Nouri v Marvi & Ors

MR JUSTICE NORRIS: The issue for my decision is that formulated in the order of Master Eyre of 3^rd June 2009, namely, is the claimant’s action against the third defendant time barred? The facts on which that issue are to be decided are contained in the Particulars of Claim (which are to be assumed for present purposes to be true) and in the judgment of His Honour Judge Rich QC in earlier proceedings between Mr Nouri, the claimant, and Atti Kalistra Smith, the third defendants, a firm of solicitors.

On 8^th August 1996 Mr Nouri became the registered proprietor of 8 Bron Court, Bronsbury Road, NW6, a registered long leasehold title. It was subject to a registered charge in favour of Barclays Bank. The property appears to have been occupied by Mr Nouri’s friend, Mr Marvi. On 15^th August 2000 Mr Marvi remortgaged the property to IGroup without the knowledge of Mr Nouri, and that charge was registered. Mr Marvi pocketed the remortgage proceeds. By 19^th December 2000 Mr Nouri had discovered about the redemption of the Barclays charge, or at least his attorney had, and investigations were instituted as to how that had come about. On 21^st December 2000 Mr Marvi, holding himself out as Mr Nouri, instructed the third defendants to act for him as vendor on a sale of the property to himself. As Mr Marvi, he instructed another firm of solicitors to act for the purchaser. On 2^nd April 2001 there was a simultaneous exchange of contracts and apparent completion of a sale of the property by the supposed Mr Nouri to Mr Marvi.

According to the findings of His Honour Judge Rich QC, it was at that time known to Mr Nouri’s attorney that the title deeds had been sent to an unknown solicitor without Mr Nouri’s authority, that a charge had been completed and registered in favour of IGroup without Mr Nouri’s authority, and that his related life policy had not been returned, as it should have been, to Mr Nouri. Judge Rich felt that Mr Nouri could have taken steps to trace the dealings on the relevant bank accounts, but he said nothing was done with the urgency that such evidence of improper dealing demanded, and nothing was done before Mr Marvi himself contracted to on-sell the property.

In consequence, on 4^th July 2001 the transfer between the purported Mr Nouri and Mr Marvi was registered. Although it was a forged transfer and of no effect as between Mr Nouri and Mr Marvi, the statutory magic of section 69 of the Land Registration Act 1925 effected a transfer of the title from Mr Nouri to Mr Marvi on that date. At that date the third defendants were continuing to act, dealing with consequential matters arising on the supposed sale. At completion in April 2001 they had been left with a sum of money in respect of unpaid service charges and they had been corresponding both with Mr Marvi’s solicitors and with the freeholder to see to whom they should pay that money.

Following the registration of Mr Marvi as registered proprietor, still no effective steps were taken by Mr Nouri, according to the judgment of His Honour Judge Rich. In consequence, on 20^th December 2002 Mr Marvi was able to enter into a contract to sell the property to a Mr Razaq. Formal completion of that contract appears to have occurred on 7^th January 2003, when it appears, according to the judgment of His Honour Judge Rich, that Mr Razaq took possession of the property. Eventually, on 24^th April 2003, Mr Nouri applied to the Land Registry to rectify the title to remove the registration in favour of Mr Marvi. The Land Registry directed the commencement of proceedings and those proceedings were concluded by the judgment of His Honour Judge Rich on 18^th October 2005, in which the learned judge refused to rectify the register and to restore Mr Nouri’s title.

Although the position was thus set on 18^th October 2005, it was not until 2^nd July 2007 that Mr Nouri commenced the present proceedings against Mr Marvi, the Land Registry and the third defendants in respect of the events which I have recounted. The 2^nd July 2007 was more than six years after the date that the forged transfer was released by the third defendants to Mr Marvi, but it was less than six years after the date upon which that transfer was registered and title passed from Mr Nouri to Mr Marvi. The Particulars of Claim, of course, do not allege any contractual retainer of the third defendants by Mr Nouri. The arrangements were all made by the imposter Mr Marvi. The Particulars of Claim are founded upon an assumption of responsibility by the third defendants in favour of Mr Nouri. The way it is put in paragraph 18 of the Particulars of Claim is this:

“By reason of the pleaded matters and/or by its assumption of responsibility in relation to the sale and/or by virtue of the fact that it knew or ought to have known that if the sale was not competently handled the claimant would or might suffer loss, in its conduct of the sale the third defendant owed the claimant a duty in tort to exercise the skill and care to be expected of a competent conveyancing solicitor.”

On this application it must be assumed that that is a correct plea in law. The breaches of duty are then set out in paragraph 19 of the Particulars of Claim and they allege that the third defendant “breached its duty of care and/or was negligent in its conduct of the sale of the property”.

The key allegations may be summarised in this way. First, the third defendants acted for an imposter and failed to confirm their instructions directly with the client for whom they purported to act. Secondly, they failed properly or at all to confirm the identity of the client for whom they purported to act. Thirdly, they failed to request and hold a face-to-face meeting with their purported client or to request that their purported client bring his passport to such a meeting. Fourthly, that they failed properly to require a copy of the claimant’s passport. Subsequent allegations contained in the Particulars at paragraph 19 go on to deal with the events after completion.

The third defendants take the limitation point. In response, the claimant says that he suffered no damage any earlier than 4^th July 2001. This is set out in paragraph 4 of his reply where the following averment occurs:

“It is denied that the claimant suffered any damage by reason of the creation of those forged documents and averred instead that he suffered damage when he ceased to be the registered proprietor of the property and the first defendant was registered in his place.”

That, in a nutshell, is what is meant by the reference of the issue by Master Eyre.

It is, of course, a commonplace that a cause of action in tort is constituted as soon as the claimant suffers actual damage which is more than negligible, irrespective of whether he knows that he has suffered that damage or not. It is common ground before me, first, that whether actual damage has been suffered is a question of fact and, secondly, that, being a question of fact, extensive citation of authority is unlikely to assist once when has identified the relevant principles. Commendably, counsel have submitted to me that the issue for my decision can effectively be determined by reference to two cases, although I was taken at a very rapid rate through a considerable body of authority for supporting statements for the propositions advanced in argument.

The meaning of “actual damage” has conventionally been taken to be contained in the submissions of Mr Stuart-Smith (as he then was) in Forster v Outred [1982] 1 WLR 86. In an oft-cited passage Mr Stewart-Smith’s submission was recorded by Stephenson LJ to be in these terms. That “actual damage” consisted of:

“…any detriment, liability or loss capable of assessment in money terms and it includes liabilities which may arise on a contingency, particularly a contingency over which the plaintiff has no control; things like loss of earning capacity, loss of a chance or bargain, loss of profit, losses incurred from onerous provisions or covenants in leases.”

A troublesome part of that description of actual damage has been found to be the words “it includes liabilities which may arise on a contingency”. What was meant by those words was finally clarified by the House of Lords in Law Society v Sephton & Co [2006] 2 AC 543. It is now established that losses which flow from a contingency standing alone are not themselves actual damage for the purposes of the accrual of a cause of action. The speech of Lord Hoffman makes reference to an analysis of Forster v Outred by the High Court of Australia in Wardley v State of Western Australia. The court there said:

“…decisions in cases which involve contingent loss were decisions which turned on the plaintiff sustaining measurable loss at an earlier time, quite apart from the contingent loss which threatened at a later date.”

Lord Hoffman expressed himself to be “in complete agreement” with that analysis. In short, if a plaintiff sustains no actual damage until a contingency is fulfilled and the loss becomes actual, then until that time the loss can only be described as prospective. Accordingly, the cause of action does not accrue.

Amongst the cases that were considered by the House of Lords in reaching that view was Bell v Peter Browne [1990] 2 QB 495. Lord Hoffman said that this case was readily explicable as a case in which the damage was the difference between the plaintiff’s position as it was and as it would have been if the defendant had performed his duty, and in which it was possible to infer that the claimant’s failure to get what he should have got from a bilateral transaction was quantifiable damage, even though further damage which might result from a flaw in the transaction was still contingent. He said:

“The plaintiff had paid money, transferred property, incurred liabilities or suffered diminution in the value of an asset and in return obtained less than he should have got. But these authorities have no relevance to a case in which a purely contingent obligation has been incurred.”

He summarised the true rule at paragraph 30 of his speech in these terms:

“A contingent liability is not as such damage until the contingency occurs. The existence of a contingent liability may depress the value of other property, as in  Forster v Outred & Co  [1982] 1 WLR 86, or it may mean that a party to a bilateral transaction has received less than he should have done, or is worse off than if he had not entered into the transaction (according to which is the appropriate measure of damages in the circumstances). But, standing alone as in this case, the contingency is not damage.”

In that case the contingency was the exposure of the Law Society to claims upon a compensation fund arising out of transactions which a negligent accountant had failed to spot were improperly conducted by a solicitor. To the same effect are the speeches of Lord Walker, particularly at paragraphs [41] and [48], and of Lord Mance. In his speech at paragraph 41 Lord Walker described the position in these terms:

“It is a commonplace of negligence actions of all sorts that a cause of action may arise long before it is possible to quantify precisely the damages eventually recoverable. But there are other situations in which the correct legal analysis is that, however great may be the prospect (or risk) of economic loss, actionable damage has not yet occurred (just as there are situations in which there is grave and obvious risk of personal injury or damage to property, but actionable damage has not yet occurred).”

In the instant case the question for me is into which of those two categories the present facts fall.

I make two further citations, both from the speech of Lord Mance, which I have found illuminating. Lord Mance described the body of case law concerning the accrual of a cause of action as concerning situations

“where a person's legal position has, through negligence, been altered to his immediate, measurable economic disadvantage, and it has been held that a cause of action accrued although the beneficiary neither knew nor had any reason to know about its existence.”

The formulation of “immediate, measurable, economic disadvantage” is an illuminating commentary upon the concept of actual damage.

Secondly, in further commenting on this body of authority, Lord Mance described the underlying principle in this way at paragraph [70] of his speech:

“In all these cases except Forster v Outred & Co  [1982] 1 WLR 86 the defendant failed to preserve or procure for the claimant an asset (including a particular chose in action) which could and should have been preserved or protected by proper performance of the defendant's duty in relation to the transaction affecting the claimant's legal position… However, while a defendant's failure to preserve or protect a particular asset by proper performance of his duty in relation to a particular transaction may readily be seen to have caused measurable loss, negligence causing a claimant to enter into a transaction which he would not otherwise have entered may not immediately, or indeed ever, cause measurable loss to any particular asset.”

I have found the formulation of the cause of action as ‘a defendant’s failure to preserve or protect a particular asset by the proper performance of his duty in relation to a particular transaction which leads to measurable loss’ to be of assistance.

In the light of that elucidation of the meaning of “actual damage”, the question I have to answer is whether on 2^nd April 2001 Mr Nouri suffered any actual detriment capable of assessment in money terms, any immediate, measurable, economic disadvantage by reason of the third defendant’s failure to preserve or protect a particular asset by the proper performance of his duty in relation to the transaction. Or did Mr Nouri simply become subject to the contingent loss of his title, not suffering any actual detriment until the registration of the forger transfer?

Although for present purposes I must and do focus upon the questions raised by forged transfers in registered conveyancing, the situation seems to me to raise the same sort of question as would be raised if a solicitor had negligently released a genuine transfer before completion, or if a solicitor had negligently released a forged conveyance in unregistered conveyancing (where the vendor’s title would never be defeated by the purchaser but might be defeated by a third party bona fide purchaser for value).

One tool that is sometimes used in circumstances of this sort is to apply what is called “the Bingham test”, that proposed by Bingham LJ in DW Moore v Ferrier [1988] 1 WLR 267 at 282, namely that if, on the pleaded facts, an action for breach of contract were brought, would anything more than nominal damages be awarded? I do not think that this tool is of particular utility where the origin of the duty is not founded in any contract between Mr Nouri and the third defendants. Instead, I think I must postulate that on 1^st May 2003 Mr Nouri laid the then facts before another solicitor and asked him to advise what his position was. It seems to me unlikely that a solicitor would have said to Mr Nouri, “Relax. You are no worse off than if the third defendants had properly performed their duty. You will suffer no harm until the forged transfer is registered. Do nothing in the meantime. Wait and see if that happens. Come back if it does.” I do not think that that is an adequate analysis of the situation in which Mr Nouri found himself.

It seems to me that until 2^nd April 2001 Mr Nouri had an inviolable registered title. On 2^nd April 2001 his solicitor (it must be assumed negligently) placed in the hands of a third party outside the control of Mr Nouri a document which could be used to defeat Mr Nouri’s title. That constituted an immediate blot on Mr Nouri’s title. It was not the position in which he ought to have found himself if the solicitor had properly performed the duties which the Particulars of Claim say should have been discharged. Mr Nouri would have been advised that he was actually (not just potentially) worse off because the forged transfer was in circulation; the adviser would have gone on to say that it would be possible to prevent any consequences flowing from the circulation of the forged transfer and to restore the title to its former inviolable state, but that the removal of that detriment would cost money.

I would hold that, on the assumed facts and presumed law, the third defendants failed to preserve or protect an asset of Mr Nouri’s which could and should have been protected by the proper performance of their duties in relation to a transaction in which they assumed a responsibility in relation to Mr Nouri’s title. Putting into the hands of Mr Marvi a forged transfer constituted an immediate detriment.

In Bell v Peter Browne, to which I have already referred, a solicitor failed to fulfil his obligations to his client in two respects. First, he failed to secure a formal document recording the bargain that had been made between his client husband and the wife, to whom the matrimonial home had been transferred. Secondly, he failed to protect by a caution the husband’s interest under the agreement, given that title had been vested in the wife. The husband’s interest could have been protected by a caution, and that caution could have been entered on the register at any time until the wife sold the house and the husband’s interest was finally defeated. Nicholls LJ held that the second failure (to register the caution) occasioned immediate loss. In an oft-cited passage, which although considered extensively in subsequent authorities has never been criticised or doubted, Nicholls LJ said:

“In considering whether damage was suffered in 1978 one can test the matter by considering what would have happened if in, say, 1980 the plaintiff had learned of his solicitors' default and brought an action for damages. Of course, he would have taken steps to remedy the default. But he would have been entitled at least to recover from the defendants the cost incurred in going to other solicitors for advice on what should be done and for their assistance in lodging the appropriate caution. The cost would have been modest, but not negligible.”

In other words, he held that there was an immediate loss, even though there was a contingent greater loss (the defeasance of the husband’s interest).

I would hold that the consequence of allowing into circulation a document which put at risk Mr Nouri’s title was capable of remedy and that the costs of ameliorating that immediate detriment form a ready measure of the financial consequences of the solicitor’s breach of duty. I would accordingly hold that the cause of action in negligence was complete on 2^nd April 2001 when the forged transfer was put into circulation. Mr Nouri suffered the detriment of having a blot upon his title, a detriment which is to be measured by the cost of removing the detriment.

In a thorough and well structured argument, Mr Jones submitted that there were really three answers to this analysis. First, it was not the loss in respect of which he is suing. He was suing for the loss of the property, not for the costs of trying to prevent the loss of the property. But that was also the position in Bell v Peter Browne. The claimant was not there suing for the costs of registering a caution but for the consequences of the fact that a caution had not been registered. I do not think one can get around the accrual of a cause of action by suing for some only of the damage which occurs by reason of a breach of duty, namely that which occurs in the limitation period.

Mr Jones’ second point was this. If my analysis is right, suppose that Mr Nouri had sold the property on 1^st May to a purchaser who made a search which conferred priority upon him and so prevented Mr Marvi from registering the forged transfer. Would I then say that Mr Nouri had nonetheless suffered actual loss on 2^nd April? My answer is that I would, but that he had managed to mitigate that actual loss by the action he took in selling (whilst his registered title was clear) to a vendor who was wise enough to make a search and obtain a priority period; and that, even so, the circulation of a forged instrument is sufficiently undesirable that Mr Nouri might well want to commence proceedings for its cancellation and delivery up, and indeed the purchaser may so require.

Mr Jones’ third point was that really it is inappropriate to regard this as any sort of “transaction” case, even though his pleaded case is that the solicitors assumed responsibility in connection with a sale. He says a closer analogy might be drawn with those cases concerning disappointed beneficiaries in relation to negligently drawn wills. He says that it is established by the decision in Bacon v Howard Kennedy [1999] PNLR 1 that in those circumstances the disappointed beneficiary’s cause of action does not accrue until the testator’s death with a defective will. In particular, it does not accrue at the time when the defective will is executed. I do not doubt the decision in Baker v Howard Kennedy (once one decides that the loss of the spes or expectancy that would have arisen had a proper will been executed is not itself real damage but only negligible damage). It must follow that actual damage only occurs on death. But the instant case does not concern expectations as to future property rights. Here it is Mr Nouri’s existing property interest that is affected by the circulation of a forged transfer.

In these circumstances I would hold that the principal cause of action accrued on 2^nd April 2001 and the present claim is statute barred.

Mr Jones had a fallback position, one that was not argued with particular vigour but nonetheless must be addressed. It is that the third defendants were under “a continuing duty” (to prevent damage to Mr Nouri’s property interest) because they continued to act in relation to the sale after completion. The respects in which they broke that continuing duty are pleaded in paragraph 19 of the Particulars of Claim. They failed adequately to check the passport which they received in response to a request which they made on 15^th May 2001. They failed to check the signature on the passport. They failed to heed matters which should have raised suspicion about the legitimacy of the sale, in particular the arrangements made at completion relating to the apportionment of the service charges, the absence of a forwarding address for their supposed client, and the absence of any response to their requests as to what they should do with the money in their hands.

In my judgment there was no continuing duty to see that they did not act for an imposter. It seems to me that at completion there was a “once for all” breach. They put into circulation a forged transfer. What the continuing duty involves is, in essence, a duty to discover that they had been negligent on the assumed facts and a duty to insulate the claimant from the consequences of that negligence. But the fact that the damage which had been incurred on 2^nd April 2001 remained capable of some sort of remedy does not mean that the original damage had not occurred. I do not consider that there is a sustainable argument that in tort they continued to owe any duty to ascertain that the transaction had been undertaken by an imposter and in that respect to preserve Mr Nouri’s property interest. I would hold that the continuing duty claim does not avail and that the claim is statute barred.