The defendant solicitor had persuaded his client to release a charge, thus advancing the solicitor’s own subsequent charge on the same property. The action was started in the Chancery Division of the High Court. The statement of claim alleged fraud and claimed damages. At the trial the action was treated as action in the tort of deceit and the claim was dismissed for want of proof of actual dishonesty on the part of the solicitor. The Court of Appeal reversed that decision on the facts. It gave judgment in favour of the client.
Held: Fraud in the Chancery Division should be understood as an allegation of equitable (constructive) fraud, not fraud as understood by the common law (sometimes called express fraud). As to the duties of a solicitor to his client they are: 1. A solicitor stands in a fiduciary relationship with his client. 2. A solicitor who enters into a financial transaction with his client is under a fiduciary duty, when advising his client, to make full disclosure of all relevant facts known to him. 3. Liability for breach of fiduciary duty is not dependent on proof of deceit or negligence. Equity imposes duties in special relationships above and beyond the minimal legal duties to be honest and to be careful. Fiduciary duties rest on the idea of trust and of conduct offensive to conscience. 4. The equitable remedies available for breach of fiduciary duty are ‘more elastic’ than the sanction of damages attached to common law fraud and negligence.
In a case of fraudulent misrepresentation: ‘No-one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the ground that the person to whom he made it had available the means of correction.’ From the beginning the courts of equity have regarded themselves as courts of conscience. When courts of equity referred to something as ‘fraud’ it might have nothing to do with deceit, but may refer to unconscionable conduct.
Viscount Haldane LC referred to the ‘more elastic’ remedies of the Court of Chancery than those of the common law courts. He said: ‘My lords, it is known that in cases of actual fraud the Courts of Chancery and of Common Law exercised a concurrent jurisdiction from the earliest times. For some of these cases the greater freedom which, in early days, the Court of Chancery exercised in admitting the testimony of parties to the proceedings made it a more suitable tribunal. Moreover, its remedies were more elastic. Operating in personam as a court of conscience it could order the defendant, not, indeed, in those days, to pay damages as such, but to make restitution, or to compensate the plaintiff by putting him in as good a position pecuniarily as that in which he was before the injury.
But in addition to this concurrent jurisdiction, the Court of Chancery exercised an exclusive jurisdiction in cases which although classified in that Court as cases of fraud, yet did not necessarily import the element of dolus malus. The Court took upon itself to prevent a man from acting against the dictates of conscience as defined by the Court, and to grant injunctions in anticipation of injury, as well as relief where injury had been done. Common instances of this exclusive jurisdiction are cases arising out of breach of duty by a person standing in a fiduciary relation, such as the solicitor to the client, illustrated by Lord Hardwick’s judgment in Chesterfield v Jansen (2 Ves Sen 125).’
‘In Chancery, the term ‘fraud’ thus came to be used to describe what fell short of deceit, but imported breach of a duty to which equity had attached its sanction.’
As to constructive fraud and the nature of equity, Viscount Haldane said: ‘A man may misconceive the extent of the obligation which a Court of Equity imposes on him. His fault is that he has violated, however innocently because of his ignorance, an obligation which he must be taken by the Court to have known and his conduct has in that sense always been called fraudulent, even in such a case as technical fraud on a power. It was thus that the expression ‘constructive fraud’ came into existence. The trustee who purchases the trust estate, the solicitor who makes a bargain with his client that cannot stand, have all for several centuries run the risk of the word fraudulent being applied to them. What it really means in this connection is, not moral fraud in the ordinary sense, but breach of the sort of obligation which is enforced by a Court that from the beginning regarded itself as a Court of conscience.’
A Court of Equity has always assumed jurisdiction to scrutinize the action of a solicitor who has had financial transactions with his client: ‘It did not matter that the client would have had a remedy in damages for breach of contract. Courts of Equity had jurisdiction to direct accounts to be taken and in proper cases to order the solicitor to replace property improperly acquired from the client, or to make compensation if he had lost it by acting in breach of a duty which arose out of his confidential relationship to the man who had trusted him.’
Since the Judicature Acts, the Courts had been empowered to give both common law and equitable remedies: ‘This action ought properly to have been treated as one in which the plaintiff had made out a claim for compensation either for loss arising from misrepresentation made in breach of fiduciary duty or for breach of contract to exercise due care and skill.
. . The proper mode of giving relief might have been to order Mr Nocton to restore to the mortgage security what he had procured to be taken out of it in addition to making good the amount of interest lost by what he did. A measure of damages may not always be the same as in an action of deceit or for negligence. But in this case the question is of form only and is not one which it is necessary to decide. I am not sure that such an order would have been more merciful to Mr Nocton than the order for an inquiry as to damages which was actually made. At all events Mr Nocton’s advisers did not at any time object or ask for the other alternative and it is too late to ask for it now.’
Judges:
Lord Dunedin, Lord Shaw, Viscount Haldane LC
Citations:
[1914] AC 932, [1914] UKLawRpAC 31
Links:
Jurisdiction:
England and Wales
Citing:
Cited – Derry v Peek HL 1-Jul-1889
The House heard an action for damages for deceit or fraudulent misrepresentation.
Held: The court set out the requirements for fraud, saying that fraud is proved when it is shown that a false representation has been made knowingly or without . .
Cited – Burdick v Garrick HL 1870
In the courts of Chancery, the statute of limitations would not apply when the person in a confidential relationship had got the property into his hands. A court presumes against the party against whom relief is sought that he has made that profit . .
Cited by:
Cited – Mutual Life And Citizens’ Assurance Co Ltd And Another v Evatt PC 16-Nov-1971
The plaintiff had been an investor with the defendant. He asked them about an associated company. He was given advice which was incorrect. He claimed damages for negligence.
Held: The company was not itself in the business of giving such . .
Cited – Assicurazioni Generali Spa v Arab Insurance Group (BSC) CA 13-Nov-2002
Rehearing/Review – Little Difference on Appeal
The appellant asked the Court to reverse a decision on the facts reached in the lower court.
Held: The appeal failed (Majority decision). The court’s approach should be the same whether the case was dealt with as a rehearing or as a review. . .
Cited – R Griggs Group Ltd and others v Evans and others (No 2) ChD 12-May-2004
A logo had been created for the claimants, by an independent sub-contractor. They sought assignment of their legal title, but, knowing of the claimant’s interest the copyright was assigned to a third party out of the jurisdiction. The claimant . .
Cited – Hedley Byrne and Co Ltd v Heller and Partners Ltd HL 28-May-1963
Banker’s Liability for Negligent Reference
The appellants were advertising agents. They were liable themselves for advertising space taken for a client, and had sought a financial reference from the defendant bankers to the client. The reference was negligent, but the bankers denied any . .
Cited – Altonwood Ltd v Crystal Palace FC (2000) Ltd ChD 7-Mar-2005
The landlord claimed arrears of rent and other payments due under the lease of the football ground occupied by the club. A licence had been granted for the accomodation to be shared with Wimbledon Football Club. The rent varied with the gate . .
Cited – Crawford v Financial Institutions Services Ltd PC 2-Nov-2005
(Jamaica) The government had intervened in banking institutions under the control of the appellant. Subsequently orders had been made against him for compensation in respect of loans made negligently or otherwise than in accordance with good banking . .
Cited – National Australia Bank Ltd v Bond Brewing Holdings Ltd 1991
(Supreme Court of Victoria) The court had appointed a receiver without requiring a cross-undertaking in damages. The order was then set aside, and compensation was sought. There had been no cross-undertaking.
Held: If it had power to award . .
Cited – Target Holdings Ltd v Redferns and Another CA 24-Nov-1993
Solicitors were liable to mortgagees for mortgage monies which had been out by them paid in advance of the completion of the purchase which would allow the mortgagee’s loan to be charged. The basic liability of a trustee in breach of trust was not . .
Cited – Charter Plc and Another v City Index Ltd and others ChD 12-Oct-2006
An employee of the claimant had fraudulently spent several million pounds of the claimant’s money on personal bets through the defendant company. The claimant said that the defendants knew the origin of the funds and were liable to repay them. . .
Explained – Robinson v National Bank of Scotland HL 10-Apr-1916
The pursuer claimed for false and fraudulent misrepresentation againt his bankers.
Held: A duty of care is not only owed in cases of fiduciary relationship in the narrow sense of relationships which had been recognised by the court of Chancery . .
Cited – AIB Group (UK) Plc v Mark Redler and Co Solicitors SC 5-Nov-2014
Bank not to recover more than its losses
The court was asked as to the remedy available to the appellant bank against the respondent, a firm of solicitors, for breach of the solicitors’ custodial duties in respect of money entrusted to them for the purpose of completing a loan which was to . .
Cited – Banca Nazionale Del Lavoro Spa v Playboy Club London Ltd and Others SC 26-Jul-2018
The Playboy casino required a reference for a customer, but asked for this through a third party. The bank was not aware of the agency but gave a good reference for a customer who had never deposited any money with them and nor to whom it had issued . .
Cited – Poole Borough Council v GN and Another SC 6-Jun-2019
This appeal is concerned with the liability of a local authority for what is alleged to have been a negligent failure to exercise its social services functions so as to protect children from harm caused by third parties. The principal question of . .
Lists of cited by and citing cases may be incomplete.
Evidence, Torts – Other, Contract, Equity, Legal Professions
Leading Case
Updated: 11 February 2022; Ref: scu.183324