“Mr Spencer should have explained to Mr Gabriel that, although the latter was advancing£200,000 , his funds were going to be applied substantially for Mr Little's benefit and in reality Mr Little was not putting anything at all into the project.”
“The judge decided that Mr Little was not guilty of fraud. This was a decision on the facts, and the judge' s findings are clear and cogently reasoned. When a party has been acquitted of fraud the decision in his favour should not be displaced except on the clearest grounds: Akerhielm v De Mare[1959] AC 789 .”
“Mr Gabriel is obviously a hard headed businessman. He well understands the ramifications of property transactions and is not the kind of person to be swayed by friendship into a foolhardy business decision. He was subject to extensive cross-examination, but in my view he came across as essentially honest. Whilst there was always the possibility of Mr Gabriel being mistaken and on occasions his evidence lacked consistency, I did not think he was being deliberately untruthful in his evidence.” (See paragraph 16 of the judgment). ii) Mr Little was (and is) a builder and developer. Mr Little acts through a number of companies (including High Tech). Mr Little was described by the judge as follows:- “Peter Little is a builder and developer. He has been involved in property and construction all his working life. Whilst he has been a shareholder and director in numerous companies, the principal company through which he acts is High Tech (formerly known as High Tech Fabric Maintenance Limited). Mr Little is the owner of the entire issued share capital of the company, and he and his son James are the company’s two directors. For all practical purposes High Tech is indistinguishable from Mr Little personally. It was apparent to me during Mr Little’s evidence that he was far from punctilious in keeping his various different corporate and personal affairs separate from each other. Unless he considered it essential to do otherwise, he has simply treated the property and money of various companies controlled by him as indistinguishable and for all practical purposes his to deal with as he saw fit.” (See paragraph 5 of the judgment). The judge also had this to say about Mr Little: “Mr Little was a less satisfactory witness. I appreciate the strain under which he must have been during a prolonged cross-examination. Also, it is naturally most unpleasant to be the subject of allegations of fraud. Nevertheless, some of Mr Little's evidence was hard to reconcile with the contemporary documents, and I formed the impression that Mr Little was more concerned with seeking reasons for justifying his conduct than simply explaining what in fact happened. I was cautious about accepting what Mr Little was saying unless it accorded with the contemporary documents.” (See paragraph 16 of the judgment). iii) In early 2004 Mr Little decided that a number of the old buildings at Kemble airfield, some of which were in poor condition, represented a good development opportunity. High Tech acquired a number of buildings on the airfield. At some time thereafter certain of the buildings were charged to High Tech's bank to secure its indebtedness to the bank. The buildings in question included the Property. iv) At some stage in 2004 Mr Little applied for and was granted planning permission to convert the Property into office accommodation. The permission required development within five years and was subject to conditions before any development could commence. One of the conditions was for an investigation into possible contamination at the site and agreement by the planning authority to any remedial treatment found necessary. In a valuation prepared for Mr Little's bankers in 2004, the Property was attributed a value of£150,000 (assuming environmental conditions were met) or£350,000 on completion to offices. The basis of this valuation was unknown, but the evidence suggested that it might have been a residual valuation, that is one which took a value for completed office accommodation at the time and deducted building costs as estimated by Mr Little in order to arrive at the figure of£150,000 . A valuation which had been undertaken about a year earlier attributed an undeveloped value of£50,000 , with a developed value of£175,000 , to the Property. In any event, apart perhaps from some preliminary working, no development in accordance with the 2004 planning permission ever took place. v) Prior to the transaction which was in issue in the proceedings, Mr Little had discussed the possibility of Mr Gabriel making a loan to Blueshore Associates Limited (“Blueshore”) in connection with a major development known as the Southgate Street development, which was being financed by a company called GMAC-RFC Property Finance Ltd (“GMAC”). Blueshorewas a company which Mr Little had acquired with two others. The proposed terms of the loan were that Mr Gabriel would lend Blueshore£200,000 for a 15 month period, at the end of which Mr Gabriel would be repaid the sum of£270,000 . As the judge found, this was a high rate of return and, in anticipation that the proposal would materialise, Mr Gabriel borrowed£200,000 from the trustees of a family trust which he had set up at the time of disposing of his shares in Interlink Express Parcels plc. vi) As security for the loan, Mr Gabriel wanted a charge on the Southgate Street development and personal guarantees from the Blueshore directors including Mr Little. Mr Spencer drafted a facility letter ("the Blueshore draft facility letter") under which the terms of the proposed loan were to be recorded. The judge regarded the Blueshore draft facility letter as of importance, since he found that it formed the template for the facility letter which was directly material to the present dispute. The Blueshore draft facility letter recorded that the loan was to be for£200,000 payable on a drawdown date, which was to occur on satisfaction of conditions precedent relating to security for the loan and the provision of various documents, such as planning permission, a survey and Blueshore board minutes; the loan was to be repaid plus£70,000 within 15 months of the drawdown date; there were provisions dealing with projected sales of individual properties in the Southgate street development and also a provision for early repayment of the loan in the event of all the properties being sold prior to the repayment date. By clause 1.5 the loan was defined as “the sum of£200,000.00 which will be made available as a contribution to the costs of development of the Property . . . .”
“I prefer the evidence of Mr Gabriel as to what was discussed at the Red Hart, although I do not think that Mr Gabriel would have treated the figure of£200,000 as anything other than a very rough guide. It was certainly no commitment and, as a figure, never featured in subsequent documentation. Indeed, the language of the subsequent facility letter is inconsistent with a development on which only£200,000 was to be spent. The context was that Mr Little was telling Mr Gabriel that he owned a property which was ripe for development, although Mr Gabriel did not take that as meaning that Mr Little personally rather than some corporate vehicle owned it. In my view, it is extremely unlikely that Mr Little and Mr Gabriel were at this first discussion on the topic going into details such as a Lloyds TSB charge over the Property. Obviously, Mr Little was keen that Mr Gabriel should make a loan. Equally, Mr Gabriel was keen to know for what his money would be used. In that context, it was Mr Little's proposals for development which were the focus of the discussion.” ix) Following the Red Hart meeting Mr Gabriel, who had expressed interest in Mr Little's proposition, together with Mr Little, visited the site and formed the view that the Property would be worth in the region of£150,000 and that, once developed, it would be worth in excess of£400,000 . Mr Gabriel decided in principle to proceed with a loan of the same amount (i.e.£200,000 ) and on the same repayment terms as had been envisaged for the Southgate Street development (i.e. a return of£70,000 , a repayment date of 15 months after the initial loan and a first charge by way of security). x) Mr Gabriel then proceeded to instruct BPE in relation to the transaction. No written record exists of the terms of Mr Gabriel’s instructions to the solicitors, nor, as the judge found, did Mr Spencer ever send Mr Gabriel a "client care" letter or any other communication referring to his instructions. The judge accepted Mr Spencer’s evidence that he first heard of the proposal on about12 November 2007 , when he received a voice-mail from Mr Little, which informed him that the loan was to be used to purchase the Property. Mr Spencer's written note of that voicemail was in the following terms: “Peter Little [telephone number] RG to lend cash to buy 3000 sq ft Kemble Andrew Snape [sic - it should have been Smith] + Peter L buying Whiteshore Associates Ltd Andrew Chapman at Baileys will act for Peter L as seller.” xi) The judge's conclusions in relation to the instructions given to Mr Spencer were set out in paragraphs 23 and 24 of the judgment as follows: “[23] Thus, it seems what Mr Little was saying he had in mind was that a loan from Mr Gabriel was to be used for a company in which he had an interest to purchase a property from himself. It seems to me clear, and I accept Mr Gabriel's evidence in this respect, that Mr Gabriel for his part had no such arrangement in mind. Indeed, Mr Gabriel would have regarded any such notion as entirely unacceptable. I can quite understand why it would have been unattractive to him for his money simply to be passed over to, in effect, Mr Little rather than being used for the common profit making opportunity of development. [24] Mr Spencer gave evidence that his initial instructions from Mr Gabriel accorded with Mr Little's voicemail message, that is that Mr Gabriel wanted to lend money for the purchase of a property from Mr Little. As I noted, there is no written record of any such instructions. Undoubtedly, what Mr Spencer was subsequently told by the solicitor for Mr Little (or, more precisely, High Tech), Mr Chapman of Baileys, and the subsequent documentation drawn up by Mr Chapman reflected such an arrangement. However, I have come to the conclusion that Mr Spencer simply assumed that what he had been told in Mr Little's voicemail, and was shortly thereafter told in writing by Mr Chapman, was what all parties, including Mr Gabriel, wanted. I accept Mr Gabriel's evidence that he did not instruct Mr Spencer that this is what he wanted. Such an arrangement would have, of course, been of considerable benefit to Mr Little. But, it would have been of little benefit to Mr Gabriel (save for the possibility of a good return on his£200,000 ). On Mr Little's case, Mr Gabriel was contributing£200,000 but he, Mr Little, would not be making any contribution to the project. As far as Mr Gabriel was concerned, his loan was to be used for the development of the Property. On the basis that for his part Mr Little or some corporate vehicle was contributing the property and that Mr Gabriel was contributing development finance, the project made some commercial sense.” [ Emphasis supplied]. xii) As the judge found, Mr Gabriel accepted that he did not ever seek advice as to the commercial wisdom of the proposed transaction from Mr Spencer (see paragraph 68 of the judgment). xiii) On15 November 2007 Mr Chapman, the solicitor from Baileys, wrote to Mr Spencer in the following terms: “Your Client: Richard Gabriel Our Client: High Tech Fabric Maintenance Ltd Property: Unit 4 D Site Kemble Following our recent telephone conversations I confirm that I have instructions from my above named Client regarding the sale of Unit 4 to Whiteshore Associates Ltd for a sum of£150,000.00 plus VAT. I understand that you have instructions from Richard Gabriel who is lending the purchase monies to Whiteshore Associates Ltd which company is not being directly represented in this transaction.”
“There is no doubt that Mr Chapman was being instructed by Mr Little as to the nature of the transaction from Mr Little's perspective. Equally, Mr Chapman was quite open with Mr Spencer. For his part Mr Spencer simply assumed that this accorded with what his client, Mr Gabriel, also had in mind. In this he was mistaken, and unfortunately he did not clarify his instructions from Mr Gabriel.”
“the Property…. I am prepared to offer loan facilities to you secured on the Property on the basis of the particulars set out below. Your acceptance of the terms of the facility is requested by returning a copy of this letter to me within seven days of this letter. If accepted, this Facility Letter constitutes the agreement between us. 1. PARTICULARS….. 1.1 Borrower: Whiteshore.. 1.2 Drawdown Date:13 December 2007 1.3 Repayment Date:12 March 2009 1.4 Property: ….the Property 1.5 Loan: The sum of£200,000.00 which will be made available as a contribution to the costs of development of the Property, such sum to be advanced on the Drawdown Date.” 2. PURPOSE To assist with the costs of development of the Property. 3. REPAYMENT PERIOD 3.1. Subject to non-occurrence of any Event of Default ….. the Loan is to be repaid in full by 5 PM on the Repayment Date. 3.2. In addition to the repayment of the Loan, you will pay me the sum of£ 70,000 ("Return") by the Repayment Date. 4. DRAWDOWN AVAILABILITY The loan shall be payable upon satisfaction of the Conditions Precedent. 5. SECURITY A legal charge with full title guarantee over the Property owned by the Borrower. 6. CONDITIONS PRECEDENT Before drawdown can be made of the Loan, the following must be delivered to my solicitors in a form and substance satisfactory to me:- 6.1 Copies of planning permission authorising the current and any proposed use of the Property; 6.2. Satisfactory details of insurance cover for the Property; 6.3. A certified copy of the board minutes approving the terms of this letter and authorising its acceptance and the execution of the security documents. 7. FEES AND EXPENSES The Borrower agrees to pay on demand and on a full indemnity basis all costs, charges and expenses properly and reasonably incurred by me in implementing the Loan and Security, including the fees, disbursements and expenses of my legal advisers but limited to the sum of£750 plus VAT and disbursements…." xvii) The draft legal charge was also prepared by Mr Spencer. As was common ground, as a result of an oversight on his part, whilst the legal charge secured payment to Mr Gabriel of the principal amount of the loan, namely£200,000 , it failed to secure the agreed return of£70,000 . xviii) A meeting took place on7 December 2007 , which was attended by Mr Gabriel, Mr Spencer, Mr Chapman of Baileys, acting for High Tech, and Mr Little and his son, Mr James Little. No solicitors attended the meeting on behalf of Whiteshore. At the meeting, Mr Gabriel signed the facility letter and the legal charge on his own behalf and Mr Little signed the facility letter and the legal charge, on behalf of Whiteshore. (Either prior to the meeting, or subsequently, the legal charge was signed by Mr Smith as co-director of Whiteshore.) Both documents were subsequently dated13 December 2007 . xix) Also on the table at the meeting were: a contract of sale of the Property, as between High Tech as seller and Whiteshore as buyer, for the price of£150,000 plus VAT, a draft land Registry transfer deed from High Tech to Whiteshore and a draft stamp duty land tax ("SDLT”) return in relation to the transfer as between High Tech and Whiteshore. At the meeting Mr Little signed the contract for the sale of the Property on behalf of High Tech, Mr Little and Mr James Little signed the draft deed of transfer on behalf of High Tech, Mr Little also signed the transfer on behalf of Whiteshore and Mr Little approved and signed the SDLT return on behalf of Whiteshore. Both the contract and the draft deed of transfer were also subsequently dated13 December 2007 . A draft contract specifically referred to the fact that no solicitor was acting on behalf of Whiteshore. (Either prior to the meeting, or subsequently, the contract and transfer deed were signed by Mr Smith as co-director on behalf of Whiteshore.) Mr Spencer retained the signed SDLT return as it was necessary for him to file it when registering Mr Gabriel's legal charge to perfect his security. xx) Mr Spencer's attendance note of the meeting recorded as follows: “Richard [Mr Gabriel] acknowledged there are no property searches. He went through the loan agreement + legal charge and confirmed he was happy with the terms. All parties signed the various docs. Agreed to complete ASAP.”
“[31] Mr Gabriel told me that at the meeting there was some discussion between the solicitors about documentation and the signing of formal documents. He himself was, however, not involved with the documentation other than that which concerned his loan directly. He read the facility letter and also the charge before he signed, but he did not read any of the other documents being passed between the solicitors and Mr Little and his son. He read what he had to sign. There was mention at the meeting of his not requiring a personal guarantee from Mr Little when he learned that one had not been prepared by Mr Spencer. He told me that he appreciated at the meeting that the Property was being put into, as he put it, “a clean vehicle”, i.e. Whiteshore. He also realised that there was to be a transfer from one of Mr Little's companies, that is High Tech, to Whiteshore. Also, he agreed that at the meeting there was talk of the bank's charge being discharged and some mention between the solicitors about an undertaking. In addition, he recalled a plan of the site being produced and marked in red. However, he was adamant that he had no reason to appreciate that it was his money which was going to be used to discharge the bank's charge. As far as he was concerned, Mr Little was dealing with an inter-company transfer between companies under his control, and Mr Little's arrangements with his own bank were not his concern. As far as he was concerned, it had always been the case that his money was to be used for development of the Property. And that is precisely what the facility letter clearly stated when he read it through before signing. [32] Mr Spencer's brief attendance note of the meeting is consistent with Mr Gabriel's version of what happened. It reads: [and the judge then quoted the note as set out above]. However, in his oral evidence Mr Spencer went much further. His recollection was that he discussed all the financial terms of the transaction with Mr Gabriel at the meeting. It would have been obvious to Mr Gabriel that his money was to be used for the purchase of the Property and satisfaction of the bank's charge. The purpose of his loan was “so blatant and verbally discussed”
“the amount of the loan going towards the purchase price was discussed and extremely clear to everybody there”
"not satisfied that Mr Little told Mr Gabriel explicitly that his loan money would only be used for the purpose of development and no other purpose"
“Accordingly, I do not find that Mr Little made a representation which he knew to be untrue or about the truth of which he did not care".”
“I accept Mr Bradley's submission that accordingly there would be no misrepresentation in relation to the intended utilisation of Mr Gabriel's money, since Mr Gabriel's agent with authority to receive the information knew the true position. Mr Booth sought to counter this by reference to an argument that it would be no answer to say that the agent knew the true position when there was fraud. He relied upon what Scrutton J (as he then was) said in Wells v Smith[1914] 3 KB 722 at 725, 83 LJKB 1614, 111 LT 809 about how he would be “very slow to allow the effects of actual fraud to be nullified by constructive notice”
“71. Mr Little needed the money and the only way to get it was to take a calculated risk. Mr Gabriel required a first charge over the Property, which in turn required the simultaneous release of the charge held by Lloyds TSB (using Mr Gabriel’s money). So the loan, the “purchase” and the release of the charge would have to be effected simultaneously by High Tech’s lawyer and Mr Spencer of BPE. 72. Unless Mr Little told Mr Spencer that the loan money or part was to be applied to a purchase, it was inevitable that he would take instructions from Mr Gabriel on receiving the sale and purchase documents from High Tech’s solicitor. If Mr Spencer had already received instructions from Mr Little, then Mr Spencer might or might not take instructions/further instructions from Mr Gabriel. The loan document would not necessarily refer to the purchase aspect, and it might be that the deal would go through without the truth being discovered by Mr Gabriel. 73. Mr Little had to take that chance as otherwise Mr Gabriel would definitely find out and the deal would not proceed if he knew its true terms (as the Judge correctly found). If Mr Little gave “instructions,” there was a chance that Mr Spencer might (having regard to the background) take those instructions on trust. Mr Little would not otherwise get the money so it was a risk he had to take. (As it happened, Mr Little was right to think that Mr Spencer would not pass on his instructions to Mr Gabriel and apparently took the view that the purpose of the loan was not important). 74. Thus the Judge failed to appreciate the risk Mr Little had to take and why the transaction could not otherwise have worked [misunderstanding the submissions about this at Judgment/paragraph 55]. Properly understood the message Mr Little left on Mr Spencer’s voicemail was not “openness” but a necessary risk to achieve his deception of Mr Gabriel [Judgment/paragraph 66]. The fact that Mr Little knew that Mr Gabriel did not know how his money had been applied is clear from the post-deal assurances Mr Little gave to him and Mrs Winston. 75. The Judge also failed to realise that Mr Little had little or nothing to lose. Having told Mr Spencer in advance what the purpose of the loan was, if the ruse was discovered by Mr Gabriel, Mr Little could always have said that he was not trying to conceal anything because he had told Mr Spencer of his true intentions and explain the whole thing away as a misunderstanding. Besides the worst that could happen was that he would not receive the money and he and Mr Gabriel would cease to be friends. It is obvious that Mr Little’s pressing financial concerns mattered more to him, and he was prepared to take his one chance to obtain the money. 76. Perhaps the most compelling fact was that Mr Little chose to contact Mr Spencer at all. If he had been acting honestly and believed that he had told Mr Gabriel of his true intentions at the Red Hart Meeting, there was simply no need for him to contact Mr Gabriel’s solicitor directly. He need only instruct his own solicitors, in the confidence that Mr Gabriel would give similar instructions to Mr Spencer. Nor did the elaborate “purchase” transaction referred to in his voicemail make any sense. If Mr Little’s intention had always been to borrow the money and to use it to release the Lloyds TSB’s charge (which meant Mr Gabriel could have the first charge over the Property he required), there was no reason for a transfer of the Property to another company: thus there was no need to involve Whiteshore at all. In reality it was a device to conceal the fact that the money borrowed would not be used for the development of the Property, as the Judge should have found.” v) The judge erred in law in failing to find that notice to an agent was not a defence to a fraud on the principle. The judge should have followed the decision of Scrutton J (as he then was) in Wells v Smith [1914] 3 KB at 722 to 725 to the effect that the mere provision of notice of the truth to an agent (constructive notice) is no answer to fraud. The question is whether the principal receives notice, or the person giving notice to the agent believes that the principal has received notice. vi) The Judge wrongly found that the Facility Letter did not oblige the recipient of the loan to use it for a specific purpose, namely development of the Property; on the evidence before him he should have found that the monies lent by Mr Gabriel were impressed with a Quistclose trust. A reasonable person would have taken the terms of the Facility Letter to mean that Whiteshore could not apply the money for anything else but development at the Property. In particular, the following facts and matters pointed to this conclusion: a) Whiteshore was an SPV established for developing property, which was de facto controlled and in part owned by Mr Little. It never had any assets or income other than Mr Gabriel’s loan with which it purchased the Property. b) Mr Little effectively already owned the Property and for all practical purposes High Tech was indistinguishable from Mr Little personally. c) The Facility Letter was agreed in the context of the prior Red Hart meeting which focused on Mr Little’s proposals for development of the Property in the context of the use of the loan money. d) The grant of Mr Gabriel’s loan was conditional upon security in the form of the first charge over the Property. It would have been obvious to both parties that the security was inadequate unless development took place (and/or unless the monies lent were only applied for development at the Property or were retained by Whiteshore). vii) The judge erred in stating that the word development “reinforced” his view as it was inherently uncertain. If correct, this meant that the terms of the Facility Letter would have created no trust, even if the Facility Letter had said: (1) that the money was to be used exclusively for development; and; (2) that it was to be placed into a segregated account. Moreover the Learned Judge erred in finding that there was inherent uncertainty in the meaning of the word “development.” viii) The judge failed to consider the question whether, irrespective of whether the facility letter created a Quistclose trust, High Tech and/or Mr Little were liable for knowing receipt of trust funds, or funds paid over in breach of fiduciary obligation, and/or in restitution. Thus the judge failed to consider the question whether High Tech’s retention of the monies was unconscionable. ix) As a matter of law, "High Tech was liable for knowing receipt or in restitution if Mr Little/High Tech should have thought that there was a reason why the money should not go to High Tech"; see paragraph 88 of Mr Booth's written submissions. In fact High Tech had acted with a want of probity in receiving the monies, taking into account Mr Little’s knowledge and conduct which was to be attributed to High Tech, given that the company was his alter ego. x) Mr Little’s evidence was that he understood that there was a clear distinction between a loan for the purpose of development and a loan for the purpose of purchase. Yet he signed the facility letter, which contained terms that plainly identified the purpose of the loan as development. Even if (contrary to the above submissions) he did not read it, having signed it, both he and his alter ego High Tech were fixed with notice of its contents. xi) Thus the judge should have made High Tech liable for knowing receipt regardless of whether Mr Little/High Tech’s conduct fell short of actual dishonesty or lack of probity. It was unconscionable for High Tech to receive the monies because Mr Little/High Tech had constructive knowledge of a breach of trust, based on what the reasonable man would have understood in Mr Little’s position; see BCCI v Akindele[2001] Ch 437 at 450G-455G per Nourse LJ. His knowledge thus fell within categories (iv) and/or (v) of the five mental states set out in the judgment of Peter Gibson J in Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA[1992] 4 All ER 161 at 235. xii) Similarly, if the loan monies were paid over to High Tech on the basis of a misunderstanding, even a bona fide misunderstanding, caused by Mr Little’s failure to read the document and to appreciate that it did not reflect his intention, then High Tech cannot in conscience retain the money by which it has been unjustly enriched because it is fixed with Mr Little’s constructive notice of the position. It matters not whether the basis of Mr Gabriel’s right to a remedy rests upon the payment to High Tech being categorised as having been made by mistake or pursuant to the commission of a tort by Mr Little and/or the Second Defendant, or whether it was simply received “without basis”
"Fraud involves deliberate intent, which is called mens rea. Nothing short of the wicked or guilty mind will serve, as this House held in most striking circumstances in Derry v. Peek, where the statement complained of was, to the knowledge of the directors, not true in fact, but they mistakenly thought that it was as good as true, whereas events completely falsified their expectation, to the damage of the plaintiffs. However, the directors were held not to be liable, because they were innocent of any intention to deceive."
“In my judgment, similar principles apply in a case such as the present. In this, as in all other normal conveyancing transactions, after there has been a subject to contract agreement the parties hand the matter over to their solicitors who become the normal channel for communication between vendor and purchaser in all matters relating to that transaction. In so doing, in my judgment the parties impliedly give actual authority to those solicitors to receive on their behalf all relevant information from the other party relating to that transaction. The solicitors are under an obligation to communicate that relevant information to their own clients. At the very least, the solicitors are held out as having ostensible authority to receive such information. Whether there be express or ostensible authority, the purchaser is in my judgment estopped from denying that he received the information relating to the transaction which has been communicated to his solicitors acting in the same transaction. In my judgment, such knowledge should be imputed to the principal. If that were not to be so, the consequences to which I have previously referred would follow.”
“73. A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cashflow. Commercial life would be impossible if this were not the case.”
"signed the facility letter, which contained terms that plainly identified the purpose of the loan as development. Even if (contrary to the above submissions) he did not read it, having signed it, both he and his alter ego High Tech are fixed with notice of its contents”; and that: “…. if the loan monies were paid over to High Tech on the basis of a misunderstanding, even a bona fide misunderstanding, caused by Mr Little’s failure to read the document and to appreciate that it did not reflect his intention, then High Tech cannot in conscience retain the money by which it has been unjustly enriched because it is fixed with Mr Little’s constructive notice of the position. It matters not whether the basis of Mr Gabriel’s right to a remedy rests upon the payment to High Tech being categorised as having been made by mistake or pursuant to the commission of a tort by Mr Little and/or the Second Defendant, or whether it was simply received “without basis”. But in the event there were strong reasons to suggest a want of probity on the part of Mr Little/High Tech."
“[81] There can be no doubt that Mr Spencer made a serious drafting error over the facility letter's description of the purpose of Mr Gabriel lending£200,000 . Mr Spencer sought in evidence to brush aside his error on the basis that, he said, everyone knew the true position. Nevertheless, he accepted that he had made a mistake. The fact that the mistake stemmed from Mr Spencer having used the draft Southgate Street development facility letter as a template explains but does not excuse the error. BPE, through Mr Spencer, was undoubtedly in breach of its duty to exercise reasonable care and skill in the drawing up of the facility letter. [82] Mr Spencer's error was not merely a mistake in drafting. I have already set out my conclusion on the evidence that Mr Gabriel was at all material times under the impression that his loan money was going to be used on the development of the Property. I have also set out my conclusion on the evidence that Mr Gabriel never instructed Mr Spencer otherwise. Yet, from what Mr Spencer had learned from Mr Little and from Mr Chapman the amount of£150,000 plus VAT, out of Mr Gabriel's£200,000 , was going to be passed immediately over to Mr Little's company, High Tech, before Whiteshore could acquire the Property. It was clearly Mr Spencer's duty to provide this information to his client so that his client could make an informed decision about the transaction. But, he did not do so. As Mr Booth submitted, this also was a plain breach of duty which was compounded by the facility letter's description of the loan's purpose and Mr Spencer providing it to Mr Gabriel for him to read and sign. [83] Leaving aside Mr Gabriel's understanding of the transaction with Whiteshore, it was in my view a one-sided one. Mr Gabriel was lending£200,000 to a company which he thought of as a “special purpose vehicle”
“8 As to the extent to which a solicitor should make enquiries or investigate matters that he has not been asked to enquire into or investigate, their Lordships think that para 10-160 in Jackson & Powell on Professional Negligence (5th ed, 2002) correctly states the position 'In the ordinary way a solicitor is not obliged to travel outside his instructions and make investigations which are not expressly or impliedly requested by the client.' In support of that proposition the text goes on to refer to Clark Boyce v Mouat[1994] 1 AC 428 , a Privy Council decision, where Lord Jauncey of Tullichettle said, at p 437 – 'When a client in full command of his faculties and apparently aware of what he is doing seeks the assistance of a solicitor in the carrying out of a particular transaction, that solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction.' 9 And in Reeves v Thrings & Long [1996] PNLR 26 5 Sir Thomas Bingham MR said, at p 275, in a dissenting judgment: 'It will always be relevant to consider what the solicitor is asked to do, the nature of the transaction and the standing and experience of the client. Thus on the facts here Mr Sheppard was not retained to advise on the wisdom of offering the price Mr Reeves had informally agreed to pay . . . But it was in my view Mr Sheppard's duty to draw Mr Reeves' attention to any pitfall, particularly any hidden pitfall, the contract might contain.' Simon Brown LJ said, at p 279: 'I cannot accept that Mr Sheppard was under any further duty to his client, any duty to advise him upon the commercial implications or importance of the access provision or to warn him against the risks that it might pose for the future development, operation or sale of the hotel. These matters are well within the client's competence to appreciate and evaluate for himself, business considerations rather than legal ones.' And, at p 285, Hobhouse LJ said: 'Once Mr Reeves was told what the legal position was, he required no further advice from Mr Sheppard in order to evaluate its implications and commercial significance. Mr Reeves was an experienced businessman and under no disability.'” [85] Nevertheless, the principle that a solicitor's duty is strictly circumscribed by his instructions must not be taken too far. Mr Booth referred me to the observations of Laddie J in Credit Lyonnais v Russell Jones & Walker [2002] PNLR 2 at 28: “However if, in the course of doing that for which he is retained, he becomes aware of a risk or a potential risk to the client, it is his duty to inform the client. In doing that he is neither going beyond the scope of his instructions nor is he doing 'extra' work for which he is not to be paid. He is simply reporting back to the client on issues of concern which he learns of as a result of, and in the course of, carrying out his express instructions. In relation to this I was struck by the analogy drawn by Mr Seitler. If a dentist is asked to treat a patient's tooth and, on looking into the latter's mouth, he notices that an adjacent tooth is in need of treatment, it is his duty to warn the patient accordingly. So too, if in the course of carrying out instructions within his area of competence a lawyer notices or ought to notice a problem or risk for the client of which it is reasonable to assume the client may not be aware, the lawyer must warn him.”
“[88] Mr Gabriel was adamant that he would not have lent the money at all if he had known that it was in major part to be used on acquisition of a property from one of Mr Little's companies. I have no doubt that this is so. A transaction in which Mr Little was putting up a property and he was putting up funds would be entirely different from a transaction into which only he was putting anything at all. Mr Gabriel explained his assessment of the risk that, on the basis the Property was going to be developed with his funds, there was likely to be a substantial increase in the value of the property such that there would be ample to cover repayment to him of the loan. However, if there were no plans to develop in the near future and no funding for a development the risk would be very different. Mr Davie stressed that a half finished development would be of no more value, and hence provide no better security, than no development at all; he suggested that Mr Gabriel was so keen to lend money to Mr Little that it would have made no difference to Mr Gabriel whether he was lending for development or for the purchase. I reject this. I can quite understand why Mr Gabriel would have viewed funding the development of an existing property as a quite different sort of transaction from only funding an initial acquisition of the property from Mr Little and would not have done so. Mr Little was his friend in whom he then trusted. He was not approaching this transaction with suspicion. But, it is plain, as the history of the Southgate street development shows, that as an experienced businessman there were limits to the commercial risks which he was prepared to run out of friendship. [89] Despite the fact that this is a “no transaction” case, it is now well established since the Banque Bruxelles decision that this does not mean that a professional adviser is necessarily liable in damages for all the consequences of a client's entry into the transaction. He will only be liable for losses falling within the scope of the duty which was broken. Lord Hoffmann described two categories of case at[1997] AC 191 at 214C-F: “. . . a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them. The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong.”