Gabriel v Little & Ors [2012] EWHC 1193 (Ch)

Case No HC10C00996[2012] EWHC 1193 (Ch)Date 10 May 2012
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before
ROBERT ENGLEHART QC(sitting as a Deputy Judge of the Chancery Division)
Between
Richard GabrielClaimant(1) Peter George LittleDefendants(2) Whiteshore Associates LimitedDefendant(3) High Tech Design & Build LimitedDefendant(4) BPE SolicitorsDefendant(5) BPE Solicitors LLPDefendant
B E T W E E N:-
Michael Booth QC and Adam Chichester-Clark (instructed by Clyde & Co) for ClaimantMatthew Bradley (instructed by Maitland Walker LLP) for 1 st and 3 rd DefendantsMichael Davie QC (instructed by Beale and Company Solicitors) for 4 th and 5 th DefendantsThis is the official judgment of the Court and I direct that no further note or transcript be made.
JUDGMENTROBERT ENGLEHART QC:INTRODUCTION
[1]In this case the Claimant, Mr Gabriel, seeks a number of different forms of relief against the various Defendants. The different ways in which the claim has been framed has led to an apparent complexity in the litigation. Furthermore, the disputes have given rise to considerable ill-feeling on all sides with accusations of deception and lies. A wide range of matters has been covered in the evidence and, despite my having ruled at the outset on an application by the First and Third Defendants that a not inconsiderable quantity of the witness statement evidence should be excluded, unfortunately numerous allegations and counter-allegations of marginal relevance have been explored in the evidence. For what is by High Court standards not a large claim in financial terms the trial took a considerable time. Nevertheless, the critical underlying facts are relatively straightforward. The claims arise out of a loan of £200,000 which Mr Gabriel made to the second named Defendant company (“Whiteshore”). That company no longer exists, and it has not been represented in the proceedings. The loan, which was due to be repaid together with an additional £70,000 after 15 months, was not repaid on the due date. Some modest amounts have been paid to Mr Gabriel, and there would, but for expenses, have been a small recoupment from the realisation of a security. However, effectively the loan is still outstanding.[2]Given that Whiteshore cannot repay, Mr Gabriel now seeks to recover his losses from the other Defendants. He alleges that the First Defendant, Mr Little, deceived him about how it was intended to apply his loan money. His case is that, as far as he was concerned, his loan money was to be applied towards the development of a property whereas in fact his loan money was in large part simply transferred to or for the benefit of a company wholly owned and controlled by Mr Little. He claims that Mr Little made misstatements, both orally and within the written loan agreement, which were untrue and made dishonestly; a pleaded alternative claim for negligent misstatement is no longer pursued. He also contends that Whiteshore received his loan money as a trustee under an arrangement which constituted what is commonly called a Quistclose trust; on that basis, it is contended on behalf of Mr Gabriel that Mr Little is liable for dishonestly assisting in a breach of trust by Whiteshore in procuring his loan money to be paid to the Third Defendant ("High Tech") rather than applied towards development. As regards that latter company, High Tech, it is sought to be made liable for knowing receipt of trust money or for money had and received.[3]As for the Fourth and Fifth Defendants, there is no material distinction between them. At the time of the loan transaction Mr Gabriel was represented by the Fourth Defendants ("BPE") as his solicitors. The primary claim against BPE is for breach of their duty to exercise reasonable care and skill; but, they are also sought to be made liable for breach of trust and breach of fiduciary duty. The addition of the Fifth Defendant to the action has arisen because, as I understand the position, it has now taken over the rights and obligations of the former firm, the Fourth Defendants. I need say no more about the Fifth Defendant. THE PARTIES[4]Mr Gabriel describes himself as a semi-retired businessman. He was the founder of a highly successful company, Interlink Express Parcels Limited which became a public company. In 1991 Mr Gabriel sold his shareholding in that company for about £50 million, and for the next 10 years he acted as an entrepreneur in various fields. Since then, whilst he has been semi-retired since 1994, he has been involved in a number of property transactions. He is undoubtedly knowledgeable in the field of property and generally conversant with property dealing. He is an astute businessman who, until the present dispute arose, was a close friend of Mr Little. Indeed, he is the godfather of one of Mr Little's children.,[5]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.[6]Whiteshore was what is known as a "special purpose vehicle". It was established in order to implement the intended development transaction which has given rise to the present dispute. The shareholding was equally owned between Mr Little and his wife on the one hand and an architect, Andrew Smith, and his wife on the other hand. Mr Little and Mr Smith were the directors, although in practice Mr Smith was barely involved at all with the company. During its relatively short existence its affairs were largely dealt with by Mr Little. As I have mentioned, the company has now been dissolved. In fact, the only property with which it was ever concerned was the one property giving rise to this litigation. It has never had any assets or income other than Mr Gabriel’s loan, aside from the one building which features in this litigation. As for High Tech, I have already described how it is in reality Mr Little's company.[7]BPE is a firm of solicitors practising in Cheltenham in Gloucestershire. In 2007 one of the assistant solicitors in the firm was Richard Spencer. His speciality is commercial property, and he is now a partner in what has become the Fifth Defendant. He originally joined BPE in 2001. He came to act for Mr Gabriel as a result of a recommendation by a local firm of accountants in 2007 although in fact his dealings with Mr Gabriel have been limited in extent. THE BACKGROUND[8]Kemble Airfield is a former RAF airbase near Cirencester in Gloucestershire. It occupies a large area on which a number of former RAF buildings are situated. Since being vacated by the RAF, Kemble has been, and still continues to be, used as an airfield for private airplanes.[9]In early 2004 Mr Little decided that a number of the old buildings, some of which were in poor condition, represented a good development opportunity. High Tech (under its former name) acquired a number of buildings on the airfield in an area known as D site from Kemble Airfield Estates Limited. Apparently, the purchase price was paid in kind rather than money, although at some time the buildings did come to be charged to High Tech’s bank to secure its indebtedness to the bank. The buildings in question included one which housed an old and run down heating tower. I shall, like the parties before me, refer to this building as Building 428.[10]At about the same time as he was acquiring the buildings, Mr Little applied for and was granted planning permission to convert Building 428 into office accommodation. The permission required development within 5 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. It is right to say that in a valuation prepared for Mr Little’s bankers in 2004 Building 428 was given a value of £150,000 (assuming environmental conditions were met) or £350,000 on completion to offices. The basis of this valuation is unknown, but the evidence suggested that it may 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. I observe that this valuation is to be compared with one about a year earlier in which an undeveloped value of £50,000, with a developed value of £175,000, was attributed to Building 428. In any event, apart perhaps from some preliminary working, no development in accordance with the 2004 planning permission ever took place.[11]Mr Gabriel and Mr Little first discussed the possibility of their doing business together in about March 2007. A company called Blueshore Associates Limited ("Blueshore") had acquired property at 107 – 111 Southgate Street, Gloucester, which it was in the process of developing. High Tech was acting as the building contractor, and Mr Little had with two others acquired the shareholding in Blueshore. This was a substantial development project (“the Southgate street development”) which was being financed by a company called GMAC-RFC Property Finance Limited (“GMAC”). Mr Little suggested to Mr Gabriel that he might like to invest in the Southgate street development or perhaps in a possible extension to the development. The proposal was that Mr Gabriel should lend Blueshore £200,000 for 15 months at the end of which he would be repaid £270,000. As is apparent, this is certainly a high rate of return. 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.[12]Mr Gabriel wished the proposal to be drawn up formally by solicitors. The solicitors for Blueshore were Davies and Partners, a firm which Mr Little told me he had never used before or since and with which he apparently had some disagreement. As for Mr Gabriel, Mr Little’s accountant recommended him to Mr Spencer of BPE. The documents show an Attendance Note of Mr Gabriel meeting with Mr Spencer on 28 March 2007. The outline of the proposal is recorded in Mr Spencer’s note and this was followed by written conditions identifying the terms of the instructions. Mr Gabriel wanted security for the loan in the form of a charge on the Southgate street development and personal guarantees from the Blueshore directors including Mr Little.[13]Matters did not proceed quickly, but Mr Spencer drafted a facility letter under which the terms of the proposed loan were to be recorded. This draft facility letter is of importance since it evidently formed the template for the subsequent facility letter which is directly material to the present dispute. The Southgate street development draft facility letter has 13 paragraphs. It records that the loan is to be for £200,000 payable on a drawdown date. This 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. This was, of course, a loan intended to go towards the Southgate street development. Thus, the purpose of the loan was made clear. 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 … By clause 2 under the heading in bold PURPOSE it was provided: To assist with the costs of development of the Property.[14]On 30 August 2007 Davies and Partners sent BPE a draft deed setting out the priorities as between GMAC on the one hand and Mr Gabriel on the other hand. It is unnecessary to examine this draft deed in detail. It is sufficient to say that from Mr Gabriel's perspective GMAC was proposing unsatisfactory arrangements. It wanted not only absolute priority for repayment of all its finance before repayment of Mr Gabriel’s loan. Also, it wanted Mr Gabriel to obtain its consent before enforcing his security. This was unacceptable to Mr Gabriel. He is evidently someone who was not prepared to let his friendship towards Mr Little influence his judgment as to what would be an acceptable business risk. I note that, although Mr Spencer had not been retained to advise on the commercial aspects of the deal, his evidence was that he advised Mr Gabriel about the high risk of proceeding along the lines put forward by GMAC.[15]It was against the above background that the proposition which is at the centre of this dispute emerged. Mr Gabriel had determined that he was not going to lend money for the Southgate street development without adequate security. On the other hand, he did have the money available since he had borrowed it from his family trust. It was in these circumstances that an alternative came to be considered.[16]I now turn to set out the particular events which gave rise to this litigation. Before doing so, however, I should say a little about my impression of the two principal protagonists since there were conflicts of evidence between them, and they were both extensively cross-examined. 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. 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. THE EVENTS IN ISSUE[17]By early September 2007 it appeared that the loan for the Southgate street development was unlikely to proceed, although there still remained perhaps the faint possibility of overcoming the problems raised by GMAC’s stance. It was suggested to Mr Gabriel that some of the early documents show that he was already interested in concluding an arrangement such as subsequently transpired in fact. Mr Gabriel denied that this was so. He had never contemplated before about early November 2007 any arrangements such as in fact materialised in December 2007.[18]On 13 September 2007 Mr Spencer wrote to Mr Gabriel as follows in relation to the Southgate street development: Further to our conversation this morning, I have informed Peter Little's solicitor that you were not happy to grant a second charge where the first mortgagee has unlimited priority ahead of your charge. I also informed him that his client may be purchasing another property on which you will advance some of the purchase price. The suggestion was that the reference to another property was a reference to Building 428. Mr Gabriel did not accept this, although he could not say with any certainty to what Mr Spencer was referring. I am unable to accept this letter as a reference to Building 428. First, Mr Little was never purchasing Building 428. He (or with strict accuracy High Tech) already owned the building. Second, Mr Gabriel never advanced “some” of a purchase price for this building; his money in fact came to be used for all of a “purchase price”. Third, the other evidence does not suggest that Building 428 had emerged as the potential subject of a loan as early as September 2007. Fourth, the subsequent communications are hard to reconcile with what came to be the Building 428 proposal. Thus, on 25 September 2007 Mr Spencer emailed Davies and Partners: “I understand that your client [i.e. Blueshore] is acquiring another property which will be used as security for my client's loan". On 8 October 2007 Mr Gabriel emailed Mr Spencer: "I gather you've spoken to Peter Little, and now know that the new property will be personal to him rather than Blueshore". Mr Gabriel suggested that these references in the correspondence and e-mails referred to a possibility of Mr Little finding security for Mr Gabriel's Southgate street development loan other than a charge wholly deferred to the security of GMAC. There are difficulties with this hypothesis, and it is not possible to say with any confidence what Mr Gabriel and Mr Spencer had in mind at the time. However, whatever that was, I am unable to accept that it had anything to do with what ultimately happened in relation to Building 428.[19]It is common ground that a proposition concerning Building 428 was discussed at a meeting between Mr Gabriel and Mr Little at the Red Hart public house. However, in his Defence and in his witness statement Mr Little also claimed that there had been a prior discussion about Building 428 on an occasion when Mr Gabriel flew his private jet from Staverton airfield to Kemble airfield, met Mr Little there over lunch and then flew back to Staverton airfield with Mr Little as a passenger. According to Mr Little, they discussed all Mr Little’s properties at Kemble airfield, including Building 428, what each property was worth and the fact that High Tech's bank, Lloyds TSB, held a floating charge over the whole site. Mr Gabriel denied that any such conversations had taken place, and his evidence was supported by that of Mr Smithies. It was common ground that there was an occasion when Mr Gabriel in company with Mr Smithies flew in his private jet from Staverton to Kemble, saw Mr Little there and returned in the jet with Mr Little. However, I have no doubt that there was no discussion of the detail suggested by Mr Little. At most, there was some general comment by Mr Little about his owning a number of the buildings on the airfield. Mr Little claimed that the occasion in question took place some months or possibly a year before the meeting at the Red Hart. However, it is incontrovertible that it in fact occurred as long ago as April 2004. This is clearly established by the documentary records which Mr Gabriel managed to locate. Moreover, the jet in question was sold by Mr Gabriel in about September 2006 and not replaced. Thus, the occasion occurred a very considerable time indeed before Mr Gabriel was contemplating lending money to Mr Little or one of his companies. I should also note that Mr Little was extensively cross-examined on documents which appeared to raise a doubt whether in April 2004 Lloyds TSB even held a charge over Building 428. Mr Little suggested that the documents did not disclose the true position. However, I do not need to resolve any issues in this regard since I am in any event clear that Mr Little’s version of what occurred has to be rejected.[20]Mr Gabriel and Mr Little were in agreement that there was discussed at the Red Hart public house a proposition that Mr Gabriel lend money in connection with Building 428 now that his loan in connection with the Southgate street development was no longer proceeding. There had been no dispute but that this discussion occurred in early November 2007. However, towards the end of his evidence Mr Little unexpectedly suggested that the meeting at the Red Hart had taken place in the summer of that year. I do not accept this, for the parties were at that time discussing the Southgate street development and in no way concerned with Building 428. It was Mr Little's evidence that at the Red Hart he expressly told Mr Gabriel that Building 428 had a value of £150,000 which would have to be paid to Lloyds TSB for it to release its charge. His evidence continued that they discussed both the possible development of the building over and above the existing planning permission and his view that it would cost about £300,000 in building costs to undertake an enhanced scheme. Mr Gabriel, on the other hand, firmly rejected the suggestion that he was told anything about a Lloyds TSB charge. He agreed that they did discuss potential development, although he said that Mr Little put forward a figure of £200,000 for building costs on the basis that relatively inexpensive methods of construction could be used. His understanding was that Mr Little had in mind a development based on the existing planning permission.[21]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 Building 428. 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.[22]Following the Red Hart meeting Mr Gabriel, who had expressed interest in Mr Little's proposition, visited the site in order to see for himself what would be involved. He formed the view that Building 428 would be worth in the region of £150,000 and that, once developed, it would be worth in excess of £400,000. He had no reason to doubt what Mr Little had been saying about building costs. On that basis, he decided in principle to proceed with a loan of the same amount and on the same repayment terms as had been envisaged for the Southgate street development. As before, he wanted the arrangements to be formalised in legal documents and decided to instruct Mr Spencer of BPE.[23]Unfortunately, there is no written record, whether in an attendance note or elsewhere, of Mr Gabriel's instructions to Mr Spencer. Equally unfortunate is the fact that Mr Spencer sent Mr Gabriel no "client care" letter or any other communication referring to his instructions. It was Mr Spencer's evidence that he first learned about the Building 428 proposal when he received a voicemail message from Mr Little. His written note of that voicemail, probably left on 12 November 2007, records: Peter Little 01594 541 224 RG to lend cash to buy 3000 sq ft Kemble Andrew Snape [sic] + Peter L buying Whiteshore Associates Ltd. Andrew Chapman@ Baileys will act for Peter L as seller. 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 Building 428. 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.[25]On 15 November 2007 Mr Chapman wrote to Mr Spencer as follows: Your Client: Richard Gabriel Our Client: High Tech Fabric Maintenance Limited 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 Limited 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 Limited which company is not being directly represented in this transaction. The letter included some documents, including a draft contract of sale by High Tech to Whiteshore, and listed other documents to follow. 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.[26]There followed communications between the solicitors with the majority of the documentation being drawn up by Mr Chapman. The communications are unremarkable in content and include a reminder of 5 December 2007 from Mr Chapman that he would require £176,250.00 (£150,000 plus VAT) on completion. Requisitions on Title record Baileys saying that there was a charge on the property dated 5 November 2004 in favour of Lloyds TSB and giving an undertaking on completion to discharge it or provide such evidence of discharge as shall be provided by the lender.[27]Mr Spencer was only involved with drawing up 2 documents on behalf of Mr Gabriel. These were documents intended to record the terms of Mr Gabriel’s loan and consisted of(1) a facility letter and(2) a charge on Building 428 as security for the loan. The principal document setting out the terms of the loan is the facility letter to which the parties are Mr Gabriel and Whiteshore. In his witness statement Mr Spencer, who was proceeding on the basis of his understanding of the transaction, stated: I did, however, appreciate the fundamental difference that the Southgate Street loan was for development funds whereas the new loan was to be used towards a property purchase.[28]Nevertheless, as I have previously noted, it is apparent that Mr Spencer used the draft Southgate street development facility letter as a template for the Building 428 facility letter. In turn, that had come from some standard form precedent as is illustrated by, for example, the inappropriate references to "us" and "we" in the first part of the clauses headed MISCELLANEOUS. Mr Spencer certainly made some changes to the previous draft. Thus, he deleted the former clauses 4 and 5, which were appropriate to a development consisting of a number of units. He also changed the CONDITIONS PRECEDENT, although I observe that the no longer apposite plural for security documents was retained.[29]There were, of course, a number of areas where the facility letter had to record terms which were the same as those which had been intended to apply to the abortive Southgate street development loan. Thus, as previously, the facility letter recorded that there was to be a loan of £200,000 repayable after 15 months with a return of £70,000. Nevertheless, as drafted by Mr Spencer the facility letter did in an important respect not accord with his own understanding of the transaction whereas, albeit unbeknown to Mr Spencer, it did in fact accord with Mr Gabriel’s understanding. Critical are clauses 1.5 and 2. They follow what had been in the draft Southgate street development facility letter and read as follows: 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. In an unimpressive sentence in his witness statement Mr Spencer explained: As it appeared to me that the parties were clear as to the purpose of the loan to be made by the Claimant I did not revisit the clause in the Facility Letter regarding the purpose of the Loan. Mr Spencer also drafted a charge to secure repayment of Mr Gabriel’s loan on Building 428. Nothing turns on this charge. It is unnecessary for me to refer to any of its provisions, although I should perhaps note that by what is admitted to have been an oversight of Mr Spencer the charge secured payment to Mr Gabriel of the £200,000 loan but not the agreed return of £70,000.[30]It was Mr Spencer’s evidence that: My instructions regarding the drafting of the terms of the Facility Letter and Legal Charge were received from the Claimant in my initial oral instructions and I do not recall consulting the Claimant as to the drafting of the terms of these documents at any later date. The only occasion when any error in the facility letter might have been, and on BPE's case did, become apparent was the completion meeting between the parties. This was attended by Mr Gabriel with Mr Spencer of BPE, Mr Chapman of Baileys who was acting for High Tech and by Mr Little with his son, James Little, the other director of High Tech. Mr Chapman firmly stated that the date of the meeting was 13 December 2007. However, the evidence of Mr Spencer, supported by the documentary evidence, was that the meeting was in fact on Friday 7 December 2007. It is clear from the surrounding documents that Mr Chapman is mistaken about the date, and the meeting was indeed on 7 December 2007. I now turn to the evidence about what happened at the meeting.[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 Building 428 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 Building 428. 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: Richard 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 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 Building 428 and satisfaction of the bank’s charge. The purpose of his loan was “so blatant and verbally discussed”. Mr Spencer was adamant in evidence:
“the amount of the loan going towards the purchase price was discussed and extremely clear to everybody there”
. Although not mentioned in his witness statement, he even recollected showing Mr Gabriel the transfer deed even though, of course, Mr Gabriel was not a party to that document.[33]Other witnesses who described what happened at the meeting were Mr Chapman and, of course, Mr Little. Mr Little said that he did not read but “flicked through” the facility letter which he signed for Whiteshore. Mr Little’s impression was that “there was no doubt in anyone's mind at the meeting that the major part of Richard Gabriel's loan was to be used for the purchase of Building 428". Mr Chapman's evidence was similar, although he was not clear about any discussion specifically as to the use to which Mr Gabriel’s money was to be put. However, neither Mr Little nor Mr Chapman was able to state with any precision exactly what was said to Mr Gabriel so as to make clear to him that the purpose of the loan was not as set out in the facility letter and that this document was wrong. In general terms, leaving aside Mr Chapman’s general impression, his account of the meeting was not very different from that of Mr Gabriel. Mr Chapman acknowledged that he had had no occasion to recollect the detail of the meeting for some 3 years. He also agreed that he would expect people at the meeting only actually to read what concerned them. Ultimately his evidence about the meeting may be summarised in the following extract from his cross-examination: Q Well, you say, "explained what the transaction was". Explaining what the transaction is, is that property is being transferred from High Tech to Whiteshore, the charge of Lloyds Bank is being dealt with, and a first legal charge and a facility letter, which will govern the loan arrangements, is to be executed in favour of Mr Gabriel, and that's a sufficient an explanation of the transaction as was either needed and as in fact was given; correct? A Broadly speaking. I also note that Mr Little’s son, James, who works for cash for his father and was the other director of Hi-Tech, also briefly gave evidence in support of his father’s version of the meeting. However, James has nothing to do with corporate financial records, which are his father’s concern, and I attached little weight to his support of what his father said.[34]It was of course entirely clear to each of Mr Spencer, Mr Chapman and Mr Little why Mr Gabriel was lending the money. From their perspective, it is understandable that their impression was of Mr Gabriel being completely in the picture. However, I accept what Mr Gabriel says about the meeting. If he had been told that his money was to be used in order, effectively, to discharge some of the bank indebtedness of Mr Little's own company, I have no doubt that he would have protested forcefully. Furthermore, Mr Gabriel clearly read the facility letter before signing it. It is in my view entirely improbable that he would have raised no query at all about clause 1.5 and clause 2 if he had appreciated that they were wrong. Given what Mr Spencer's attendance note does and what it does not say and what the facility letter quite clearly states about the purpose of Mr Gabriel's loan, I am of the view that Mr Spencer's recollection about precisely what was said at this meeting is at fault.[35]Following the meeting, matters proceeded smoothly, although there was apparently quite a delay in the ultimate registration of Mr Gabriel’s charge with the Land Registry. The reasons for the delay were not explored in evidence, but nothing turns on it. Following the meeting of 7 December 2007 Mr Gabriel paid his £200,000 over to Mr Spencer who, after deduction of BPE’s costs, forwarded the balance to Mr Chapman for High Tech to discharge the bank’s charge. In fact, Mr Spencer even did this before satisfaction of one of the conditions precedent to the loan, but this caused no problem in the event.[36]What has emerged in the course of this litigation is what in fact became of Mr Gabriel’s loan money. The evidence shows Mr Little’s less than scrupulous attention to separation of the finances of the different companies under his control. Of the £150,000 plus VAT payable by Whiteshore to High Tech, £150,000 went to the bank and the VAT went to HMRC, although it was subsequently reclaimed from HMRC. The balance of the money, after discharge of the bank’s charge, was used not for any debts of Whiteshore but mainly in payment of debts of Blueshore on the Southgate street development coupled with payment of some bills in connection with building works being carried out by Mr Little on Mr Gabriel’s Lonehead house. There was some indication from the evidence that the finances of Mr Little were coming under some strain from at least about this time. Ultimately, indeed, GMAC appointed receivers over the Southgate street development in September 2008. However, I was not persuaded that any financial difficulties under which Mr Little may have been were of significance to the events with which I am concerned aside, of course, from the fact that Whiteshore has never been in a position to repay Mr Gabriel any part of his loan. SUBSEQUENT EVENTS[37]Considerable time was devoted at the trial to consideration of what happened following completion of Mr Gabriel’s loan on 13 December 2007. I should, therefore, describe the course of the main events to which the evidence was directed.[38]There was notably little or no serious discussion between Mr Gabriel and Mr Little during 2008 about the progress of any development of Building 428. Mr Gabriel mentioned that he had various conversations with Mr Little when he was told that development was "going well". Specifically, he also referred to a time in early 2009 when he was assured by Mr Little that development was "on track". In addition, there was evidence from Mrs Winston about an occasion in May 2008 when there was a formal dinner at the cookery school run by her at which both Mr Gabriel and Mr Little attended. She asked Mr Little how the development at Kemble was going. His response was that the development work was going well and that it was well underway. Mr Little disputed this evidence which was, he said, “rubbish”. In fact, he said, although some preparatory work was being done, problems were being encountered with obtaining the enhanced planning permission which he had always had in mind for Building 428. There was evidence given about work done for High Tech at Building 428, but all of this work was said to have been done for cash payments such that there were no records about it. Whilst some work may have been carried out at Building 428, I am satisfied that little or no tangible development progress was made. Indeed, it remains the case that even today no real development has ever commenced.[39]The 15 month period for payment to Mr Gabriel of £270,000 was due to expire on 12 March 2009. Until shortly before this date Mr Little accepted that he was suggesting to Mr Gabriel that he was going to get his money back. Nevertheless, Mr Little also told me that substantial difficulties were encountered with problems over the obtaining of an enhanced planning permission and problems with finding a potential tenant or purchaser for Building 428. By the due repayment date it was becoming clear that Mr Gabriel was not going to receive the £270,000. This understandably created some friction between Mr Gabriel and Mr Little. There was no way in which Whiteshore was able to meet its obligation towards Mr Gabriel. It seems that Mr Little and Mr Smith felt some sort of personal concern about this, for they agreed to make some payments by way of interest to Mr Gabriel. In the event, although payments were irregular and I was told cheques dishonoured, Mr Gabriel received over the course of 2009 a total of £8,191.56 by way of what were described as payments of “interest”.[40]During 2009 Mr Little maintained his interest in obtaining an enhanced planning permission for a larger development than had been possible under the 2004 planning permission. Thus, on 7 July 2009 a further application for planning permission was made. A new planning permission was in fact granted in August 2009, although as before it contained some conditions relating to potential contamination before development could commence.[41]Nevertheless, in October 2009 relations between Mr Gabriel and Mr Little soured. This was, Mr Gabriel told me, as a result of his discovery that effectively no development work at all had been carried out on Building 428. He had lent £200,000 for the development, but apparently none, or virtually none, of his money had been used for the purpose for which it had been paid over. Mr Gabriel made the discovery as a result of a conversation in a public house with Mr Gary Smith. The following day he went over to Kemble airfield and saw for himself that there was no visible sign of anything at all having been done by way of development since he had advanced his money in December 2007. This led to a fierce argument with Mr Gabriel complaining about his money not having been used for development and Mr Little explaining that most of the money had been used on Whiteshore buying the property from High Tech.[42]I should also record that at this time Mr Little, or perhaps High Tech to be precise, was carrying out works for Mr Gabriel at his Lonehead house. There is disagreement between the parties whether Mr Little has been paid all that is due to him for the works. The is no counterclaim in this action, although Mr Little claims still to be owed money, principally on account of what he describes as project management fees. On the other hand, Mr Gabriel told me that he has paid everything which is due as the work went along. It is not for me to resolve this dispute. However, irrespective of payment, Mr Gabriel was concerned that relations between himself and Mr Little should not become so bad that Mr Little would simply refuse to complete the Lonehead works. Accordingly, he decided to defer taking any legal action in relation to Building 428 until after the Lonehead works had been finished. An e-mail from a secretary at BPE to Mr Spencer of 19 October 2009 is consistent with Mr Gabriel's case. It records that Mr Gabriel had telephoned and says: He will be taking action against the borrower as he has not spent the money on the development it was intended for and has taken it out of the company and spent it on himself. Please do not file the charge way. He will be taking action once the development at his property has taken place as the borrower is completing works there and he needs to make sure it doesn't effect [sic] the work being carried out there.[43]In the course of discussions with Mr Little one proposal made to Mr Gabriel was that he should advance more money towards achieving development of Building 428. This caused Mr Gabriel to make enquiries as to what the costs of development were likely to be. He consulted Mr Smithies, a director of Gabriel Estates Limited. In turn, Mr Smithies consulted a quantity surveyor, Mr Middleton. Costings produced by Mr Middleton came out far in excess of any figures previously put forward by Mr Little. Mr Middleton's figures show a project total of £468,359 .98 excluding VAT without any allowance for "Statutory Fees; Architect Fees; Surveyor Fees; Plastering to Water Tower". Mr Little’s response to being shown Mr Middleton’s costings was according to Mr Gabriel:
"That's a load of rubbish. I can do it for at least half that"
. Whatever the reality of that, the disparity between Mr Middleton’s costings and the level of costs which Mr Gabriel had understood to have been put forward by Mr Little led Mr Gabriel further to mistrust Mr Little.[44]An attendance note of Mr Spencer dated 13 January 2010 shows how Mr Little was viewing matters at the time. This attendance note is of some materiality to the assessment of what Mr Spencer now says is his “crystal clear” recollection of Mr Gabriel always knowing that his loan money was to be used largely for the purchase from High Tech of Building 428. It records a telephone call from Mr Little to Mr Spencer and notes: Peter [Little] called to say that Whiteshore Associates had not been able to repay Richard Gabriel the £200,000.00 plus £70,000.00 interest by the repayment date but they were making monthly payments to our client. .......... I confirmed from the draft Facility Agreement which I had on the system that the purpose of the loan – Whiteshore Associates – was for the development of the property. Peter said that they also had to repay a large mortgage to Lloyds TSB and he would obtain a copy of the redemption statement from his solicitor. I said that the purpose of the loan wasn't really relevant but the fact they had not repaid the loan by the repayment date means that Richard can now repossess the property. Peter said he would not mind if Richard did this but it would not be to Richard’s benefit as the property is probably only worth £100,000.00. Asked Peter whether if he would want me to call Richard Gabriel and speak to him and he said that he would locate the redemption statement first and then come back to me by phone. The language of this attendance note is not easy to reconcile with the case now being advanced about it always having been obvious to everyone, including Mr Gabriel, that the Facility Letter was wholly wrong in what it says about the purpose of Mr Gabriel’s loan.[45]In any event, it was by now clear that Whiteshore was not going to repay Mr Gabriel. He consulted his present solicitors and these legal proceedings ensued shortly thereafter. SALE OF BUILDING 428 AND THE VALUE EVIDENCE[46]After taking legal advice Mr Gabriel decided to enforce his charge by selling Building 428. He instructed Allsop LLP (“Allsop”), the very well-known property auctioneers. Allsop is a national auctioneer and decided to put Building 428 into one of its so-called “residential” auctions, although it was explained by Mr Murphy of Allsop that the description “residential” is somewhat imprecise. Frequently, commercial properties are included within the Allsop residential auctions. They are called residential so as to distinguish them from the Allsop commercial auctions at which income producing properties are sold. The aim at a residential auction would be to attract interest from a speculative developer.[47]Mr Murphy explained in evidence how Allsop had taken the view that this Building 428 would be a difficult lot to sell in an unattractive location for a developer. It would be unlikely to attract much interest and, in Allsop’s view, had a virtually nil value. This assessment was reached in the light of, in particular, a poor location, likely high development costs and a weak market for office buildings. In the event it was decided that the right marketing strategy was to have a standard marketing campaign followed by an auction without giving a guide price or putting a reserve on the property. The reason for the absence of a guide price or reserve was the difficulty in fixing a figure for such an unusual property and concern that, if the property were not sold, it might become even more difficult to sell subsequently.[48]Ultimately, Building 428 was put into the Allsop July 2010 residential auction. A transcript shows a certain amount of competitive interest in the bidding, but eventually Building 428 was sold for £13,000. In fact, the highest and successful bidder was Mr Little himself. Clearly, the sale by auction involved Mr Gabriel in a certain amount of expense. He has contended through his solicitors in this litigation that the expenses of sale exceeded by a considerable margin the gross selling price of £13,000. The Defendants do not dispute that I should treat the expenses of sale as eliminating any profit on the £13,000, although they do suggest, for reasons which I can understand, that the figures for expenses as submitted by Mr Gabriel’s solicitors following the trial are excessive. Nevertheless, it is common ground that, on account of expenses, the actual ultimate realisation on Building 428 was nil.[49]I heard evidence not only from Mr Murphy of Allsop but also from both quantity surveyors and valuers, although this evidence was very brief and revealed only limited disagreement. As far as the quantity surveyors, Mr Miller and Mr Wilkins, were concerned, their evidence scarcely diverged. Indeed, Mr Miller was unnecessarily called to give oral evidence since he was asked no questions at all in cross-examination, and Mr Wilkins was only asked a very few questions. The quantity surveyor evidence was directed towards a potential development cost as at and after the approximate time when Mr Middleton produced his incomplete figure of £468,359.98 plus VAT. Mr Miller came up with a higher figure of £667,804.73, although this excluded some potentially sizeable items such as professional fees. Mr Wilkins, on the other hand, thought that it might be possible to make some savings on certain costs envisaged by Mr Middleton but was of the view that an ultimate cost would tend more towards Mr Miller’s figure. Broadly, both quantity surveyors agreed that Mr Middleton’s estimate was on the low side but there was some disagreement as to precise amounts and as to potential savings. What this evidence did demonstrate was that the actual costs of developing Building 428 were likely to be so high as make any development along the lines envisaged by the 2009 planning permission uneconomic. It also casts doubt on the figures being mooted for development cost by Mr Little in 2007 whether one takes what Mr Gabriel says about that or even what Mr Little himself says.[50]The two valuers who gave evidence, Mr Heming and Mr Pratt, were like the quantity surveyors not far apart by the time they came to give evidence. They both addressed the question of the value of Building 428 at the time when it came to be sold at auction by Allsop for £13,000 in July 2010. Initially, Mr Pratt had put forward a value of £95,000. However, this was on the basis of a residual valuation founded on an unrealistic estimate of development cost, and Mr Pratt did not seek to support it. In fact, his view was that a development of Building 428 along the lines envisaged in the 2009 planning permission was simply not viable. Giving a value was a most uncertain exercise. It was an unusual building and there were no comparables. A developer would be unlikely to want the building and it was a “difficult” market. In fact, Building 428 had been on the market through local estate agents for some 9 months by the date of trial and no sale had been achieved. Mr Heming thought that it would be hard to find a buyer for this building in its current undeveloped state. A buyer with uncommon and individual characteristics would be required. Ultimately, the consensus between the two valuers was that a figure in the order of around £40,000 would not be inappropriate, although neither was able to point to any firm supporting material and both were understandably cautious about giving a figure for what was on any showing an unconventional property with some imponderables such as possible contamination.[51]It is right to say that both Mr Heming and Mr Pratt would not have agreed entirely with the way that Building 428 was in fact marketed when Mr Gabriel came to realise his security. Mr Pratt, a Gloucestershire based surveyor, would have preferred to see the market tested through a local estate agent before it was auctioned by a national auctioneer. Mr Heming agreed, although he correctly drew attention to the high reputation of Allsop as an auctioneer and he was by no means sure that marketing through a local agent would in fact have led to a better price being obtained. Similarly, both Mr Heming and Mr Pratt were surprised that Allsop had neither published a guide price nor put any reserve on the property at its auction. Both were in agreement that there had been a considerable fall in office property values in 2008. THE CASE FOR MR GABRIEL[52]As I noted at the outset of this judgment, the case for Mr Gabriel was formulated in several different ways. However, Mr Booth QC on behalf of Mr Gabriel devoted the major part of his cross-examination and submissions, as far as the case against Mr Little and High Tech was concerned, to an attack on Mr Little’s honesty. He readily acknowledged that this is a case where the facts and Mr Little’s state of mind are critical to any analysis of the applicable legal principles. The primary case against Mr Little was put in the tort of deceit; an alternatively pleaded case in negligent misrepresentation faced obvious difficulties and was not pursued. Mr Booth correctly accepted that in order to make out the case in deceit against Mr Little he would have to establish(1) a factual representation(2) on which Mr Gabriel relied and which was both(3) false and(4) made dishonestly as a result of which(5) Mr Gabriel suffered damage.[53]As summarised at paragraph 21 of the Amended Particulars of Claim, two representations were alleged. First, there was a representation made both orally and in the facility letter of 7 December 2007 that Mr Little intended that he (or Whiteshore) intended to use Mr Gabriel’s loan for the purpose of developing Building 428. Secondly, there was said to have been a representation made orally that Mr Little genuinely believed that the cost of development would be £200,000. Whilst the alleged representations were formulated as statements of intention or belief rather than statements of existing fact, it was not suggested that this was a defect in the claim in deceit. Both alleged representations were factual in that they conveyed statements as to Mr Little’s state of mind.[54]Whilst it was strenuously denied by Mr Bradley on behalf of Mr Little that there was any false representation, he did not in his closing submissions suggest that, if there were either of the alleged representations, there was no reliance by Mr Gabriel. It is nevertheless right to say that it was part of the case of Mr Davie QC for BPE that Mr Gabriel would in any event have lent the £200,000 irrespective of the accuracy of the representations. As for the falsity of the alleged representations, there is no doubt that Mr Little never intended Mr Gabriel’s loan to be used for the actual development of Building 428. Moreover, there is no doubt that, if Mr Little had given a figure of £200,000 for the cost of development, this was not a figure which he genuinely had in mind.[55]As I have already observed, Mr Booth at the forefront of his submissions put Mr Little’s honesty in issue. He submitted that no honest man could have said that Whiteshore was borrowing money from Mr Gabriel for the development of Building 428 when the true intention was to pay the major part of the loan money over to High Tech so as to reduce its bank indebtedness. There were obvious difficulties stemming from the fact that plainly Mr Little accurately informed his solicitor, Mr Chapman, about the purpose for which Mr Gabriel’s money was to be used, and Mr Chapman was unsurprisingly open about this purpose when communicating with Mr Spencer. Mr Booth sought to explain Mr Little’s apparent openness with his own solicitor as part of some cunning scheme to cover his own tracks. As for the potential costs of developing Building 428, Mr Booth submitted that £200,000 was such an unrealistically low figure that Mr Little could not in truth have thought that it could have any basis.[56]Damage from any assumed deceit, insofar as Mr Gabriel advanced his money but received effectively no repayment, was not in dispute. It was, however, submitted by Mr Booth that there was further damage in that Mr Gabriel, not having been repaid within 15 months, found himself without the funds which he would have used on another property investment. He suggested an inquiry as to damages to cover this aspect of the case.[57]In the light of the wording of the facility letter, Mr Booth submitted that Whiteshore held Mr Gabriel’s loan money on trust for the money to be applied for a particular purpose, i.e. the development of Building 428. He relied on the well known case of Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567. Mr Booth referred me to the speech of Lord Millett in Twinsectra Ltd v Yardley [2002] 2 AC and submitted that the fundamental question was whether or not the loan money could be freely applied by Whiteshore. He pointed out that Lord Millett did not suggest that an instrument creating a trust of the kind in issue had to use words such as “sole” or “exclusive” to describe the purpose. Furthermore, Lord Millett did not make it a requirement of a Quistclose trust that the putative trust money was to be placed in a segregated bank account as had occurred in the Quistclose decision itself. The payment of Mr Gabriel's money by Whiteshore to, or for the benefit of, High Tech and its use for purposes other than development of Building 428 was, it was contended, a clear breach of trust. Given what he submitted was Mr Little’s evident dishonesty, Mr Booth consequently submitted that he was liable to Mr Gabriel for dishonest assistance in a breach of trust.[58]Turning to the position of High Tech, Mr Booth also predicated his case against High Tech on the facility letter having created a trust. Assuming that to be so, High Tech had received trust money in the knowledge that there was a breach of trust in that the money had been paid to it rather than being applied to the purpose for which the money had been paid. Thus, High Tech was liable for knowing receipt of trust money. In any event, the submission was that Mr Gabriel had a restitutionary remedy against High Tech because it could not "in conscience" retain money to which it had never been entitled and by which it had been unjustly enriched.[59]Mr Gabriel’s case against BPE was framed in the Particulars of Claim principally in negligence, but also for providing, it was said dishonestly, assistance to a breach of trust by Whiteshore and for breach of fiduciary duty. It is right to say that Mr Booth, rightly in my view, made no separate submissions in support of a case based on breach of fiduciary duty. Liability for assisting in a breach of trust would, of course, depend on establishing the existence of a Quistclose trust under which Whiteshore had received Mr Gabriel's loan, as well as establishing that Mr Spencer was actually dishonest. The suggestion of dishonest conduct on the part of Mr Spencer was founded essentially on his(1) having known that Mr Gabriel was lending money for the development of Building 428, as reflected in the facility letter which he had drafted yet(2) paying the money (less legal costs) over to High Tech for the acquisition, not the development, of the property.[60]The claim for professional negligence was founded on the duty, as to which there was no dispute, to exercise reasonable care and skill. The way in which this duty was broken was framed by Mr Booth in a number of different ways. However, in essence the alleged breach may materially be summarised under three headings. Firstly, and in the forefront of the submissions, Mr Booth relied upon the disparity between the wording of the facility letter as drafted by Mr Spencer and what Mr Spencer had learned from both Mr Little and Mr Chapman about the purpose for which the £200,000 was being borrowed from Mr Gabriel. Mr Spencer was, it was submitted, on any showing guilty of an egregious error in the drafting of the facility letter. Secondly, it was suggested that Mr Spencer was in breach of his duty towards his client in not making it plain to his client, Mr Gabriel, the purpose for which his loan money was in fact going to be used, that is in large part paid over to a company owned and controlled by Mr Little. Thirdly, it was said that Mr Spencer was in breach of duty in failing to warn Mr Gabriel about the imprudent nature of the transaction, on the basis that his loan money was effectively, and almost entirely, to be deployed simply for Mr Little’s benefit in reduction of High Tech’s bank indebtedness.[61]On the assumption that there was breach of duty, then Mr Booth submitted that Mr Gabriel was entitled to recover as damages the £200,000 which he had loaned to Whiteshore. On the particular facts of this case, there was nothing to be set against this figure. After taking into account the costs of sale, the realisation of Building 428 produced nothing. It is true that some modest amounts were paid by Mr Little and Mr Smith to Mr Gabriel. However, Mr Gabriel was entitled to interest on the £200,000 and small amounts which he had been paid represented less than interest to which he was entitled. As a result of the breach of duty, Mr Gabriel had entered into a transaction into which he would never have entered had he known what Mr Spencer in fact knew about the use to which his loan was to be put. Whilst the fact that this was a ‘no transaction’ case was not conclusive, the present was a case which came within the second category of cases considered by Lord Hoffmann in Banque Bruxelles SA v Eagle Star [1997] AC 191 at 214E-F. Accordingly, Mr Gabriel should be entitled to recover all his losses as a result of entry into the loan. THE CASE FOR MR LITTLE AND HIGH TECH[62]Like Mr Booth for Mr Gabriel, Mr Bradley for Mr Little and High Tech concentrated very much on the facts. On Mr Bradley’s case, Mr Gabriel knew perfectly well that the intention was to use his loan so that Whiteshore could acquire Building 428 from High Tech free of the bank’s charge. Mr Gabriel was not telling the truth about what he knew. Although Mr Spencer had mistakenly included in the facility letter the description of the loan’s purpose as being to assist with the development of Building 428, Mr Gabriel knew all along that this was incorrect. He never relied upon what the facility letter said. He was now adventitiously seizing upon Mr Spencer’s error in order to construct a case. It was suggested that Mr Gabriel had trumped up a case in order to try and avoid payment to Mr Little of money owed for the work done on Mr Gabriel’s Lonehead house.[63]In support of the contention that Mr Gabriel knew perfectly well that his loan was in large part to be expended on a purchase of the property by Whiteshore, Mr Little relied on the following. First, there was Mr Little's own evidence that he had told Mr Gabriel exactly what he intended to do. Second, he relied on what he and Mr Chapman had explicitly told Mr Spencer, Mr Gabriel’s solicitor. It was unrealistic to suppose that Mr Gabriel's own solicitor had not told Mr Gabriel what he was being told by the other party to the transaction. Thirdly, Mr Little also relied on Mr Spencer's evidence about his communications with Mr Gabriel and what occurred at the completion meeting of 7 December 2007.[64]Even if, which Mr Bradley did not accept, it were the case that Mr Spencer did not in fact tell Mr Gabriel what he had learned from both Mr Little and Mr Chapman, this did not matter as far as Mr Little was concerned. Mr Bradley referred me to passages in a number of textbooks dealing with the effect of communication about the true position to a third party's agent. In such circumstances, aside from the highly unusual position where the third party and his agent were engaged in a fraud, the third party cannot rely on his personal ignorance when his duly authorised agent knows the true position. I was referred to a passage in the judgment of Sir Nicholas Browne-Wilkinson VC (as he then was) in Strover v Harrington [1988] 1 Ch390 at 409-10: 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.[65]As for the claims against Mr Little for dishonest assistance in a breach of trust and against High Tech for knowing receipt of trust property, these claims all depended on the existence of any trust. In reality, there was no trust and the loan money had been received by High Tech exactly as, and for the purpose, intended. In any event, Mr Little had certainly not been dishonest. It was inconceivable that Mr Little could have been engaged on a fraud along the lines suggested by Mr Gabriel whilst at the same time being completely open with Mr Gabriel's solicitor and his own solicitor about exactly what he was contemplating. THE CASE FOR BPE[66]For BPE Mr Davie QC endorsed Mr Little's view of the facts and his evidence. He, too, suggested that Mr Gabriel was not telling the truth and knew perfectly well what his loan money was to be used for. Mr Davie pointed to the inherent improbability of Mr Little agreeing with Mr Gabriel that his £200,000 would be used on development for Building 428 whilst at the same time telling Mr Gabriel's solicitor and his own solicitor exactly what he in fact intended. There was no credible case of fraud against Mr Little. As Mr Davie put it: “The hallmark of fraud is guile, not openness and letting events take their natural and probable course".[67]It was, of course, BPE's case that both Mr Little and Mr Spencer had spoken with Mr Gabriel about the latter's money being used largely in order to fund a purchase by Whiteshore. I have already noted how Mr Spencer said that this was the basis of his instructions from Mr Gabriel, although unfortunately there is no note or other written record of the instructions. I have also noted the conflict of evidence about what occurred at the completion meeting of 7 December 2007. On BPE's case Mr Spencer simply made a mistake in his drafting of the facility letter. The mistake arose because Mr Spencer was using the prior draft facility letter for the Southgate Street development as a kind of template. Nevertheless, the suggestion was that Mr Gabriel was in no way misled by this mistake and knew precisely what was the real purpose of the loan.[68]In response to the suggestion that Mr Spencer should have warned Mr Gabriel about the evident improvidence of the transaction, Mr Davie submitted that this was not a case where Mr Spencer had any obligation to consider the commercial wisdom of what Mr Gabriel was contemplating. Mr Gabriel himself accepted in evidence that he never sought advice about the wisdom of the transaction from Mr Spencer. I was reminded by Mr Davie that, of course, the extent of a solicitor's duty is determined by the limits of his instructions. Furthermore, although at first sight it seems curious that Mr Gabriel should be lending money for what was in truth the benefit of Mr Little and High Tech alone, it has to be remembered that Mr Gabriel stood to make a very good return on his loan in a short space of time.[69]If Mr Spencer was in breach of duty in his drafting of the facility letter, there were various reasons why BPE was not liable in damages or not liable for the full extent of the damages sought against the firm. Firstly, it was submitted that the claimed losses did not fall within the scope of BPE's duty. If Mr Spencer was in breach of duty by not informing Mr Gabriel, whether in the facility letter or otherwise, that his money was to be applied to the purchase of Building 428, the breach was in the failure to supply information. Such a breach fell within the first category of the two types of case considered by Lord Hoffmann in the Banque Bruxelles case at [1997] AC 191 at 214E-F. Where there was a duty only to supply information upon which the client would make up his own mind whether or not to proceed, a solicitor would not be liable in damages for all the consequences of the client entering into a transaction. The only foreseeable consequence of the breach of duty was damage caused by the information itself being wrong.[70]Next, Mr Davie submitted that it was not foreseeable that, if Mr Gabriel had been told that his money was to be used for the acquisition of Building 428, he would not have lent the money. Indeed, Mr Davie submitted that in reality Mr Gabriel would have lent money irrespective of the purpose for which his loan was to be made. He was happy to lend money at Mr Little's suggestion in the expectation of a generous return on the principal amount of the loan without concerning himself about what was to be done with the money. In any event, the alleged breach of duty did not affect the value of Mr Gabriel's security for the loan, that is Building 428 itself. The true combination of Mr Gabriel's loss was(1) an unwise investment(2) a steep decline in the property market and(3) the impecuniosity of Whiteshore, the borrower.[71]The claim for increased damages arising from an absence of funds for making a further investment when the loan was not repaid was obviously unsustainable. Moreover, there were two reasons why any damages due to Mr Gabriel should be reduced. First, there was contributory negligence. Mr Gabriel was an experienced businessman who entered into a transaction without taking any precaution whatsoever. He made no enquiry about Whiteshore's ability to repay, he obtained no valuation of Building 428 and he sought no costings or other information about the proposed development. Furthermore, Mr Gabriel failed to mitigate his loss by simply instructing a firm of national auctioneers, Allsop, who put the property in the wrong kind of auction and without any reserve or guide price. The result was that the gross proceeds of sale were only £13,000 whereas it was common ground in the evidence that the value was £40,000.[72]Finally, Mr Davie submitted that the claim against BPE for dishonest assistance in a breach of trust was doomed to fail. There was no trust. Furthermore, Mr Gabriel had expressly accepted in evidence that Mr Spencer had not been dishonest. Even if BPE’s factual case about Mr Gabriel having always known the true position were not accepted, this was a case of an innocent error by Mr Spencer. There was nothing to support a serious allegation of dishonesty against a solicitor. DISCUSSION: LIABILITY – MR LITTLE AND HIGH TECH[73]I agree with Mr Booth that the present case turns very much on my conclusions of fact. I have already set out my impression of the evidence given by both Mr Gabriel and Mr Little and described the facts as I have found them. I accept that following the meeting at the Red Hart public house Mr Gabriel was under the impression that Mr Little wanted him to lend money for the development of Building 428. There was no discussion between Mr Gabriel and Mr Little about an inter-company transfer from High Tech or about the funds being provided by Mr Gabriel in order to pay off High Tech’s bank indebtedness. Moreover, I do not accept that Mr Spencer was ever instructed verbally by Mr Gabriel that he wanted to lend money for a property purchase or to the effect that he wanted to lend money so that the property could be bought by one company controlled by Mr Little from another company controlled by him. Unfortunately, Mr Spencer did not make clear to Mr Gabriel what he had been told both in Mr Little’s voicemail and in writing by Mr Chapman. I have also explained what occurred at the completion meeting. The facility letter, as drafted by Mr Spencer and signed by Mr Little and read and signed by Mr Gabriel, speaks for itself. I am quite satisfied that, as far as Mr Gabriel was concerned, it was a projected development of Building 428 which led him to be willing to advance £200,000. As far as the costs of the projected development are concerned, there was discussion around this figure. Nevertheless, I doubt that it was ever understood by Mr Gabriel as a certain amount. It was never more than a very rough approximation.[74]There is an important area where I am unable to accept the case for Mr Gabriel. Mr Little did speak enthusiastically to Mr Gabriel about development of Building 428, but I am 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. I do not think that Mr Little ever addressed his mind to what Mr Gabriel was likely to be thinking. Moreover, although the facility letter, which Mr Gabriel read before signing at the completion meeting, clearly identified the purpose of the loan, I do not think that Mr Little would have taken this in from his “flick through” of the document. The reality was that he gave no thought to Mr Gabriel’s understanding of the matter at all. 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.[75]There is no doubt that Mr Spencer, as Mr Gabriel’s solicitor, was explicitly told about the intention to use Mr Gabriel’s loan money for Whiteshore to purchase Building 428 from High Tech. If he had applied his mind to the matter, he would have realised that the facility letter was wrong. 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 about how he would be “very slow to allow the effects of actual fraud to be nullified by constructive notice”. Possibly, this is to be understood as applicable to a case where the agent himself is implicated in a fraud, but in any event the premise of the argument is that Mr Little was fraudulent. I do not accept the premise.[76]I now address the case based on the provision of dishonest assistance in a breach of trust. It must first be established that the facility letter created a so- called Quistclose trust. Whilst the facility letter does, of course, identify the purpose of the loan, I do not consider that simply by doing so it created a trust. In Twinsectra Lord Millett observed at [2002] 2 AC 164 at [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 atrust. 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. In the present case the purpose of the loan was spelt out in the facility letter. But, as Lord Millett said, that is not enough to create a trust. In the present instance, I note that(1) the instrument does not use a word of exclusivity such as “only” to describe the purpose and(2) there is no requirement to keep the loan money separate such as in a special bank account. To this extent the facts are different from those in Quistclose itself. Mr Booth is correct that neither of these features has been said in the authorities to be requirements for the creation of a Quistclose trust. Nevertheless, their combined absence is in my view of materiality. When one also bears in mind the inherent uncertainty in the word “development”, I am reinforced in my view that no trust was created. It may be easy to see that purchase of a property is not development of that property. However, the range of matters which might or arguably might not come within “development” is potentially great. It would be far from straightforward to be certain what did or did not come within the trust if one were held to exist.[77]It is commonplace for loan instruments to describe the purpose of a loan but the potential ramifications for holding that a trust is thereby created are wide ranging. There is nothing out of the ordinary in the case of the facility letter here. Moreover, Whiteshore as the recipient of the loan did not receive Mr Gabriel’s money on the basis that it was only to be spent on development; as far as Mr Little was concerned, not having taken in what the facility letter said, Whiteshore was receiving the money so that it could in large part be paid over to, or for the benefit of, High Tech. I reject the contention that a trust was created. It follows that High Tech can have no liability to Mr Gabriel for knowing receipt of trust property, nor can Mr Little be said to have assisted in a breach of trust. As for the claim against High Tech for money had and received, Mr Booth did not make any oral submissions about this. However, since there is nothing to suggest that Mr Little or High Tech would have thought there was reason why the money should not go to High Tech, I need say no more about this way of putting the claim.[78]I not only reject the argument that a trust was created. I also do not accept that dishonesty on the part of Mr Little has been established. He did not realise that Mr Gabriel was under the impression that his money was only for the purpose of developing Building 428. Mr Little certainly did not set out to deceive. I agree with Mr Davie and Mr Bradley that the voicemail message left by Mr Little for Mr Gabriel’s solicitor is inconsistent with the suggested deception. Similarly inconsistent with such an intended deception is the information which he openly provided to his own solicitor and which the latter passed to Mr Spencer. I agree with Mr Davie that complete openness with both one’s own and the counterparty’s solicitor can scarcely be called a badge of fraud. I do not think that Mr Little can be said to have had, as it was put in Barlow Clowes International Ltd (in liquidation) v Eurotrust International [2006] 1 WLR 1476 at [16], “consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour”.[79]In the result I dismiss the claims against both Mr Little and High Tech. I now turn to address the claim against BPE. DISCUSSION: LIABILITY – BPE[80]Given that there was no trust, there can be no liability for assisting in a breach of trust. In fairness to Mr Spencer I should also make it quite clear that there is no question of any dishonesty on his part. The claim for breach of BPE’s duty to exercise reasonable care and skill is, however, a different matter.[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 Building 428. 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 Building 428. 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”. There was no reason to believe it had any assets other than what Mr Gabriel himself was providing. This special purpose vehicle was effectively controlled as a practical matter by Mr Little. As for Mr Gabriel’s funds, they were to be utilised for Mr Little’s sole benefit in that they were to go in reduction of the bank indebtedness of a company wholly owned and controlled by Mr Little. The only quid pro quo was the transfer of Building 428 from one of Mr Little’s companies to, effectively, another of his companies. Mr Little was receiving the benefit of Mr Gabriel’s funds but putting up nothing at all himself. It is true that Mr Gabriel was being given a charge over Building 428, but the amount which it would realise if it had to be sold as a partially derelict and undeveloped building was necessarily uncertain.[84]In the above circumstances the question arises whether Mr Spencer had a duty to counsel Mr Gabriel against the transaction in the same way as he had advised against the abortive proposal to invest in the Southgate street development. The starting point is, of course, that a solicitor’s duty is to be measured against his retainer. This has been well settled at least since Midland Bank Trust Co v Hett Stubbs& Kemp [1979] Ch 384. Moreover, unless instructed expressly a solicitor does not normally have a duty to advise on the commercial wisdom of a transaction particularly where, as here, the client is an experienced businessman. It was explained in Pickersgill v Riley [2004] PNLR 31: 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 A.C. 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] P.N.L.R. 26 5 Sir Thomas Bingham M.R. 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 L.J. 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 L.J. 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. I think that this passage accurately reflects the legal position.[86]Applying the above principles to the facts of this case, I accept that Mr Spencer had no duty to advise Mr Gabriel as to the commercial risk inherent in this loan. Nevertheless, from what he learned as Mr Gabriel’s solicitor he should in my view have explained to Mr Gabriel that, although he 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.[87]I am clearly of the view that BPE is liable for Mr Spencer’s failure to exercise reasonable care and skill. For completeness, I should also note that there were two other areas where Mr Spencer fell into error. First, he paid away Mr Gabriel’s funds before satisfaction of the conditions precedent set out in the facility letter and, secondly, the charge which he drafted only secured the principal amount of £200,000 and not the return of £70,000. However, I leave those errors out of account since in the event neither caused Mr Gabriel any loss. I therefore consider the damages recoverable in respect of the breaches of duty which I have identified above. DISCUSSION: DAMAGES[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 Building 428 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. It seems to me that the present case is not one in which Mr Spencer was being only asked to provide information on some discrete aspect of a proposed transaction like a valuer being asked to provide a valuation of property for security purposes; nor, on the other hand, is it one where Mr Gabriel expressly sought advice as to what he should do. Mr Spencer’s duty was to draw up a facility letter which reflected the proposed transaction and accurately to inform Mr Gabriel of the nature of the loan transaction into which he was entering and why his £200,000 was being borrowed.[90]I fully accept that BPE would not be liable for the consequences of Whiteshore not repaying Mr Gabriel’s loan insofar as that was caused by its impecuniosity: Haugesund Kommune v Depfa ACS Bank [2011] PNLR 344. But, this is not a case where it was ever contemplated that the “clean vehicle”, Whiteshore, would be able to repay Mr Gabriel other than from proceeds of the developed property. Also, I agree with Mr Davie that BPE would not be liable if what Mr Gabriel had in mind, that is expenditure of about £200,000 on a property which would not have an acquisition cost, was unviable and bound to fail so that Mr Gabriel would never have recovered his loan. Certainly, the evidence was to the effect that what was being proposed for Building 428 was likely to cost far in excess of £200,000. Nevertheless, I am not persuaded that no development whatsoever, particularly with Mr Little’s own company doing the construction, could have been achieved so as to make Mr Gabriel’s investment of £200,000 a viable proposition. Clearly, there would have been risks, not least from the unusual nature and location of the property, and it is quite possible that development plans would have required re-thinking. But, I do not think it would be right for me to conclude that this was necessarily going to be a doomed venture for Mr Gabriel from the outset.[91]In the present case Mr Spencer’s breach of duty meant that Mr Gabriel was not able to know the true nature of the loan transaction into which he was entering. He was thus deprived of the choice whether or not to enter into the transaction with knowledge of its true nature. As I have concluded, he would not have entered into the loan if he had known what was known to Mr Spencer. In these circumstances, it seems to me that it was quite foreseeable that if BPE’s duty was broken in the way which occurred Mr Gabriel would be likely never to recover his loan and have to depend on recovery from disposal of a wholly undeveloped property in a poor state of repair. Doubtless, the fall in property values in 2008 made this disposal more problematic, but it cannot be said that it was that fall which caused Mr Gabriel’s loss. It is my view that in the particular circumstances of this case Mr Gabriel is, subject to any questions of contributory negligence and mitigation, entitled to recover all his losses from having entered into this transaction. In coming to this conclusion, I have endeavoured to follow the approach of Chadwick J in Bristol West Building Society v Fancy Jackson [1997] 4 All ER 582 (insofar as he addresses the case of Steggles Palmer) and of the Court of Appeal in Portman Building Society v Bevan Ashford [2000] PNLR 344.[92]It is suggested by Mr Davie that Mr Gabriel should have been put on the alert at the completion meeting of 7 December 2007 when he could see that the solicitors were exchanging documentation. Mr Gabriel had no reason to be suspicious and was fully entitled to expect that his solicitor would draw up accurate documentation. It was also suggested that Mr Gabriel contributed to his own misfortune in making no inquiries about Whiteshore, declining a personal guarantee, obtaining no valuation of Building 428, not checking development costs and not linking stage payments of his loan to progress of a development. These criticisms would perhaps have force in a wholly arms length commercial transaction between businessmen unknown to each other. However, this was an arrangement between close friends, one of whom was godfather to the other’s child. Mr Gabriel had no reason to mistrust Mr Little at all. It is quite understandable in the circumstances that at the time he had no reason to doubt that the terms of the facility letter would be observed.[93]As for the suggested failure to mitigate loss, it would be incumbent on BPE to demonstrate positively that Mr Gabriel acted unreasonably when it came to realising his security. The law does not demand too high a standard from the victim of a tort or breach of contract. Certainly, criticisms may be made of the way in which Allsop marketed Building 428. Others may well have acted differently. Nevertheless, Allsop are a very well known national firm with a high reputation. I do not think that Mr Gabriel can be criticised for going to that firm or following its advice on marketing strategy for this particular property. Mr Murphy of Allsop explained to me the thinking behind various marketing decisions about which differing views have been expressed. I can understand why others might have taken a different approach to marketing this property from that taken by Allsop, but that is not the same as saying that Mr Gabriel acted unreasonably.[94]Mr Gabriel is entitled to be compensated for all his loss by BPE. The starting point is his expenditure of £200,000. From that figure must be deducted £8,191.56, the total of what Mr Gabriel and Mr Smith had repaid Mr Gabriel by the time their payments stopped. There is some logic in Mr Booth’s argument that these payments are to be treated as interest and ought not to be deducted from damages. Nevertheless, I adopt the conventional approach of calculating damages by way of calculating payments and recoveries before any question of interest arises. In principle, money recovered from realisation of Building 428, the security, would also be deductible, but it is common ground that the net amount realised by Mr Gabriel was in fact nil. Accordingly, there is nothing to be deducted on this account. I dismiss the claim for further loss said to have been suffered by Mr Gabriel from not having been repaid £270,000. It is claimed that he lost an opportunity to make a further investment by not having the funds available. There is no suggestion of any special circumstances relating to Mr Gabriel’s financial position being known to BPE at the time of the breach of duty. It could not have foreseen the additional loss said to have been suffered by Mr Gabriel. This head of damage is clearly too remote to be recoverable. Based on my judgment, Mr Gabriel is entitled to recover damages in the sum of £191,808.44 from BPE for breach of its duty to exercise reasonable care and skill. CONCLUSION[95]In the result, I dismiss the claims against Mr Little and High Tech, but I award damages in the sum of £191,808.44 against BPE. I will, of course, hear the parties on any consequential orders arising out of this judgment.

Cited in 1 later judgment