the trial judge
15 The problem with the title to Lot 3 emerged in a curious way. While completing the purchase of adjoining lands, the Harris side became aware of the fact that Folio 23011F had been transferred to Bank of Ireland Trustees, and therefore purported to include a portion of the land included in Lot 3, and which was occupied by the plaintiff company and under negotiation between Rosbeg and Harris. The Harris side brought this to the attention of Rosbeg and told them to come back, “when they had sorted out the problem”. As the trial judge observed, this may simply have been a negotiating tactic, (and it certainly has that flavour) but whatever the motivation, the fact was that Rosbeg was stalled in its desire (as the judge found) to sell the property just at a time when the property market was at a high but would soon start to soften and then go into a precipitous decline.
16 The trial judge considered that the plaintiff had lost the opportunity to follow through on its own decision and sell the property to Mr Harris. The plaintiff company did set about regularising the documentary title and did keep in touch with the Harris side. At some point in 2008 at least, it was clear that the plaintiff would be able to have itself registered as the owner of the relevant portion of Folio 23011F. The latest possible date for this is October 2008 when the registration was actually effected, but it seems probable that the plaintiff would have been in a position to at least demonstrate its ability to do so earlier, and as we shall see the plaintiff said so as of July 2008. It is not however necessary to attempt an estimate of the precise date. Given that the defendant had failed to secure the plaintiff’s registration over a 14 year period the court was entitled to take the October 2008 date as the point at which, at least definitively, the defendant’s negligence had been cured. However by that time the plaintiff said, and the High Court agreed, that a course had been set which caused the plaintiff to suffer further substantial losses because of the fall in the value of the property.
17 There are at least two other important events in particular which require to be noted, and which were hotly debated between the parties. Mr Pearson contacted Mr Harris in January 2008. It was clear from the discussion, and hardly surprising given the dramatic events in the financial world with a significant impact on the Irish property market (the collapse of Lehman Brothers that led to a paralysis in the bank lending which up until them had fuelled the Irish property market) that Mr Harris was no longer willing to offer €10 million. But in February 2008 Mr Harvey reverted to Mr Pearson with a verbal offer of €8 million. Rosbeg’s response however was to ask that this offer be put in writing. Mr Harvey replied that Mr Harris was still interested in purchasing because he (Mr Harvey) had been asked if there was any response to the offer, but he (Mr Harvey) did not think it was a good idea to ask Mr Harris for written confirmation, as Mr Harris might take that as a suggestion that his word was not to be trusted. Mr Stewart for his part considered that response to be “risible” and did not respond to the offer at that point. The following month however Mr Pearson responded with Mr Stewart’s instructions that the plaintiff would not accept the €8 million figure but was prepared to negotiate on the €10 million figure that had been on the table in September 2007. There was no response to this. In April 2008 Mr Pearson was instructed to ask for €9 million, and perhaps unsurprisingly that overture produced no response. Mr Stewart’s evidence was that he accepted the market had softened, but not to the extent that the property was now worth €8 million. The parties by this stage clearly had different views as to the progress of values in the market.
18 In July 2008 Mr Stewart was becoming more anxious to dispose of the property and AIB was now becoming more urgent in exerting pressure, seeking a sale which again was perhaps a reflection of the deterioration of the market. Again, an effort was made to reopen negotiations and a letter was written at this stage (July 2008) informing Mr Harvey that the title issue was resolved and that the plaintiff was in a position now to deal with Mr Harris if he was still interested. In August, whether in direct response or otherwise, Mr Harvey made a verbal offer to Mr Pearson of €6 million. The plaintiff company refused this offer as it did not believe it represented the state of the market. On the 28th of August Mr Harvey responded by a letter that Mr Harris was still interested, and by that stage was one of the very few individuals who could conclude a purchase speedily, since in the current climate, Mr Harris was not dependent on bank funding. Accordingly, Mr Harvey asked for the plaintiff’s minimum price. The plaintiff responded almost a month later on the 23rd September 2008 and after some introductory paragraphs indicated a willingness to sell at €8.5 million. A further month later, on the 22nd October 2008, Mr Harvey replied that Mr Harris took a pessimistic view of the possibility of development in the immediate future, and unfortunately therefore the price he was willing to pay had not changed since the last conversation between Mr Pearson and Mr Harvey (presumably the August conversation with the offer of €6 million). Mr Harvey expressed his disappointment that they had not been able to do business.
19 By the time the action was heard in the High Court in 2013, it was agreed that the value of the property had dropped even further. On the plaintiff’s evidence it was worth only €1 million, and on the defendant’s €1.5 million. The judge accepted the higher figure and concluded therefore that Rosbeg had suffered direct loss of €8.5 million being the difference between the figure at which he considered the plaintiff intended to sell and could have sold in September/October 2007, and the value at the time of the High Court hearing almost 6 years later. In addition he accepted that if the sale had been achieved in September/October 2007 the AIB loan would have been discharged. It was not discharged and interest continued to accrue on the loan. Furthermore, had the transaction been concluded in 2007 the Capital Gains Tax chargeable would have been calculated at a rate of 20%. However, the plaintiff would now it seemed, incur CGT at a higher rate of 33%. In addition therefore to the figure of the €8.5 million for the loss in value of the property, there was a figure of additional interest of €1,452,961, and a figure in respect of additional tax of €1,124,248. The total sum awarded was therefore €11,077,000. The plaintiff company also retained the property and has, it appears, been in occupation throughout the period.
20 There is no dispute that €11 million represents a very substantial award of damages, and a decision that demands close scrutiny. It is unsurprising that the defendant firm appealed the decision. After all, the plaintiff company did not have an agreement, still less, a binding contract to sell in 2007, and did not sell thereafter. There were many parties who owned property in Ireland, and commercial property in particular, who saw its value plummet between 2008 and 2013, and many of those may have been tantalisingly close to a sale just before the market peaked. Such parties saw the value of the property decline precipitously and sometimes with devastating consequences for their own solvency. The plaintiff however, if the High Court judgment is correct, not only avoided that, but has substantially profited, since it retained the land and the potential that an upturn would increase its value.
21 A key factor in the court’s determination was the conclusion that not only had the plaintiff company intended to sell to Mr Harris in 2007 at the price of €10 million, but that it would have done so. In circumstances where the defendant had available to it the evidence of Mr Harris’ side, who maintained stoutly that no such deal was done or in the circumstances was likely to have been done, it was unsurprising that the defendant contested that assertion both in the High Court and on appeal. The evidence of the negotiations showed that the plaintiff company through Mr Stewart, was at a minimum always optimistic about the price. In the admittedly unforgiving glare of hindsight, it seems clear that the plaintiff was probably unrealistic about the market both as it advanced and declined. If however this was the case, the plaintiff would not have been alone. The Harris side’s view, for its part, was that the plaintiff was not serious about getting a deal, and was always vacillating, in the hope of getting a better price. It is difficult to form a clear view about negotiations between a small group of business people, which left very little in the way of a written record, particularly when it is inevitably viewed in hindsight through a lens significantly distorted by the enormous impact of the property collapse in Ireland. It is also more difficult to analyse the reasoning on the factual issues because the judgment rarely refers to direct evidence and instead provides a narrative at a more general level. It is for example difficult to analyse the key conclusion that a contract would have been concluded between Rosbeg and Harris, when it is not clear what primary facts were found in this regard, what evidence accepted or discounted, and what inferences were drawn if any, from facts established by evidence.
22 It is important to remind ourselves that courts should approach claims such as this not simply on the basis of the genuineness or plausibility of witnesses, but by applying common sense and some degree of scepticism. Litigation inevitably shines a very bright light on the events the subject matter of a claim, but it is also a distorting process in at least two ways. First, there is an inevitable tendency to highlight and focus only upon the issues which are particularly relevant to the claim. Second, the light is being shone in retrospect, when we know the outcome of the events. Inevitably, there is a tendency to recall events and attribute to them a significance in the light of what is known to have occurred subsequently. This is not a reflection on the honesty of witnesses, rather it is human nature. Persons involved in routine car accidents will regularly tend to recall events in a way which discounts or avoids their own culpability. It is not unusual to give ourselves the benefit of the doubt, in any field, and all the more so when the stakes are high. The hearing of some contested cases may sometimes involve a direct conflict of evidence in which the only conclusion is that one of the parties must be giving evidence which is deliberately false. However, that is relatively rare. In many cases courts must sift through differing accounts at some remove in time from the facts, and do their best to allow for human error and the tendency for memories and consequently accounts to become subtly and unwittingly adjusted under the focus of a case, and in the light of the consequences of failure. When dealing with calculations of loss, it is also important for courts to recognise that it is a lot easier to make profits on paper than in real life, and particularly when the exercise is being carried out in retrospect, when all the imponderables which make business so difficult to plan in advance, are known and fixed. Just as there are many more ambitious, though plausible, plans advanced in board rooms and financial institutions seeking financial support than are brought to success in real life, so too it is easier to produce the narrative of commercial success in a court room, than it is perhaps to achieve that success in reality. Courts must, and do, try to bring an appropriate scepticism therefore to their task at each stage of litigation. Given the views expressed by the Harris side, the very substantial award made, the apparent over optimism of Rosbeg, and particularly when viewed in retrospect, it is perhaps not surprising that the defendant appealed.
23 The Court of Appeal, while acknowledging the force of the defendant’s arguments nevertheless considered that on a faithful application of the well known principles of Hay v O’Grady [1992] 1 IR 210, that on balance, and not without some doubt, there was sufficient evidence before the High Court to justify the conclusions of that court in fact. I respectfully agree. The division of functions between appellate courts and trial courts means that appellate courts must respect and give due deference to a trial court’s fact finding function. The corollary of this of course, which is perhaps less often adverted to, is the importance of the trial court approaching that task rigorously, conscientiously, and testing its preliminary conclusions, with an appropriate degree of scepticism, and thereafter setting out the facts found and the inferences drawn in a way which permits review. However, in this case, I agree that the conclusions on issues of fact made in the High Court judgment are beyond challenge at an appellate level. There was evidence upon which the trial judge could arrive at the critical conclusion that Rosbeg intended to sell at a price of €10 million in late 2007, and some evidence, that it would have been able to do so. The question however remains whether on such facts the defendant’s admitted negligence gave rise to a loss in excess of €11 million.
Motion to admit fresh evidence
24 The appellant sought to adduce fresh evidence on this appeal. As the proposed evidence related to matters which occurred after the High Court hearing, leave of the court was not required, but since the admission of such evidence is within the discretion of the court, it was appropriate to bring a motion setting out the proposed evidence and seeking its admission.
25 The appellant had become aware that the lands in question had recently been sold and moreover to a company in the Harris group of companies. It appears that Rosbeg’s bankers, AIB, had appointed receivers to the business of Rosbeg. It emerged in correspondence between the parties that there had been litigation between Mr Stewart and the receivers which had been settled on terms which involved a transfer of the lands in Unit 520 to Mr Stewart. The company maintained however that the settlement between Rosbeg and Mr Stewart was confidential and that the details could not be revealed, but stated that a “desktop valuation” valued the property at €1 million. Mr Stewart had then sold the company to the Harris company and remained a director of the company. However the plaintiff company also maintained that it was not in a position to ascertain the sale price achieved by Mr Stewart. The defendant firm was understandably suspicious about these transactions and sought to have the evidence admitted because as it was put in the grounding affidavit of their solicitor “it shows that if damages are assessed by reference to a figure, said to represent the value at the date of trial of property (ownership and possession of which is still enjoyed by Rosbeg) in a rapidly declining market, the result is an arbitrary, excessive and unjust measure of damages which excessively compensate for what is a mere loss of opportunity. Here it transpires that the land in question was, after the award of damages in the High Court, sold on to the original interested purchaser at a price which the plaintiff says need not be disclosed because of the intervention of a director of the plaintiff/respondent by way of a settlement of some asserted claim”. Rosbeg resisted the application to adduce the evidence maintaining the position set out in correspondence namely that there had been a transaction between Rosbeg (in receivership) and Mr Stewart in settlement of his proceedings, and that Mr Stewart’s subsequent sale of the property was not something within the control or knowledge of the company.
26 Although I have said that the defendant company wished to have “the evidence” admitted, there was some lack of clarity as to what precise evidence was sought to be admitted, and furthermore what any such evidence might prove. It appears that the defendant firm wanted to adduce the correspondence exhibited in the application, and possibly the grounding affidavit, but if so, it was not clear what these matters proved. The affidavit was a vehicle to exhibit documents, and the documents themselves (even assuming they could be proved by the deponent) were not proof of the truth of their contents. Even if these difficulties are ignored and the documents treated as proved and as evidence of their contents they did not establish either the sale price to Mr Stewart, or the price sold on to the Harris company. The exciting of suspicion is not the same as adducing evidence. Other than suggesting, rather than proving, something which the court might have inferred in any event, namely that the value of the property had increased since the date of the High Court hearing, it is not clear how this was relevant to the matters advanced on this appeal. Accordingly, I would not admit it in evidence. This illustrates the fact that parties should be clear about the evidence that is sought to be adduced as fresh evidence, and the distinction between the application to be permitted to adduce such evidence and the evidence itself. It might have been different if direct evidence was adduced of value, which itself showed a substantial increase in value in the hands of Rosbeg. Indeed such evidence is not dependent on an actual sale or transfer. Experts may give evidence of market movement and of the value of individual properties at different times. If therefore there had been a substantial increase in the value of the property from the date of the High Court judgment, it might have been a relevant matter which could have satisfied the test in Fitzgerald v Kenny [1994] 2 IR 383, and MD v ND [2011] IESC 18. However, it is not necessary to decide that issue here. No such evidence was adduced, and on the view I take of this case, it would in any event not necessarily have been relevant to the issues in the appeal.
Discussion
27 The award here was on any view substantial. Looked at again from the point of view merely of market value, it might be possible to trace the movement in value of Unit 520 over time. Such a graph of that value might have shown a steady rise, then a sharper increase to a peak in 2007/2008, followed by a steep dizzying decline to a nadir around the time of the High Court hearing. The negligence of the solicitor’s firm could have come to light and interfered with a possible sale and then been remedied, at any two points along that graph. In this case the plaintiff’s case is that the period during which the negligence had effect ran from virtually the highest point to the lowest. It is of course possible for such a circumstance to occur and the plaintiff might reasonably point out that if the relevant events had occurred at other stages, the defendants might well have been fortunate enough to avoid substantial award. However the fact that the loss claimed here appears to be close to the maximum that could ever conceivably have occurred or been claimed, does call for scrutiny.
28 Rosbeg put their case on damages with an attractive simplicity, which in the event was accepted by the trial judge. It is set out succinctly at the outset of the written submissions in the following way:
“As a general rule, where a duty of care exists, and a defendant’s negligent breach of duty is a factual cause (i.e. the “but for” cause) of the plaintiff’s loss, the defendant is liable for all of the damages that is caused by the breach, subject to a number of potential limiting factors:
(a) the defendant’s wrong must be the legal cause of the plaintiff’s loss;
(b) the plaintiff’s loss must not be too remote to be recoverable;
(c) the plaintiff cannot recover for any losses which it has unreasonably failed to mitigate.”
It is perhaps noteworthy however that these apparently lucid statements of principle are not supported by reference to authority.
29 The only authority referred to in the High Court judgment is the decision of Clarke J in Kelleher & anor v O’Connor [2010] IEHC 313, and it is observed that the case is to be treated as a completed transaction case. However, I do not think that that case is directly relevant to this case. It distinguishes between different situations where solicitors are negligent in conveyancing matters. The court must consider the position which would arise if the solicitor had not been negligent. In some cases a transaction would not have gone ahead and is therefore a “no transaction case”, and in others, the transaction would have gone ahead, but without the consequences of the negligence. These are so called “completed transaction cases”. Again, as the judgment recognised there can be intermediate cases. However, in my view hat analysis does not however advance the issue here, where it is alleged that a consequence of the solicitors’ negligence was that the client failed to secure a transaction it desired. However, as the cases which are discussed in terms of no transaction or completed transaction illustrate, one of the most difficult issues in the assessment of damages arises when there is professional negligence as a result of which a party enters a transaction which they may contend they would not have done, and where a loss ensues because of the catastrophic fall in property values which was experienced in many countries over the past decade.
30 Here Rosbeg argue that the sale to Harris was lost in October 2000 due to the negligence of the defendant firm and that the claimed loss flowed from that fact. Such negligence was therefore it was said the legal cause of the plaintiff’s loss and was not remote, but rather direct and foreseeable. The only question then was mitigation. While it might be argued that in hindsight, the plaintiff company ought to have accepted the subsequent offers from Harris, that was not the proper question to ask when considering mitigation of loss. That issue was to be approached on the basis that the plaintiff had suffered loss by reason of the wrongdoing, and the question was whether in any given case a plaintiff had acted reasonably in taking the steps that he did. Courts, it is argued, should be and are generally slow to find that a wronged plaintiff who took acts in good faith, in circumstances created by the defendant’s wrongdoing, should nevertheless be found to have failed to mitigate loss. In this case the trial judge found that Mr Stewart was an experienced business man and was entitled to have maintained the optimistic view he did of the market. Certainly he was not to be stigmatised as unreasonable in rejecting offers which were decreasing. After all the market at that time contained many reasonable people who expected a less dramatic collapse. It might also be said that these findings of the trial judge are difficult if not impossible to challenge in the light of the jurisprudence in Hay v O’Grady.
31 Once the plaintiff’s premise is accepted, that the plaintiff suffered loss, and that the defendant’s negligence caused the loss, it follows almost ineluctably the defendant must be responsible for that loss and that the rejection of the two subsequent offers was not sufficient to amount to a failure to mitigate that loss. But I cannot accept that this is the correct premise. It may be true that the loss of the plaintiff followed from the defendant’s negligence, but that does not mean that it was caused by it, in fact, or more importantly in law. The butterfly may beat its wings and cause an earthquake on the other side of the world, but this is not the principle on which loss is to be recoverable in law.
32 It is not in my view correct to say that the defendant’s negligence was the “direct” or “factual” cause of the plaintiff’s loss whatever that is intended to mean, other than in the sense that “but for” the defendants negligence the plaintiff would not have suffered the loss, and while that is a necessary step to recovery of damages it has never been considered sufficient. There are other “but for” causes which can be identified in this case, most obviously the collapse in the property market, but also the plaintiff’s decisions not to sell. The fact that the defendant’s negligence is not the direct cause of a loss (in the sense for example that the negligent advice to pay a substantial purchase price for property to which the vendor has no title is the direct and proximate cause of loss) can be illustrated in the following way. If property values were static, the plaintiff’s loss caused by the failure to register the title would be the cost of effecting the registration. It must follow, it seems to me, that the loss of value of which the plaintiff complains here was caused by the steep fall in the value of property, and that in turn was caused by market forces. Normally this is something of which a property owner cannot complain. It may also be said that a contributing cause to the loss of which the plaintiff complains, was the decision of the plaintiff not to sell. This case raises therefore the much more complex question whether the negligence of the defendant firm makes it responsible for some or all of the losses suffered by the plaintiff by reason of the decline of the property market (and if so for what period) and its own market decisions.
33 Since this case was heard, I have had the opportunity of considering the judgment of the UK Supreme Court in Hughes-Holland v BPE [2017] 3 All ER 969, [2017] UKSC 21. Similar issues are touched upon there. I refer to a passage in the judgment of Lord Sumption, not for the purposes of relying upon it in deciding this case, but because I consider it expresses neatly, the same general approach I have attempted to set out above. At paragraph 20 of the judgment he said as follows:
“Courts of law, said Lord Asquith in Stapley v Gypsum Mines Ltd [1953] 2 All ER 478, 489, ‘must accept the fact that the philosophic doctrine of causation and the juridical doctrine of responsibility for the consequences of a negligent act are not congruent’. What Lord Asquith meant by the philosophic doctrine of causation, as he went on to explain, was the proposition that any event that would have not have occurred but for the act of the defendant must be regarded as the consequence of that act. In the law of damages, this has never been enough. It is generally a necessary condition for the recovery of a loss that it would not have been suffered but for the breach of duty. But it is not always a sufficient condition. The reason, as Lord Asquith pointed out, is that the law is concerned with assigning responsibility for the consequences of the breach, and a defendant is not necessarily responsible in law for everything that follows from his act, even if it is wrongful. A variety of legal concepts serves to limit the matters for which a wrongdoer is legally responsible. Thus the law distinguishes between a mere precondition or occasion for a loss and an act which gives rise to a liability to make it good by way of damages: Galoo Ltd (in liquidation) v Bright Grahame Murray (a firm) [1995] 1 All ER 16. Effective or substantial causation is a familiar example of a legal filter which serves to eliminate certain losses from the scope of a defendant’s responsibility. It is an aspect of legal causation. So too is the rule that the defendant cannot be held liable for losses that the claimant could reasonably have been expected to avoid: Koch Marine Inc v d’Amica Societa di Navigazione arL (“The Elena d’Amico”) [1980] 1 Lloyd’s Rep 75. But the relevant filters are not limited to those which can be analysed in terms of causation. Ultimately, all of them depend on a developed judicial instinct about the nature or extent of the duty which the wrongdoer has broken.”
34 It is necessary to return to the starting point and observe that the nature of the negligence here was a failure to do something which could be done and was eventually, done. If the defendant’s negligence had been to advise the plaintiff to accept a defective title, then the damage would be the difference between the price paid, and the market value with the defective title (and in some cases the property may be worthless if the title problem is fatal). But where the negligence is in failing to do something which can yet be done, then, at least prima facie, the measure of damages, is first, the cost of substitute performance of the duty, and second, any foreseeable loss in value caused by the delay in doing so. If the market is static or rising, it may be that the defendant escapes without any liability for damages under this latter heading, but where as here the market is falling, then the plaintiff is entitled to recover the difference in value of the property between the date at which the works ought to have been done, which would have allowed for a sale, and the point at which that problem could reasonably have been remedied, (assuming that it can be established that the plaintiff intended to sell, and was deprived of a sale by the defect). At that later point, the innocent plaintiff has been put back in the position they ought to have been in had the defendant performed its duty. It may often be appropriate in such circumstances to take into account any difficulties in obtaining a value at that later point, and in some cases it may be permissible to take into account that the plaintiff may have lost a special purchaser, if indeed that was the case.
35 There is a paucity of valuation evidence in this case. One measure of the damages could have been the difference between the price Harris was found to be willing to pay in October 2007, and the price a purchaser might have paid who was willing to accept the title as it stood with an undertaking to assist in the registration if there was sufficient evidence of such a purchaser. Here however, the evidence of value concentrated on the Harris transactions and dealings as establishing the value of the property for the purpose of the proceedings. This is perhaps a consequence of the fact that the main focus of the evidential contest at trial was whether the point had been reached where a sale to the Harris interests was probable.
36 As already noted, the plaintiff maintained in correspondence of July 2008, that it was in a position to offer clear title and had resolved the issue of registration. By October 2008 Rosbeg had obtained actual registration. That must form the backstop to the period during which it can be said the solicitor’s negligence prevented, or at least interfered with, a sale. The reasonable measure of damage is at least prima facie the difference in value between the two dates, that is October 2007 when a sale was, on the High Court’s findings, probable, and October 2008 when the impact on the title of the solicitors’ failure had been definitively removed, making any allowances for a more difficult market at that point. After October 2008, Rosbeg may have continued to experience a drop in the value of its property, but that can no longer be laid at the door of the defendant’s negligence, at least without very particular evidence and argument. In that regard, Rosbeg like all other property owners, were experiencing a loss of value, albeit uncrystallised, due to market conditions.
37 I now turn to a consideration of the application of these principles to the facts of this case. By July 2008, the plaintiff company informed Mr Harvey that the title issue was resolved and in August 2008 a verbal offer was made in the sum of €6 million. On the 23rd of September 2008, the plaintiffs rejected that offer and sought €8.5 million. On the 22nd of October 2008 Mr Harvey on behalf of Mr Harris responded that his position had not changed on the price that he was willing to pay for the property “since our last conversation”. In my view, this establishes that on a reasonably generous and sympathetic view of the facts from the plaintiff’s point of view, that there was an attributable loss of €4 million. There were however additional figures for damages. At paragraph 59 of the judgment a sum was allowed in respect of the increased rate of CGT that, it was said, would be payable on the damages in contrast to the rate of 20% that would have been applicable in 2007 (or the 30th of January 2008 being the date estimated at paragraph 58 of the judgment of the point that the sale would likely have been finalised “had it proceeded”). I think the plaintiff is entitled to the increased CGT payable on the award of €4million as additional damages, which I calculate as €520,000 On the other hand the court also awarded interest as damages on the basis that the plaintiff would have reduced its borrowings with AIB with a promised €8 million on the 30th of January 2008. The figure ultimately awarded in this regard was €1,452,961. That appears to have been calculated on a principal sum of €8 million or €8.5 million. Since I have concluded that the plaintiff’s damages ought to have been assessed at a figure of €4 million it will be sufficient to award 50% of the total figure which is roughly €726,500. In theory the plaintiff would also have been entitled to the cost incurred in having itself registered as the owner of Unit 520. On the other hand, an allowance ought logically to be made for the fact that the plaintiff had the use and occupation of the lands in question since the January 2000 date of the assumed sale to Mr Harris, up to the date of judgment in 2013. However, since neither of these matters were addressed in evidence it is not necessary to consider them. Nor is it necessary to consider if there are other issues which may have arisen in this case, or may yet arise in any similar cases such as the question whether the plaintiff’s loss is properly to be assessed as a precise loss of a particular sale, or rather a loss of opportunity, and furthermore whether it is appropriate to take the valuation of the property as of the date of the hearing when the plaintiff remained owner of the property and had not crystallised any loss by a sale. In mentioning these matters I do not wish to suggest necessarily that they would have resulted in a different conclusion either of law or of application of law to the facts of this case. On the facts of this case, and given the manner in which the case proceeded, I am satisfied however, that the appropriate course is to allow the appeal and set aside the judgment of the High Court, and substitute for it a judgment in the sum of €5,246,500. I would however give the parties liberty to apply on the question of the calculation of interest and CGT should that be necessary.
Chance v Tanti
Supreme Court of Judicature.
Court of Appeal.
17 April 1901
[1901] 35 I.L.T.R 126
Lord Ashbourne C., FitzGibbon, Walker, Holmes L.JJ.
April 17, 1901
Lord Ashbourne, C.
The plaintiff is entitled to judgment, as the defendants have not made out any case showing such conduct on the part of the plaintiff as would disentitle him to judgment. The appeal must be allowed.
FitzGibbon, L.J.
There is an important principle involved in this case. When a client places his interests in the hands of a professional man, be he doctor, solicitor, or barrister, the duty of the person so employed is to give the best advice he can according to his own judgment, and I do not know of any state of circumstances in which such a professional man can ever be under an obligation to conduct a case in a way in which he does not agree, and which he, in the exercise of his judgment, does not consider the best way. When the point is reached at which they differ as to the conduct of the case, the professional man will, in ninety-nine cases out of one hundred, refuse to go on and direct the client to employ another man, and if he does so he is entitled to be paid the value of his services up to that time. Here the difference was as to the relevancy of certain statements in an affidavit, and I am bound to say that at that stage Mr. Chance was right, and that the statements to which he objected were, at least in the main, irrelevant, although the case the defendants wanted to prove might have become relevant afterwards. My opinion is that if a solicitor is acting for a party he cannot put an end to his responsibility by simply writing to his client stating that he will not go on, his name still remaining on the record, but here Mr. Chance not only wrote to both the defendants but also to the solicitor for the opposite party, stating he was no longer engaged in the case, and also asking that the case might be stayed to enable the defendants to employ another solicitor. The petition was dismissed, and its dismissal may have led Mr. Justice Barton to think that there was a defence to the present action, but we have ascertained that Mr. Chance had given due notice. A solicitor is entitled to act as Mr. Chance did, and in holding otherwise we would be striking not only at him but at the whole profession. Judgment must go for the amount of the bill, when taxed and ascertained.
Walker and Holmes, L.JJ., concurred.
referred to Heywood v. Wellers 6 ; Midland Bank v. Hett, Stubbs & Kemp 15 ]
Finlay v. Murtagh
[1979] IR 254
O’Higgins C.J.
21st November 1978
I agree with the judgments about to be delivered in this case.
Henchy J.
When a client complains that he has suffered loss because his solicitor has failed to show due care in the performance of his duty as solicitor, does
the client’s cause of action lie in contract or in the tort of negligence? Or has he a choice? That is the problem presented in this appeal. The plaintiff client has founded his claim against the defendant solicitor in negligence, his case being (and it has not been denied) that the defendant did not, within the period fixed by the statute of limitations, bring an action for damages for personal injuries sustained by the plaintiff as a result of the alleged negligence of a third party. The plaintiff has served notice of trial against the defendant before a judge sitting with a jury, which he would be entitled to do if his cause of action lies, as has been pleaded, in tort. But the defendant contends that the cause of action is breach of contract, that is to say that it is founded on a breach of the implied term in the contract that he would carry out his duties as solicitor with due professional care and skill. If the defendant is correct in that contention, the notice of trial should have been for a judge sitting without a jury. So the defendant has moved in the High Court for an order setting aside the notice of trial which was served. Mr. Justice D’Arcy refused to make that order as he held that the plaintiff’s action lies in the tort of negligence. It is from that refusal that the present appeal has been brought by the defendant.
There has been no decision of this Court on the point at issue but we have been referred to three decisions of the High Court. In McGrath v. Kiely 7 the client sued his solicitor for negligence and, alternatively, for breach of contract in failing to show due professional care in the preparation of an action for damages for personal injuries. The claim was pursued in court as one for breach of contract and no effort was made to pursue the claim in negligence. The parties agreed to treat the solicitor’s default as a breach of contract. Therefore, that case throws no light on the present problem.
The second case, Liston v. Munster and Leinster Bank 1 , was an action by the personal representative of a customer of the bank against the bank for damages for negligence, for conversion, and for money had and received. The issue being whether the entire cause of action arose out of a contract, in which case notice of trial by a judge without a jury would be appropriate, or whether it lay partly in tort, in which case the notice of trial that had been served specifying trial by a judge with a jury would have been correct. In holding that the claim was partly for breach of contract and partly for conversion, O’Byrne J. applied the following test which had been laid down by Greer L.J. in Jarvis v. Moy, Davies, Smith, Vandervell & Co. 2 at p. 405 of the report:”
“The distinction in the modern view, for this purpose, betweencontract and tort may be put thus: where the breach of duty alleged arises out of a liability independently of the personal obligation undertaken by contract, it is tort, and it may be tort even though there may happen to be a contract between the parties, if the duty in fact arises independently of that contract. Breach of contract occurs where that which is complained of is a breach of duty arising out of the obligations undertaken by the contract.”
The third High Court case to which we were referred is Somers v.Erskine. 4 There the question was whether an action commenced by a client against a solicitor for negligence, and sought to be continued against the solicitor’s personal representative, had abated with the solicitor’s death as an action in tort, or whether it survived his death as an action in contract. In an unreserved judgment Maguire P. applied the same test as was applied by O’Byrne J. in Liston v. Munster and Leinster Bank 1 , and held that the client’s claim was essentially one in contract rather than in tort and that, therefore, the claim had survived the solicitor’s death. In my opinion, the conclusion that an action by a client against a solicitor for damages for breach of his professional duty of care is necessarily and exclusively one in contract is incompatible with modern developments in the law of torts and should be overruled. In my view, the conclusion there reached does not follow from a correct application of the test laid down by Greer L.J. in the Jarvis Case. 2
The claim made by the plaintiff in the Jarvis Case 2 was one by a client against stockbrokers “for damages for breach of contract arising out of the defendants’ relationship with the plaintiff as stockbrokers and client.”Therefore, it is clear that the action was one for breach of contract, at least in form. But the particulars given in the writ show that the substance of the complaint was that the stockbrokers had departed from the specific instructions given by the client. Therefore, the cause of action arose from the breach of a particular binding provision created by the parties, and not from any general obligation of care arising from the relationship of stockbroker and client. The nub of the matter was that the stockbrokers had defaulted on a special personal obligation which was imposed by the contract. They could not have been made liable otherwise than in contract and the court held correctly that the claim was “founded on contract” in the words of the statute which was being applied.
The test adumbrated by Greer L.J., which commended itself to O’Byrne J. in Liston v. Munster and Leinster Bank 1 and to Maguire P. in Somers v.Erskine 4 , correctly draws a distinction between a claim arising out of anobligation deriving from, and owing its existence to, a personal obligation undertaken pursuant to a contract (in which case it is an action in contract) and a claim arising out of a liability created independently of a contract and not deriving from any special obligation imposed by a contract (in which case an action lies in tort). The action in tort derives from an obligation which is imposed by the general law and is applicable to all persons in a certain relationship to each other. The action in contract is founded on the special law which was created by a contract and which was designed to fit the particular relationship of that contract. As I understand it, therefore, the test propounded by Greer L.J. does not support the conclusion reached by Maguire P. that, because the contract of retainer implies a duty of professional care and skill and because a default in that duty has occurred, the cause of action lies exclusively in contract.
It has to be conceded that for over a hundred years there has been a divergence of judicial opinion as to whether a client who has engaged a solicitor to act for him, and who claims that the solicitor failed to show due professional care and skill, may sue in tort or whether he is confined to an action in contract. In Somers v. Erskine 4 (and in some English cases) it was held that the sole cause of action was the solicitor’s failure to observe the implied term in the contract of retainer that he would show due professional skill and care. It is undeniable that the client is entitled to sue in contract for breach of that implied term. But it does not follow that the client, because there is privity of contract between him and the solicitor and because he may sue the solicitor for breach of the contract, is debarred from suing also for the tort of negligence. Since the decision of the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. 9 and the cases following in its wake, it is clear that, whether a contractual relationship exists or not, once the circumstances are such that a defendant undertakes to show professional care and skill towards a person who may be expected to rely on such care and skill and who does so rely, then if he has been damnified by such default that person may sue the defendant in the tort of negligence for failure to show such care and skill. For the purpose of such an action, the existence of a contract is merely an incident of the relationship. If, on the one side, there is a proximity of relationship creating a general duty and, on the other, a reliance on that duty, it matters not whether the parties are bound together in contract. For instance, if the defendant in the present case had not been retained for reward but had merely volunteered his services to the plaintiff, his liability in negligence would be the same as if he was to be paid for hisservices. The coincidence that the defendant’s conduct amounts to a breach of contract cannot affect either the duty of care or the common-law liability for its breach, for it is the general relationship, and not any particular manifestation such as a contract, that gives rise to the tortious liability in such a case: see per Lord Devlin in the Hedley Byrne Case 9 at p. 530 of the report.
A comprehensive survey of the law governing the liability of a solicitor to his client in negligence is to be found in the judgment of Oliver J. in Midland Bank v. Hett, Stubbs & Kemp 15 , in which it was held that the solicitor’s liability in tort exists independently of any liability in contract. That conclusion, which was reached at first instance and with which I agree, may be said to be reinforced by dicta in the judgments of the Court of Appeal in Batty v.Metropolitan Realisations Ltd. 19 and Photo Production Ltd. v. Securicor Ltd. 20
On a consideration of those cases and of the authorities mentioned in them, I am satisfied that the general duty of care created by the relationship of solicitor and client entitles the client to sue in negligence if he has suffered damage because of the solicitor’s failure to show due professional care and skill, notwithstanding that the client could sue alternatively in contract for breach of the implied term in the contract of retainer that the solicitor will deal with the matter in hand with due professional care and skill. The solicitor’s liability in tort under the general duty of care extends not only to a client for reward, but to any person for whom the solicitor undertakes to act professionally without reward, and also to those (such as beneficiaries under a will, persons entitled under an intestacy, or those entitled to benefits in circumstances such as a claim in respect of a fatal injury) with whom he has made no arrangement to act but who, as he knows or ought to know, will be relying on his professional care and skill. For the same default there should be the same cause of action. If others are entitled to sue in tort for the solicitor’s want of care, so also should the client; that is so unless the solicitor’s default arises not from a breach of the general duty of care arising from the relationship but from a breach of a particular and special term of the contract in respect of which the solicitor would not be liable if the contract had not contained such a term. Thus, if the client’s instructions were that the solicitor was to issue proceedings within a specified time, or to close a sale by a particular date or, generally, to do or not to do some act, and the solicitor defaulted in that respect, any resulting right of action which the client might have would be in contract only unless the act or default complained of falls within the general duty of care owed by the solicitor.
The modern law of tort shows that the existence of a contractualrelationship which impliedly deals with a particular act or omission is not, in itself, sufficient to rule our an action in tort in respect of that act or omission. For instance, in Northern Bank Finance Corporation Ltd. v. Charlton 21 it was unanimously held by this Court that a customer of a bank can sue the bank for the tort of deceit where the deceit arises from fraudulent misrepresentations made by the bank in the course of carrying out the contract between the bank and the customer. The existence of a contract, for the breach of which he could have sued, did not oust the customer’s cause of action in tort.
Therefore, I conclude that where, as in the instant case, the client’s complaint is that he has been damnified by the solicitor’s default in his general duty of care, the client is entitled to sue in negligence as well as for breach of contract. In the plaintiff’s statement of claim, after reciting his accident and his retainer of the defendant as the solicitor to prosecute his claim for damages in respect of it, the plaintiff pleads that the defendant”negligently failed to issue proceedings on behalf of the plaintiff in respect of the accident aforesaid within the time limited by the Statute of Limitations, 1957.” That was intended to be, and is, a claim in negligence. Such being the case, by virtue of the provisions1 of s. 94 of the Courts of Justice Act, 1924, as amended, the plaintiff was entitled to serve notice of a trial by a judge and jury. Mr. Justice D’Arcy was correct in refusing to set aside the notice of trial so served. I would dismiss this appeal.
Griffin J.
On the 10th March, 1970, the plaintiff was injured in the course of his employment whilst he was engaged in lagging pipes at a factory premises in Cork. In the month of May, 1970, he retained the defendant as his solicitor to act for him in the prosecution of a claim for damages for negligence arising out of the accident. Proceedings were not issued on behalf of the plaintiff within the time limited by the Statute of Limitations, 1957, with the result that the plaintiff’s claims against his employer and against the occupier of the factory are now statute barred. The plaintiff instituted proceedings against the defendant claiming damages for the negligence of the defendant in his conduct, as the plaintiff’s solicitor, of business undertaken by the defendant on behalf of the plaintiff. In his defence the defendant has not denied his liability to the plaintiff, so that the only issue to be tried is that of damages.
The plaintiff served notice of a trial with a jury, and the defendantapplied to the High Court to have the notice of trial set aside. The application was dismissed by Mr. Justice D’Arcy. The defendant has now appealed to this Court and the nett issue for determination on the appeal is whether the action should be tried before a judge and jury or before a judge sitting without a jury.
A solicitor holds himself out to the client who has retained him as being possessed of adequate skill, knowledge and learning for the purpose of carrying out all business that he undertakes on behalf of his client. Once he has been retained to pursue a claim for damages for personal injuries, it is the duty of the solicitor to prepare and prosecute the claim with due professional skill and care. Therefore, he is liable to the client in damages if loss and damage are caused to the client owing to the want of such skill and care on the part of the solicitor as he ought to have exercised.
Mr. Kinlen, for the defendant, contends that the duty owed by a solicitor to his client under his retainer is a duty which arises solely from the contract and excludes any general duty in tort; he submits that this action is one founded upon contract, in which event the plaintiff would not be entitled to have the action tried by a jury. Mr. Walsh, for the plaintiff, submits that, apart from the duty which arises from contract, there is a general duty to exercise skill and care on the part of the solicitor, for breach of which he would be liable in tort if damage is suffered by the client as a result of the want of such skill and care. He submits that, as one claiming damages for negligence, this action is properly a claim in tort, in which case the plaintiff is entitled as of right to have the action tried before a judge and jury pursuant to s. 94 of the Courts of Justice Act, 1924, as amended.
There is abundant, if somewhat conflicting, authority on the question in England, and in argument we were referred also to two Irish cases in which the question arose.
In Groom v. Crocker 5 the Court of Appeal in England had to consider whether the mutual rights and duties of a solicitor and his client were regulated by the contract of employment alone, and whether the solicitor was liable in tort. It was there held that the contract of employment regulated the relationship and that the solicitor was not liable in tort. In the course of his judgment, Sir Wilfred Greene M.R. said at p. 205 of the report:”
“In my opinion, the cause of action is in contract and not in tort. The duty of the appellants was to conduct the case properly on behalf of the respondent as their client . . . The relationship of solicitor and client is a contractual one: Davies v. Lock 22 ; Bean v.Wade .23 It was by virtue of that relationship that the duty arose, and it had no existence apart from that relationship.”
Scott L.J. at p. 222, having set out the duty of a solicitor, said that the tie between the solicitor and the client is contractual and that no action lies in tort for the breach of such duties. MacKinnon L.J. put the position succinctly at p. 229 where he said:” “I am clear that this is a claim for damages for breach of contract . . .”
After that unanimous decision of the Court of Appeal, it was generally accepted in England, at least until very recently, that the liability of a solicitor to his client was contractual only and that he could not be sued in tort either in the alternative or cumulatively. The case has been almost universally followed and applied there since it was decided; see, for example, Bailey v.Bullock 24 ; and Hodson and Parker L.JJ. at pp. 477 and 481 respectively of the report of Hall v. Meyrick 25 ; Cook v. Swinfen. 8 At p. 510 of the report of Clark v.Kirby-Smith 13 Plowman J. said:” “A line of cases going back for nearly 150 years shows, I think, that the client’s cause of action is in contract and not in tort: see, for example, Howell v. Young 26 and Groom v. Crocker 5 “‘ In Heywoodv. Wellers 6 James L.J. said at p. 461 of the report:” “It is well known and settled law that an action by a client against a solicitor alleging negligence in the conduct of the client’s affairs is an action for breach of contract: Groom v.Crocker .5 ” However, in that case Lord Denning did say at p. 459 that Groomv. Crocker 5 might have to be reconsidered, and in Esso Petroleum v. Mardon 10 at p. 819 of the report he “ventured to suggest” that that case, and cases which relied on it, are in conflict with other decisions of high authority which were not cited in them”decisions which show that, in the case of a professional man, the duty to use reasonable care arises not only in contract but is also imposed by the law apart from contract and is, therefore, actionable in tort; it is comparable to the duty of reasonable care which is owed by a master to his servant or vice versa; it can be put either in contract or in tort. In Midland Bank v. Hett, Stubbs & Kemp 15 , on which the plaintiff relied strongly, Oliver J., in a judgment in which he examined exhaustively all the leading cases on the subject of a solicitor’s liability, held that a solicitor was liable in tort quite independently of any contractual liability.
In Somers v. Erskine 4 the client sued his solicitor for damages for negligence in the discharge of his professional duty to the client. The solicitor died after the action was commenced and one of the issues which then arose was whether or not the cause of action had survived against his executrix. It was held by Maguire P. that the action was in substance founded in contract and that, in considering whether an action is founded on contract or on tort, the court must look not merely at the form of the pleadings but at the substance of the action and decide whether it is founded on contract or tort. He adopted and applied the following passage from the judgment of Greer L.J. in Jarvis v. Moy, Davies, Smith, Vandervell and Co. 2 (a claim against a stockbroker) at p. 405 of the report:” “The distinction in the modern view, for this purpose, between contract and tort may be put thus: where the breach of duty alleged arises out of a liability independently of the personal obligation undertaken by contract, it is tort, and it may be tort even though there may happen to be a contract between the parties, if the duty in fact arises independently of that contract. Breach of contract occurs where that which is complained of is a breach of duty arising out of the obligations undertaken by the contract.” That passage had been accepted and approved by O’Byrne J. in Liston v. Munster and Leinster Bank .1 Applying that test, the learned President held that the substance of the client’s claim was the breach of a duty arising out of an obligation created by contract, and said that he found it difficult to dissociate that duty from the contract. Counsel for the defendant in that case had urged that the duty which was alleged to have been broken was merely the ordinary common-law duty, the breach of which constituted negligence, i.e., the duty to take reasonable care in the particular circumstances; but the President held that the duty arose out of a contractual obligation only.
I have had the advantage of reading in advance the judgment of Mr. Justice Henchy and I agree with him that Maguire P. did not correctly apply the test laid down by Greer L.J. in the Jarvis Case. 2 I agree with the analysis made by Mr. Justice Henchy of the passage quoted from the judgment of Lord Justice Greer.
The only other Irish case cited in argument was McGrath v. Kiely 7 in which the client sued a surgeon and a solicitor, founding her claim for damages on both negligence and breach of contract. In the course of the hearing before Mr. Justice Henchy it was conceded on behalf of the client that the liability sought to be imposed on each of the defendants arose ex contractu, so that the question of the liability of the defendants in tort was not argued and did not fall to be decided.
In Somers v. Erskine 4 , the learned President was not prepared to accept that, in the case of a solicitor, there was a general duty to use reasonable care imposed by the law quite apart from contract. He took the view that because there was a contractual relationship between the solicitor and the client, and a liability in contract for breach of the duty owed to the client, there was no duty in tort. Counsel for the defendant had cited the passage in Bevan on Negligence (4th ed. at p. 1384) that states:” “A solicitor is liable for negligence both in contract and in tort. He is liable in contract where he fails to do some specific act to which he has bound himself. He is liable in tort where, having accepted a retainer, he fails in the performance of any duty which the relation of solicitor and client as defined by the retainer imposes on him.” Authorities to support that proposition were not cited; if they had been cited, it is likely that the President would have come to a different conclusion. The law is concisely and clearly summed up in a few sentences in the well-known passage in the speech of Viscount Haldane L.C. in Nocton v.Ashburton 27 at p. 956 of the report:” “My Lords, the solicitor contracts with his client to be skilful and careful. For failure to perform his obligation he may be made liable at law in contract or even in tort, for negligence in breach of a duty imposed on him.” See also what was said by Tindal C.J. in Boormanv. Brown 28 in the Court of Exchequer Chamber at p. 525 of the report and by Lord Campbell in the House of Lords at p. 44 of the report of the appeal. It is to be noted that these cases also were not cited in Groom v. Crocker 5 , or in the cases which followed it, and that the failure to do so led to the criticism of these cases by Lord Denning in Esso Petroleum v. Mardon. 10 In my opinion, the President was wrong in holding that the liability of the solicitor to the client was solely in contract. Somers v. Erskine 4 should not be followed.
Quite apart from the fact that Somers v. Erskine 4 was decided without the citation of relevant authorities and on an incorrect application of the test laid down by Greer L.J. in the Jarvis Case 2 , the decision is inconsistent with developments in the law of tort since the case was decided. It is now settled law that whenever a person possessed of a special knowledge or skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies on such skill, a duty of care will arise: see the speech of Lord Morris of Borth-y-Gest at p. 502 of the report of Hedley Byrne and Co. Ltd. v. Heller & Partners Ltd. 9 At p. 538 of the report Lord Pearce said:” “In terms of proximity one might say that they are in particularly close proximity to those who, as they know, are relying on their skill and care although the proximity is not contractual.” See also Lord Hodson at p. 510 and Lord Devlin at p. 530 of the report. Where damage has been suffered as a result of want of such skill and care, an action in tort lies against such person, and this applies whether a contractual relationship exists or not. This doctrine applies to such professional persons as solicitors, doctors, dentists,architects and accountants. Although in the Hedley Byrne Case 9 the claim was in respect of a non-contractual relationship, the statements of the Law Lords were general statements of principle, and it is clear from their speeches that they did not in any way mean to limit the general principle and that their statements were not to be confined to voluntary or non-contractual situations.
Therefore, where a solicitor is retained by a client to carry out legal business (such as litigation) on his behalf, a general relationship is established, and “Where there is a general relationship of this sort, it is unnecessary to do more than prove its existence and the duty follows””per Lord Devlin at p. 530 of the report of the Hedley Byrne Case .9 If, therefore, loss and damage is caused to a client owing to the want of such care and skill on the part of a solicitor as he ought to have exercised, there is liability in tort even though there would also be a liability in contract. Even if the relationship between the solicitor and the client was a non-contractual or voluntary one, the same liability in tort would follow.
In my opinion it is both reasonable and fair that, if the issues of fact are such that he would be entitled to succeed either in contract or in tort, the plaintiff should be entitled to pursue either or both remedies; there can be nothing wrong in permitting the plaintiff, who is the injured party, to elect or choose the remedy which to him appears to be that which will be most suitable and likely to attract the more favourable result.
In my judgment, the plaintiff in the instant case has a good cause of action in tort as well as in contract and is entitled to sue in respect of either or both remedies since he has suffered loss and damage as a result of the negligence of the defendant, as the plaintiff’s solicitor, in failing to institute proceedings within the time limited by the Statute of Limitations, 1957. Accordingly, the plaintiff is entitled as of right to have his action tried before a judge and jury, and Mr. Justice D’Arcy was correct in so deciding. Accordingly. I would dismiss this appeal.
Kenny J.
I have had the advantage of reading the judgment prepared by Mr. Justice Henchy and I agree with the conclusion he has reached that this motion seeking a trial of this action by a judge sitting without a jury should be dismissed.
When a client retains a professional person (e.g., a solicitor, an architect, an accountant or a doctor) to do work for reward, there is implied from theretainer a contract between them, one of the terms of which is that the professional person has the competence to do the work and that he will act with that degree of care and skill which is reasonably expected from a member of that profession. If he is negligent in the performance of the work, an action for damages for breach of contract may be successfully brought against him.
The professional person, however, owes the client a general duty, which does not arise from contract but from the “proximity” principle ( Donoghue v.Stevenson 16 and Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. 9 ), to exercise reasonable care and skill in the performance of the work entrusted to him. This duty arises from the obligation which springs from the situation that he knew or ought to have known that his failure to exercise care and skill would probably cause loss and damage. This failure to have or to exercise reasonable skill and care is tortious or delictual in origin.
So a plaintiff in such an action may successfully sue in contract or in tort or in both. In the instant case, the plaintiff has sued in tort and so is entitled to have his case tried by a jury: see s. 94 of the Courts of Justice Act, 1924. I would dismiss the appeal.
Parke J.
I would also dismiss this appeal for the reasons set out in the judgments delivered.
Power v Allen
Paddy Power, Blaithin Muireann Power v Peter Allen, McDermot and Allen
, unreported, High Court, Murphy J., January 17, 2003
8. APPLICABLE LEGAL PRINCIPLES
Conveyancing practice in relation to registered land is, in theory, simpler than the procedure in relation to unregistered land. However it is based on the same principle of transferring a good title from vendor to purchaser. If any weak links in title are overlooked a purchaser solicitor may be negligent. See Pilkington v. Wood (1953) Ch 770.
Defects in title can be classified under three convenient but overlapping categories.
First there are those defects which affect the ownership of the vendor. While this may be discovered on investigation of title, the vendor has a duty to disclose such defects. One of the examples given in the text book is where the vendors title depends on adverse possession and the proof of extinction of the earlier title cannot be proved.
Secondly, the inability of the vendor to convey free from encumbrances such as easements renders the title defective if not fully disclosed. Such defect binds the purchaser. In such case it may be in the vendors best interest to disclose matters (see Farrand on Contract and Conveyance, (4th ed. 1983 p. 65).
Finally, where the property sold is leasehold, any onerous or unusual covenant in the lease and the services of notices must be disclosed.
Lindley L.J. in Scott and Alvarez’s Contract, Scott v. Alvarez (1895) 2 Ch. 603 at 613 referred to bad titles in the following terms:
“There are bad titles and bad titles; bad titles which are good holding titles, although they may be open to objections which are not serious, or bad titles in a conveyancer’s point of view, but good in a businessman’s point of view. ”
A `holding title’ is one which looks back to the origin of ownership, namely possession. The expression envisages, in Farrand’s view, at 91, a doubtful title or one suffering from a merely technical defects, under which there has been undisturbed possession. This becomes a `good holding title’ if the possession is likely to continue to be undisturbed. Indeed possession can become not just a good holding title but a good title in its own right if sufficient evidence of the defeated ownership is forthcoming.
Indeed Jessel MR in Lysaght v. Edwards (1876) 2 Ch D 499 at 507 held that ” … however bad the title may be the purchaser has a right to accept it … ” However, until a holding title (whether or not a “good holding title “) becomes a good title it will not be enforced on a reluctant purchaser under an open contract.
Where there are special conditions, as in this case, the purchaser takes subject to those conditions.
The investigation of title made on the purchasers’ behalf by the purchasers’ solicitor gives the purchaser protection within the ambit of the contract. If a defect in the vendor’s title is missed then the purchaser is entitled to a remedy, infrequently against the vendor for breach of covenant for title but, more commonly, against his solicitor for professional negligence.
The plaintiff, in any event, is under a common law duty to take all reasonable steps to mitigate any loss. However, a solicitor who has negligently investigated title cannot compel a plaintiff client to mitigate his damages by pursuing the alternative remedy under breach of covenant for title. In Pilkington v. Wood (1953) 2 All E.R. 810 at p. 813 G, Harman J. stated:
“I am of the opinion that the so-called duty to mitigate does not go so far as to oblige the injured party, even under an indemnity, to embark on a complicated and difficult piece of litigation against a third parry. The damage to the plaintiff was done once and for all directly the avoidable conveyance to him was executed. This was the direct result of the negligent advice tendered by his solicitor, the defendant, that a good title had been shown, and, in my judgment, it is no part of the plaintiffs duty to embark on the proposed litigation to protect the defendant from the consequences of his own carelessness.
Pilkington concerned an action for damages for the negligence of the defendant while acting as solicitor for the plaintiff in connection with the purchase by the plaintiff of certain freehold premises. The defendant failed to advise the plaintiff that there was a defect in the vendor’s title in that the premises had been part of trust property wader a will of which the vendor was a trustee and the abstract of title showed that the vendor had purchased it, through intermediaries, from himself and the other trustees. Later, the plaintiff entered into a contract to sell the premises but, on finding the defect in the title, the purchaser refused to complete. The plaintiff thereupon brought an action for damages against the defendant.
The measure of the solicitor’s liability was the difference, at the time of the conveyance to him, between the value of the property with a good title and its value with the defect. Other items claimed which were not such as might reasonably be supposed to have been in the contemplation of the parties as liable to result from the solicitors negligence were too remote.
Even in the case of an open contract where parties have shaken hands on price they will still trust their solicitors to do everything necessary to protect them against traps and pitfalls that beset the completion of sales of real property: see Black v. Kavanagh (1974) 108 I.L.T.R. 91 at pp. 94/96, per Gannon J. (see Farrell, Irish Law of Specific Performance, (1St ed. 1994) page 120 paragraph 5.19.)
The general duties of a solicitor are to act on his client’s behalf and to give legal advice to such client in accordance with his contract of retainer. Where a solicitor is acting for a number of clients with a similar interest, his retainer is with each individually. As in all relationships involving a duty of care, solicitors are bound to exercise a reasonable degree of care, skill and knowledge in all legal business that they undertake. See Jackson and Powell Professional Negligence, (4th ed., 1997), Chapter 4.
In Roche v. Peilow [1986] I.L.R.M. 189 Henchy J laid down the standard to be expected of a solicitor:
“The general duty owed by a solicitor to his client is to show him the degree of care to be expected in the circumstances from a reasonably careful and skilful solicitor. Usually the solicitor will be held to have discharged that duty if he follows a practice common among the members of his profession … But there is an important exception to that rule of conduct … and a person cannot be said to be acting reasonably if he automatically and mindlessly follows the practice of others when by taking thought he would have realised that the practice in question was fraught with peril for his client and was readily avoidable or remediable. ” At pp. 196 and 197.
In Kehoe v CJ Son [1992] I.L.R.M. 282 the plaintiffs were advised by their solicitor that they were purchasing a yearly tenancy which was “as good as freehold” since they had the legal right to acquire the freehold at a reduced sum. In fact, this was not possible without having the premises revalued, an exercise which involved considerable additional expense. The failure to advise as to the implications of purchasing the freehold was held to constitute negligence on the part of the managing clerk who was dealing with the matter.
In Pilkington v. Wood [1953] Ch 770 the purchase price was treated as the market value at the date of breach resulting in a detective title. Damages were assessed as the difference between the market value with a good title and the value subject to a defect in title.
Where there is a defective purchase the valuation method may be the difference between the valuation of good and of defective title, the loss on resale or the cost of cure. In addition damages may be awarded for inconvenience. See Flentley and Leech, Solicitors Negligence (1st ed. 1999) paragraphs 8.72 to 8.81.
9. DECISION OF THE COURT
9.1 The contract between the parties was for an exchange of lands and a consideration of £3,500 payable by the plaintiffs. The closing date was the 1″ September, 1991. There were three parcels one of which was to go to the second named plaintiff in respect of which, eventually, the full consideration was attributed.
The approach to the land was through an old road over an old :prefabricated bridge and into the site which led to some eight cottages and two harbours. The distance from the main road to the pier on one of the harbours was approximately three miles. As the site, a deserted village was not lived in for upwards of 40 years, rights of way to it and through it were unclear and, to some extent, overgrown. Indeed the rights of way agreed on between the parties and mapped by Mr. Mannion, the engineer, appear to have passed over commonage of which the vendor was an owner in common. A problem arose with regard to how best to include these rights of way in the transfer to the plaintiff. The right of way seemed also to pass over third party land. The contract for sale contained a number of special conditions. Reference has already been made to condition 7 thereof.
What transpired some ten years later after proceedings issued was the registration of the plots without the rights of way and the transfer of possessory title ;rather than absolute title. The contract required documents to enable the purchaser and his daughter to register themselves as absolute owners.
9.2 In the meantime the property was put up for sale in 1995 and attracted publicity nationally and, indeed, internationally. Indeed, as publicity continued the asking price increased. Unfortunately there were no bids at the auction nor, indeed, any queries to the defendant who continued to act for the plaintiffs.
It is not possible to describe the effect of difficulties in title. Neither is it possible to say whether price was a factor. Relationships with adjoining land owners, and the then recent Circuit Court proceedings may also have been a factor. It does not seem to the court that the delay in registering title caused any loss.
No doubt had there been a sale – even at a reduced price – rnuch hardship could have been avoided in terms of the living conditions of both plaintiffs and the schooling of the second named plaintiff. It is to the credit of the plaintiff that these difficulties were overcome and that the second named plaintiffs succeeded, albeit after repeating her :Leaving Certificate, to get the points which she required for university. I have every sympathy with a parent, on his own, attempting to fund education courses abroad to enable his daughter do better ink language. There may indeed, have been no other source of funds and it may not have been thought proper or possible to raise money on the security of the lands. But it does not seem to me, whatever the delay up to 1995, that these were attributable to the defendant. Even if this were not so, it is clear that the defendants did not know that this was a loss emanating from the delay in registering the transfers according to the contract. Indeed., it seems, that the agreement with Mr. O’Donnell regarding the water which was being dealt with shortly prior to the auction itself, constituted a further negotiation and caused confusion in the maps in relation to a contract which had already been executed.
9.3 Four years later a Mr. Derycker, who gave evidence to the court, expressed an interest in acquiring the lands for a sum of £850,000 subject to good title, as he had learned, he said, that there were some problems with regard to title which led to the land not being sold in 1995 by auction.
The correspondence between Mr. Derycker and Mr. Power had been fully opened and commented on. His letter of the 7d’ February, 2000 purports to be an offer, subject to title, for that sum. This is followed, some two months later, on 18th April, 2000 by a withdrawal of the offer. This is the basis on which the plaintiffs say is the measure of their loss because of the delay in registering their title and registering it without the rights of way and without absolute title.
Mr. Derycker, in his evidence to this court, says that he was willing to pay that sum for the property. He believed that he could build a substantial residence for himself, at least, if not develop the site further. If he had an assurance with regard to title – a certificate of title, for example – he would have then instructed a solicitor and a planning consultant. However the matter had not proceeded to that stage and he had not had the benefit of either legal or planning advice. Mr. Derycker came across as a confident and competent business man. It is clear from his evidence that he would not allow himself be bound into a contrac where he could not develop the land (assuming that his solicitor was satisfied with title) as he had planned. This he had expressed in his letter of 22nd November, 1999. He would have taken such advice. The original asking price was £1,200,000. That was then reduced to £950,000. It was on this basis that he made an offer for £850,000.
Under cross examination he said that he would have had a solicitor before committing himself. He also said he would have had expected his acceptance to be subject to planning. It was the only property which he saw.
In his letter of the 7th February, 2000 he had stated: “and, of course, as you said if there is no good title we camzot buy it”. It never occurred to him to get an Irish solicitor to look at the documents. It was not up to him to sort out the paper mess. lie had confidence in Mr. Power sorting it out. He said he would not be bound if there was no proper deed.
He said that Mr. Power did not tell him about the title problem (Ms. Bradley had reported back to him on 30th January, 2000 regarding problems of title). He said that he wrote the letter of the 18th April, 2000 to terminate the offer.
If the valuation were half of what he had offered to pay he would have felt foolish. He had made the bid on the basis of information available. To him it was a commitment and never his intention to change the price.
Mr. Derycker expressed himself as a decisive person who was committed with regard to the price he offered. That, however, was based on planning for what he wanted and, of course, title.
It does not seem to me that from a legal point of view that had title alone when resolved – and Mr. Fitzgibbon has told the court that it could be done as a routine part of conveyancing for which he would make no extra charge, it seems to this court that there was not an enforceable contract inherent in Mr. Derycker’s letter of the 7th February, 2000.
From Mr. Power’s point of view, given the history of delay, it must be assumed that he was concerned about Mr. Derycker’s requiring an assurance regarding title. One would have expected him to alert Mr. Flanagan, or indeed Ms. Bradley to the necessity of making good title if Mr. Power did not want, at that stage, to involve Mr. Allen anymore.
9.4 Whatever complication arose because of the exchange and the undertaking given by the solicitor for the vendor (who was also, of course, a purchaser) this did not justify the delays in and extent of the property registered. There was a contract in respect of rights of way. There was also an agreement with regard to the registration of absolute title. Neither of these particulars were known to Mr. Derycker who had not investigated nor, indeed, been told of difficulties in title.
It seems to this court that the delays cannot be justified: a contract with a closing date in January 1991 should have been registered, even allowing for the delays in registering a transfer by way of exchange, within a reasonable period from that date. It also seems clear that the statutory declaration and the maps should have been dealt with more expeditiously.
9.5 There is some dispute between the conveyancing experts with regard to how the matters could be resolved. Ms. Bradley believes that the grant of the right of way should be obtained and registered. Mr. Fitzgibbon, on the other hand, believes that a statutory declaration, in a more comprehensive form, should suffice. Both positions were justifiable. According to the contract there was to have been a grant. If the lands were to be developed commercially then one would prefer a grant. However land such as the subject matter of a contract abutting on commonage and having a pier to which there was some rough access for the public is not urban commercial land. The practical solution in the circumstances to avoid difficulties may be to proceed by way of statutory declaration. Whether that can be registered or not is another matter.
It does seem to me that the solicitor for the purchasers – the defendants in this case – should have advised the plaintiffs of the options as difficulties arose. It could very well have been a matter of walking away from a contract – as Mr. Fitzgi bbon suggested – or making the best of what was available. It is clear that Mr. Power was concerned about adjoining owners when he bought Toombeola and was aware of resentment and obstruction which led to the Circuit Court proceedings.
The evidence of the defendant and of Ms. Helena McGrath was that the right of way granted could be registered but for a misunderstanding with the land registry.
Mr. Fitzgibbon’s evidence was that this was not necessary.
However, it appeared clear fiom the evidence that part of the right of way is over the commons and another part is over lands owned by a Mr. McDonagh.
Difficulties arose in relation to the public right of way which could have been resolved before the death of the vendor, Mr. O’Donnell on 12th July, 1999, by way of statutory declaration.
Though the delay was largely caused by the solicitors for the vendor, notwithstanding, the eighteen letters (including threats to report to the Law Society) the responsibility must be with the purchasers solicitor to register the transfers expeditiously even where there was no particular pressure to do so.
While it is unlikely that outstanding matters would have deterred prospective purchasers at the date of the auction on 26th July 1995 the same might not be said in 2000 when Mr. O’Donnell had died.
9.6 Mr. Power, having met Mr. Allen on 28th February 2000 after Mr. Power had received the report on title, on 31St January, 2000 then asked Mr. Allen on 13th March 2000 and 3`d April, 2000 to certify the title.
Mr. Derycker purported to make an offer on 7th February 20010 and indicated that he was not proceeding on 18`h April 2000. On 29th May the short report on title was sent to Mr. Allen.
I accept the defendants evidence that had he been informed of that prospective sale he would have taken immediate steps to complete the outstanding matters and proceed by way of special conditions as were included in the draft contract of July, 1995.
I accept the defendants submissions that the letter of 8th February, 2000 could not be enforced against. It is clear from his letter of 22nd November, 1999 arid from his evidence to the court that he was concerned about planning permission.
9.7 I cannot accept the defendants argument in relation to the Statute of Frauds pleaded at paragraph 22 of the Defence.
Assurances had been given that registration would be completed and, indeed, were partly completed on 30th November, 2001 after pleadings issued on 8th January, 2001. The issue regarding time is not that of the date of the contract but of discoverability. In DW Moore & Co Ltd v. Ferrier and Others (1988) 1 All E.R. 400, time ran from the date of a negligently drafted contract. That is not the case pleaded here. Damage became manifest at the time of the receipt by the plaintiff of the report on title in January 2000. (See Hegarty v. O’Loughran [1990] IR 148 and O’Donnell v. Kilsaran Concrete Limited and Another [2002] 1 ILRM 551.
The plaintiffs were then aware of the deficiencies in their title.
9.8 The defendants were under an obligation to, and owed a care towards, the first named plaintiff under the contract of retainer to transfer a good saleable title as provided by the contract for sale.
That obligation extended to the second named plaintiff, who was a minor, for whom the defendant subsequently agreed to act.
The defendant was in breach of such duty of care in relation to
– undue delay in procuring the registration of the several premises
– failing to procure the registration of the rights of way and. of absolute title as provided for in the contract and
– failing to advise the plaintiffs of the progress and difficulties with regard to maps rights of way and statutory declarations.
9.10 A defence of contributory negligence had been raised. Even if it were established that Mr. Power had himself negotiated with Mr. O’Donnell after the contract was executed and marked maps which had been prepared by the engineer, the defendant ought to have advised of such variation being outside the contract of the title, difficulties that this would create and of the necessity of having the engineer produce a map.
9.11 The plaintiffs are in possession. Blaithin Power is a purchaser for value and it may be possible for Patrick Power to register the rights of way and absolute title on the basis of statutory declarations without the necessity of a grant from third parties.
Whatever investment was made by Mr. Power in repairing the bridge and the road: as seen from the more recent photographs taken by several witnesses with regard to the rights of way it is clear that the expected increase in value has been considerable. The value of the lands exchanged and the consideration in respect of Blaithin Power’s portion is but a tiny fraction of the asking price four years later in 1995 and even smaller in relation to the offer of £850,000 by Mr. Derycker in 2000. Evidence on valuation, having regard to the possible planning permission available, does not justify those valuations. However it is clear that the lands are, and remain, valuable and that the plaintiffs are in possession of the lands.
9.12 The court is not satisfied that the offer by Mr. Derycker is evidence of value of the property with title registered in conformity with the contract. There has been no satisfactory evidence of the value of the property as currently registered. Taking its present user there may be no significant difference.
The court does not accept, on the evidence, that there was an enforceable contract between Mr. Power and Mr. Derycker. Even if there had been steps taken to cure the defects enumerated by Ms. Bradley, Mr. Derycker still required some assurance regarding the building of a large dwelling. In any event Mr. Power did not appear to have accepted Mr. Derycker’s purported offer.
9.13 If is difficult to ascertain from the evidence what difference in value there is between the present registered title and that contracted for.
It would seem that the measure of damages is the cost of curing that difference. The underlying value of the land, on the evidence, has increased significantly even if there is some evidence of values decreasing marginally in the past year.
The plaintiffs are entitled to the costs of curing these defects which have not been quantified.
They are also entitled to the cost of investigation and report on title in the sum of £400 actually discharged by Mr. Power.
Damages particularised in paragraph 8 of the amended statement of claim were not notified to the defendants before proceedings issued and are, in any event too remote. There is insufficient evidence that they resulted from the breach.
The claims which overlap with claims in other litigation where there has been a full and final settlement cannot be entertained by the court.
In the Matter of a Contract made between James Wm.
M’Clatchie and Edward Smyth
, and in the Matter of the Vendor and Purchaser Act, 1874.
High Court of Justice.
Chancery Division.
16 December 1903
[1904] 38 I.L.T.R 34
Chatterton V.-Ch.
Dec. 16, 1903
Chatterton, V.-Ch.
The purchaser’s claim cannot be sustained. He was put on inquiry by the tenure and by the condition of sale, which was specially pointed at such a state of facts as has arisen. There was no concealment of any kind, and I refuse the application with costs.
Thomas Doyle and Mary Doyle v Thomas C. Ryan and Sheila Ryan
Circuit Court, South Eastern Circuit (Waterford)
12 December 1980
[1981] I.L.R.M. 374
12 December 1980
Subject: Real property
Keywords: Deposits; Forfeiture; Sale of land
Vendor and purchaser—Sale of land—Forfeiture of deposit—Profit on re-sale—Whether a penalty.
Facts
The plaintiffs agreed to purchase lands from the defendants for £20,000. The plaintiffs paid the defendants £2,000 deposit. Due to the default of the plaintiff the contract was rescinded and the deposit forfeited. The land was resold at a profit. The plaintiffs contended that the vendor should not be entitled to forfeit the deposit in toto if the property appreciated upon re-sale as this would constitute a penalty.
Held, The court cannot be concerned as to what transpires on a re-sale unless there is deficiency. Plaintiff’s claim dismissed.
Cases referred to in judgment
International Securities Ltd v Portmarnock Estates Ltd (High Court Hamilton J, 9 April 1975, No 1974/2257P unrep.).
Howe v Smith 27 Ch D 89
Lowe v Hope [1970] Ch 94 [1969] 3 All ER 605
JUDGE SHERIDAN
delivered his judgment on 12 December 1980 saying: This case concerns an agreement dated 4 May 1978, between the plaintiffs of the one part and the defendants of the other part whereby the plaintiffs agreed to purchase from the defendants the premises comprised in Folio 14141 Co. Kilkenny. The purchase price was £20,000 and the plaintiffs paid a deposit of £2,000.
In the Civil Bill the plaintiffs seek the return of the deposit and damage for breach of contract. The defendants on the other hand seek a declaration that the deposit was forfeited to them.
During the course of the hearing I allowed two amendments to the plaintiffs’ civil bill the result of which is that para. 3 of the indorsement of claim reads as follows.
3. On or about 22 June 1978 the defendants failed, neglected and refused to complete the said Agreement and have, since the said date sold the said premises to a person who is not a party to these proceedings. The plaintiffs believe that the defendants have made a substantial profit arising from the subsequent transaction.
The second amendment contained a new paragraph (a), in the prayer as follows:
(a) If necessary a declaration that the defendants’ retention of the deposit herein constitutes a penalty on the plaintiffs and that the plaintiffs are thereby entitled to its return.
*375
The existing paragraphs (a) to (d) were re-lettered accordingly:
I clearly stated at the time of the granting of the amendment that the defendants might make such consequential amendments to their defence as might be considered necessary and proceeded with the case on the basis of such amendments having extracted an undertaking that the amendments to the civil bill and defence were to be typed in red on a new civil bill and defence.
I direct that no order is to be made up in this case until these necessary matters are attended to.
In my view this entire matter comes down in essence to the legal propositions applying to the question of the forfeiture of the deposit when a contract is lawfully rescinded by a vendor by reason of a default of the purchaser.
The defendants on the one hand say in argument that the court cannot be concerned as to the ultimate destination of the piece of property and in particular as to any profit which the vendor may make on re-sale. The plaintiffs on the other hand contend that the law should not permit a vendor to make a profit upon the rescission of the contract.
S. 29 of the Conditions of Sale apply to this matter and it will be useful to set out its terms which are as follows:
FORFEITURE OF DEPOSIT AND RE-SALE
29. If the purchaser shall fail in any material respect to comply with any of these conditions his deposit shall be absolutely forfeited and the vendor shall be at liberty (without being obliged to tender an assurance) to re-sell the property with or without notice to the purchaser, either by public auction or private contract. In the event of the vendor re-selling the property within one year after the closing date for the present sale (or after the expiry of any period by which the closing may have been extended pursuant to clause 28 of these conditions) the deficiency (if any) arising on such re-sale (after giving credit for the deposit so forfeited) and all expenses attending the same or any attempted re-sale shall be made good and paid by the purchaser as liquidated damages. Any increase in price obtained by the vendor on any re-sale, whenever effected, shall belong to the vendor. On any re-sale by auction the property may be bought in. The vendor shall notify the present purchaser of any such intended re-sale not less than fourteen days in advance thereof and of the result of such re-sale not more than fourteen days thereafter.
In my opinion this provision is clear in its terms and except for some possible intervention by the Court of Equity the vendor once having lawfully rescinded is entitled absolutely to forfeit the deposit, indeed the clause goes further and makes the purchaser liable under certain circumstances after giving credit for the deposit so forfeited to make up any deficiency arising from a re-sale together with expenses.
On the strict wording of the clause I am therefore of the opinion that the court cannot be concerned as to what transpires upon a re-sale except where there is deficiency. This does not apply to the present case as I gather that an enhanced price has been obtained upon the re-sale of the premises.
One would have thought that the law relating to this line of country would by this time have been clearly and definitely established.
Mr McCarthy on behalf of the defendants argues that such definition has been *376 achieved and relies in the main on the case of International Securities Limited v Portmarnock Estates Ltd (HC Hamilton J, 9 April 1975 unrep.).
In this case Hamilton J having regard to the judgment of Fry LJ in Howe v Smith 27 Ch D 93 held that as the contract was not performed the court was of the opinion that the plaintiff company was entitled to forfeit the deposit.
Mr Hanna on the part of the plaintiffs drew my attention to the fact that it was not argued before Hamilton J that the deposit might not be forfeited in toto if the property appreciated upon re-sale. Mr Blayney on behalf of the defendant company advanced a very detailed argument but it was assumed, in my view, in the case that the whole of the deposit would be forfeited or the whole of the deposit would be returned depending upon the outcome of the case. I cannot imagine that Mr Blayney would have overlooked this matter unless he, at least, was satisfied that the legal position was clear.
I have read fully the judgment already referred to in Howe v Smith and I find myself bound by the judgment of Hamilton J in respect of the passage at page 101 of the judgment of Fry LJ which reads as follows:
Money paid as a deposit I conceive to be paid on some terms express or implied … the terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account but if the contract is not performed by the payer it shall remain the property of the payee.
I am also fortified in this view by the case of Lowe v Hope [1969] Ch D 605. This was a decision of Pennycuick J who quotes as the Law a Statement in 34 Halsbury’s Laws of England (3rd ed.) P. 322 as follows:
A deposit paid under a contract of sale serves two purposes; if the sale is completed it counts as part payment of the purchase-money, but primarily it is a security for the performance of the contract, and it is usual to provide expressly that, in the event of the purchaser failing to observe the conditions of the contract, the deposit shall be forfeited to the vendor. Such a provision however, is not necessary, and, unless the contract taken as a whole shows an intention to exclude forfeiture, the vendor is entitled, by virtue of the purpose of the deposit if the contract goes off by the default of the purchaser to retain it as forfeited; or, if the deposit has been paid to a stake-holder, to require it to be paid over to himself.
It seems to me that the position in law and equity are now the same and in my view the plaintiffs have forfeited the right to receive back any part of the deposit and it follows, therefore, that I must dismiss the plaintiffs’ claim and upon the defendants’ counterclaim I propose to give a declaration as claimed on para. 4(b) of the counterclaim.
Having regard to the fact that this case took two days I will hear such arguments as may be advanced by counsel on the matter of costs.
Roche v Peilow
Search in this document
Neutral Citation: 1985 WJSC-SC 1513
Docket Number: [1977 No. 1113P]
Reported In: 1985 WJSC-SC 1513, [1985] 5 JIC 1702, [1986] ILRM 189, [1985] IR 232, [1985] IR 232 (Digest)
Jurisdiction: Ireland
Court: Supreme Court (Ireland)
Judge: Walsh J, Henchy J., Griffin J., McCarthy J.
Case History: Reverses 1980 WJSC-HC 450
Judgment delivered on the 17th day of May, 1985by Walsh J. [Hederman Agreed with the Judgments Delivered]
The appellants, who are husband and wife, engaged the respondents in1973 to act as solicitors for them in the purchase of a house in Cork.They have alleged that the respondents were negligent and in breach ofcontract in the carrying out of their work as such solicitors for theappellants. In the result they instituted proceedings against them inthe High Court for damages. The action was heard by the then Presidentof the High Court, Mr. Justice Finlay, who in a reserved judgementdelivered on 21 December 1979 dismissed their action. This appeal isbrought against that judgment. The facts are fully dealt with in thejudgment of the learned President. For the purpose of this judgment itis sufficient to set them out briefly.
The house purchase was to be effected by means of a building contractswith the developer of building sites, a company named J.B. ConstructionCompany Limited. The building contract, which was dated 19 February1973, was coupled with an agreement for a lease dated 19 February 1973between the construction company and the first-named appellant. Thelease was to be for a term of 999 years from 25 March 1972 and was to begranted in consideration of the expense incurred by the said JosephWilliam Roche in the erection of the house in question and inconsideration of the rents and covenants to be reserved in the lease.The lease referred to the site of the house which was part of the landscomprised in Folio 58474 of the Register of Freeholders of the Countryof Cork of which the construction company was the registered owner andwas known as Site No. 19, Muskerry Drive, Woodlands, Blarney, Co,Cork.
The arrangement for the building of the house and the grant of the leasewas part of a building development of a much larger area which was ownedby the said J.B. Construction Company Limited. The contract providedthat the landlord would on or before the execution of the lease furnishthe appellants with a certified copy of the said Folio. The lands onwhich this development was taking place was subject to the provisionsprohibiting letting, sub-letting or sub-division specified in section 12of the Land Act 1965 and to the provisions restricting the vestingof interests specified in section 45 of that Act but nothing in thiscase arises on that matter. Many other house purchasers had entered intosimilar agreements and when their respective leases were executed theywere entered as burdens on the Folio. The Land Commission had alreadyconsented to the sub-division and letting of the property for thebuilding purposes in question. By a letter dated 6 April 1973 thesolicitors for the construction company had informed the respondentsthat none of the burdens affecting the property comprising Folio 57474of the Register of Country Cork affected the property being demised tothe appellants. They further certified that there were no dealingspending which would adversely affect the appellants” title. Infact on 12 July 1972 a charge by deposit of title deeds had been createdby the construction company in favour of Lombard and Ulster Banking(Ireland) Limited and a certificate of registration of such chargepursuant to section 104 of the Companies Act 1963 was issued on 21 July1972. The mortgage by way of deposit was for the purpose of securing allmonies which were due or would thereafter become due or from time totime accruing from the construction company to Lombard and UlsterBanking (Ireland) Limited.
The method of carrying out the building development in question was, onthe evidence, one of acquisition of the land to be developed by theconstruction company and themortgaging of the land by deposit of title deeds to raise the moneynecessary to carry out the development. The development would also befinanced by each prospective house purchaser who would enter into abuilding contract and pay for the building periodically in accordancewith the building contract. The completion of house would be the time toexecute the lease to the purchaser. Lombard and Ulster Banking Limitedwould in the ordinary course of events release from their charge thesite of the house in question so that the lease could be executed freefrom any such encumbrance. In return the finance company would be paidby the constrction company out of the proceeds of the building contractthe appropriate sum for the release of that particular site. Thisapparently was a common method of financing building developments andwas well known to members of the solicitors” profession, includingthe respondents.
An obvious danger in this system of financing building development wasthat if the builder were to be become insolvent be would be deprived ofthe mortgaged property by the finance institution which has acquired thecharge over the property. Furthermore, if for any reason the builder wasunable to complete the building the purchaser could also be at risk inthat the ultimate cost to him would be much greater if he had to employanother builder to complete the building and pay off the finance companyhimself oralternatively to suffer the loss of the partly built house and of thesite. In such a case a purchaser would obviously be in a very much morevulnerable position than one who already had a lease of a site before heentered into the building contract.
In the present case £1,000 deposit was paid as a booking fee on 10April 1973 to the builders. Later the builders demanded the stagepayments appropriate to first floor joist level of £2,500. The sumeventually paid on 22 April 1974. In the interval there had been a veryconsiderable dispute arising out of the appellants” complaint thatthey were not satisfied with the manner in which the building was beingexecuted and refused to pay until their wishes were accommodated. Thematter went so far that on 13 April 1973 the builders were willing torefund the deposit to the plaintiffs and call off the whole arrangement.The appellants had also experienced difficulties in obtaining bridgingfinance which was part of the reason that they found some difficulty inpaying the £2,500 which had been demanded. During the disputesbetween the appellants and the builders the respondents, as theappellants” solicitors, gave them full and ample warning of thedanger of losing their prospects of a loan from the Royal Liver Society.The respondents made strenuous effects to get the Royal Liver Society toextend the period during which the loan could be taken up. EventuallytheSociety withdraw altogher.
On 22 February 1973 the respondents had sent to the building company aset of requisitions on the title. In reply they were told, among otherthings, that the land certificate would be furnished before registrationof the lease as a burden on the folio on the closing of the sale. Acertified copy of the folio was sent to the respondents in reply toanother requisition. Nothing on the folio and nothing in the answersfurnished to the various requisitions disclosed that the property wasthe subject of a mortgage by way of deposit of the land certificate. Asthis was registered land such a deposit would not appear in the folio.No search was made in the Companies” Office. As the buildingcompany was a limited company under the Companies Acts there should be arecord in the Companies” Office of any deposit of title deeds ofthe company’s property. In fact there was such a record.
The respondents had not made any search in the Companies” Officeand thus they did not make themselves aware of the fact that the site inquestion was subject to the mortgage. They were therefore not in aposition to, and did not, inform their clients of the existence of thatmortgage. They had explained to the appellants that under the contractthey would be obliged to make payments at various stages in the amountsprovided and did point out therisk of losing this money should the builders go into liquidation duringthe course of construction. The appellants understood this risk andelected to take it. However, none of these warnings turned upon thepossibility of the site not being available.
The appellants have alleged that the respondents were negligent and inbreach of their contract with the appellants for not discovering themortgage by making the appropriate searches in the Companies”Office and of warning them of this additional risk. The appellants hadalready paid the builders £8,000 on foot of their buildingcontract when the builders went into liquidation which followed aresolution of the shareholders of the building company on 18 October1974 when it was resolved that the company be wound up. The lease hadnot yet been executed. The company was, through its liquidator,eventually compelled to grant a lease of the premises to the appellantsbut that, of course, was not valid as against the Lombard and UlsterBank. The bank was and is willing to release the site upon payment tothem of £6,000, but not otherwise. In default of such payment theyare apparently prepared to recover the property from the appellants and,of course, with it would go the house has now been built upon it.
The respondents, in answer to the claim in negligence, have stated thatthey acted in accordance with the normalpractice of solicitors in these matters, that is to say not to make allthe necessary inquiries until the time for granting the lease hadarrived. It appears that there is no general practice of pre-contractsearches by solicitors in advising purchasers with regard to thepurchase of houses provided by a system of a building contract to befollowed by a lease. The question in this case is whether such a commonpractice has such inherent defects that they ought to be obvious to anyperson giving the matter due consideration.
It is clear from the evidence given by solicitors, including therespondents in this case, that this particular risk was well known tothem and that they appreciated that in cases where money was being paidout during the course of a building contract if the site was not alreadysecured it would be lost in the event of the insolvency or liquidationof the builder. In a case where no money was being paid out on foot of abuilding contract until completion then the risk would, to a very largeextent, be diminished, even though in the event of loss of the site thepurchaser might be very disappointed and might indeed suffer damage.While in a case such as the present one it would well be that theappellants, even if they were made aware of the risk, might have electedto go on but the fact is that they were not made aware of it and so itis idle to speculate on what they might have done if they had becomeaware of it. In thistransaction appellants” position was fraught with very grave risk.The first one was that pointed out by their solicitor, namely that bymaking periodic payments during the course of the building they wereliable to lose it all if the builder went bankrupt or went intoliquididation or, alternatively, they might be able to mitigate theirloss by getting somebody else to complete the building. There was ampleevidence that the appellants were fully aware of this risk and acceptedit. The second risk in their situation was the question of the siteitself. They were not warned of this question is whether therespondents” failure to discover the mortgage and to pass theinformation on to the appellants was negligence on the part of therespondets. In my view it was.
It is quite clear on the evidence in the case that this method offinancing building was well known to solicitors and they also knew therisks inherent in it. In a case where the builder was a limited company,as well as making a search in the Land Registry it would also be clearlynecessary to make a search in the Companies” Office. It may wellbe that the general practice of solicitors not to make these searchesuntil the time has arrived for completion was based upon the experiencethat in most cases nothing goes wrong. However, that practice does notobviate the risk clearly inherent in such a practice. The whole objectof a search is to discover these matters and nosolicitor can permit his client to purchase lands or to commit hiselfirrevocably financially in the purchase or development of lands unlesshe has first of all ascertained whether or not the land is free fromencumbrances. If it is not he must bring that fact to the notice of hisclient and allow the client, after proper advice, to decide whether ornot he should take the risk of accepting the transaction with the riskposed by the existence of the encumbrance.
In his judgement the learned President of the High Court cited a passagefrom the decision of this Court in O’Donovan v Cork CountryCouncil [1967] I.R. 173. In my view the last paragraph of thatpassage governs this case. The learned President in deciding against theappellants relied upon a passage in an English judgment, Simmons vPennington & Son 1955 1 W.L.R. 183. In that case the vendor hadpurchased shop premises in 1922. They were then being used as a shop andhad been used ever since then. The premises, however, were subject to arestrictive convenant imposed by an indenture of 1870 under which theiruser was restricted to use for residential purposes. When the premiseswere put up for sale in 1951 the vendor in the conditions of salestated:
“This property is sold subject the restrictive covenant as to userand other matters contained in a deed dated 29th September 1870…. as for as the same are stillsubsisting and capable of taking effect, and the purchaser shall in theconveyance to him covenant to observe the same in so far as aforesaidand to indemnify the vendor in respect thereof. A copy of the saidrestricted covenant may be inspected ….. and the purchaserwhether he inspects the same or not shall be deemed to purchase withfull notice thereof.”
The purchaser bought the premises at the auction and signed the contractof purchase. He made requisitions and one of them was thefollowing:-
“Is the property or any part thereof subject to any covenant oragreement restrictive of the user or enjoyment thereof or otherwise? Ifso has the same been duly observed or performed?”
The answer given to the vendor’s solicitor to that was:
“Yes. See special condition No. 7. There appeared to have beenbreaches of the covenant as to user but no notice of breach has beenserved.”
The purchaser’s solicitors then wrote to the vendor’s solicitors statingthat the purchaser had not been informed before the sale that there wasa restrictive covenant which restricted the use of the property to thatof a privatedwellinghouse and the purchaser was not prepared to complete andrequested that the stake-holder should be instructed to return thedeposit. This was refused and in the meantime the property, which wasnot insured by either party, was very badly damaged by fire. In the casewhich followed Denning L.J. expressed the view that the answer torequisition No. 14 was a fatal mistake in that it enabled the purchaserto get out of his bargain and that he was thus entitled to cancel thecontract forthwith. He also held, however, that he was satisfied thatthe solicitors who gave the response were not negligent and expressedthe view that the restrictions were in all probability obsolete butnevertheless the solicitors could not assert categorically that theywere. The requisition to which the answer had been given was describedas “a stock requisition” but the answer given was, in theview of the learned judge, not a negligent answer. The Court of Appealwent on to hold that it was ill luck that the words which the solicitorsused instead of protecting their client amounted to repudiation of thecontract but the was not the solicitor’s fault. It could not have beenreasonably anticipated, the Court thought, that such a repudiation wouldflow from the answer to the requisition and that they had acted inaccordance with the general practice of conveyancers. The Court went onto observe that no ill consequence had ever been known to flow from theanswer. In the result, the Court held that the solicitor was not guiltyof a breach of duty to hisclient. A number of observations may be made about that particular case.The first is that the conditions of sale were particularly candid andthe second is that it could scarcely be regarded as negligence to give atruthful answer to requisition. It may well have been thought that asolicitor might not reasonably foresee that telling the truth in whatwas a stock answer to a stock question would fail to satisfy apurchaser. However, in my view, the case is totally different from thepresent case. The risk in the present case cannot be neutered bydescribing it as s stock risk. It is a very substantial and real risk.The fact that it was frequently undertaken does not in any way diminishthe danger to which it give rise. The consequences of the riskmaterialising could not be said to be unforeseeable when the evidence inthis case indicates that it was a well known risk and the consequenceswere obvious if it should materialise. In my view, the decision in Simmons v Pennington & Sons is not applicable.
I have had the advantage of reading the judgments delivered by the thenPresident of the High Court in Taylor v Ryan (delivered 10March 1983) and the judgment of Mr. Justice Murphy in Dermot C.Kelly & anor v Finbarr J. Crowley (delivered 5 March 1985). Theprinciples enunciated in those case confirm, in my view, that therespondents were guilty of a failure in the duty they owed to theappellants to the extent that they were negligent inlaw. I would therefore set aside the order of the High Court and remitthe case to the High Court for the purpose of having damagesassessed.
Judgment of Henchy J.delivered the 17 May 1985. [Hederman Abreed with theJudgments Delivered]
When the plaintiffs engaged the defendants to act as their solicitors inthe purchase of a house, they were entitled to believe that theirinterests would be protected by the defendants with the degree of careto be expected from a reasonably careful and competent solicitor. Thatduty of care may be said to arise either as a matter of contract, byreason of an implied term to that effect in the contract of retainer, oralternatively, as an aspect of the tort of negligence arising out of theproximity of the relationship between solicitor and client: see Finlay v. Murtagh 1979 I.R. 249.
In deciding whether the plaintiffs are entitled to succeed intheir claim for damages for want of reasonable care on the part of thedefendants, it is necessary to underline certain features of the housepurchase in question. The house had yet to be built. The site of thehouse was one of a number of sites which were being developed by abuilding company. Those sites were contained in Folio 58474 of theRegister of Freeholders for Co. Cork and the registered owner was thebuilding company. The building company were to build a house on one ofthose sites for the plaintiffs for the sum of £9,450. That sum wasto be paid in instalments payable at different stages of the building ofthe house, namely £1,000 as a booking deposit, £2,500 atfirst floor, £2,000 at roof-plate level, £2,500 at internalplastering and £1,450 on completion. In conjunction with thatbuilding agreement, the building company agreed to grant a 999 yearslease of the house when it was completed.
The plaintiffs instructed the defendants to act as their solicitors inconnection with the transaction before they entered into any writtencontract with the building company. The contract to build the house wasexecuted by the parties on the 19th February 1973 and the agreement togrant the lease was executed on the same date. The plaintiffs”plea of negligence rests on the complaintthat before they bound themselves contractually, the defendants as theirsolicitors should have made a search in the Companies Office toascertain if a charge on the site had been registered by the buildingcompany under the Companies Act, 1963. If such a search had been made itwould have shown that the building company had given a charge to a Bank,by deposit of title deeds, on the lands on Folio 54874 to secure allmoneys due by the building company to the Bank. Had that position beenthus disclosed, the defendants would doubtless have informed theplaintiffs that the Bank were equitable mortgagees and have warned themof the perils involved in making stage payments to the building company,who had not the beneficial title and against whom there would be noeffective redress in case of insolvency.
In ignorance of the Bank’s interest in the site, the plaintiffs executedthe building agreement and the agreement for a lease. The defendantsinvestigated the titled in the normal way by serving requisitions ontitle. Neither the replies to the requisitions nor the certified copy ofthe Folio disclosed the charge in favour of the Bank. Only a search inthe Companies Office would have brought to light that charge, and such asearch was not made.
Meanwhile, the plaintiffs proceeded to make the stage payments requiredby the building contract. They had paid stage payments totalling£8,000 when the building company became insolvent and went intoliquidation. While the liquidator was eventually prepared to grant theplaintiffs the lease contracted for, such a lease is valueless becausethe equitable estate is vested in the Bank as a result of the charge,and the Bank are not prepared to release the site from their chargeunless they are paid £4,000.
The present claim by the plaintiffs against the defendants for damagesfor negligence and/or breach of contract rests on the contention thatthe financial loss incurred by them in connection with the attemptedpurchase of this house was cased by the defendants” failure tosearch for and discover the charge in favour of the Bank. In particularthey complain that before they were allowed by the defendants to enterinto contractual relationship with the building company the defendantsshould have ascertained the Bank’s interest in the site and warned theplaintiffs of the financial risk involved in proceeding with thetransaction when the building company had not an unencumberedtitle.
I have no doubt that the financial disaster that has befallenthe plaintiffs may be said to result from the defendants” failureto discover and bring to their notice, before the contract, theexistence of the Bank’s charge. The real question is whether thatfailure amounts to negligence by the defendants as solicitors.
The general duty owed by a solicitor to his client is to show him thedegree of care to be expected in the circumstances from a reasonablycareful and skilful solicitor. Usually the solicitor will be held tohave discharged that duty if he follows a practice common among themembers of his profession: see Daniels v. Heskin 1954 I.R. 73and the case therein referred to. Conformity with the widely acceptedpractice of his colleagues will normally rebut an allegation ofnegligence against a professional man, for the degree of care which thelaw expects of him is no higher than that to be expected from anordinary reasonable member of the profession or of the speciality inquestion. But there is an important exception to that rule of conduct.It was concisely put as follows by Walsh J. in O’Donovan v. CorkCo.Co. 1967 I.R. 173, 193:
“If there is a common practice which has inherent defects, whichought to be obvious to any person giving the matter due consideration,the fact that it is shown to have been widely adopted over a period oftime does not make thepractice any the less negligent. Neglect of duty does not cases byrepetition to be neglect of duty.”
The reason for that exception or qualification is that the duty imposedby the law rests on the standard to be expected from a reasonablycareful member of the profession, and a person cannot be said to beacting reasonably if he automatically and mindlessly follows thepractice of others when by taking thought he would have realized thatthe practice in question was fraught with peril for his client and wasreadily avoidable or remediable. The professional man is, of course, notto be judged with the benefit of hindsight, but if it can be said thatif at the time, on giving the matter due consideration, he would haverealized that the impugned practice was in the circumstancesincompatible with his client’s interest, and if an alternative and safecourse of conduct was reasonably open to him, he will he held to havebeen negligent.
I consider it to be beyond doubt that it was inimical to theplaintiffs” interests for the defendants to allow them to enterinto contractual relations with the building company, and in particularto bind themselves to make stage payments, without firstmaking a search in the Companies Office which would have shown that thebeneficial owner of the site was the Bank. Because of thedefendants” default in that respect, the plaintiffs were left opento disappointment and financial disaster if, as happened, the buildingcompany proved to be unable to discharge their indebtedness to the Bank.As the evidence in the High Court showed, in not making that search thedefendants were following a conveyancing practice common at the timeamong solicitors. However, adherence to that practice can avail as adefence only if it be shown that a reasonable solicitor, givingconsideration at the time to the interests of the client, would havejustifiably concluded that a search in the Companies Office wasunnecessary or undesirable. Having regard to the fact that no unduedelay, expense or difficulty was involved in making such a search, andbearing in mind that financial disaster of the kind actually sustainedby the plaintiffs was reasonably foreseeable by the defendants as a riskfor the plaintiffs, I consider that, notwithstanding that the defendantsin not carrying out a search were conforming to a practice widespread atthe time in the profession, they were nevertheless wanting in the dutyof care owed by them to the plaintiffs. It is to avoiddetectible pitfalls of the kind that beset the plaintiffs thatprospective purchasers engage solicitors to act for them.
I would allow the plaintiffs” appeal and remit the case to theHigh Court for the assessment of damages
Judgment delivered on the 17th day of May1985by Griffin J. [Hederman Agreed With the Judgments Delivered]
The facts and the circumstances leading to the institution ofproceedings in this action are fully set out in the judgment of thelearned President (as he then was) and in the judgments that have beendelivered. The sole question which arises for decision on this appeal iswhether the defendants, as the Plaintiffs” solicitors, were inbreach of the duty they owed to the plaintiffs, in failing to carry outa search in the Companies Office against J.B. Construction Company Ltd.(“the company”), with whom they had entered into thebuilding contract and agreement for a lease on the 19th of February1973, prior to the execution of the said contract and agreement forlease, or before the payment of the deposit of£1,000 and the subsequent stage payments made under the contract.If such a search had been made the defendants would have discoveredthat, on the 12th July 1972, the company had mortgaged the landsregistered on Folio 58474, being the lands on which the company hadcontracted to erect a dwelling-house for the plaintiffs, by equitabledeposit of the Land Certificate with Lombard and Ulster Banking IrelandLimited, and that the mortgage had not been redeemed.
The equitable mortgage was a charge on land or an interest thereincreated by the company within the meaning of s. 99 of the Companies Act,1963 and, therefore, insofar as any security on the company’s propertywas conferred thereby, would be void against the liquidator and anycreditor of the company unless it was duly registered in the CompaniesOffice within 21 days after the date of its creation. The charge hadbeen registered on the 21st of July 1972.
The manner in which the company financed the building development hasbeen described in the judgment of Walsh J., and was one which was, tothe knowledge of solicitors in general and of the defendants inparticular, in common use for several years prior tothe month of February 1973. By reason of the very high cost of theacquisition and development of land, building companies were invariablyforced to borrow heavily against the lands to enable development to becarried out.
Requisitions on title were furnished by the defendants to the company’ssolicitors on the 27th February 1973. The replies thereto were sent tothe defendants on the 6th April 1973. In the meantime, the deposit of£1,000 was forwarded to the company’s solicitors on the 23rdFebruary 1973. It was stated in the replies to the requisitions that theLand Certificate would be furnished on the closing of the sale to enableregistration of the lease as a burden on the Folio. A certified copy ofthe Folio was supplied and this showed a clear folio. The defendantsrelied on the assurance in the replies to the requisitions that all thedocuments would be handed over on closing, at which time the house wouldhave been completed, and at which time they would make all the necessarysearches. Unfortunately for the plaintiffs, after they had made a numberof the stage payments provided for in the contract, and before the housewas completed or the lease was executed, the company went intoliquidation on the 18th October 1974. Although byarrangement with the liquidator the house was subsequently completed andoccupied by the plaintiffs, and the liquidator granted the lease to theplaintiffs, the plaintiffs have no proper title to the site on whichtheir house was built as this lease is of no value as against the Bankwho have the equitable estate in the lands.
The plaintiffs allege that the difficulties which have arisen and theserious position in which they now find themselves would have beenobviated if the defendants had made a search against the company in theCompanies Office either before the contract was signed or, at thelatest, when the replies to the requisitions were received. This searchwould of course have disclosed the equitable mortgage, and thedefendants could then have advised the plaintiffs as to the risksinvolved to them if the company should go into liquidation before thecompletion of the house and the granting of the lease. It would then befor the plaintiffs, on being fully advised by the defendants, to decidewhether they wished to proceed with the transaction.
The plaintiffs claim that the failure to discover the equitable mortgagewas due to the negligence and breach of contracton the part of the defendants. The defence is equally straight-forward.The evidence established that, at the time this transaction was carriedout, it was the universal practice of conveyancing solicitors not tomake searches until immediately before completion, and that pre-contractsearches were unknown in conveyancing practice throughout the country.Having regard therefore to the existing practice, they claim that therewas no negligence or breach of contract on their part in not making asearch in the Companies Office. They submit that a solicitor, no lessthan a medical practitioner “cannot be held negligent if hefollows general and approved practice in the situation with which he isfaced: see Daniels v. Heskin, [ 1954 I.R. 73] and the casesreferred to therein” – per Walsh J. in O’Donovan v. CorkCounty Council, 1967 I.R. 173 at p. 193, a case in which the issuewas whether the death of a patient was due to the negligence of amedical practitioner.
Whilst it is well settled that ordinarily a professional person will notbe held to have been negligent if he follows established or approvedcustom or practice, that proposition is, as Walsh J.pointed out at p. 193 of O’Donovan’s case, not withoutqualification. There he said:-
“If there is a common practice which has inherent defects, whichought to be obvious to any person giving the matter due consideration,the fact that it is shown to have been widely and generally adopted overa period of time does not make the practice any the less negligent.Neglect of duty does not cease by repetition to be neglect ofduty.”
The net question in this case is therefore whether there was an inherentdefect in the practice of refraining from making searches in a case suchas the instant case until immediately before completion. In the case ofwhat may be called a conventional sale of a “second-hand”house the universal practice has for a very long time been to postponethe making of searches until immediately before the completion of thesale. In such cases, this practice affords adequate protection for thepurchaser. He pays his deposit to a stake holder and the purchase moniesare not paid to the vendor until the closing of the sale, by which timethe title has been fully investigated. If the vendor cannot show a goodtitle, the sale falls through and while the purchaser may lose thebenefit of his bargain, he does not lose his purchase money.
However, in the case of a contract to build a house, coupled with anagreement for a lease to be granted when the house is completed, theprice being made in stage payments, different considerations arise. Theperson for whom the house is being built does not acquire title to thehouse or the site on which it is built until the house has beencompleted, the last of the stage payments made, and the lease granted tohim. If the building company should go into liquidation prior tocompletion, and the transaction was financed in the manner describedearlier, he is in danger of losing all the stage payments already madeand of losing the site also. The defendants were aware that the mannerin which the building development in this case was in fact financed wasone in common use, and that, if this development was financed in thatway, there was a high risk that if the company went into liquidation theplaintiffs would lose the stage payments made prior to liquidation andthat the liquidator of the company might be unable to grant the leasecontracted for. This could have disastrous consequences for theplaintiffs, bearing in mind in particular the fact that in this countrya dwelling-house is invariably the most substantial asset, if not theonly real asset,of most householders.
The standard of care required of a solicitor in carrying out thebusiness entrusted to him by his client is the ordinary level or degreeof skill and competence generally exercised by reasonably carefulcolleagues in his profession. The practice of postponing searches untilcompletion, which was standard practice in the case of sales of”second-hand” houses, had been adapted and continued in thecase of housing development schemes which have come into common use inthe past thirty years or so, and was therefore the universal practice ofsolicitors in cases such as the instant case. However, notwithstandingthat this had become the universal practice, in my opinion anyreasonably careful solicitor, giving due thought to the manner in whichsuch developments were usually financed and to the likelihood that theLand Certificate was deposited with a financial institution by way ofequitable mortgage, would come to the conclusion that in such a highrisk industry as the building industry, it was virtually certain thatcases would arise in which building companies would collapse before thehouses being erected by them were completed. Such a solicitor wouldaccordingly decide that the practice of postponing a search in theCompanies Office – one which thedefendants accepted could be carried out without undue delay and atlittle expense or inconvenience – until immediately prior to completionwas one which did not adequately protect his clients and was inherentlydefective and should not be followed.
In the instant case the defendants should therefore have carried outsuch a search before the plaintiffs entered into the contract with thecompany, and their failure to do so was, in my judgment, a breach of theduty of care owed by them to the plaintiffs, and the loss which theplaintiffs suffered resulted from that breach. I would accordingly allowthis appeal and concur in the order proposed by Walsh J.
Judgment delivered on the 17th day of May 1985by McCarthy J. [Hederman Agreed with the Judgments Delivered]
The facts of the case are set out in such ample detail in the judgmentdelivered by the learned President on the 21st December 1979 that I donot find it necessary to refer to them other than to identify the eventsthat occurred on certain dates.
12th July 1972 – J.B. Construction Company Limited (the company)morgaged the lands by equitable deposit of the Land Certificate with theLombard and Ulster Bank Limited (“the Bank”).
19th February 1973 – the plaintiffs entered into an agreement in writingwith the company whereby the company agreed to erect a dwelling-house onpart of the lands for the sum of £9,450 and thatthe said sum be payable by stage payments.
27th February 1973 – requisitions furnished by the defendants to thecompany’s solicitors.
6th April 1973 – reply sent by the company’ solicitors.
23rd February 1973 – cheque for deposit of £1,000 sent to thecompany’s solicitors and building commenced shortly thereafter.
27th April 1973 – second stage payment of £2,500 sent to thecompany.
12th June 1973 – third stage payment of £2,000 paid to thecompany.
13th December 1973 – the company’s solicitors purported to terminate thebuilding contract and offered to return the money paid by the plaintiffsless costs and expenses.
22nd February 1974 – next stage payment of £2,500 paid to thecompany.
Before the end of September 1974 – lease executed by the plaintiffs butthe company refused to execute it because the balance of the account hadnot been paid.
18th October 1974 – the company went into liquidation.
Early 1976 – the dispute as to the balance due was settled with theliquidator.
The working arrangement between the Bank and the company during the timewhen the property was being developed was that the Bank were accustomedto release the Land Certificates so as to permit the registration ofindividual leases of sites on the Folio on payment of a proportion ofthe total purchase price received by the company for the building of thehouse. Theoretically, it was not a purchase price because the”employer” contracted with the builder (the company) tobuild a house for a stated price payable in stages. The method used wasone of widespread application for many years save in respect of thestage payments, and was a method of avoiding the heavy stamp dutypayable upon the sale and purchase of a completed house. The fiction, asfiction it was, was that the “employer” was acquiring apiece of land upon which he proposed to build a house and contractedwith the builder as an ordinary building owner. The reality was that thebuilder, in one guise or another, owner a piece of land which he wasdeveloping in accordance with a pre-arranged scheme and would build anumber of houses to a fairly set design, subject to minor variations,and, on completion, arrange for a lease for the “employer”.I believe it is not unknown forsuch transactions to have taken place in respect of houses that werewell on the way to completion before any “building contract”was executed. Such is not the case here. By 1973 this method, aconvenient and useful one, had been operating for more than twenty yearsbut with one significant change of fairly recent origin – theintroduction of staged payments. If the “employer” merelypaid a deposit and no further sum until completion, then, in the eventof a problem such as occurred in this case – liquidation of the buildingcompany – or any other problem that made it impossible to complete thetransaction, the employer could recover his deposit and would not havepaid any other monies. But if payment were made at different stages inthe course of construction and what happened here were to occur, therewas a grave danger of the very loss that was caused to theplaintiffs.
S. 99 of the companies Act, 1963 provides:-
“(1) Subject to the provisions of this Part, every charge createdafter the fixed date by a company, and being a charge to which thissection applies, shall, so far as any security on the company’s propertyor undertaking is conferred thereby, be void against the liquidator andany creditor of the company, unless the prescribed particulars ofthe charge, verified in the prescribed manner, are delivered to orreceived by the registrar of companies for registration in mannerrequired by this Act within 21 days after the date of its creation, butwithout prejudice to any contract or obligation for repayment of themoney thereby secured, and when a charge becomes void under thissection, the money secured thereby shall immediately becomepayable.”
The charges in s. 1 are detailed in subs. 2 and include “a chargeon land, wherever situate, or any interest therein …”. Theequitable mortgage of July 1972 was such a charge and was, in fact,registered by the registrar of companies on the 21st July 1972. S. 103in effect requires the registrar to keep a register of such charges,which register shall be open to inspection by any person on payment ofthe appropriate fee. Further, by s. 104, the registrar shall give acertificate of the registration of any charge registered.
The main thrust of the plaintiffs” claim is that the defendants,as their solicitors, in discharge of their professional duty as suchshould have carried out a search in the Companies Office before tospeak, allowing the plaintiffs to enter upon the transaction involvingthe series of payments to which I have referred. I quote from thejudgment of the learned President (p. 20):-
“It is asserted on behalf of the plaintiffs that had thedefendants, therefore, either before the signing by the plaintiffs ofthe building contract and the agreement for the lease or before thepayment of the first deposit and payment of subsequent stage paymentscarried out a search in the Companies Office against the company thatthey would have ascertained the existence of this equitable mortgage.They then should, in exercise of a standard of reasonable care in theprotection of the plaintiffs” interest it is alleged, haverequired the execution of a contract to which the Lombard and UlsterBank would be a party which provided that upon payment by the plaintiffsof the amounts due on foot of the building contract the Lombard andUlster Bank would release the land certificate and permit theregistration of a lease of this site on the folio. In the alternative itis stated that if the defendants had by a search in the Company’sOffice, prior to the execution by the plaintiffs of the agreement forlease or at least prior to the payment by them of any monies on foot ofthe building contract ascertained the existence of the mortgage byequitable deposit of title deeds that they could and should haveinsisted upon the execution by the company then and the immediateregistration of a lease of the site before permitting the plaintiffs topay any money on foot of the building contract.
The main defence of thedefendants to these allegations was that at the time at least of thistransaction in 1973 and 1974 the universal practice of conveyancingsolicitors was to make searches immediately prior to the completion of atransaction only and that pre-contract searches were not known as acustom or practice in ordinary conveyancing in this country. Furthermoreit was submitted on behalf of the defendants that although the buildingcontract in this case envisaged the employer as being in possession ofthe lands consisting of the site for the dwelling-house either under anagreement for a lease or under a lease itself that the universalpractice of lessors and builders entering into a transaction in the formin which this transaction was did not provide for any execution of alease by the lessor unless and until such time as the entire of themonies on the building contract had been paid. In these circumstancesthe defendants assert that to hold them guilty of negligence in failingto avail of a precaution which, though it would have avoided theparticular loss the plaintiffs have suffered in this case, was not oneknown as part of the conveyancing practice of solicitors, would be toapply a false standard of care and skill to them and would be inconflict with the decisions as to the standard of care and skill whichthe law requires from a solicitor in the carrying out of hisprofessional work.”
The only evidence to the general practice of conveyancing solicitors wasthat of the defendants themselves and of Mr. John Buckley, a solicitorwell-known in conveyancing practice in Dublin; the effect of thatevidence was that at the relevant time it was the universal practice ofsolicitors not to make searches until immediately prior to completion.It is appropriate, however, to refer to a portion of Mr. Buckley’sevidence (Q. 33 et seq.)
“Q. May I take it first of all, the first stage of buying a house,an existing house, I suggest to you that the whole concept ofconveyancing in relation to buying an existing house is that thepurchaser does not part with any money until he gets his title?
A. Apart from the deposit
Q. In relation to the deposit you would never, except in exceptionalcircumstances, release the deposit to the vendor?
A. In exceptional circumstances
Q. The concept would be that you would seek to hold your client’s moneyfor his benefit until you were in a position where you could satisfyyourself that the vendor could meet his part of the bargain?
A. Yes
Q. On the subject of searches, I take it what you aredoing is you are satisfying yourself at the time you are parting withthe money that your client is getting what he is parting with his moneyfor?
A. Yes”.
This brief passage from the transcript identifies, for the purpose ofthis case, the essential duty of the solicitor subject to which evidenceas to the existing practice at the relevant time must be examined. Thelearned President, in his judgment (p. 26) referred to the judgment ofWalsh J. in O’Donovan v. The Cork County Council (“67I.R.) 173 at 193, a medical negligence case.
“If there is a common practice which had inherent defects whichought to be obvious to any person giving the matter due considerationthe fact that it is shown to have been widely and generally adopted overa period of time did not make the practice any the less negligent.Neglect of duty does not cease by repetition to be neglact ofduty.”
The President accepted the proposition as applicable to the case thatthe alleged professional negligence by a solicitor and added – “Itseems to me that the universality of a particular practice adopted by aninterpretation must itself be evidence that it is not a practice whichhas inherent defects which ought to be obvious to any person giving thematter due consideration.” I demur to this proposition
In Kelly and Another v. Crowley (High Court – 5th March 1985)an action for damages for negligence alleged against the defendant as asolicitor, Murphy J. sounded a warning appropriate to the instantappeal:-
“In all cases involving allegations of negligence, butparticularly negligence alleged to have been committed by experts, thereis a danger of judging the conduct of the defendant with the benefit ofknowledge emerging after the event or indeed by reference to a standardmore theoretical than practical”.
I am conscious in looking back at events that occurred twelve years agothat this danger of being wise after the event is very real. I amcontent, however, to adopt an approach that seeks to stand apart fromthe evidence as to the general practice of the time and pose thequestion much in a manner in which it was done in the course of thecross-examination of Mr. Buckley which I have cited. This was not aconsideration in respect of the capacity of the builder, the quality ofhis workmanship, the efficiency or speed of completion; it was aconsideration more fundamental and more akin to what one might properlyexpect from a solicitor acting in the purhase of an existing house. Ifthe solicitor had asked himself or if he had beenasked by his client as to whether or not the money being paid by theclient to a third party was “safe”, there was only oneanswer – “No”. On being so informed it is highly unlikelythat the plaintiffs would have entered into the contract and made thepayments. The question of making a search in the Companies Office mightwell have arisen; if it had, the disclosure of the equitable mortgagesurely would have deterred the plaintiffs from any such commitment untiltheir position was secured. In my view, the common practice testified toby Mr. Buckley did have inherent defects which ought to have beenobvious to any person giving the matter due consideration. The irony isthat guite clearly the defendants, as solicitors, in every other respectacted with the meticulous care one would expect from a firm of theirlong-standing and probity. The trees of the minutiae of conveyancing andthe dispute over the construction of the house itself may well haveobscured the wood of the real dangeras to the solvency of the builder, the company. In the replies to mostcomprehensive requisitions the defendants had been assured that theconsent to the use of the Land Certificate would be handed over onclosing with a like consent to the use of the Certificate forregistration of the lease as a burden on the folio. The unfortunateeffect of all this information was to distract from the real danger. Awholly new factor had entered into the relationship between the”employer” and the builder; it cannot be a legal principlethat a profession is, so to speak, entitled to “one freebite” – to wait until damage has occurred before taking an obviousmeans of avoiding such damage. The possibility of there being a chargeagainst the property upon which the builder was going to construct ahouse using the “employer’s” money for that purpose was aclear and present danger; it was the solicitor’s duty to guard againstit. This neglect of duty did not cease by repetition to be neglect ofduty. The learned President cited a passage from, the judgment of HodsonL.J. in Simmons v. Pennington and Son ( 1955 1 W.L.R.183):-
“In Cook v. Faulkners” Representatives LordFullerton said “a professional man does not warrant that what hedoes will certainly have the effect which is expected from him.
He warrants only that he should bestow on the matter committed to himthe skill generally possessed by his brethren in the profession. It isnot enough in order to recover damages from a professional man to showthat something which was committed to him to do has not had the effectwhich was expected from it; he must show an act of gross ignorance, suchas could not have been committed by any other ordinarily informed memberof the profession”.
Whilst I accept that a man does not warrant that what he does willcertainly have the effect which is expected from him, I reject therequirement of “an act of gross ignorance such as could not havebeen committed by any other ordinarily informed member of theprofession”. This imposes too high a burden of proof upon theclient, I prefer the simplicity of the qualification stated by walsh J.in O’Donovan v. Cork County Council and Others ( 1967 I.R.)173.
In the result, I differ from the view of the learned President when hestates that “I am not satisfied that there is evidence before meon which I could properly hold that the conveyancing practice which hadbeen universal up to the happening of these events was onewhich on due consideration an ordinarily skilled person would havedecided had inherent defects.” I would allow the appeal, enterjudgment for the plaintiffs in the terms of paragraph 1of the prayer inthe Statement of Claim and remit the case to the High Court for theassessment of damages.