Bristol and West Building Society v Mothew

A fiduciary’s defining obligation is loyalty. A person’s fiduciary status does not convert every duty of care, or every negligent act, into a fiduciary obligation. A solicitor acting for two clients with informed consent commits a fiduciary breach only where the solicitor’s conduct involves disloyalty, inhibition by the other employment, or an actual conflict of duties.

Client money paid to a solicitor for an authorised transaction is trust money, but its authorised application is not a breach of trust. A negligent misrepresentation makes the authority voidable rather than void and cannot retrospectively make an authorised payment wrongful. For negligent information, the claimant must also prove loss within the scope of the duty. An information provider is responsible only for consequences attributable to the information being wrong.

Bristol and West Building Society v Mothew [1998] Ch 1 concerned a solicitor who acted for both purchasers and their mortgage lender. He negligently reported that the balance of the purchase price was being provided without further borrowing, although the purchasers intended to grant a second charge securing £3,350. There was no allegation of dishonesty, bad faith or deliberate concealment.

After the borrowers defaulted and the property was sold at a loss, the lender claimed in contract, negligence, breach of fiduciary duty and breach of trust. The District Judge entered summary judgment, including a money judgment for the advance less recoveries. Chadwick J affirmed that result on the basis that the solicitor held the money on a constructive trust requiring its return.

The solicitor appealed. The central issues were whether an inadvertent failure by a solicitor acting for both parties amounted to breach of fiduciary duty, whether payment of the advance on completion was a breach of trust, and what loss remained recoverable at common law.

1. Disposition. The Court unanimously allowed the solicitor’s appeal and dismissed the lender’s cross-appeal. The money judgment based on breach of fiduciary duty and breach of trust was set aside. The judgments for damages to be assessed in contract and negligence remained, and the assessment was remitted to the Chancery Division.

2. Fiduciary duty. Millett LJ gave the principal judgment, and Otton LJ expressly agreed with his analysis and reasoning on the equitable claims. Staughton LJ reached the same conclusion. A fiduciary is distinguished by the obligation of loyalty. Duties of good faith, avoidance of unauthorised profit and avoidance of conflicts are fiduciary duties; the duty to exercise reasonable care and skill is not. Equitable compensation for negligent performance of that duty is analogous to common law damages, so principles of causation, remoteness and measure of loss apply.

   The lender had knowingly employed the solicitor while he also acted for the purchasers. The potential conflict was therefore accepted with informed consent. The solicitor neither intentionally preferred the purchasers nor allowed his other employment to inhibit his performance. Nor was there an actual conflict, because truthful disclosure to the lender would not have breached his duty to the purchasers. His inadvertent mistake was negligence, not disloyalty or infidelity.

3. Breach of trust. The advance was client money held on an express or implied trust, subject to the lender’s authority and instructions to use it on completion. Those instructions had not been revoked. A negligent misrepresentation made the transaction voidable, not void, and did not automatically determine the authority. Rescission could not retrospectively convert an authorised payment into a breach of trust. Clear wording would have been needed to make authority to complete conditional upon prior compliance with every instruction; the lender’s standing instructions did not do so.

4. Common law loss. Millett LJ considered himself bound by Downs v Chappell to find reliance sufficient for the causal connection between the incorrect report and the advance. That did not establish that the whole transactional loss was recoverable. Applying Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1996] 3 WLR 87, liability for inaccurate information extends only to loss attributable to the information being wrong. Staughton LJ declined to place an appellate gloss on that decision, and Otton LJ regarded causation and damage as triable. The assessment judge was therefore required to apply Lord Hoffmann’s principles directly to the facts found.

5. The lender’s later consent to registration of the second charge did not establish waiver because there was no evidence that, when consenting, it knew the charge had been contemplated at the time of the negligent report.

• Court of Appeal: Allowed the solicitor’s appeal, dismissed the lender’s cross-appeal, set aside the equitable money judgment and remitted the assessment of common law damages to the Chancery Division.

• Chancery Division: Chadwick J dismissed the solicitor’s appeal from the District Judge. He affirmed the money judgment on the basis that receipt of the advance following the misleading report imposed a constructive trust requiring immediate restitution.

• District Judge: Entered summary judgment for damages to be assessed in contract and negligence and entered a money judgment for breach of trust equal to the advance less the lender’s recoveries.