LORD JUSTICE BINGHAM
LORD JUSTICE STAUGHTON
 
 

B E T W E E N

JUDGMENT
 
DATED: 12 March 1990

STAUGHTON LJ: On 1st October 1987 there was a proposal by Property Lending Trust to lend £700,000 to Medilux Limited. There were at that stage conditions attached to the proposal. These were all contained in a letter of that date from Property Lending Trust to Medilux Limited. The letter was, it seems, signed by both parties; and it is agreed that there was a contract at that stage. In the event the loan was never made, for reasons which have not been explained and are not material.

The first of the conditions I quote is Special Condition (1):

"Our Solicitors to confirm that the necessary planning permission and building consents have been obtained for the conversion of Kingsmoor House into seven self-contained apartments and two self-contained flats for use by the elderly as a luxury residential home together with any necessary licences and consents required from the landlord of the property forming the security."

I should say that Kingsmoor House was to be security for the loan.

Then there is a section headed "Conditions to be met before an advance is released":

"Prior to the release of any advance we require to be satisfied: ...

(3) That your Solicitors have deduced a good and marketable title to the property (acceptable to our solicitors) offered as security and you have executed a first legal charge and any other collateral charges, memoranda of deposit or other appropriate documents in our favour in a form acceptable to us, together with a floating charge in the case of a company borrower over all of the company's undertakings and the other property assets and rights whatsoever and wheresoever both present and future, and have settled our solicitors' costs."

Then I turn to clause 29:

"You agree to pay all legal costs, survey and valuation fees (including VAT) relating to the advance, whether or not it proceeds, coupled with the cost of any manager appointed under clause 10 on page 2, and you undertake to reimburse and indemnify us for all costs, interest charges and expenses, after as well as before judgment should it be necessary for us to enforce our security."

That was the contract. The plaintiffs in this action are Macfarlanes, the well-known firm of solicitors. It is evident that they were instructed by Property Lending Trust to do the work contemplated by the conditions that I have read. On 19th October 1987 they sent their bill of costs addressed to Property Lending Trust Plc, and an address is given, followed by in brackets "(Payable by Medilux Limited)." The bill reads:

"Proposed facility to Medilux Limited To our professional charges for dealing throughout this period with the proposed advance to Medilux Limited on the security of Kingsmoor House including the preparation of all the security documents prescribed by your letter of offer, investigating title, prepared a Report on Title and liaising with Messrs Wragge & Co regarding their and your requirements for the advance and for all incidental attendances and correspondence but the matter did not proceed. £3,000"

and to that there was to be added Valued Added Tax of £450.

When the bill reached Medilux Limited they did not in the first instance say that it was not a matter for them and that it should be paid by Property Lending Trust. They required it to be referred to the Law Society for assessment whether the sum charged was appropriate. The Law Society issued a certificate on 6th February 1989. It reads:

"Name of Solicitors : Macfarlanes.

Name of client : Property Lending Trust PLC

Nature of work done : Arrangement of proposed mortgage facility

Date bill delivered : 19th October 1987

Charge : £3,000.

Pursuant to Article 3(1) of the Solicitors' Remuneration Order 1972, it is hereby certified that in the opinion of the Council of The Law Society, the sum of £3,000 (which is exclusive of disbursements and Value Added Tax) is a fair and reasonable sum to charge for the business referred to above."

Macfarlanes then issued a writ on 22nd February 1989. The statement of claim read as follows:

"1. In and between April 1987 and October 1987 the plaintiffs acted for Property Lending Trust Plc in connection with a proposed facility to the defendant.

2. It was a term of the proposed facility to be granted by property Lending Trust Plc to the defendant that the defendant would pay the plaintiff's professional charges".

Then the bill is recited and there is a prayer for £3,450 and interest.

Judgment under Order 14 was sought and obtained from Master Trench on 14th April 1989. Medilux Ltd had not appeared on that application. Later they applied for the judgment to be set aside. That application was heard by Master Turner on 27th July 1989. On that occasion it was Medilux Limited who did not turn up. He took the view that Medilux Limited should have unconditional leave to defend and he set aside the judgment. From that order Macfarlanes appealed. The appeal came before His Honour Judge Rice sitting as a judge of the High Court. The judge allowed the appeal, and restored the order of Master Trench so that there was judgment for the sum claimed and interest. Medilux now appeal to this court.

Since this is in effect an appeal in Order 14 proceedings we can either uphold the judgment, or give leave to defend, or give conditional leave to defend. What we cannot do, even if we thought that the defendants were plainly right, is give judgment for the defendants against the plaintiffs.

I have read clause 29 of the letter of offer. Mr Philipps for Macfarlanes points to the contrast between the obligation to pay in the first part of that clause and the obligation to reimburse and indemnify in the second part. He submits that in relation to the legal costs, survey and valuation fees Medilux are undertaking to pay direct to the solicitors, surveyors or valuers, whereas in relation to costs, interest charges and expenses incurred in enforcement, those are to be paid to Property Lending Trust. There may be an argument that despite the difference in language used, nevertheless in both cases the obligation was to reimburse Property Lending Trust. However, Mr Newton, who appears for Medilux Limited, does not insist upon that. He is content to accept that the contract imposes in terms an obligation upon Medilux to pay direct to Macfarlanes their bill for legal costs.

He starts naturally enough with the maxim pacta tertiis nec nocent nec prosunt, or in other words bargains neither harm nor profit third parties. But Mr Philipps for Macfarlanes does not seek to sue upon the contract contained in the letter of offer.

What the judge said about the cause of action was this:

"The matter is not altogether satisfactorily pleaded. But I am satisfied that what happened was that the defendants entered into a contract with Property Lending Trust. That contract provided not only that they would reimburse PLT, but also that the defendants would pay all legal charges arising from the terms of the loan whether or not the loan should proceed. In pursuance of this agreement the plaintiff, although not directly a party, carried out work of which the defendants were the beneficiary. Therefore this is a claim for work done by the plaintiff for the benefit of the defendants for which the defendants undertook to pay."

It was at one time thought on behalf of Medilux Limited -- and I would say understandably thought -- that the cause of action which the judge was there describing was one in quasi contract. However, once again Mr Philipps does not insist upon that today. He relies not on quasi contract but on a contract made between Macfarlanes and Medilux Limited. That, he says, is an implied contract because there is certainly no express contract between those two parties. In support of the argument as to such implied contract he refers to the principle stated in Smith's Leading Cases (13th Edition) Volume 1, page 156, which was approved by the Master of the Rolls Sir Wilfred Greene in the case of In re Cleadon Trust Ltd [1939] Ch 286, 299:

"If a person knows that the consideration is being rendered for his benefit with an expectation that he will pay for it, then if he acquiesces in its being done, taking the benefit of it when done, he will be taken impliedly to have requested its being done: and that will import a promise to pay for it."

Now that as it seems to me is an implication of fact and a statement of the circumstances when on the facts such an implication will be made. There are two requirements which need consideration in this case. First, was it the expectation of Macfarlanes that they would be paid for their work by Medilux? There is no direct evidence that that was their expectation at the time when they did the work. They did, however, make out their bill to Property Lending Trust and describe it as "payable by Medilux Limited"; and it may be that if that were the only point we ought to be satisfied that it was their expectation that it would be paid by Medilux.

But the second question is whether the work done by Macfarlanes can properly be described as being rendered for the benefit of Medilux. Medilux had their own solicitors. They did not particularly wish their title to be examined by Macfarlanes or the planning consents and such like to be investigated by them. It seems to me to be fairly arguable that the work which Macfarlanes did on the instructions of Property Lending Trust was done for the benefit of Property Lending Trust, who, after all, were the people who wanted to be satisfied as to the strength of their security. No doubt there was an ulterior benefit for Medilux in the shape of the money that they would be enabled to borrow if the investigations of Macfarlanes proved satisfactory. But I would question whether it is right to look at the ulterior motive. It seems to me fairly arguable that the immediate benefit flowed not to Medilux at all but to Property Lending Trust. On that ground the principle stated by Sir Wilfred Greene may not be applicable to this case.

In those circumstances it seems to me that this is a case where there ought to be leave to defend. It was suggested by Mr Phillips that if we took that view we ought to make leave conditional upon payment into court. It does indeed seem Medilux must owe this money to somebody. If not to Macfarlanes then they owe it to Property Lending Trust. It is said that if sued by Property Lending Trust Medilux would have a counterclaim, but Mr Newton was unable to tell us what the counterclaim would be about. However, at present, for whatever reason I do not know, Property Lending Trust are not a party to this action. So I do not think that it would be right to take into account what at first sight appear to be their very powerful grounds for succeeding, as a reason for ordering payment into court.

Accordingly, I would allow this appeal and give unconditional leave to defend.

BINGHAM LJ: I agree. On first considering these papers it seemed clear to me that the defendants' challenge to the entry of judgment against them was well founded. I must, however, confess that Mr Philipps' well considered and skilful argument has caused me to wonder whether that preliminary conclusion was correct. In the end, although with somewhat less confidence, I conclude that it was.

The circumstances in which contracts should be implied are at present unclear, but if contracts are to be readily implied between parties who have entered into no express contract the consequences are potentially very far-reaching in various commercial fields. There are no doubt many parts of the world where the plaintiffs' claim in the present action would succeed without much question, and many English lawyers would favour a weakening of the doctrine of privity here also. For better or worse, however, that doctrine is well-established here and there is no authority justifying this court in circumventing the doctrine of privity by implying a contract simply because it may be convenient and sensible to do so. In seeking to uphold the judgment in this case Mr Philipps has relied on the principle derived from Smith's Leading Cases, to which my Lord has referred. It is a cardinal element in that principle that the services should have been rendered for the defendants' benefit. In the present case it seems to me at least arguable that that is not in reality so. It is true, of course, that the advance would not have been made if the solicitors' enquiries had not been satisfactory and therefore it was to that extent in the interest of the defendants that those enquiries should be made. It was nonetheless Property Lending Trust as lenders who wanted to be satisfied that the defendants were acceptable as borrowers and that the security which they offered was sound and adequate. The solicitors' services were primarily at least rendered for the protection of Property Lending Trust. As matters stand I am not satisfied that a contract may properly be implied on the material presently before the court. Whether if the matter continues any further evidence will be available and admissible I do not know. Maybe not. I am not, however, as I say, satisfied that at this stage a contract should be implied between these parties, and for the reasons my Lord has given I do not regard this as an appropriate case for ordering security.

The consequence is that the appeal succeeds and the order of Master Turner must be reinstated. Costs in front of Master Turner costs in cause; costs before the judge and in this court must be the defendants' costs. The order for reinstatement of the Master's order embraces the reference to the Aldershot & Farnham County Court.