It appeared that the whole transaction was a fraud.  The registered owners of the property had no knowledge of the transaction and the money disappeared. There was no allegation that the defendant was involved in the fraud. 

The claimant lender brought a claim for breach of trust.  Counsel for the lender argued that the solicitors did not have the authority to pay away the moneys except to achieve completion and completion was never achieved.  The solicitors’ counsel argued, however, that the authority was to pay away in connection with the purchase of the property and this is what the defendant did.

The court came down in the middle.  The authority entitled the defendant to pay away on receipt of the documents necessary to register title or if paying away before that stage, on receipt of a solicitor’s undertaking to provide such documents.  Here the solicitors paid away the money without receiving the requisite documents and without a solicitor’s undertaking to provide such documents.  As such, the solicitors were in breach of trust.

The solicitors then sought to rely on s61 of the Trustee Act 1925 which enables a trustee to claim relief for breach of trust if he has acted honestly and reasonably.  The solicitors submitted that the circumstances of the loan were unusual and the loan was approved by the lender in haste.  Even if that were the case, the court could not accept that the solicitors had acted reasonably having paid away the money to a firm of solicitors even though the necessary documentation had not been provided combined with the failure to investigate the firm of solicitors to whom they were sending the money.  

The solicitors also attempted to argue that any loss or damage suffered by the claimant was caused or contributed to by the lender because of its own fault. As the Trustee Act did not provide for this, the court were not prepared to extend the law in this way.

This case is a good example of when a claim for breach of trust can be brought.  By bringing such a claim, the lenders avoided having to show any negligence or fault by the solicitors and there was no issue of contributory negligence.

 Lloyds TSB v Markandan & Uddin [2010] EWHC 2517

The High Court said that Kall Kwik breached a duty in negligence to MGB, causing harm. Because this was a case of financial loss, MGB had to show that there sufficient proximity (or closeness) in their relationship, the loss was reasonably foreseeable as a consequence of a breach, and it was just and reasonable in all the circumstances to impose a duty of care. MGB succeeded in doing that. Kall Kwik had assumed a responsibility in acting as an adviser in helping MGB over the financial issues associated with the franchise, and it had breached that duty. All in all, the High Court decided that it was fair to hold Kall Kwik liable.

The High Court came to this conclusion despite two exclusions of liability. In the franchise agreement itself, there was an exclusion of liability, but this related to the claim for misrepresentation in inducing MGB to enter into the agreement and not for negligence in relation to performance of the agreement itself. In addition, Kall Kwik had produced a cash flow document (which contained the figure of £15,000 for the re-fitting costs) that had a disclaimer against responsibility for the contents except in the case of fraud and there was a note advising recipients to carry out their own verification of the contents; however, the Court said it was not the cash flow on which MGB had relied but the discussions about fitting costs.

MGB also successfully claimed against Kall Kwik for breaching an ancillary agreement to the main franchise agreement because of Kall Kwik’s failure to transfer certain customer data as promised.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘Franchisees often enter into one-sided franchise agreements just to have the opportunity to share in the success enjoyed by the franchisor. The franchisor generally helps the franchisee to establish its business so that the relationship ends up being a win-win situation for both of them. Inevitably, the franchisor gives the franchisee assistance and advice. Even if the franchise agreement is one-sided, this case shows that the franchisee may be able to claim under the legal head of tort rather than breach of contract. From a franchisor’s point of view, they should look at their agreements and ensure that their liability clauses are drafted as widely as possible to seek to limit liability for claims made against them under tort.’

The High Court ruled that account of profits could sometimes be claimed for breach of confidentiality, but not in this case. It all depended on the circumstances. Duties of confidentiality related to a big range of possible situations. As to whether an account of profits was available as a remedy depended on the particular type of situation and whether it would be just and equitable that the defendant should retain absolutely no profit from that particular type of situation. The nature of a duty of confidentiality could apply in the following big variety of situations:

• Akin to a fiduciary duty.
• Akin to an intellectual property right.
• Arising out of a contractual duty.
• In relation to use of private information obtained from a stranger, and therefore a situation similar to tort.

In this case, there was no fiduciary relationship or intellectual property right type situation and so an account of profits was not appropriate. The relationship was based on a contractual relationship. Therefore, damages was the appropriate remedy rather than V&P having the right to claim an account of profits.

This is a useful decision for banks as it sets out the bank’s responsibilities in the light of  its own clearly worded facility letters.  This case should also limit claims which attempt to use the bank’s advertisements as a way of unreasonably extending a bank’s duty of care.

Hall v Royal Bank of Scotland PLC [2009] EWHC B36