Summary

A finding in previous proceedings that the defendant had obtained a loan by fraudulent misrepresentation by him and his solicitor did not prevent him from suing his solicitor for negligence and the judge had been wrong to strike out his claim against his solicitor's partners on grounds of issue estoppel and abuse of process.

Facts

Appeal by the claimant ('C') from the decision of Stanley Burnton J striking out his case against the partners of his solicitor ('D1'). In 1991, C agreed to buy some moorland on the basis that it could be mined. A sum of #1.5 million was payable on completion and the vendor was entitled to half of any profit on a resale. D1 acted as C's solicitor. C borrowed #1.6 million to buy the land and D1 acted for the bank in that transaction. C told the bank that he had found a buyer for the land at a price of #10.5 million. He borrowed a further #1.5 million to buy out the original vendor's profit share. Contracts were exchanged with a purchaser of the land ('Darvis'). In 1993, C was declared bankrupt. The land did not have planning permission for mining and was practically worthless. Darvis never completed and was not worth suing. The bank attempted to regain the #3.1 million it had lent to C which had been paid out to C and D1 among others. The bank obtained summary judgment for #1.5 million against C, D1 and D1's partners on the basis of a finding that C had obtained the second loan from the bank by false representations made by him and D1 that he required #1.5 million to buy out the original vendor. The bank recovered most of the second loan from D1's partners and their insurers. After C was discharged from bankruptcy in 1996 the trustee in bankruptcy assigned all relevant causes of action to C in return for a share in anything recovered. In 1997, C began proceedings against the solicitors for the proposed purchaser alleging that they had deceived him into believing that it was a substantial rather than a penniless company. The Court of Appeal (Sweetman v Shepherd & Ors Times, March 29, 2000) held that those proceedings were not an abuse of process. C also sued D1 and his partners alleging that: (i) D1 negligently failed to alert C to the worthlessness of Darvis; and (ii) D1's partners were liable for D1's breaches of duty. The judge struck out the proceedings on grounds of issue estoppel and abuse of process.

Held

(1) A case was not to be struck out unless it had no serious prospect of success. (2) The finding in the bank's proceedings that C had obtained the second loan by fraudulent misrepresentation by him and D1 did not prevent C on grounds of public policy from successfully suing his fellow fraudster. C was suing his solicitor for negligence which was conceptually entirely separate from the fraud on which both were engaged. Accordingly, C's action against D1's partners could be pleaded and proved without relying on the fraud found to have been committed on the bank. The fact that damage might not have resulted but for a decision to deceive the bank was irrelevant to C's cause of action. (3) It was unnecessary to decide whether the finding of fraud could not be attacked in these proceedings by reason of issue estoppel or because that would be an abuse of process. (4) It would be wrong to strike out the action on the ground that C could not show any loss flowing from D1's assumed negligence. (5) C's chances of ultimately succeeding were wholly unclear and he should give security for the defendants' costs in a sum, which he could afford, to be determined by the costs judge.

Appeal allowed.