Gowling WLG's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

No clear and unequivocal promise by bank not to rely upon its strict legal rights

There needs to be clear and unequivocal evidence of a promise that a lender would not insist on its strict legal rights before a court will make a finding of promissory estoppel to that effect.

In Clydesdale Bank Plc v Gough (trading as JC Gough & Sons) and another, Clydesdale Bank PLC (the Bank) advanced substantial sums to the defendants under financing agreements which were secured by way of legal charges over two properties and a guarantee. Additional finance was required without any repayment being made and eventually the Bank demanded repayment. The defendants failed to repay the sums due. Receivers were appointed and possession of the two properties was sought.

The first defendant defended the claim on the basis that it had been agreed with the Bank at the outset that if the position arose where the Bank was not prepared to continue to support his business, he would be given the opportunity (and time) to sell assets to reduce his indebtedness to a sustainable level acceptable to the Bank. He alleged that this agreement amounted to a promissory estoppel, making it unconscionable for the Bank to appoint receivers and seek possession of the two properties, defeating his legitimate expectations.

The High Court, having considered the contemporaneous documentation and witnesses' evidence in detail, found that the first defendant's defence failed at the first hurdle. It held there was no evidence of a clear and unequivocal promise by the Bank not to rely upon its strict legal rights. Nor was there a common understanding in which it was implicit that the Bank would not enforce its charges unless the defendant had a reasonable period within which to sell assets.

The defendants had received legal advice on the Bank's documents which clearly showed that the Bank would appoint receivers in the event of a demand for payment not being met. There was no mention in the documents that the Bank would not enforce its charges until the defendants had received a reasonable period of time to sell assets.

Things to consider

This is a common argument that lenders face and it is clear from this, and similar judgments, that the courts require very clear evidence that a commercial lender has agreed to forego its strict legal rights to enforce its security where a debtor fails to pay.

Requisite knowledge for the purposes of the Limitation Act 1980

The court has recently considered when claimants had the requisite knowledge for the purposes of determining whether a mis-selling claim was statute barred under the Limitation Act 1980 (the Act).

In Orchard (Developments) Holdings plc and anor v National Westminster Bank plc, the claimants sought damages arising out of the alleged mis-selling of various interest rate hedging products by National Westminster Bank plc (the Bank) in 2002 and 2004. The claimants argued that the Bank did not provide a sufficient explanation of the hedging products or the significant break costs involved which affected their ability to refinance. The Bank applied for summary judgment on the basis that the claim, brought in negligence, was statute barred.

Section 14(A) of the Act (s14(A)) provides that a claim cannot be brought after the period of six years from the date on which the cause of action accrued, or three years from the date on which the claimant has the requisite knowledge to bring the claim. Time starts to run from the date when a claimant first has the knowledge required for bringing an action for damages in respect of the relevant damage. That knowledge does not have to be absolute, i.e. all of the facts do not need to be known, but a vague suspicion is not sufficient. A broad knowledge of the essence of the relevant act or omission said to be negligent and that there is a real possibility that the damage was caused by or could be attributed to it is required.

In cases where a claim is for economic loss caused through bad or incomplete advice, a claimant must have relied on that advice and have suffered damage as a result of relying upon it. Once the claimant knows the advice is flawed, and there is a real possibility that the damage was attributable to the flawed advice, time will start to run. The claimant does not have to know that the relevant acts or omissions constitute negligence. Each case will be fact specific.

On the facts of this case, it was agreed between the parties that the claim would be statute barred if the claimants had the requisite knowledge before 29 June 2012.

The claimants accepted that the contemporaneous evidence indicated they were aware of the "enormous extent of hedging break costs" at the latest on 15 December 2011 and of the lack of portability in April 2012. They argued, however, that they did not know until July 2012 that the advice they had received was "flawed or wrong", in the sense that it gave rise to a right of action. They had not had any reason to believe that the interest hedging products had been mis-sold until July 2012. This followed the first public announcement by the Financial Conduct Authority on 29 June 2012, that it would provide appropriate redress to victims of mis-selling.

The High Court found that on the evidence of email communications and minutes of meetings between the parties, the claimants had the requisite knowledge of the material facts about the damage at the latest in July 2011, and so the requirements of s14(A) were met before 29 June 2012 and the claim was statute barred. The claimants knew that they had been given flawed advice and the damage they had suffered was attributable to that advice. S14(A) did not require them to know that they had a claim for negligence against the Bank before time could run. The court found that the claimants had actual knowledge of the requisite matters. Even if they had not, they might reasonably have been expected to have acquired the relevant knowledge from facts observable or ascertainable by them with or without appropriate reasonable advice.

Things to consider

A claimant does not need to know he has a worthwhile cause of action and does not need to know the kind of detail that would be seen in well-drafted particulars of claim. It only needs to have a broad knowledge of the essence of the relevant acts or omissions and that there is a real possibility that the damage was caused by the acts or omissions in question.

The case also reaffirmed that fairness is not part of the court's decision making process, as it has no discretion in relation to the application of s14(A) of the Act. A claim is either statute barred or it is not.

Does the Law Society owe a duty of care to those using its online "find a solicitor" function?

This issue arose in Schubert Murphy v The Law Society of England and Wales (the Law Society).

In a practice note dated 15 April 2009 and in its Conveyancing Handbook, the Law Society provides advice to solicitors in relation to the risk of fraud in conveyancing transactions. It advises that if the identity of the counterparty's solicitor is not known, its status should be checked with the Law Society which is required to keep an electronic roll of all solicitors on the roll that hold a practising certificate. These details can be found on the Law Society's online "Find a Solicitor" facility (the Facility) which extracts the details from the database the Law Society keeps to comply with its statutory obligation to do so.

Schubert Murphy (SM), a firm of solicitors, used the Facility to check on an individual solicitor (and his firm) acting for the vendor in a conveyancing transaction. The Facility confirmed the existence of that solicitor and firm and SM transferred the purchase monies to the firm having accepted a (purported) solicitor's undertaking to discharge the vendor's mortgage. There was in fact no such individual or firm and the fraudster absconded with the purchase monies.

SM brought proceedings against the Law Society, claiming damages for negligence and a contribution under the Civil Liability (Contribution) Act 1978 in respect of loss it and the purchaser had suffered.

The Law Society argued that it did not owe SM a duty of care in placing names in the Facility and was not making any representations by doing so. It unsuccessfully sought to strike out the claim.

The High Court held that it was at least arguable that a duty of care did arise. It considered that the issue of whether the Law Society owes a duty of care to users of the Facility was not suitable for summary judgment, given the important ramifications for the security of conveyancing and the sort of inquiries conducted by solicitors. The Law Society appealed.

The Court of Appeal agreed with the High Court, holding that detailed findings of fact were required and that policy considerations also needed to be considered which could not be done on a summary judgment/strike out application. It held that a regulator, such as the Law Society, does not generally owe a duty of care in performance of its regulatory functions. However, the Facility was arguably an additional voluntary service going beyond the Law Society's statutory obligations. The Law Society specifically encouraged the use of the Facility to find solicitors, rather than licensed conveyancers, and the Facility did not recommend that additional checks be made. The Law Society's actions created a risk that the Facility would be relied upon. It could not be said that provision of the Facility did not amount to an assumption of responsibility by the Law Society for the information provided on it.

There is no general duty of care to prevent third parties from causing damage. However, where special circumstances existed, such as an assumption of responsibility, a special relationship or where a defendant's negligence causes or permits a source of danger to be created, a duty of care could be established. A defendant could then be held liable even though the direct and immediate cause of the claimant's loss was the fraud of a third party.

Whether a duty of care existed in the current circumstances would depend on a factual enquiry, determining how the Facility actually operated, the extent to which it identified individual users, whether it was simply providing information to the world at large and whether it went beyond the Law Society's regulatory function. The consequences of imposing, or not imposing, such a duty and the security of current conveyancing practice also had to be considered. Such issues needed to be determined at trial, not summarily.

Things to consider

If a duty of care is imposed, it will be interesting to see whether it will be limited to the circumstances of this case i.e. conveyancing transactions generally and no wider. It will also be interesting to see if the court distinguishes between a situation where information is provided orally by an individual following a telephone call, or in writing, following an email enquiry and where it is provided automatically in response to an online search as in this case.