Bristol & West Building Society v Mothew Summary: Professional negligence; solicitors; lender's reliance on negligently given incorrect

information; lender must prove loss Abstract: M, a solicitor who had acted for both the lender and borrower in the purchase of a property, appealed against a judgment in favour of the lender, B, in the sum of GBP 59,000, less the sum received upon sale of the property, after the purchaser defaulted on repayments. M had negligently given information to B which failed to state the purchaser's arrangement to take out a second charge over the property, but argued that had B been aware of the second charge it would still have proceeded with the transaction and suffered the same loss, with the effect that no damages were recoverable at common law. B submitted that it could recover the whole net loss without having to prove that it would have proceeded had it known the true facts, and that it would therefore be unnecessary to establish whether M had been guilty of breach of trust or duciary duty in equity. Held, allowing the appeal, that it was necessary to show that B had relied on the negligently given information in relation to the second charge, ie. a causal link had to be established but B did not need to prove that it would not have proceeded with the transaction had it been in receipt of the true facts, Downs v Chappell [1997] 1 W.L.R. 426 followed. However, B had to establish the loss which it had suffered arising from the second charge. The equitable claim that M had breached its duciary duty could not be maintained as M had never acted in bad faith or breached the conict rule, nor could a claim for breach of trust be accepted as M's authority to apply the mortgage money was not vitiated by his misrepresentations. The judgment for damages for breach of contract to be assessed remained the same and the money judgments were set aside. Judge: Staughton, L.J.; Millett, L.J.; Otton, L.J. A servant who loyally does his incompetent best for his master is not unfaithful and is not guilty of a breach of duciary duty per Millet LJ Boardman v Phipps Summary: Trustee; prot by; knowledge of affairs of company Abstract 1: Where persons are in the position of agents for trustees for the purpose of using the trust shareholding to extract knowledge of the affairs of a company, the knowledge so acquired is trust property and they must account to the trust for any prot made out of it. Such persons may, however, be entitled to payment on a liberal scale for their work and skill. A testator left his residuary estate on trust for his three sons and daughter. Part of the residue consisted of 8,000 shares in L, a private company with an issued share capital of 30,000 GBP 1 shares, and a considerable shareholding in a family company, of which B, a member of a rm of solicitors acting for the trust, and T.P., one of the testator's sons, were directors. In December 1955, an inquiry was received whether the trustees of the will, who were the daughter and an accountant, F, would sell the 8,000 shares in L. B was consulted and shown L's accounts for the previous year, which showed the shares to have an assets value of GBP 10 per share. B and T.P. were appointed proxies for the trustees of the will and attended L's annual general meeting "to represent the holding." At and after the meeting B obtained further details of the company's affairs and shortly afterwards he and T.P. decided to gain control of L. B informed the daughter of this by letter. Her reply gave her approval but indicated that she was not contemplating B and T. P. acting outside the trust. B and T. P. then wrote to the shareholders of L personally
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offering GBP 2 5s. per share, subsequently raised to GBP 3 per share, and as a result by July 1957 they had acquired 2,925 shares under that offer. Then followed a period in which B, often describing himself as representing the trust holding, acquired much information about L. In March 1959, an agreement was entered into for the sale to T. P. and B of the director's 14,567 shares for GBP 4 10s. each. On the same day B wrote to the plaintiff, J. P., another son of the testator, who had hitherto known nothing of the negotiations, asking whether he had any objection to the proposed sale bearing in mind that the initial inquiry had been on behalf of the testator's estate, and there followed an interview at which the nancial aspects were not fully presented to the plaintiff. In January 1960 shareholders were informed that part of L's business had been sold and a capital distribution of GBP 3 per share was announced; the plaintiff expressed approval. Later a further distribution of GBP 2 17s. 6d. took place after the sale of another part of the business. T. P. then offered the plaintiff GBP 2 per share in L, upon which the plaintiff consulted solicitors and brought an action claiming an account of the prots made by B and T. P. personally from the dealings in the shares of L. Wilberforce J, having held that they were accountable for the prot attributable to the respondent's share in the trust fund ([1964] 1 W.L.R. 993), less their expenditure incurred to enable it to be realised and making a liberal allowance for their skill and work in producing it, and the Court of Appeal having dismissed an appeal by B and T.P. ([1965] Ch. 992), on further appeal, held (Viscount Dilhorne and Lord Upjohn dissenting) (1) that they had placed themselves in a special position, of a duciary character, in relation to the negotiations with the directors relating to the trust shares, had thereby obtained an opportunity to make a prot out of the shares and were accordingly accountable for the prot made; (2) that the appellants had acted openly, but mistakenly, in a manner highly benecial to the trust and so were entitled to payment on a liberal scale for their work and skill. Appeal dismissed. Abstract 2: A trust owned a minority shareholding in a company that was not being managed so as to maximise the value of the trust property. Boardman was solicitor to the trust. He suggested that the trust should purchase a controlling interest in the company. This was, however, categorically rejected by one of the two active trustees (a third trustee was over 80 years of age and suffering form senility). Ultimately, therefore, Boardman and one of the beneciaries purchased about half the shares in the company. Together with the shares held by the trust, this produced an overwhelming controlling interest. Boardman then managed the company very effectively and in a way that brought signicantly enhanced gains to the trust. Negotiations for the purchase and the subsequent management involved a considerable expenditure of time and expertise. Boardman and the beneciary themselves proted considerably as well. Subsequently, one of the other beneciaries sued them, demanding that they account to the trust for the prots they had earned. On the facts, the trust had not in fact been deprived of any nancial advantage given the rejection by one of the trustees of participation in a takeover. Moreover, such a purchase would have required the consent of the court and it was doubtful whether such consent could have been obtained. House of Lords (3-2): Boardman and the beneciary who acted with him had to account to the trust for the prots they had made (subject to an allowance for their efforts, discussed below). Regal (Hastings) was applied and the absolute nature of the rule was again afrmed. Thus Lord Hodson (at 105):
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The proposition of law involved in this case is that no person standing in a duciary position, when a demand is made upon him by the person to whom he stands in the duciary relationship to account for prots acquired by him by reason of his duciary position and by reason of the opportunity and the knowledge, or either, resulting from it, is entitled to defeat the claim upon any ground save that he made prots with the knowledge and assent of the other person. It is obviously of importance to maintain the proposition in all cases and to do nothing to whittle away its scope or the absolute responsibility which it imposes. Lord Guest (at 117): In the present case the knowledge and information obtained by Boardman was obtained in the course of the duciary position in which he had placed himself. The only defence available to a person in such a duciary position is that he made the prots with the knowledge and assent of the trustees. It is not contended that the trustees had such knowledge or gave such consent. remoteness of gain in nancial remedies against the agent and constructive trust ( prop remedies) Sinclair Investments (UK) ltd v Versailles Trade Finance ltd 2011 Summary: A judge had been right to reject a company's proprietary claim to the proceeds of sale of shares which its director had held in another company; although the proceeds could not have been obtained had the director not enjoyed his duciary status, they were not benecially owned by the claimant. Abstract: The appellant (T) appealed against a decision ([2010] EWHC 1614 (Ch)) that it was not entitled to assert a proprietary interest in the proceeds of sale of some shares. Investors had paid money to T for the purpose of certain trades. However, T's director (C) had permitted those monies to be transferred to another company (V), in which he held shares. V used those monies for fraudulent activities. As a result of those activities, V's share prices rose. C consequently sold his shares in V for 28.69 million. V's activities were later discovered and the receivers were brought in. T had lost money as a result of V's activities and was also wound up. T brought a claim asserting that it was entitled to assert a proprietary interest in the proceeds of the sale of the shares as they had been an unauthorised gain by C in breach of his duciary duty and were therefore held on constructive trust by C for T's benet. T also asserted that its claim was good against the defendant banks (B), who had been reimbursed by the receivers in relation to money they had lent to V. The judge, following the approach of the Court of Appeal in Metropolitan Bank v Heiron (1880) 5 Ex. D. 319 and Lister & Co v Stubbs (1890) 45 Ch. D. 1, held that T had no proprietary interest in the proceeds of sale of the shares, and even if that conclusion were wrong, B were bone de purchasers for value without notice. However, he found that T did have a proprietary claim in relation to the monies which it had passed to V and which V had mixed with its own monies, and stated that T was entitled to trace those funds into distributions made by the receivers to B from the time that B had notice of T's proprietary interest in the mixed funds. In the instant case the court had to consider whether (i) T had a proprietary interest in the proceeds of sale of the shares; (ii) if so, B were entitled to rely on the defence of bona de purchaser for value without
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notice; (iii) the judge had been correct to limit the extent to which T could trace the mixed funds. T submitted that the judge had erred in his approach in relation to the proceeds of sale of the shares claim and that the decision of the Privy Council in Attorney General of Hong Kong v Reid [1994] 1 A.C. 324 should be followed. Appeal dismissed. (1) The Court of Appeal could not follow Reid in preference to its own decisions unless there were domestic authorities showing that those decisions were per incuriam or at least of doubtful reliability (see para.73 of judgment). There was a consistent line of reasoned decisions of the Court of Appeal, spread over 95 years, which appeared to establish that the beneciary of a duciary's duties could not claim a proprietary interest, but was entitled to an equitable account, in respect of any money or asset acquired by the duciary in breach of his duties to the beneciary, unless the asset or money was or had been benecially the property of the beneciary or the trustee had acquired the asset or money by taking advantage of an opportunity or right which was properly that of the beneciary. A claimant could not claim proprietary ownership of an asset purchased by the defaulting duciary with funds which, although they could not have been obtained if he had not enjoyed his duciary status, were not benecially owned by the claimant or derived from opportunities benecially owned by the claimant. In such a case, a claimant had a personal claim in equity to the funds, but there was no case which appeared to support the notion that such a personal claim entitled the claimant to claim the value of the asset, and there were judicial indications which tended to militate against that notion. As C did not owe trustee-like duties in relation to the shares, the judge had been right to reject T's proprietary claim to the proceeds of sale of the shares, North Australian Territory Co, Re [1892] 1 Ch. 322 and Powell v Evan Jones & Co [1905] 1 K.B. 11 considered, Reid not applied, Heiron and Lister applied (paras 88-89, 92). (2) Even if T had a proprietary claim to the proceeds of sale of the shares, on the evidence B had not had notice of the proprietary claim at the time they received the relevant payments. The judge had been at the very least entitled to decide that, even if T had a proprietary claim, B took free of that claim (para.122). (3) The judge had been entitled to conclude that B had not had notice of T's proprietary interest in the mixed fund before the time claimed by T. He had plainly considered that B and the receivers had acted in good faith in not appreciating that they should have sought legal advice as to whether T had, or might have had, a proprietary interest in the mixed fund (para.146). A-G for Hong Kong v Reid (gets a very skeptical treatment by the CA in the Sinclair case) Summary: Constructive trust; bribe; payment of bribes to Crown servant; use of money to purchase property; whether property held on constructive trust for Crown Abstract: R, a New Zealand solicitor and deputy Crown prosecutor who had accepted bribes during the course of his career, had among his assets three freehold properties in New Zealand. The Attorney General sought to renew caveats which he had registered against the title of the three properties to prevent any dealing with them pending the hearing of proceedings initiated for the purpose of claiming the properties on a constructive trust, and now appealed against the refusal of a judge of the New Zealand Court of Appeal to order that the caveats should not lapse. Held: Appeal allowed. Where a duciary accepted a bribe in breach of duty, equity insisted that the duciary must not benet from his breach but should account for the bribe as soon as he received it. It followed that the bribe, and the property representing the bribe, were held on constructive trust for the person to whom a duty was owed. The Singapore case of
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Sumitomo Bank Ltd v Kartika Ratna Thahir [1993] 1 S.L.R. 735 approved and Lister & Co v Stubbs (1890) 45 Ch. D. 1 criticised as being inconsistent with these principles and therefore not to be followed. If the property increased in value to exceed the value of the original bribe, the duciary could not retain the benet of the increase in value because he was not to be allowed to make any prot from his dishonest action. Judge: Lord Templeman; Lord Goff of Chieveley; Lord Lowry; Lord Lloyd; Sir Thomas Eichelbaum Lister & Co v Stubbs apparently no one likes this case, so there is no summary on westlaw. The Plaintiffs, a manufacturing company, employed the Defendant, who was their foreman, to buy for them certain materials which they used in their business; and the Defendant, under a corrupt bargain, took from one of the rms of whom he so bought large sums by way of commission, a portion whereof he invested. The Plaintiffs brought an action against the Defendant to recover the moneys so paid to him, claiming to be entitled to follow such moneys into the investments thereof; and they moved for an injunction to restrain the Defendant from dealing with the investments or for an order directing him to bring the moneys and the investments into Court: Held, (afrming the judgment of Stirling, J.), that the relation between the Defendant and the Plaintiffs was that of debtor and creditor, and not that of trustee and cestui que trust , and that the Plaintiffs were not entitled to the order. Commercial Agents Regulations 1993 Reg 2: 2. Interpretation, application and extent (1) In these Regulations commercial agent means a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the principal), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal; but shall be understood as not including in particular: (i) a person who, in his capacity as an officer of a company or association, is empowered to enter into commitments binding on that company or association; (ii) a partner who is lawfully authorised to enter into commitments binding on his partners; (iii) a person who acts as an insolvency practitioner (as that expression is defined in section 388 of the Insolvency Act 1986) or the equivalent in any other jurisdiction; commission means any part of the remuneration of a commercial agent which varies with the number or value of business transactions; [EEA Agreement means the Agreement on the European Economic Area signed at Oporto on 2nd May 1992 as adjusted by the Protocol signed at Brussels on 17th March 1993;] 1 [member Stateincludes a State which is a contracting party to the EEA Agreement;] 1 restraint of trade clause means an agreement restricting the business activities of a commercial agent following termination of the agency contract. (2) These Regulations do not apply to (a) commercial agents whose activities are unpaid;
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(b) commercial agents when they operate on commodity exchanges or in the commodity market; (c) the Crown Agents for Overseas Governments and Administrations, as set up under the Crown Agents Act 1979, or its subsidiaries. (3) The provisions of the Schedule to these Regulations have effect for the purpose of determining the persons whose activities as commercial agents are to be considered secondary. (4) These Regulations shall not apply to the persons referred to in paragraph (3) above. (5) These Regulations do not extend to Northern Ireland. RIGHTS AND OBLIGATIONS Reg 3 3. Duties of a commercial agent to his principal (1) In performing his activities a commercial agent must look after the interests of his principal and act dutifully and in good faith. (2) In particular, a commercial agent must (a) make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of; (b) communicate to his principal all the necessary information available to him; (c) comply with reasonable instructions given by his principal. Reg 4 4. Duties of a principal to his commercial agent (1) In his relations with his commercial agent a principal must act dutifully and in good faith. (2) In particular, a principal must (a) provide his commercial agent with the necessary documentation relating to the goods concerned; (b) obtain for his commercial agent the information necessary for the performance of the agency contract, and in particular notify his commercial agent within a reasonable period once he anticipates that the volume of commercial transactions will be significantly lower than that which the commercial agent could normally have expected. (3) A principal shall, in addition, inform his commercial agent within a reasonable period of his acceptance or refusal of, and of any non-execution by him of, a commercial transaction which the commercial agent has procured for him. Reg 5 5. Prohibition on derogation from regulations 3 and 4 and consequence of breach (1) The parties may not derogate from regulations 3 and 4 above. (2) The law applicable to the contract shall govern the consequence of breach of the rights and obligations under regulations 3 and 4 above.

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RENUMERATION Reg 6 6. Form and amount of remuneration in absence of agreement (1) In the absence of any agreement as to remuneration between the parties, a commercial agent shall be entitled to the remuneration that commercial agents appointed for the goods forming the subject of his agency contract are customarily allowed in the place where he carries on his activities and, if there is no such customary practice, a commercial agent shall be entitled to reasonable remuneration taking into account all the aspects of the transaction. (2) This regulation is without prejudice to the application of any enactment or rule of law concerning the level of remuneration. (3) Where a commercial agent is not remunerated (wholly or in part) by commission, regulations 7 to 12 below shall not apply. Reg 7 7. Entitlement to commission on transactions concluded during agency contract (1) A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract (a) where the transaction has been concluded as a result of his action; or (b) where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind. (2) A commercial agent shall also be entitled to commission on transactions concluded during the period covered by the agency contract where he has an exclusive right to a specific geographical area or to a specific group of customers and where the transaction has been entered into with a customer belonging to that area or group. Reg 8 8. Entitlement to commission on transactions concluded after agency contract has terminated Subject to regulation 9 below, a commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated if (a) the transaction is mainly attributable to his efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated; or (b) in accordance with the conditions mentioned in regulation 7 above, the order of the third party reached the principal or the commercial agent before the agency contract terminated. Reg 9 9. Apportionment of commission between new and previous commercial agents (1) A commercial agent shall not be entitled to the commission referred to in regulation 7 above if that commission is payable, by virtue of regulation 8 above, to the previous commercial agent, unless it is equitable because of the circumstances for the commission to be shared between the commercial agents.

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(2) The principal shall be liable for any sum due under paragraph (1) above to the person entitled to it in accordance with that paragraph, and any sum which the other commercial agent receives to which he is not entitled shall be refunded to the principal. Reg 10 10. When commission due and date for payment (1) Commission shall become due as soon as, and to the extent that, one of the following circumstances occurs: (a) the principal has executed the transaction; or (b) the principal should, according to his agreement with the third party, have executed the transaction; or (c) the third party has executed the transaction. (2) Commission shall become due at the latest when the third party has executed his part of the transaction or should have done so if the principal had executed his part of the transaction, as he should have. (3) The commission shall be paid not later than on the last day of the month following the quarter in which it became due, and, for the purposes of these Regulations, unless otherwise agreed between the parties, the first quarter period shall run from the date the agency contract takes effect, and subsequent periods shall run from that date in the third month thereafter or the beginning of the fourth month, whichever is the sooner. (4) Any agreement to derogate from paragraphs (2) and (3) above to the detriment of the commercial agent shall be void. Reg 11 11. Extinction of right to commission (1) The right to commission can be extinguished only if and to the extent that (a) it is established that the contract between the third party and the principal will not be executed; and (b) that fact is due to a reason for which the principal is not to blame. (2) Any commission which the commercial agent has already received shall be refunded if the right to it is extinguished. (3) Any agreement to derogate from paragraph (1) above to the detriment of the commercial agent shall be void. Reg 12 12. Periodic supply of information as to commission due and right of inspection of principal's books (1) The principal shall supply his commercial agent with a statement of the commission due, not later than the last day of the month following the quarter in which the commission has become due, and such statement shall set out the main components used in calculating the amount of the commission.

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(2) A commercial agent shall be entitled to demand that he be provided with all the information (and in particular an extract from the books) which is available to his principal and which he needs in order to check the amount of the commission due to him. (3) Any agreement to derogate from paragraphs (1) and (2) above shall be void. (4) Nothing in this regulation shall remove or restrict the effect of, or prevent reliance upon, any enactment or rule of law which recognises the right of an agent to inspect the books of a principal. Cases Mcneil v Law Union & Rock Insurance Co Ltd per Branson J When an agent is asking for commission upon a certain transaction, he has got to show that he was an efcient cause of the transaction coming about. It is not enough to show that he was the introducer of the two parties because that is merely a causa sine qua non and may not be the efcient cause. Insurance broker introduced assured to insurer, policy issued and renewed annually through broker receiving renewal notice and negotiating premium. 1923: assured had lower quotes from other insurers. Broker obtained reasons for higher premium from insurer but assured adamant. At brokers suggestion, meeting between representatives of insurers and assured. Assured representative suggested he be treated as A for renewal and his commission be credited to assured to produce net lower premium. Agreed and policy renewed. Broker then claimed commission from insurer. Held: broker was an efcient cause of renewal. It is not a case of principals who have been introduced by an agent and brought to a certain point in negotiations setting out for themselves on a new tack altogether. (317) Foxtons ltd v Thesleff commission payable to estate agent if unconditional contracts for the sale of the property are exchanged. Contracts were exchanged but purchaser failed to complete. Property subsequently sold to a purchaser introduced by a different agent. CA: the wording of the contract did not raise any question of effective cause as such. Rather the question was what was meant by a purchaser introduced by us? Was it (a) a person who at some time in the future becomes a purchaser, or (b) a person who becomes a purchaser as a result of being introduced by us? Held that (b) is correct for the following reasons: - Sits better with the common effective cause approach to commission for a successful transaction. Also, that approach derived from intention to minimise likelihood of paying more than one commission and interpretation (b) works better to that end. - Inherently unlikely that the contract should confer on Foxtons a right to commission where there was no link at all between an introduction by Foxtons and a subsequent sale. - Wood v Dantata (above) supports the proposition that introduce a purchaser usually means introduce a purchaser to the transaction rather than merely to the property. - Contract provided for commission to be payable once unconditional contracts are exchanged with a purchaser introduced by us, which again suggests that purchaser is a person introduced to the transaction. - Foxtons standard terms, so that any ambiguity to be resolved against them.

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Fiduciary Relationship Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 Often cited as the rst leading authority on the obligations of a duciary. Third party-seller sued principal-buyer for breach of a sale of goods contract procured by agent in breach of duciary duty. The agent was the Chairman of Directors of the principal, and therefore obliged to seek the lowest price, but also the managing partner of the third party partnership, and therefore interested in the highest price. HL: third party could not enforce contract against principal. According to Lord Cranworth: A corporate body can only act by its agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a duciary nature towards their principal. And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conicting, or which possibly may conict, with the interests of those whom he is bound to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into. Brown v Inland Revenue Commissioners [1965] AC 244 Solicitors made prot out of client monies through depositing the money in interest bearing accounts and lending the money to other clients on interest bearing terms. House of Lords: all such interest belonged to the clients. No evidence to support the solicitors argument that the clients had consented to the solicitors keeping the interest. Lord Upjohn stated as follows (at 265-266): One of the most settled principles of the law of England, is that a person who is in a duciary relationship to another may not make a prot out of his trust A professional adviser, whether he be solicitor, factor, stockbroker or surveyor is of course in a duciary relationship to his client, and if and when he is entrusted with his clients money he can make no prot out of it. He may make proper charges to his clients for the professional services he renders to them, including, no doubt, the investment of their money, but he cannot without his clients agreement, make indirect charges by way of retaining interest on the investment of his clients money. It avails him not to say that he retains such interest either in lieu of or reduction of such charges or in addition thereto because of the extra time and trouble in which he may be involved in handling his clients affairs. But the client may allow his adviser to retain such interest provided that the true legal position is explained to him and he fully understands it. Such an agreement may be expressed or may be implied from the course of dealing between the client and his adviser but can, in my view, only be implied where, at all events, it can be shown that the client knew of his rights and by his course of conduct agreed or assented to their waiver and to the substitution of this practice.

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