Gabriel v Little & Ors

A loan expressed to be for a particular purpose does not of itself create a Quistclose trust. The court must consider the wording and commercial context, including whether the money was to be applied exclusively for that purpose and whether segregation was required.

A solicitor’s duty is measured by the retainer, but extends to warning a client of a material risk which the solicitor discovers while carrying out the retainer. Where the solicitor’s breach deprives the client of an informed choice and the client would not have entered the transaction, losses within the scope of the duty may be recoverable, subject to causation, remoteness, contributory negligence and mitigation.

The claimant lent £200,000 to Whiteshore Associates Limited under a facility letter stating that the money was to assist with the development of Building 428. In fact, most of the money was paid to High Tech Design & Build Limited, a company controlled by the first defendant, to discharge its bank indebtedness following a transfer of the property to Whiteshore.

The claimant alleged deceit and dishonest assistance against the first defendant, knowing receipt and money had and received against High Tech, and professional negligence and related liabilities against BPE Solicitors and BPE Solicitors LLP. The central issues were whether the facility letter created a Quistclose trust, whether the first defendant acted dishonestly, and whether BPE’s drafting and failure to explain the transaction caused recoverable loss.

1. Claims against Mr Little and High Tech. The claimant understood that his money was being advanced for development, but Mr Little had not made a representation which he knew to be false or about which he was reckless. The evidence did not establish dishonesty. Knowledge communicated to the claimant’s solicitor also meant that there was no actionable misrepresentation about the intended use of the money.
2. No Quistclose trust. Applying the reasoning of Twinsectra Ltd v Yardley [2002] 2 AC 164, identifying a purpose for a loan is insufficient. The facility letter contained no exclusivity requirement, did not require segregation of the money, and used the uncertain term “development”. The combined absence of those features was material. Whiteshore therefore received the money as a borrower with no trust obligation. The claims for dishonest assistance and knowing receipt accordingly failed.
3. BPE’s duty. BPE made a serious drafting error by reproducing development-purpose wording which did not reflect the transaction. Further, having learned that most of the money would immediately benefit Mr Little’s company, the solicitor had a duty to tell the claimant that fact. The solicitor had no general duty to advise an experienced businessman on the commercial wisdom of the transaction, but had to report a material risk discovered while carrying out the retainer.
4. Damages. The breach deprived the claimant of the choice whether to enter the true transaction. This was not merely a duty to supply discrete information. Applying the distinction explained in Banque Bruxelles SA v Eagle Star [1997] AC 191, the claimant could recover losses within the scope of the duty. BPE was not liable for loss caused solely by Whiteshore’s impecuniosity, but the claimant was entitled to recover the loss arising from entering the undisclosed transaction. He was not contributorily negligent and had acted reasonably in following Allsop’s marketing advice. The claim for a lost investment opportunity was too remote.
5. The claims against Mr Little and High Tech were dismissed. Judgment was entered against BPE for £191,808.44.

First-instance judgment in the High Court (Chancery Division). No prior appellate decision is stated in the judgment.