Penn v Bristol & West Building Society

A solicitor who represents that he is authorised to act for a vendor may warrant that authority to a building society whose solicitors rely on the representation in arranging completion and advancing funds. The warranty is a collateral contract. The claimant need not have been induced to transact directly with the supposed principal, and consideration may consist of a transaction with a third party. Causation is established where the absence of authority caused the lender to advance money without obtaining effective security. For costs, the fact that costs might have been recoverable as damages in separate proceedings is insufficient by itself to justify indemnity costs. An additional factor of the kind normally supporting such an order is required.

Mrs Penn’s husband participated in a fraudulent purported sale of their jointly owned house. Her signature was forged, but the fourth defendant’s solicitor, Mr Brill, held himself out as authorised to act for both vendors. The purchaser’s solicitors also acted for Bristol & West Building Society, which advanced money against a charge that proved ineffective.

The Chancery Division held that Bristol & West had a claim against Mr Brill for breach of warranty of authority, that the breach caused its loss, and that certain costs should be taxed on the indemnity basis. The appeal concerned the existence of the warranty, causation, and the indemnity-costs order.

Lord Justice Waller delivered the leading judgment. Lord Justices Waite and Staughton agreed.

1. Warranty of authority. An enforceable warranty requires a contract by which the agent makes an express or implied promise to the claimant, supported by consideration. The claimant must establish that the promise was made to him and that he acted in reliance on it. There is no general requirement that the claimant must have been induced to transact with the supposed principal. Consideration may be supplied by entering into a transaction with a third party, and the promise may be made to one person or to a wider class, depending on the facts.
2. Application to the building society. Mr Brill represented throughout the negotiations that he was authorised to act for Mrs Penn. He knew that Gartons acted for both the purchaser and Bristol & West, and that the building society’s money and security depended on the transaction being completed with valid vendor authority. Bristol & West relied on that representation. It was immaterial that Mr Brill might not have known the building society’s precise name. The warranty was therefore enforceable by Bristol & West. The court relied on the broader reasoning in Firbank’s Executors v Humphryes (1886) 18 Q.B.D. 54, Starkey v The Bank of England (1903) AC 114, West London Commercial Bank v Kitson (1883) 12 QBD 157, and V/O Rasnoimport v Guthrie & Co. Ltd (1996) 1 LLR 1. Suleman v Shahsavari (1988) 1 WLR 1181 was materially different because the solicitor there signed the contract as agent.
3. Causation. The promised authority was authority to negotiate and complete the transaction. If Mr Brill had obtained Mrs Penn’s instructions, the transaction would probably not have completed and no advance would have been made; alternatively, it would have completed properly and Bristol & West would have obtained effective security. The breach therefore caused the lender’s loss. Heskell v Continental Express Ltd (1950) 1 All E.R. 1033 was distinguishable.
4. Costs. Order 62 rule 3(2) prevented costs incurred in the same proceedings from being recovered as damages against a third party, and an order was necessary if an indemnity was to be achieved. Order 62 rule 3(4) reflected the ordinary position that costs are payable on the standard basis unless an indemnity order is appropriate. The possibility of recovering equivalent costs as damages in a separate action was not, by itself, an additional factor justifying indemnity costs. The costs of Bristol & West’s claim and counterclaim against Mrs Penn were therefore ordered to be taxed on the standard basis.

The appeal was allowed on the costs issue and otherwise dismissed. Permission to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division): Varied the order so that Bristol & West’s costs of defending and counterclaiming against Mrs Penn were taxed on the standard basis; otherwise dismissed the appeal.
2. Chancery Division: Held that the transfer and charge were ineffective, Bristol & West had subrogation rights, and Mr Brill was liable for breach of warranty of authority and causation; ordered certain costs on the indemnity basis.