Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
THE HONOURABLE MR JUSTICE MORLAND
Between :
| Gene Chandler Laib | Claimant/Appellant |
| - and - |
|
| Renuka Aravindan (1) (practicing as HKH PARTNERSHIP solicitors) Khurram Mian (2) | 1st Defendant/Respondent |
Mr Mark Cannon (instructed by Bolt Burdon) for the Claimant/Appellant
Mr William Flenley (instructed by Cripps Harries Hall) for the Defendant/Respondent
Hearing dates : 27th October 2003
Judgment
Mr Justice Morland : Judgment.
This is an appeal from the order of Master Foster dated the 1st May 2003 whereby he struck out the claimant appellant’s solicitors negligence action and entered summary judgment for the defendant respondents who have been in partnership since 11th July 1997 practising as "HKH Partnership solicitors".
Permission to appeal was given by Crane J. on the 23rd June 2003.
In order to understand the appeal and the arguments addressed to me by Mr Cannon on behalf of the claimant appellant, Mr Laib, and by Mr Flenley on behalf of the defendant respondents, Mrs Aravindan and Mr Mian, I shall summarise the facts leading up to this litigation.
In 1987 Mr Laib purchased two adjoining properties in Barcelona. In 1989 he wished to sell these properties and move to London. In 1989 he had approached Unibank plc (then called Privatbanken Limited, and subsequently Unibank A/S: "Unibank") in London for advice as to whether it would be possible to buy a property in London before the Spanish properties had been sold.
He had been advised by Unibank that it would be possible to fund the purchase of a London property with a "bullet" or "bridge" loan and to set up an account and to transfer the proceeds of the eventual sale of the Spanish properties into that account in Luxembourg.
Mr Falk of Unibank advised the claimant to borrow in Deutschmarks rather that sterling because the Deutschmark was a strong currency with a lower interest rate.
In about February 1990 the claimant purchased 2A Lauderdale Road, London W9 ("Lauderdale Road") for £215,000.
The claimant borrowed the purchase money for the property: as to £185,000 from Unibank S.A. (then called PRIVATbanken International (Denmark) S.A.; "The mortgagee"), secured by a first legal charge over Lauderdale Road; as to the balance from PNC Bank N.A.
The claimant sold the Spanish properties in about February 1991 for about £128,000.
The net proceeds of sale were applied to repay the loan from PNC Bank N.A. and to provide further security for the loan by the mortgagee.
Further security remained in sterling, even though the loan, which it secured, was switched to Deutschmarks. The terms of the claimant’s loan from the mortgagee included:-
"Any losses on currency exchange fluctuations would be met by the claimant."
"The facility was repayable in full not later than 31st December 1994"
"The relations between the mortgagee and the claimant were governed by Luxembourg law irrespective of the country in which a given transaction took place and irrespective of the court having jurisdiction in any dispute. The Court of Luxembourg City was the only competent court in respect of any litigation that may arise between the mortgagee and the claimant, whether arising out of the agreement or otherwise. Notwithstanding this, the mortgagee reserved the right to commence legal action in any other court of competent jurisdiction if it deemed that necessary."
In June 1990 the mortgagee converted the loan (which had been drawn down in two stages and treated as two loans) into Deutschmarks and in November 1991 at the morgagee’s request the claimant converted the two loans into a single loan.
The claimant was unable to repay the loan to the mortgagee on 31st December 1994.
On 10th October 1995 the mortgagee issued an Originating Summons in the Chancery Division claiming possession of Lauderdale Road ("the possession claim") and payment of 399,524.72 Deutschmarks as the alleged balance of the loan ("the money claim").
In about early March 1996 the claimant instructed Mr Kalim (solicitor practising on his own account as a sole partner) to act for him in the original proceedings and Mr Kalim accepted those instructions and served Notice of Acting on the 6th March 1996.
Mr Laib intended to counterclaim against Unibank S.A. and Unibank A/S, their agents, claiming damages for negligent advice in advising Mr Laib to borrow in Deutschmarks rather than Sterling. Among other grounds.
Unibank S/A’s originating Summons came before Master Dyson on the 10th May 1996 when Unibank S/A were aware of Mr Laib’s potential counterclaim. Master Dyson ordered:-
"And Upon Hearing Counsel for the plaintiff and Counsel for the defendant ..
"That paragraph I of the said Originating Summons do stand over generally with liberty to restore (i.e. claim for payment of 399,524.72 DM.)"
"That the defendant do
within 28 days after ordinary service of this Order upon his solicitors HKH Partnership of Broadway Chambers 1 Cranbrook Road Ilford Essex IG1 4DU and
after service of this Order upon him whichever is the later SUCH service to be effected by first-class post addressed to him at the property hereinafter mentioned"
"deliver to the plaintiff possession of the property comprised in the said mortgage known as The Garden Floor Flat 2a Lauderdale Road London W9."
"that the defendant be at liberty to apply to discharge or vary this Order within 14 days after such service upon him"
On the 11th November 1996 Mr Kalim notified the court, James Chapman Unibank S/A’s solicitors and wrote to Counsel.
"We refer to the above matter and enclose copy Legal Aid Certificate which we have finally received from the Legal Aid Board. Quite clearly the delay in granting our client Legal Aid has been unconscionably. However we are happy that this has now been granted to our client and we would be grateful if you could let us know as to whether Counsel requires a conference or any further information from our client"
On the 12th November 1996 Mr Kalim suddenly and unexpectedly died of a heart attack.
Mrs Aravindan in her witness statement explains what happens:-
"Prior to 12 November 1996 I worked for Mr Kalim on a part-time basis and my salary in effect amounted to commission of 50% of the net profit costs of the conveyancing transactions which I progressed through to a successful completion. Mr Kalim died very unexpectedly of a heart attack on 12 November 1996. He died intestate. His daughter, as his personal representative, asked me to run the practice on behalf of Mr Kalim’s estate until a decision could be made as to what would happen to the practice. I agreed to do so on the basis that the commission arrangement I had had with Mr Kalim would remain the same.
The period following Mr Kalim’s death was very stressful. There were a lot of matters to attend to such as notifying The Law Society, Mr Kalim’s insurers, the bank etc of Mr Kalim’s death plus of course there was the responsibility of dealing with the clients of Mr Kalim. I cannot recall the precise number of files which myself and Mr Mian had to take over from Mr Kalim. I would estimate the figure to be somewhere between 300 and 400 files with the majority being litigation files. My legal experience lay only in conveyancing. I did not deal with litigation matters. For this reason, I agreed with Mr Mian that I would deal with the conveyancing files whilst he would take over Mr Kalim’s litigation files. A standard proforma letter was prepared and sent out to all of Mr Kalim’s clients confirming that I would be dealing with conveyancing matters and Mr Mian with litigation matters.
Other than being involved in the preparation of the letter which went to the claimant, I had no involvement with any of Mr Kalim’s litigation files and I had no knowledge whatsoever of the claimant or his case at that time."
On the 19th November 1996 she wrote to Mr Laib:-
"I write to inform you that Mr Azhar Kalim passed away on the 12th November 1996. I have been appointed the Solicitor/Manager of the Practice, which will continue to trade from the above address.
I will be dealing with the conveyancing matters and Mr Khurram Mian will be dealing with litigation matters.
If you have any queries please contact myself or Mr Mian.
"P.S. Could you please telephone our offices upon receipt of this letter to make an appointment with Mr Mian"
Mr Mian in his witness statement says:-
"Prior to 12 November 1996 I was a trainee solicitor employed by Mr Kalim and I worked with Mr Kalim and with Mrs Aravindan. On 12 November 1996 Mr Kalim died, very suddenly and without any warning. After this, the task fell to Mrs Aravindan – assisted by me – to carry on the running of Mr Kalim’s practice. As Mrs Aravindan had no experience of contentious matters, it was agreed that I would take over Mr Kalim’s litigation caseload and she would deal with the conveyancing matters.
It became apparent that Mr Kalim had a large number of litigation files. There were roughly 300 – 400 litigation and conveyancing files in total and the litigation files were in the majority. It was necessary for me to prioritise the files and decide what work was urgent and what could wait. Therefore I firstly looked at Mr Kalim’s diary to see whether any particular files were marked urgent or whether there were any hearings or deadlines to be complied with. There were no entries for the claimant’s file. Of course correspondence would come in on a number of Mr Kalim’s files and if that indicated that something needed to be done urgently it was dealt with. Also clients would telephone and ask for matters to be dealt with and that was another way of working out was urgent and what was not."
"I did not look at the claimant’s file until 27th November 1996. The only contact between myself and the claimant in the period form 12 November 1996 to 27th November 1996 was the sending on the 19th November 1996, of a letter to the claimant by Mrs Aravindan to notify him that Mr Kalim had died…"
"…The attendance note which I made when I looked at the claimant’s file on 27th November 1996 indicates that, although I spent 1½ hours on the file on that day, I did not consider there was any great urgency in terms of dealing with the claimant’s file. It is possible that the reason I looked at the claimant’s file on that date is that it was the date on which we received James Chapman & Co’s letter of 26th November 1996 acknowledging receipt of notification of Legal Aid.
"Attendance Note. 1 hour 30 mins.
Perusal of file. I had taken over the conduct of this file due to the death of Mr Kalim. Went through file briefly. Legal Aid has only just been granted. Need to arrange a conference with client and Counsel in order to progress matters further. Would need to go through the file properly and sort out the papers, it appeared that there were some papers missing, therefore there must be another file."
In a letter dated 28th January 1997 to the First Defendant Mr Jarman of counsel stated:-
"I am increasingly concerned about possible time limitation problems which we all thought could be looming in due course. Although I remain of the view that Mr Chandler’s claims should be made by way of defence and counterclaim to the summons issued by Unibank (which includes payment of sums due as part of the relief sought), it is not apparent that it may be wise to issue a protective writ as a fall back should such an application to put in the defence and counterclaim be refused."
On the 5th March 1997 the defendants issued a protective writ as advised by Mr Jarman. That writ was never served.
On that very day the defendants received this letter from James Chapman:-
"5 March 1997
2A Lauderdale Road London W9.
We write with further reference to the above matter. The sale of the above property by Unibank SA as mortgagee was completed on 26th November 1996. The sale price was £203,505.00. We enclose a completion account, which shows that after deduction of the costs and expenses of the sale and discharging the arrears of service charge on your client’s account, the net amount received by Unibank SA was £193,375.62.
A Valuation fee of £125.00 was discharged by Unibank SA, reducing the net balance to £193.250.62.
The amount required to repay the outstanding indebtedness was £177,480.80 leaving a surplus of £15,769.82.
We are therefore enclosing the Bank’s cheque for this amount in favour of Mr Laib and shall be obliged if you will acknowledge receipt."
By the 5 March 1997 no defence or counterclaim had been served. There were considerable delays by Counsel and it was not until 1998 that a further writ was issued and served incorrectly and an application made on behalf of Mr Laib to restore the originating summons.
The matter came before Master Moncaster on the 4th June 1998. There is no copy of his judgment but Mr Mian made an attendance note which read:-
"In earlier proceedings (the mortgagee) had sued (the claimant) and on the 10th May 1996 Master Dyson made an order after having had full arguments from Counsel for both sides. An order for possession was made. Security was paid over to (the claimant) and as far as (the mortgagee) is concerned their action against security is finished.
By his order Master Moncaster dismissed any remaining action."
It was not until 28th February 2002 that Mr Laib issued the Claim Form against the defendants alleging breach of duty, the Particulars of which are set out in Paragraph 36 of the Amended Particulars of Claim (See pages 35 and 36 of the Hearing Bundle).
In his judgment of the 1st May 2003 Master Foster said:-
"On 26th November of 1996 the property was sold and the debt which was owed to the bank by this claimant was repaid. In those circumstances, of course, there was no reason whatsoever why the application in relation to the money judgment should ever have been restored. The defendants in this case say, therefore, that in effect the case falls within the provisions of CSI International –v- Archway Personnel. The principle in that case, it seems to me, can be stated very shortly in the one sentence of Lord Justice Roskill at page 1075 in which he said this: "The action had for all practical purposes come to an end when satisfaction of the judgment had been obtained."
In my judgment that is precisely the situation which pertains here. The action was for all practical purposes over once the bank had obtained its money, which it did, by selling the property and taking the appropriate amount from the proceeds to satisfy its debt. It follows that, in my judgment, there is no real prospect certainly of successfully arguing in these proceedings that there could be any negligence attaching to the period after 26th November, because no counterclaim would then have been permissible.
So what I have to decide is whether there is a real prospect of the claimant in this case persuading the court that the defendants were negligent in failing to issue their counterclaim between 12th November, when the solicitor died, and the 26th November when the right to make a counterclaim came to an end.
In my judgment it only needs to be stated in that way to show that there is no real prospect whatsoever of successfully alleging negligence over that very short period of time in relation to the activities, or lack of activities, of these two defendants who – it must be said – had no warning whatsoever that the solicitor was likely to die, and the fact that they did not seize upon this far –from- plain point in relation to one of several hundred files, in my judgment, could not conceivably render them open to a successful allegation of professional negligence."
Mr Cannon for Mr Laib submitted that the C.S.I. case reported in [1980] 1WLR. 1069 is distinguishable. In the C.S.I. case the claim was brought on a cheque; Summary Judgment was given and thereafter a banker’s draft for the full amount including interest and costs was sent together with a purported counter-claim. The judgment had been fully satisfied whereas in the present case there was no judgment in respect of the balance of the monies outstanding under the legal charge. He submitted that the action remained extant albeit that Mr Laib’s flat had been sold and the sale monies to the outstanding balance and the surplus paid over to Mr Laib.
The C.S.I. Case
"The plaintiff company, incorporated in Thailand, agreed with the defendants, an English limited company, to recruit staff for work in the Middle East. The agreement was made in Thailand. A dispute arose between the parties, in settlement of which the defendants agreed to pay to the plaintiffs £44,816 by three post-dated cheques. The first cheque for £15,000 payable on July 6, 1978, was dishonoured on presentation. The plaintiffs issued a writ in respect of the dishonoured cheque, to which there was no defence. The plaintiffs applied for summary judgment under R.S.C. Ord 14. The defendants filed an affidavit seeking a stay of execution of the judgment the plaintiffs were expected to obtain, and adverted to a prospective counterclaim. The matter came before Master Lubbock on November 28, 1978. He gave judgment with interest for the plaintiffs and refused a stay of execution. The defendants made no request for directions with respect to the counterclaim. On April 10, 1979, the defendants solicitors sent to the plaintiffs’ solicitors a bankers’ draft for the full judgment debt with interest and costs. On May 1, the defendants’ solicitors sent a document entitled "Defence and Counterclaim" to the plaintiffs’ solicitors who refused to accept service of it. The defendants signed judgment in default on the counterclaim. Master Lubbock set aside that judgment on the ground of irregularity. The defendants appealed to Sir Douglas Frank Q.C., sitting as a deputy High Court Judge, who allowed the appeal and gave the defendants leave to counterclaim
On the plaintiffs’ appeal
Held, allowing the appeal, that where a counterclaim had been raised but had not been formally pleaded or made the subject of a summons for directions, once judgment for a party had been obtained and fully satisfied thereafter there was no action in existence in which the counterclaim could be made, and that, accordingly, the defendants were unable to serve a counterclaim on the plaintiffs.
Decision of Sir Douglas Frank Q.C. sitting as a deputy High Court Judge in the Queen’s Bench Division reversed.
Roskill L.J. said at page 1074:-"
"Walton J. asked Mr Jacob what his submission was regarding any possible time limit upon "making" a counterclaim. Mr Jacob grasped the nettle. He said there was no relevant time limit because there was a lacuna in the rules in the case where a judgment had not been stayed. He claimed that a defendant was at liberty at any time thereafter to deliver a counterclaim. Now in a case such as the present that would have most curious results. A counterclaim may be barred by the Limitation Act 1939 but as the notes to Ord. 15, r.2 in The Supreme Court Practice (1979), at p. 166 point out, section 28 of that Act provides that:-
"a claim by way of set-off or counterclaim is deemed to be a separate action and to have been commenced on the same date as the action in which it is pleaded."
If Mr. Jacob’s argument is taken to its logical conclusion, then notwithstanding that the plaintiffs had obtained full satisfaction of the judgment, the defendant can, years later, as it were, out of the blue, serve a counterclaim. I do not think that is right. It may be that certain amendments are required and could, with advantage, be made to the rules in order to make clear what the position is. But I rest my decision on this simple point: where a counterclaim, even if it has previously been raised, has not been the subject of a summons for directions or when required of a formal pleading before the time when the plaintiff had received full satisfaction of the judgment which he has obtained against the defendants, I do not think there is still extant any action by the plaintiffs in which the defendants could properly counterclaim against them. The action had, for all practical purposes, come to an end when satisfaction of the judgment had been obtained."
Eveleigh L.J. said at page 1076:-
"No directions have been given relating to a counterclaim before the judgment was satisfied and consequently in my opinion there was no cause or matter extant that could cover any proceedings in relation to a counterclaim that was not yet properly pleaded."
Walton J. agreed with both judgments
I note that both Roskill L.J. and Eveleigh L.J. specifically speak of the judgment being satisfied.
In the Unibank .v. Laib action there was no money judgment but the satisfaction of the mortgagee’s money claim by Unibank exercising its power of sale of the mortgaged property under its Legal Charge after delivery up of possession following the order for possession. The question is whether it is a distinction that matters.
The C.S.I. case was considered by the Court of Appeal in Rahman .v. Sterling Credit Ltd [2001] 1 WLR 496:-
"The facts.
On 5 October 1989 Greyhound made an agreement in writing with Mr Rahman and his wife to advance the sum of £5,000 to be repaid over five years by 60 monthly instalments of £156.30 capital and interest. The rate of interest on the outstanding balance was 32.1%. The loan was secured by a legal charge on the property on the same day to secure all moneys owing to Greyhound under the loan agreement. On 28 April 1995 Greyhound assigned the legal charge to the respondent, Sterling Credit Ltd ("Sterling"), which has been substituted as a party to the proceedings.
The Rahmans fell into arrears with the monthly payments. Default notices were served. A letter before action was sent. A summons for possession was issued on 2 October 1990 and served. There was no claim for a money judgment. On 12 November 1990 an order was made for delivery up of possession of the property by 10 December 1990. There was no adjudication by the court on the issue of the amount of the moneys owing to Greyhound. The Rahmans did not attend the hearing.
The Rahmans are still in possession of the property. Appointments to enforce warrants for possession have been met by last minute payments. On 1 March 1993 Mr Rahman applied to suspend a warrant for possession. His application was dismissed. When an attempt was made to enforce the warrant on 2 March Mr Rahman paid the bailiff £750, the warrant was withdrawn and enforcement was not proceeded with. Monthly instalments continue to be paid and accepted. A total of about £14,000 has been paid, but it is estimated that £13,000 is still owing to Sterling.
The Proceedings.
On 24 April 1998 Mr Rahman applied to the county court to set aside the possession order and the warrant for possession and for leave to file a defence and counterclaim alleging for the first time that the 1989 loan was an extortionate credit bargain and seeking an order under section 139 of the 1974 Act."
After citing the passage in Roskill L.J.’s judgment at page 1075 (supra) Mummery L.J. said:-
"Mr Neville attempted to distinguish the CSI case as a decision on the special provisions on summary judgment in RSC Ord 14, r 3(2) and contended that, in any event, on the facts of this case the judgment had been satisfied
I do not accept those submissions. The real question is whether the action is at an end, so that there are no longer any proceedings by the claimant to which the defendant can respond with a counterclaim. This action is not at an end. Mr Rahman and his wife are still living in the property. Sterling continues to accept monthly instalments. Sterling has not yet obtained possession of the property. It cannot do so without a further application to the court for a warrant of execution, the existing one having expired at the end of 12 months and more than six years has elapsed since the possession order was made"….
"It is true that the counterclaim to reopen the transaction could have been raised earlier in this action, but, as already explained, the action is still extant. This is not one of those cases where a party seeks to raise in a new action an issue, which could and should have been properly raise for decision in an earlier action, which has already been tried.
I would therefore allow the appeal and grant permission for the service of a counterclaim applying for the reopening of the credit bargain of 1989."
The question that I have to decide is whether the Unibank S/A .v. Laib action was extant after the property was sold and the sale money allocated to discharge the outstanding balance of the loan on the 26th November 1996, the completion date, or on the 5th March 1997, the date when the defendants were notified of the completion and the surplus payable to Mr Laib.
It should be noted that a plaintiff could not discontinue proceedings unilaterally without giving notice to the defendant. See R.S.C. Ord 21 r.2(3A). Mr Laib had filed an affidavit on the 3rd April 1996 in which he stated that he intended to counterclaim against Unibank S/A for damages for negligent advice and his legal advisors were preparing a counterclaim.
In deciding whether the action remained extant I consider that it is worth considering what could have happened on the sale of Mr Laib’s flat. There could have been a shortfall rather than a surplus. In that event Unibank S/A could have applied to restore the money claim under paragraph of the originating summons pursuant to Master Dyson’s order in which event Mr Laib could have applied to leave to serve his defence pleading set-off and counterclaim. If at any time after Master Dyson’s order Mr Laib’s grant of legal aid had come through at least certainly up to the 5th March 1997, the date of James Chapman’s letter giving notification of completion and application had been promptly made to serve the defence and counterclaim, in my judgment Master Dyson would in all probability have given leave for service bearing in mind that Master Dyson was aware of Mr Laib’s intention to counterclaim from the hearing on the 10th May 1996 (See:- R.S.C. Ord 28 r.7). Ord 28 r.7(2) makes it clear that expedition is required.
Notice of grant of legal aid come though to Mr Kalim on the 11th November 1996, the day before his death. Although I agree with Master Foster that there is no real prospect of establishing negligence against the defendants during the period between the 12th November and the 26th November for the reasons that he gave in his judgment, in my judgment there is cogent evidence of negligence thereafter especially after Counsel’s letter of the 28th January 1997. The defendants should have been aware of Ord 28 r.7(2) and the need to move fast.
In my judgment there is a clear distinction between a satisfied judgment and a satisfied claim. The satisfaction of a claim does not bring the litigation to an end but it remains extant. Therefore in my judgment the C.S.I. case does not apply. In my judgment Master Foster was plainly wrong to hold that it did apply. I allow the appeal from the order of Master Foster. Master Foster made an order for directions on the 21st January 2003. That has been overtaken by the strike-out. The order for directions will need recasting. I shall hear submissions on that this morning.
If the C.S.I. case had applied, Mr Laib’s claim if he had brought a separate action would have been statue barred as the Legal Charge was dated the 26th March 1990. As the originating summons was dated the 10th October 1995 by virtue of Section 35(1) and (2) of the Limitation Act 1980 the proposed set-off and counterclaim would have been deemed to have been commenced on the 10th October 1995 and thus would not have been statute barred. However, it was submitted that Section 35 only applied to legal set-offs. The proposed set-off was an equitable set-off. There are conflicting views as to whether Section 35 only applies to legal set-offs. Lord Denning M.R. in "The Brede" [1974] Q.B. 233 at page 246, Hobhouse J. in Westdeutsche Lanesbank v. Islington B.C. [1994] 4 All E.R. 890 at page 945 and Parker J. in Philip Collins Ltd .v. Davis [2000] 3 All E.R. 808 at page 831 held that Section 35 and its predecessor Section 28 only applied to legal set-offs. Roskill L.J. at page 264 and Cairns L.J. at page 254 in "The Brede" did not subscribe to Lord Denning’s view. I do not propose to resolve this conflict because however viewed whether as a legal or equitable set-off or an equitable defence Mr Laib’s counterclaim was not statute barred so long as the proceedings were still extant.
Like Master Foster I do not propose to deal with Mr Cannon’s fallback position, the loss of a chance that Unibank would not have relied upon the C.S.I. case. I regard Mr Cannon’s submission as un-real. If the C.S.I. case might have be applicable it would have been the duty of Counsel to draw it to Master Dyson’s attention.