Martin v JRC Commercial Mortgages Plc

This is an appeal from the order of His Honour Judge Welchman in the Wandsworth County Court on 15 April 2011, by which he gave summary judgment for the respondent, JR Commercial Mortgages plc, on the appellant’s claim. The Judge dismissed the claim with costs.

In about 2007 the appellant, Mr Rick Martin, and his partner, Ms Carol Stevenson, formed a company called Relaxx Corp Ltd in order to establish a club with restaurant and leisure facilities. They found premises at 82 Durham Road, London SW20 0TL. A lease was taken and work started on refurbishing the property. Mr Martin needed a loan to complete the work.

The appellant approached a number of potential lenders, but was unable to secure their agreement to make a loan. By April 2007 Mr Lee Warriner, of First National, was acting as a broker on behalf of the appellant in trying to obtain a mortgage loan for him. Following the rejection of an application on behalf of the appellant to Royal Bank of Scotland (“RBS”), Mr Warriner sent the following email to the respondent on 1 May 2007:

“Just to keep you up to speed… I spoke to RBS this morning and they informed me that the information was in the post last night but we haven’t received it this morning so they may have missed the last post. I will progress with this as soon as I receive the information back. Can you please e-mail me a list of which banks you have proposed this to so I do not present it to the same institution. If we exhaust all possibilities with high street lenders, I have a colleague at a large brokeridge nearby who not only lends his own money but who is also a premier packager for a number of bespoke lenders which in turn allows him to work to different underwriting criteria than ourselves based on his relationship with them. He may be able to push this one through so just to let you know that there are other options. He will however charge a fee as well as the arrangement fee which the lender writes in so lets look to the high street banks before we go down this avenue because as you are aware First National don’t include a fee for our services and you would just have the lenders arrangement fee to contend with. I will keep you posted!”

The hearing of the appeal has been conducted on the basis or assumption that the reference in that email to “a large brokerage” was a reference to the respondent. In the light of the arguments before us, there are two matters mentioned about the respondent in that email which should be noted. First, Mr Warriner said that the respondent, although a broker, sometimes loaned its own money. Secondly, he said that the respondent would charge a fee in addition to the lender’s arrangement fee.

It appears that shortly after that email was sent Mr Warriner contacted Paul Arabskyj, a director of the respondent, indicating that the appellant wished to raise funds and that the original request to RBS was for £40,000 but the appellant might now want more, and providing the respondent with a pack of material in support of the enquiry.

On 4 May 2007 Mr Warriner sent the appellant an email, which included the following:

“The gentleman and organisation which I detailed to you previously is within reasonable driving distance from our offices here so I took the opportunity to drop off the pack which we sent to RBS and allowed him to peruse the information. He has subsequently come back to me requesting mortgage statements from Barclays. To proceed he would require a completed application form, £500 application fee which they charge as standard and they would require a 3% broker fee on completion. It must be taken into consideration that there will also be a lender’s fee.”

On 9 May 2007 Mr Warriner emailed Mr Arabskyj as follows:

“I have spoken to Rick Martin this morning and he has expressed his wish to increase the loan amount to 100k. He is subsequently sending through the details of the payments which he has made thus far in respect of his DTI agreement. I would appreciate if you could send the pack which I provided you with for appraisal by the lender in question so we can state categorically that the only potential obstacle that could stand in the way of completion is the valuation figure. Once we can provide the applicant Mr Martin with some kind of documented assurance of this fact he will be prepared to provide us with the application cheque and the valuation fee. I’m sure that you can appreciate this way of thinking since he will be asking for a family member to help him with cost of the valuation. ”

In the early afternoon of Friday 11 May 2007 Mr Warriner sent an email to “Margaret” of the respondent, in which he referred to “indicative terms” that he had been given by Gay Smith of the respondent. The email included the following:

“Sorry to bother you Margaret but Paul is as elusive as ever! Gay Smith has kindly sent me across some indicative terms relating to a deal in the name of Rick Martin but there is no mention of the broker fee only the fee from the lender. The lender’s fee is 3% but Paul had previously quoted me 2% from the lender and 3% from JRC. I subsequently gave the gentleman this information which equated to a 5% fee overall. I would be hesitant to go back to the applicant and ask him for 6% for a 100k loan when it was 5% for a 40k loan! Can you also confirm for me that the original copy of this letter will be on headed paper as there is no company name on the e-mail and is it possible for the letter to include the broker fee as well as the lender’s fee? I am sorry to trouble you with this Margaret but I appreciate your assistance even if it is just to bring this e-mail to Paul’s attention!!”

There then followed on the same day an exchange of communications between Mr Warriner and the respondent about the terms of the letter to be given by the respondent to the appellant. In an email sent by Mr Warriner to the respondent in the late afternoon Mr Warriner proposed wording of the letter which was different to the previous draft, with which the appellant had not been happy. Mr Warriner asked that the revised letter be considered by Mr Arabskyj, and, if Mr Arabskyj thought it suitable, Mr Warriner would pick it up on the following Monday.

It appears the wording was approved by the respondent. It was contained in the following letter on the respondent’s headed notepaper, addressed to Mr Warriner, dated 11 May 2007 and signed by Mr Arabskyj (“the 11 May Letter”), which was given to Mr Warriner.

“Dear Lee

Re: Rick Martin, Commercial Re-mortgage

We confirm that we can arrange £100,000 on a ten year term. The rate will be between 2.5 – 3%. The lender’s arrangement fee will be 2% with a further broker fee of 3% and an application fee to JRC of £500. This will only be subject to the valuation figure meeting the necessary requirements.

I hope this clarifies your requirement for your client.”

On 16 May 2007 the appellant signed a written contract with the respondent to arrange the finance (“the Contract”). Although the copy of the Contract before the Judge and before us does not bear any signature on behalf of the respondent, the appellant has not contended that it was not a binding contract. The Contract defined the “Client” to be the appellant. Clauses 3 to 5 and 7 of the Contract stated as follows:

“3.

The Client understands and agrees that the application together with all materials supplied by the client or relating to the client, including references will be the basis upon which prospective lenders offer of finance will be made and warrants to JR Commercial Mortgages Plc the truth and completeness of all information and material.

4.

The client understands and agrees that J R Commercial Mortgages Plc accepts no responsibility

For any omissions or misrepresentations on the part of the Client made in Connection with the application and that any arrangements that may Result from the application and any omissions or misrepresentations shall be entirely between the prospective lender and the Client, or

For the acts of [sic] omissions of the prospective lender or any other person in Relation to the application.

5.

In consideration of J R Commercial Mortgages Plc endeavours on the Clients behalf to procure a written offer of finance, the client shall pay to J R Commercial Mortgages Plc an Administration Fee of £500 which shall be non-refundable. It is understood by the Client that this fee is to cover the initial administration costs of J R Commercial Mortgages Plc for processing the application.

...

7.

In consideration of J R Commerical Mortgages Plc endeavours on the Client behalf, the client shall also pay to J R Commerical Mortgages Plc an Arrangement Fee of £3% of the total amount of finance for which an offer in writing is produced.”

The appellant and Ms Stevenson also completed and signed the respondent’s standard form commercial mortgage application form. The only questions contained in that application form concerning their creditworthiness were whether they or their partner had ever been adjudged bankrupt or made any composition with any creditors; whether any court orders had been made against them and, if so, what were their details and dates; and whether any court orders had been made against their company or any of their directors or partners, and, if so, what were the details and dates. They answered those questions in the negative. It is not suggested by the respondent that their answers were incorrect.

The appellant paid the respondent its fee of £500.

The respondent approached various institutions on the appellant’s behalf, but was unable to secure a mortgage loan for the appellant. The respondent claims that was due, primarily, to the appellant’s poor credit rating.

As a result of the appellant’s inability to obtain finance, his business was unable to survive and the project had to be abandoned.

Until very recently the appellant acted as a litigant in person. He has previously worked as a paralegal, but he is not legally qualified.

The Claim Form was issued by the appellant on 27 October 2009. It was hand-written and claimed £200,000 “for breach of fiduciary duty and negligence regarding the inability of the defendant to perform on an agreement to provide £100,00 to complete the refurbishment of a coffee shop and leisure facility”, which was said to have “resulted in the loss of the business, unnecessary debts, extreme financial hardship and loss of future profits”.

Following an “unless” order of District Judge Rowley on 11 May 2010, Particulars of Claim were filed on 27 May 2010. The Particulars of Claim referred to the 11 May Letter and the terms of the Contract. It was alleged that the respondent knew or ought to have known that the appellant would rely on the respondent’s skill and judgment; and that it was an implied term of the agreement between them that the respondent, in finding the lender and advising the appellant, would exercise all reasonable care and skill to be expected of an experienced, skilled and competent mortgage broker; alternatively, the respondent owed the appellant the duty to exercise such skill and care. It was further alleged that, in advising in the 11 May Letter that a loan of £100,000 would be arranged, the respondent was in breach of the implied term of the agreement and/or was negligent, and, as a result, the appellant suffered loss and damage.

In its amended Defence the respondent said (para 1(9)) that the 11 May Letter “was a mere comfort letter”, which was not intended and could not properly be construed as having been intended to give rise to a binding agreement between the appellant and the respondent. It was said that it was a mere statement of the respondent’s opinion on the information that had then been provided to the respondent, and was “a mere puff”; alternatively, the respondent’s representation was subject to contract and/or subject to the appellant providing satisfactory and/or full and accurate information about his assets and liabilities to the respondent and/or to third party lenders. The Defence further said (1(13)) that the Contract formed the basis of the dealing between the appellant and the respondent; no agreement existed between them before the Contract; insofar as the 11 May Letter constituted an offer, statement of fact, promise or unequivocal assurance (which was denied), the respondent agreed, by signing the Contract, to its express terms in extinction or variation of any right to rely upon the statement in the Letter. Paragraph 1(16) stated that the lenders approached by the respondent declined to lend to the appellant on various grounds, including non-disclosure of adverse credit. Negligence, breach of contract, the existence of a special relationship or a fiduciary relationship between the appellant and the respondent were all denied. It is not necessary, for the purpose of this appeal, to refer to other matters alleged or denied in the amended Defence.

The appellant served a Reply, in which he elaborated significantly the matters in the Particulars of Claim. It also alleged fraud or possible fraud. The allegation of a special relationship was also repeated.

The respondent issued an application dated 23 November 2009 to strike out the claim or for summary judgment against the appellant. A number of witness statements were served in opposition to the application, including ones made by the appellant, Ms Stevenson, Ms Stevenson’s mother, and Ms Avril Doyle.

As I have already indicated, the appellant appeared in person before the Judge on the hearing of the respondent’s application.

The Judge observed (at [11]) that the appellant’s oral submissions differed significantly from his pleaded case. He said (at [17] and [39]) that the allegations of fiduciary relationship and fraud had not been made out. He referred (at [21]) to the email of 11 May 2007 from Mr Warriner to the respondent referring to “indicative terms” relating to the deal in the appellant’s name. He said (at [25]) that the 11 May Letter was, on the face of it, “a very clear statement of what will be delivered” and that “it is a letter that goes a long way to indicating that this is something, and does indicate on the face of it, that the [respondent] will deliver this £100,000”. He rejected (at [40]) the appellant’s suggestion that there was a special relationship between the appellant and the respondent; and said that there was no evidence to support the fact that the defendant was incompetent or in breach of duty or did not attempt to obtain the loan. He held (at [41]) that the 11 May Letter did not give rise to any obligation in tort. He said (at [42]) that the Letter was in response to a request for “indicative terms”, and that the Contract was the only contract between the parties. The Judge summarised the position as follows in [44] of his judgment:

“He [viz. the appellant] has not established first of all there was a duty. But, beyond that, negligence does not arise unless you can establish a breach of that duty. And the duty cannot, in my judgment, have been an absolute one that they would obtain come what may a warranty, an absolute warranty, that they would obtain finance. In the circumstances here, there was an understanding, in my judgment, that this was something that was going to be done. There was a duty, obviously, to act in accordance with it, but not a duty to deliver a guaranteed result, this is under the contract, but I do not find that there was any duty, any negligence in this case, nor any other liability. And therefore the situation will be that the claim will be dismissed and there will be judgment for the defendant on the claim.”

Mr David Halpern QC, instructed through the Bar Pro Bono Unit, appeared for the appellant on the hearing of the appeal. His written and oral submissions have been extremely helpful in clarifying the grounds of appeal.

Mr Halpern made the following three over-arching submissions. Firstly, the appellant has a properly arguable case that the 11 May Letter provided the foundation for a warranty that was broken or for a claim of negligent misstatement. Secondly, the appellant has a properly arguable case that he has suffered substantial loss as a result of that breach of warranty or negligent misstatement. Thirdly, in those circumstances, it would be contrary to the overriding objective that cases should be dealt with justly to deny the appellant the opportunity of establishing his claim at a full trial.

In short, the appellant’s case on this appeal is that fairness and justice require that he be permitted to argue at a trial, with full disclosure and oral evidence, that he spent a substantial sum of money between May and the end of July 2007 on developing the proposed business in the belief that he would obtain a mortgage loan through the respondent; he only discovered the true position at about the end of July, by which time it was too late to obtain a loan from elsewhere; and, as a result of the breach of warranty, he has lost a viable and potentially valuable business. Alternatively, as a result of the misstatement, he lost the opportunity of raising loans elsewhere, which he will say that he could have done before the bailiffs moved in, and hence he lost a viable and potentially valuable business. In the further alternative, he has suffered wasted expenditure.

In the event, as a result essentially of the interventions of the Bench, the oral submissions on the appeal were almost entirely taken up with the critical issue as to whether the appellant has a real prospect of succeeding at a full trial in establishing a claim for breach of warranty or negligent misstatement. On that issue, Mr Halpern emphasised the unequivocal wording of the 11 May Letter, which the Judge himself had found striking. Mr Halpern acknowledged, and indeed relied upon, the unusual nature of such an unequivocal assurance by a mortgage broker. He submitted that it has to be seen in the context of Mr Warriner’s belief, which he communicated to the appellant, that the respondent sometimes made loans itself, and also the very limited questions about creditworthiness in the respondent’s standard commercial mortgage application form. On the former point, he drew attention to the following comment in Ms Stevenson’s witness statement:

“Even when things were getting quite bad and I asked if they could advance the money from their own funds as they said they could, I was told that they did not have enough funds to do that.”

Mr Halpern did not repeat, because he did not need to, submissions he had already made in his written Note and which we had read. In those written submissions he relied on the emails leading up to the 11 May Letter, and particularly that of 9 May 2007, as showing that the respondent knew that the appellant would rely upon the 11 May Letter. He observed in his written submissions that a mortgage broker is an agent who is likely to assume some kind of responsibility towards his client, and all the more so when the client pays an initial fee which is not dependent upon a mortgage being granted. He cited McNealy v The Pennine Insurance Co Ltd [1978] 2 Lloyd’s LR 18, in which the Court of Appeal held that an insurance broker was under a duty to use all reasonable care to see that its client, the assured, was properly covered under the insurance policy which he concluded.

As I have said, Mr Halpern acknowledged that it is unusual for a broker to give an absolute warranty, rather than the “default” position of assuming a general duty of care, but he referred to Platform Funding Ltd v. Bank of Scotland plc [2009] QB 426 as an example of such a situation. In that case a valuer was held to have given a warranty that he had valued the right property; he was therefore liable for valuing the wrong property, even in the absence of negligence. In paragraph [30] Moore-Bick LJ said:

“In my view it is better to ask whether, having regard to the facts and matters known to both parties when the instructions were accepted, the professional person assumed an unqualified obligation in relation to the particular matter in question”

Mr Halpern also relied upon the following statement of Rix LJ at paragraph [48] of that case:

“I see no reason to give any of these cases, all of them in this court, any prominence over any other. They all turn on their own particular facts. They nevertheless allow the following conclusions: (1) that the default obligation is one limited to the taking and exercise of reasonable care; (2) that it requires special facts or clear language to impose an obligation stricter than that of reasonable care; (3) that a professional man will not readily be supposed to undertake to achieve a guaranteed result; and (4) that if he is undertaking with care that which he was retained or instructed to do, he will not readily be found to have nevertheless warranted to be responsible for a misfortune caused by the fraud of another. It follows from the jurisprudence and from these conclusions to be derived from them, however, that it is not possible to support a blanket approach whereby, even in the absence of an express warranty, a professional's responsibility is nevertheless always limited to the taking of reasonable care.”

Applying those principles to the present case, Mr Halpern submitted that one would not expect a letter such as the 11 May Letter to be written by a broker unless it was intended to be relied on by the client; and that there was such an intention in the present case is supported by the fact that the letter had been requested on behalf of the appellant, and its terms had been altered at the insistence of the appellant’s agent, Mr Warriner.

Mr Halpern submitted that, contrary to the view of the Judge, there is nothing in or about the Contract which detracts from the appellant’s case based on the 11 May Letter. Indeed, on one view, the signing of the Contract by the appellant was consideration for the warranty in the 11 May Letter. He went through clauses 3 to 5 and 7 of the Contract, and submitted that, properly understood, none of them undermined or negatived the legally binding warranty that had already been given in the 11 May Letter.

Despite Mr Halpern’s able and helpful submissions, I am satisfied that the Judge was right to grant summary judgment in favour of the respondent and to dismiss the claim. I can summarise my reasons quite briefly.

Mr Halpern did not seek to challenge the Judge’s conclusion that there was no evidential basis whatever for the claim of fraud or possible fraud by the respondent and that there was a fiduciary relationship between the appellant and the respondent prior to and outside the terms of the Contract.

It is an important feature of the present case that throughout the relevant period, that is the period from before the 11 May Letter until the Contract was made, Mr Warriner was acting as the appellant’s broker and agent. That was accepted by Mr Halpern. The appellant is, therefore, fixed with Mr Warriner’s knowledge.

It was clear throughout that period that, if there was to be a loan, it would be provided by a third party lender. There was never any statement by the respondent that it would lend its own money or any indication by Mr Warriner that he believed the respondent was lending its own money. On the contrary, Mr Warriner’s email to Mr Arabskyj of 9 May 2007 asked for the pack, which he had previously given to the respondent, to be sent “for appraisal by the lender in question”. The email sent by Mr Warriner in the early afternoon of 11 May referred to the “fee from the lender” as something separate from the broker’s fee which the respondent would receive.

That is consistent with the wording of the Contract, which refers in clause 3 to “prospective lenders of finance”, and in clause 5 to “endeavours on the Client’s behalf to procure a written offer of finance”, and in clause 7 to the “total amount of finance for which an offer in writing is produced”. Although he made a witness statement in opposition to the respondent’s summary judgment application, the appellant has not said that he did not understand the Contract in general or those provisions in particular.

Mr Halpern submitted that it is impermissible to refer to the Contract in order to interpret the terms of the 11 May Letter. He accepted, however, that reference can be made to the Contract in support of a case that there was no prior legally binding agreement in the terms of the 11 May Letter. It seems to me clear that the provisions of clauses 3, 5 and 7 of the Contract, and the absence of any complaint or query about them by the appellant at the time, are wholly inconsistent with any contemporaneous intention or belief or understanding that a totally different contract had already been concluded on the assumption that the respondent would be lending its own money.

If, on the other hand, the contemporaneous common intention, understanding and belief was that any loan was to be made by a third party, it cannot reasonably and objectively be supposed that the respondent intended to make a contractually binding promise in the 11 May Letter when no such lender had ever been identified and no application form had ever been made to such a lender, introduced by the respondent. Whatever the appellant may have thought, it is inconceivable that Mr Warriner, another mortgage broker, would have thought otherwise.

Indeed, one thing that is quite clear from the communications leading up to the 11 May Letter is that a formal application would have to be made by the appellant before any loan would be forthcoming. That application form would inevitably include details about the appellant’s financial standing and record. The appellant’s case is that the respondent intended to enter into a legally binding promise that there would be a £100,000 loan even though the appellant had never at that stage completed any application form, whether the respondent’s application form or a third party lender’s form. I do not consider it is a fair answer to that unlikely scenario for Mr Halpern to emphasise the limited questions as to creditworthiness in the respondent’s commercial mortgage application form. The application form did contain questions about past bankruptcy or compositions with creditors and court orders. The answers to those questions would plainly all be highly material to any prospective lender.

Once again, irrespective of who the appellant thought was likely to lend the money, the provisions of clauses 3, 5 and 7 of the Contract, and the absence of any complaint or query about them by the appellant at the time, are wholly inconsistent with any intention or belief or understanding that an unqualified legal obligation had already been assumed by the appellant in the 11 May Letter for a loan of £100,000.

In addition to all those points, the Judge rightly emphasised the reference to “indicative terms” in Mr Warriner’s email in the early afternoon of 11 May 2007. Mr Halpern argued that the expression had to be understood in the context of the entire chain of communications, and that it was not inconsistent with the appellant’s case that the 11 May Letter contained a warranty. On instructions from the appellant, he sought to support that argument with a reference to the expression “indicative terms” in the Code of Practice of the National Association of Finance Brokers. The respondent was not, however, a member of that Association, and Section G of the Code, to which Mr Halpern referred, relates only to residential investment mortgage intermediaries. Further, that version of the Code appears to have been published in January 2008. In any event, without examining the text in detail here, to my mind, that reference to “indicative terms” in the Code is, if anything, more supportive of the view that the expression means what it literally says, namely that the terms are not fixed and promised but are an indication. I consider that Mr Warriner’s reference to “indicative terms” in his email shows that he understood that the terms mentioned by the respondent, and eventually included in the 11 May Letter, were indeed only “indicative” and not promised or guaranteed.

I cannot see that either McNealy or Platform Funding assist the appellant on the facts of the present case. So far as concerns McNealy, it is not in dispute that, in acting as the appellant’s broker, the respondent owed the appellant a duty of care. The appointment of the respondent as the appellant’s broker only took place, however, when the Contract was entered into. The scope of the respondent’s duty was defined by the Contract. Until that point, the only broker acting for the appellant was Mr Warriner. So far as concerns Platform Funding, that was a case where the valuer had simply failed completely to carry out his own task under the contract. His contractual promise related to his own conduct. There is no analogy with the present case where, for the reasons I have given, the loan was to be made by a third party lender and would depend upon the third party’s decision.

Accordingly, on the material before the court, I cannot see any real prospect that, if there was a full trial, the appellant would be able to undermine the respondent’s case that the letter was no more than a statement of opinion as to what loan might be obtained for the appellant. As the Judge rightly held, there was nothing unusual or special about the relationship between the appellant, who was seeking a loan facility, and the respondent, which was expressing a view about what it thought might be obtained for the respondent and whose legal relationship with the appellant would be properly defined if and when (as occurred on 16 May 2007) the appellant decided formally to retain the respondent as his mortgage broker.

So far as the relevant facts are concerned, Mr Halpern was unable to identify any further material evidence which might arise between now and the conclusion of any trial bearing on the above points, other than the evidence of Mr Warriner. It is indeed a striking feature that the appellant did not adduce in evidence, in opposition to the respondent’s summary judgment application, any witness statement of Mr Warriner. It has not been disclosed whether or not Mr Warriner was asked to provide such a statement. It is, therefore, a matter of pure speculation what he might say, favourable or unfavourable to the appellant. In the light of the overwhelming case against the appellant, and in favour of the respondent, on the question whether the 11 May Letter contained a legally binding promise or warranty or the respondent was in breach of a duty of care to the appellant, I do not consider it would be right to allow the case to go to trial solely to enable evidence, of a wholly unknown content, to be obtained, if possible, from Mr Warriner.

That conclusion, and indeed the dismissal of this appeal, is also supported by another consideration. Whatever the appellant may have thought about the meaning and effect of the 11 May Letter, clauses 3, 5 and 7 of the Contract were quite clear that the respondent was not lending its own money but was to use its endeavours to obtain third party funding for the appellant. That point is not met or undermined by Mr Halpern’s submission in the course of the hearing that the “endeavours” mentioned in clauses 5 and 7 of the Contract were the consideration for the respondent’s fees mentioned there. Mr Halpern confirmed, on instructions, that all the loss and damage, including wasted expenditure, which the appellant claims to have suffered, was incurred after the date of the Contract. In the light of those clear provisions of the Contract, to which the appellant raised no objection at the time, it is very difficult to see how the appellant could establish causation for the loss and damage which he alleges he has suffered.

For all those reasons I would dismissed the appeal. It is not necessary in the circumstances to address the meaning and effect of clause 4 of the Contract or the application of the Unfair Contract Terms Act 1977 and the Misrepresentation Act 1967, on which both counsel made written submissions. Nor is it necessary to give any separate consideration to the matters raised in the respondent’s notice which has been issued.

I agree.

I agree.