Neutral Citation Number: [2013] EWCA Civ 1513
Case No: A3/2012/1322
A3/2012/1318
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ROBERT ENGLEHART Q.C. 
sitting as a deputy Judge of the High Court
HC10C02293
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Friday 22nd November 2013
Before :

LORD JUSTICE MAURICE KAY
VICE PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION
LADY JUSTICE GLOSTER
and
LORD JUSTICE FULFORD
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Between :

	MR RICHARD GABRIEL	Appellant /Claimant
	
	- and -
		
	MR PETER LITTLE
HIGH TECH DESIGN & BUILD LIMITED

WHITESHORE ASSOCIATES LTD

BPE SOLICITORS

- and between -

BPE SOLICITORS 
BPE SOLICITORS LLP

- and -

GABRIEL 

LITTLE

HIGH TECH DESIGN & BUILD LIMITED	Respondents/
Defendants

2ndRespondents/Defendants

3rdRespondents/Defendants

Appellants/Defendants

Respondent/Claimant

2nd Respondent/Claimant

3rd Respondent/Claimant	
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 (Transcript of the Handed Down Judgment of
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Mr Michael Booth QC and Mr Adam Chichester-Clark (instructed by Clyde & Co LLP) for the Claimant/Appellant, Mr Richard Gabriel
Mr Patrick Green QC and Mr Matthew Bradley (instructed by Maitland Walker LLP) for the Defendants/Respondents Mr Peter Little and High Tech Limited
Mr Roger Stewart QC, (instructed  by Beale and Company LLP for the Appellants/Defendants BPE Solicitors and BPE Solicitors LLP
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Judgment
Lady Justice Gloster : 
Introduction
1.	These appeals against the judgment of Mr Robert Englehart QC ("the judge"), sitting as a deputy judge of the Chancery Division, dated 10 May 2012 (”the judgment”) arise out of a loan transaction whereby the claimant, Richard Gabriel (“Mr Gabriel”), lent the sum of £200,000 to Whiteshore Limited (“Whiteshore”), upon the terms of a facility letter dated 13 December 2007 (“the facility letter”). The loan was secured by legal charge (“the legal charge”) of the same date over a property known as Building 428, Site D, Kemble Airfield Enterprise Park, Kemble, Gloucestershire, registered at HM Land Registry under title number GR 326394 (“the Property”). The facility letter provided for repayment of the sum of £200,000 to Mr Gabriel on 12 March 2009, together with an additional sum of £70,000, defined in the facility letter as “the return”. This reflected a return of 35% on the sum advanced or 28% per annum. The facility letter also provided for the payment of interest at the rate of 4% per annum in the event that the loan, or the return, was not paid on the due date.
2.	Whiteshore was a company owned as to 50% by a Mr Peter Little (“Mr Little”) and his wife, and as to 50% by a Mr Andrew Smith ("Mr Smith") and his wife, and of which Mr Little and Mr Smith were directors. 
3.	Whiteshore did not repay the loan or pay the return on the due date or thereafter. Mr Gabriel exercised his rights under the charge to sell the Property but the sale realised the sum of only £13,000, which was not sufficient to meet Mr Gabriel’s costs of the disposal.
4.	When his loan was not repaid Mr Gabriel issued proceedings in the Chancery Division against (1) Mr Little, (2) Whiteshore (3) High Tech Design & Build Limited (“High Tech”), Mr Little’s principal company, of which he was at all material times the owner of the entire share capital and one of its directors, the other being his son,  (4) BPE Solicitors and (5) BPE Solicitors LLP (which I shall collectively refer to as “BPE”, as there is no need to differentiate between the two firms), which acted on behalf of Mr Gabriel in relation to the loan transaction.
5.	Whiteshore was established as a “special purpose vehicle” in order to implement the intended development of the Property.   
6.	In the proceedings, Mr Gabriel claimed:
i)	against Whiteshore, that it was contractually liable to repay the loan; (there was no defence to this claim; Whiteshore was not represented at trial and, by that date, no longer existed as a corporate entity);
ii)	against Mr Little, that he was liable to compensate Mr Gabriel in respect of his losses on the grounds:
a)	 that Mr Little had made fraudulent misrepresentations to Mr Gabriel as to the use to which the loan monies were to be put, which had induced Mr Gabriel to make the loan; Mr Gabriel alleged that Mr Little had fraudulently misrepresented that the loan was to be used for the development of the Property whereas, in fact, the majority of the funds were applied by Whiteshore in purchase of the Property from High Tech;
b)	that Whiteshore had received the loan as a trustee under a Quistclose trust, on terms that Whiteshore would only apply the loan monies for a specific purpose, namely in development of the Property;
c)	that Mr Little had dishonestly assisted in a breach of trust by Whiteshore, by procuring that Whiteshore paid the loan monies to High Tech in order to purchase the Property from High Tech, rather than applying the funds in development of the Property;
iii)	against High Tech, that it was liable for the knowing receipt of trust money, which it knew had been paid to it in breach of trust or for money had and received;
iv)	against BPE, that it was liable to compensate Mr Gabriel in respect of his losses on the grounds:
a)	that, by Mr Richard Spencer, at the material time an assistant solicitor, and now a partner in BPE, it had been negligent in failing to exercise reasonable care and skill in the advice which it gave Mr Gabriel; and/or
b)	that it had acted in breach of its fiduciary duties to Mr Gabriel and/or in breach of trust and/or dishonestly in assisting Whiteshore and/or High Tech's breach of trust by inter alia transferring the sum of £198,906.50 to Baileys, the solicitors acting for High Tech, of which £176,250 was transferred pursuant to the sale or purported sale of the Property from High Tech to Whiteshore, and the residue for a purpose unknown.
The judge’s conclusions 
7.	On 10 May 2012, having heard seven days of evidence, and a half day of submissions, the judge gave judgment (i) dismissing Mr Gabriel's claim against Mr Little and High Tech, and (ii) finding BPE in breach of its duty to exercise reasonable care and skill. He awarded Mr Gabriel the sum of £191,808.44 as damages against BPE. 
8.	In relation to the claim as against Mr Little and High Tech, the judge rejected Mr Gabriel’s case that Mr Little had made any fraudulent misrepresentations about the purpose for which the loan was to be applied; see paragraphs 74 and 75 of the judgment. He also rejected the proposition that the facility letter created a Quistclose or other type of trust. 
9.	In addition to rejecting the argument that any Quistclose trust had been created, the judge also rejected Mr Gabriel's case that dishonesty on the part of Mr Little had been established in relation to the payment to High Tech. Consequently he dismissed the claims against both Mr Little and High Tech on the respective grounds of dishonest assistance and knowing receipt.
10.	In relation to the claim as against BPE: 
i)	in the light of his finding that there was no Quistclose or other trust, the judge dismissed Mr Gabriel's claim that BPE had any liability for acting in breach of its fiduciary duties to Mr Gabriel and/or in breach of trust and/or dishonestly in assisting Whiteshore and/or High Tech's breach of trust; 
ii)	the judge  made it clear that there was no question of any dishonesty on the part of Mr Spencer, the relevant partner at BPE;
iii)	however, in relation to the claim against BPE for failing to exercise reasonable care and skill, the judge held that BPE was indeed in breach of its duty in drawing up the facility letter and in failing to inform Mr Gabriel of the intended utilisation of the loans; 
iv)	whilst the judge accepted that Mr Spencer had no duty to advise Mr Gabriel as to the commercial risk inherent in the loan, he held that, nonetheless, from what Mr Spencer had learned in his capacity as Mr Gabriel's solicitor, it was Mr Spencer's duty to inform Mr Gabriel that the amount of £150,000 plus VAT, out of Mr Gabriel's £200,000 loan monies, was going to be paid to High Tech, before Whiteshore could acquire the Property; accordingly the judge held that:
“Mr Spencer should have explained to Mr Gabriel that, although the latter was advancing £200,000, his funds were going to be applied substantially for Mr Little's benefit and in reality Mr Little was not putting anything at all into the project.”
See paragraphs 81-87 of the judgment.
The procedural chronology of these appeals
11.	At the hearing on 10 May 2012, the judge gave BPE permission to appeal against his finding that it was liable in negligence for the losses which Mr Gabriel had suffered in respect of the loan. No application was made on that occasion by Mr Gabriel for permission to appeal against the judge's rejection of his claim against Mr Little and High Tech.
12.	By notice of appeal dated 30 May 2012, Mr Gabriel applied to the Court of Appeal for permission to appeal against the judge's order dismissing his claim against Mr Little and High Tech. By his notice of appeal Mr Gabriel sought an order that the Court of Appeal should set aside the judge's order dismissing his claims against Mr Little and High Tech, order a new trial of his claims against them, or alternatively enter judgment against them in his favour. Mr Gabriel's Grounds of Appeal consisted of 18 grounds challenging both the judge's finding of facts and his conclusions of law. I shall refer to Mr Gabriel's appeal against the dismissal of his claims against Mr Little and High Tech as "the Little appeal".
13.	By a respondent's notice dated 15 June 2012, Mr Gabriel also sought permission, if, and to the extent that, BPE’s appeal against the judge's finding that it was liable in negligence for Mr Gabriel's losses were successful, to cross-appeal against the judge’s refusal to hold that there was a Quistclose or other trust or to find that BPE was acting in breach of fiduciary duty, in breach of trust, and/or in breach of the terms of the facility letter or BPE’s mandate in paying the loan monies to High Tech. Mr Gabriel's Grounds of Appeal consisted of 15 grounds challenging both the judge's finding of facts and his conclusions of law. I shall refer to BPE’s appeal as "BPE's appeal", Mr Gabriel's cross-appeal in relation to BPE as "the BPE cross-appeal" and the two appeals collectively as "the BPE appeals".
14.	On 31 August 2012 Lewison LJ refused Mr Gabriel permission to appeal against the judge's order dismissing his claim against Mr Little and High Tech. In concluding that the appeal had no real prospect of success he said:
“The judge decided that Mr Little was not guilty of fraud. This was a decision on the facts, and the judge' s findings are clear and cogently reasoned. When a party has been acquitted of fraud the decision in his favour should not be displaced except on the clearest grounds: Akerhielm v De Mare [1959] AC 789.”
15.	On the same date, Lewison LJ gave permission to Mr Gabriel to cross-appeal the judgment in relation to his claim against BPE on limited grounds restricted to issues of law - essentially those relating to the judge's decision that the facility letter had not created a Quistclose or other type of trust and that BPE had not acted in negligent breach of duty "in paying monies to [High Tech], contrary to the stated purpose of the facility letter and/or [Mr Gabriel's] instructions". Lewison LJ refused Mr Gabriel permission to appeal in relation to the remaining grounds set out in his respondent's notice of appeal which raised questions of fact. 
16.	On 30 October 2012, on Mr Gabriel's renewed application for permission to appeal against the dismissal of his claims against Mr Little and High Tech, Rix LJ gave Mr Gabriel permission to appeal generally on all his grounds of appeal in relation to the Little appeal.
17.	 On 16 January 2013, Rix LJ, on Mr Gabriel's renewed application for permission to cross-appeal on the remaining grounds set out in his respondent's notice  in the BPE cross-appeal,  gave Mr Gabriel permission to appeal generally on all the remaining grounds set out in his respondent’s notice. 
18.	On 9 May 2013 High Tech went into administration. On or about 14 June 2013, the administrator confirmed that he consented to the continuation of the appeal proceedings against the company.
The relevant facts found by the judge and the conclusions drawn by him on the basis of his findings
19.	The facts as found by the judge, and the conclusions which he draws from them, are fully set out in his judgment reported at [2012] EWHC 1193 (Ch).  For present purposes I summarise the principal facts, and some of the judge's conclusions based on his findings of fact, as follows:
i)	Mr Gabriel was a highly successful businessman. The judge described him as follows:- 
“Mr Gabriel describes himself as a semi-retired businessman. He was the founder of a highly successful company, Interlink Express Parcels Limited, which became a public company. In 1991 Mr Gabriel sold his shareholding in that company for about £50 million, and for the next 10 years he acted as an entrepreneur in various fields. Since then, whilst he has been semi-retired since 1994, he has been involved in a number of property transactions. He is undoubtedly knowledgeable in the field of property and generally conversant with property dealing. He is an astute businessman who, until the present dispute arose, was a close friend of Mr Little. Indeed, he is the godfather of one of Mr Little’s children.”  See paragraph 4 of the judgment.
The judge also had this to say about Mr Gabriel:
“Mr Gabriel is obviously a hard headed businessman. He well understands the ramifications of property transactions and is not the kind of person to be swayed by friendship into a foolhardy business decision. He was subject to extensive cross-examination, but in my view he came across as essentially honest. Whilst there was always the possibility of Mr Gabriel being mistaken and on occasions his evidence lacked consistency, I did not think he was being deliberately untruthful in his evidence.” (See paragraph 16 of the judgment).
ii)	Mr Little was (and is) a builder and developer. Mr Little acts through a number of companies (including High Tech). Mr Little was described by the judge as follows:-
“Peter Little is a builder and developer. He has been involved in property and construction all his working life. Whilst he has been a shareholder and director in numerous companies, the principal company through which he acts is High Tech (formerly known as High Tech Fabric Maintenance Limited). Mr Little is the owner of the entire issued share capital of the company, and he and his son James are the company’s two directors. For all practical purposes High Tech is indistinguishable from Mr Little personally. It was apparent to me during Mr Little’s evidence that he was far from punctilious in keeping his various different corporate and personal affairs separate  from each other. Unless he considered it essential to do otherwise, he has simply treated the property and money of various companies controlled by him as indistinguishable and for all practical purposes his to deal with as he saw fit.” (See paragraph 5 of the judgment).
The judge also had this to say about Mr Little:
“Mr Little was a less satisfactory witness. I appreciate the strain under which he must have been during a prolonged cross-examination. Also, it is naturally most unpleasant to be the subject of allegations of fraud. Nevertheless, some of Mr Little's evidence was hard to reconcile with the contemporary documents, and I formed the impression that Mr Little was more concerned with seeking reasons for justifying his conduct than simply explaining what in fact happened. I was cautious about accepting what Mr Little was saying unless it accorded with the contemporary documents.” (See paragraph 16 of the judgment).
iii)	In early 2004 Mr Little decided that a number of the old buildings at Kemble airfield, some of which were in poor condition, represented a good development opportunity. High Tech acquired a number of buildings on the airfield. At some time thereafter certain of the buildings were charged to High Tech's bank to secure its indebtedness to the bank. The buildings in question included the Property. 
iv)	At some stage in 2004 Mr Little applied for and was granted planning permission to convert the Property into office accommodation. The permission required development within five years and was subject to conditions before any development could commence. One of the conditions was for an investigation into possible contamination at the site and agreement by the planning authority to any remedial treatment found necessary. In a valuation prepared for Mr Little's bankers in 2004, the Property was attributed a value of £150,000 (assuming environmental conditions were met) or £350,000 on completion to offices. The basis of this valuation was unknown, but the evidence suggested that it might have been a residual valuation, that is one which took a value for completed office accommodation at the time and deducted building costs as estimated by Mr Little in order to arrive at the figure of £150,000. A valuation which had been undertaken about a year earlier attributed an undeveloped value of £50,000, with a developed value of £175,000, to the Property. In any event, apart perhaps from some preliminary working, no development in accordance with the 2004 planning permission ever took place.
v)	Prior to the transaction which was in issue in the proceedings, Mr Little had discussed the possibility of Mr Gabriel making a loan to Blueshore Associates Limited (“Blueshore”) in connection with a major development known as the Southgate Street development, which was being financed by a company called GMAC-RFC Property Finance Ltd (“GMAC”). Blueshore was a company which Mr Little had acquired with two others. The proposed terms of the loan were that Mr Gabriel would lend Blueshore £200,000 for a 15 month period, at the end of which Mr Gabriel would be repaid the sum of £270,000. As the judge found, this was a high rate of return and, in anticipation that the proposal would materialise, Mr Gabriel borrowed £200,000 from the trustees of a family trust which he had set up at the time of disposing of his shares in Interlink Express Parcels plc. 
vi)	As security for the loan, Mr Gabriel wanted a charge on the Southgate Street development and personal guarantees from the Blueshore directors including Mr Little. Mr Spencer drafted a facility letter ("the Blueshore draft facility letter") under which the terms of the proposed loan were to be recorded. The judge regarded the Blueshore draft facility letter as of importance, since he found that it formed the template for the facility letter which was directly material to the present dispute. The Blueshore draft facility letter recorded that the loan was to be for £200,000 payable on a drawdown date, which was to occur on satisfaction of conditions precedent relating to security for the loan and the provision of various documents, such as planning permission, a survey and Blueshore board minutes; the loan was to be repaid plus £70,000 within 15 months of the drawdown date; there were provisions dealing with projected sales of individual properties in the Southgate street development and also a provision for early repayment of the loan in the event of all the properties being sold prior to the repayment date. By clause 1.5 the loan was defined as “the sum of £200,000.00 which will be made available as a contribution to the costs of development of the Property . . . .” By clause 2, under the heading “PURPOSE", it was provided “To assist with the costs of development of the Property.”
vii)	However the loan did not proceed because GMAC, as first mortgagee, insisted on unlimited priority under its charge, and the right to withhold consent to enforcement of the second charge, until its loan had been repaid in full and was not prepared to restrict the amount of its first charge to any particular amount. Mr Gabriel regarded these terms as unsatisfactory, and accordingly did not proceed with its loan. Mr Spencer had advised against proceeding with the loan on these terms because there could be no certainty that any security would be available to Mr Gabriel. However, as the judge found, although Mr Gabriel was not prepared to lend in connection with the Southgate Street development, having drawn down the money from his family trust, he had the funds available. It was in those circumstances that an alternative proposal came to be considered between Mr Gabriel and Mr Little.
viii)	There was a meeting at the Red Hart public house in early November 2007 at which, as the judge found, the two men discussed the potential development of the Property and Mr Little suggested a figure of £200,000 for building costs, which Mr Gabriel regarded as a very rough guide. The judge found that it was unlikely at this meeting that Mr Little would have mentioned details such as the fact that Lloyds TSB had a first charge over the Building. It was common ground that, at this meeting, the two men discussed the proposal that Mr Gabriel should make a loan of £200,000, once again with a return of £70,000 at the end of the term. At paragraph 21 of the judgment, the judge said:
“I prefer the evidence of Mr Gabriel as to what was discussed at the Red Hart, although I do not think that Mr Gabriel would have treated the figure of £200,000 as anything other than a very rough guide. It was certainly no commitment and, as a figure, never featured in subsequent documentation. Indeed, the language of the subsequent facility letter is inconsistent with a development on which only £200,000 was to be spent. The context was that Mr Little was telling Mr Gabriel that he owned a property which was ripe for development, although Mr Gabriel did not take that as meaning that Mr Little personally rather than some corporate vehicle owned it. In my view, it is extremely unlikely that Mr Little and Mr Gabriel were at this first discussion on the topic going into details such as a Lloyds TSB charge over the Property. Obviously, Mr Little was keen that Mr Gabriel should make a loan. Equally, Mr Gabriel was keen to know for what his money would be used. In that context, it was Mr Little's proposals for development which were the focus of the discussion.”
ix)	Following the Red Hart meeting Mr Gabriel, who had expressed interest in Mr Little's proposition, together with Mr Little, visited the site and formed the view that the Property would be worth in the region of £150,000 and that, once developed, it would be worth in excess of £400,000. Mr Gabriel decided in principle to proceed with a loan of the same amount (i.e. £200,000) and on the same repayment terms as had been envisaged for the Southgate Street development (i.e. a return of £70,000, a repayment date of 15 months after the initial loan and a first charge by way of security). 
x)	Mr Gabriel then proceeded to instruct BPE in relation to the transaction. No written record exists of the terms of Mr Gabriel’s instructions to the solicitors, nor, as the judge found, did Mr Spencer ever send Mr Gabriel a "client care" letter or any other communication referring to his instructions. The judge accepted Mr Spencer’s evidence that he first heard of the proposal on about 12 November 2007, when he received a voice-mail from Mr Little, which informed him that the loan was to be used to purchase the Property. Mr Spencer's written note of that voicemail was in the following terms:
“Peter Little [telephone number]
RG to lend cash to buy 3000 sq ft Kemble Andrew Snape [sic - it should have been Smith] + Peter L buying Whiteshore Associates Ltd Andrew Chapman at Baileys will act for Peter L as seller.”

xi)	The judge's conclusions in relation to the instructions given to Mr Spencer were set out in paragraphs 23 and 24 of the judgment as follows:
“[23] Thus, it seems what Mr Little was saying he had in mind was that a loan from Mr Gabriel was to be used for a company in which he had an interest to purchase a property from himself. It seems to me clear, and I accept Mr Gabriel's evidence in this respect, that Mr Gabriel for his part had no such arrangement in mind. Indeed, Mr Gabriel would have regarded any such notion as entirely unacceptable. I can quite understand why it would have been unattractive to him for his money simply to be passed over to, in effect, Mr Little rather than being used for the common profit making opportunity of development.
[24] Mr Spencer gave evidence that his initial instructions from Mr Gabriel accorded with Mr Little's voicemail message, that is that Mr Gabriel wanted to lend money for the purchase of a property from Mr Little. As I noted, there is no written record of any such instructions. Undoubtedly, what Mr Spencer was subsequently told by the solicitor for Mr Little (or, more precisely, High Tech), Mr Chapman of Baileys, and the subsequent documentation drawn up by Mr Chapman reflected such an arrangement. However, I have come to the conclusion that Mr Spencer simply assumed that what he had been told in Mr Little's voicemail, and was shortly thereafter told in writing by Mr Chapman, was what all parties, including Mr Gabriel, wanted. I accept Mr Gabriel's evidence that he did not instruct Mr Spencer that this is what he wanted. Such an arrangement would have, of course, been of considerable benefit to Mr Little. But, it would have been of little benefit to Mr Gabriel (save for the possibility of a good return on his £200,000). On Mr Little's case, Mr Gabriel was contributing £200,000 but he, Mr Little, would not be making any contribution to the project. As far as Mr Gabriel was concerned, his loan was to be used for the development of the Property. On the basis that for his part Mr Little or some corporate vehicle was contributing the property and that Mr Gabriel was contributing development finance, the project made some commercial sense.” [ Emphasis supplied].
xii)	As the judge found, Mr Gabriel accepted that he did not ever seek advice as to the commercial wisdom of the proposed transaction from Mr Spencer (see paragraph 68 of the judgment). 
xiii)	On 15 November 2007 Mr Chapman, the solicitor from Baileys, wrote to Mr Spencer in the following terms:
“Your Client: Richard Gabriel
Our Client: High Tech Fabric Maintenance Ltd
Property: Unit 4 D Site Kemble
Following our recent telephone conversations I confirm that I have instructions from my above named Client regarding the sale of Unit 4 to Whiteshore Associates Ltd for a sum of £150,000.00 plus VAT. I understand that you have instructions from Richard Gabriel who is lending the purchase monies to Whiteshore Associates Ltd which company is not being directly represented in this transaction.”
The letter enclosed certain documents, including a draft contract of sale by High Tech to Whiteshore, a draft land Registry transfer, office copies of entries at the Land Registry and a copy of the file plan showing the extent of the property to be transferred from High Tech and listed other documents to follow. The judge held:
“There is no doubt that Mr Chapman was being instructed by Mr Little as to the nature of the transaction from Mr Little's perspective. Equally, Mr Chapman was quite open with Mr Spencer. For his part Mr Spencer simply assumed that this accorded with what his client, Mr Gabriel, also had in mind. In this he was mistaken, and unfortunately he did not clarify his instructions from Mr Gabriel.”
xiv)	Mr Chapman was responsible for drawing up the majority of the documentation. The requisitions on title made by BPE recorded Baileys' response that there was a charge on the property dated 5 November 2004 in favour of Lloyds TSB and BPE’s undertaking on completion to discharge the charge, or provide such evidence of discharge as might be provided by the lender. Mr Spencer was responsible for drafting two documents: the facility letter and the legal charge on the Property as security for the loan.
xv)	The facility letter followed the general format of the draft Blueshore facility letter, despite the fact that, as he said in his witness statement, Mr Spencer
 “…appreciate[d] the fundamental difference that the Southgate Street loan was for development funds whereas the new loan was to be used towards a property purchase.”
xvi)	 Mr Spencer made the odd change to the previous draft Blueshore facility letter, but, in substance, the terms remained the same. The principal provisions of the facility letter were as follows:
“the Property….
I am prepared to offer loan facilities to you secured on the Property on the basis of the particulars set out below. Your acceptance of the terms of the facility is requested by returning a copy of this letter to me within seven days of this letter. If accepted, this Facility Letter constitutes the agreement between us.
1. PARTICULARS…..
1.1 Borrower: Whiteshore..
1.2 Drawdown Date: 13 December 2007
1.3 Repayment Date: 12 March 2009
1.4 Property: ….the Property
1.5 Loan: The sum of £200,000.00 which will be made available as a contribution to the costs of development of the Property, such sum to be advanced on the Drawdown Date.”
2. PURPOSE 
To assist with the costs of development of the Property.
3.  REPAYMENT PERIOD
3.1.	Subject to non-occurrence of any Event of Default ….. the Loan is to be repaid in full by 5 PM on the Repayment Date.
3.2. 	In addition to the repayment of the Loan, you will pay me the sum of £ 70,000 ("Return") by the Repayment Date.
4. DRAWDOWN AVAILABILITY
The loan shall be payable upon satisfaction of the Conditions Precedent.
5. SECURITY
A legal charge with full title guarantee over the Property owned by the Borrower.
6. CONDITIONS PRECEDENT
Before drawdown can be made of the Loan, the following must be delivered to my solicitors in a form and substance satisfactory to me:-
6.1	Copies of planning permission authorising the current and any proposed use of the Property;	
6.2.	Satisfactory details of insurance cover for the Property;
6.3.	A certified copy of the board minutes approving the terms of this letter and authorising its acceptance and the execution of the security documents.
7.		FEES AND EXPENSES
The Borrower agrees to pay on demand and on a full indemnity basis all costs, charges and expenses properly and reasonably incurred by me in implementing the Loan and Security, including the fees, disbursements and expenses of my legal advisers but limited to the sum of £750 plus VAT and disbursements…."
xvii)	The draft legal charge was also prepared by Mr Spencer. As was common ground, as a result of an oversight on his part, whilst the legal charge secured payment to Mr Gabriel of the principal amount of the loan, namely £200,000, it failed to secure the agreed return of £70,000.
xviii)	A meeting took place on 7 December 2007, which was attended by Mr Gabriel, Mr Spencer, Mr Chapman of Baileys, acting for High Tech, and Mr Little and his son, Mr James Little. No solicitors attended the meeting on behalf of Whiteshore. At the meeting, Mr Gabriel signed the facility letter and the legal charge on his own behalf and Mr Little signed the facility letter and the legal charge, on behalf of Whiteshore.  (Either prior to the meeting, or subsequently, the legal charge was signed by Mr Smith as co-director of Whiteshore.) Both documents were subsequently dated 13 December 2007. 
xix)	Also on the table at the meeting were: a contract of sale of the Property, as between High Tech as seller and Whiteshore as buyer, for the price of £150,000 plus VAT, a draft land Registry transfer deed from High Tech to Whiteshore and a draft stamp duty land tax ("SDLT”) return in relation to the transfer as between High Tech and Whiteshore. At the meeting Mr Little signed the contract for the sale of the Property on behalf of High Tech, Mr Little and Mr James Little signed the draft deed of transfer on behalf of High Tech, Mr Little also signed the transfer on behalf of Whiteshore and Mr Little approved and signed the SDLT return on behalf of Whiteshore. Both the contract and the draft deed of transfer were also subsequently dated 13 December 2007. A draft contract specifically referred to the fact that no solicitor was acting on behalf of Whiteshore. (Either prior to the meeting, or subsequently, the contract and transfer deed were signed by Mr Smith as co-director on behalf of Whiteshore.) Mr Spencer retained the signed SDLT return as it was necessary for him to file it when registering Mr Gabriel's legal charge to perfect his security.
xx)	 Mr Spencer's attendance note of the meeting recorded as follows:
“Richard [Mr Gabriel] acknowledged there are no property searches. He went through the loan agreement + legal charge and confirmed he was happy with the terms. 
All parties signed the various docs. Agreed to complete ASAP.”
The reference to "no property searches" was a reference to the fact that Mr Gabriel had instructed Mr Spencer that Mr Gabriel did not want him to carry out any of the searches which might usually be carried out in this type of property transaction.
xxi)	The judge's findings of fact, and the conclusions which he drew from them, in relation to this meeting were as follows:
“[31] Mr Gabriel told me that at the meeting there was some discussion between the solicitors about documentation and the signing of formal documents. He himself was, however, not involved with the documentation other than that which concerned his loan directly. He read the facility letter and also the charge before he signed, but he did not read any of the other documents being passed between the solicitors and Mr Little and his son. He read what he had to sign. There was mention at the meeting of his not requiring a personal guarantee from Mr Little when he learned that one had not been prepared by Mr Spencer. He told me that he appreciated at the meeting that the Property was being put into, as he put it, “a clean vehicle”, i.e. Whiteshore. He also realised that there was to be a transfer from one of Mr Little's companies, that is High Tech, to Whiteshore. Also, he agreed that at the meeting there was talk of the bank's charge being discharged and some mention between the solicitors about an undertaking. In addition, he recalled a plan of the site being produced and marked in red. However, he was adamant that he had no reason to appreciate that it was his money which was going to be used to discharge the bank's charge. As far as he was concerned, Mr Little was dealing with an inter-company transfer between companies under his control, and Mr Little's arrangements with his own bank were not his concern. As far as he was concerned, it had always been the case that his money was to be used for development of the Property. And that is precisely what the facility letter clearly stated when he read it through before signing.
[32] Mr Spencer's brief attendance note of the meeting is consistent with Mr Gabriel's version of what happened. It reads: [and the judge then quoted the note as set out above].
However, in his oral evidence Mr Spencer went much further. His recollection was that he discussed all the financial terms of the transaction with Mr Gabriel at the meeting. It would have been obvious to Mr Gabriel that his money was to be used for the purchase of the Property and satisfaction of the bank's charge. The purpose of his loan was “so blatant and verbally discussed”. Mr Spencer was adamant in evidence: “the amount of the loan going towards the purchase price was discussed and extremely clear to everybody there”. Although not mentioned in his witness statement, he even recollected showing Mr Gabriel the transfer deed even though, of course, Mr Gabriel was not a party to that document.
[33] Other witnesses who described what happened at the meeting were Mr Chapman and, of course, Mr Little. Mr Little said that he did not read but “flicked through” the facility letter which he signed for Whiteshore. Mr Little's impression was that “there was no doubt in anyone's mind at the meeting that the major part of Richard Gabriel's loan was to be used for the purchase of the Property”. Mr Chapman's evidence was similar, although he was not clear about any discussion specifically as to the use to which Mr Gabriel's money was to be put. However, neither Mr Little nor Mr Chapman was able to state with any precision exactly what was said to Mr Gabriel so as to make clear to him that the purpose of the loan was not as set out in the facility letter and that this document was wrong. In general terms, leaving aside Mr Chapman's general impression, his account of the meeting was not very different from that of Mr Gabriel. Mr Chapman acknowledged that he had had no occasion to recollect the detail of the meeting for some three years. He also agreed that he would expect people at the meeting only actually to read what concerned them. Ultimately his evidence about the meeting may be summarised in the following extract from his cross-examination:
“Q Well, you say, 'explained what the transaction was'. Explaining what the transaction is, is that property is being transferred from High Tech to Whiteshore, the charge of Lloyds Bank is being dealt with, and a first legal charge and a facility letter, which will govern the loan arrangements, is to be executed in favour of Mr Gabriel, and that's a sufficient an explanation of the transaction as was either needed and as in fact was given; correct?
A Broadly speaking.”
……….
[34] It was of course entirely clear to each of Mr Spencer, Mr Chapman and Mr Little why Mr Gabriel was lending the money. From their perspective, it is understandable that their impression was of Mr Gabriel being completely in the picture. However, I accept what Mr Gabriel says about the meeting. If he had been told that his money was to be used in order, effectively, to discharge some of the bank indebtedness of Mr Little's own company, I have no doubt that he would have protested forcefully. Furthermore, Mr Gabriel clearly read the facility letter before signing it. It is in my view entirely improbable that he would have raised no query at all about cl 1.5 and cl 2 if he had appreciated that they were wrong. Given what Mr Spencer's attendance note does and what it does not say and what the facility letter quite clearly states about the purpose of Mr Gabriel's loan, I am of the view that Mr Spencer's recollection about precisely what was said at this meeting is at fault.” [ Emphasis supplied.]
The judge also found that, had Mr Gabriel known the true purpose of the loan, he would not have entered into it; see paragraph 88 of the judgment.
xxii)	On 12 December 2007 Mr Gabriel transferred £200,000 to BPE’s client account. On the following day, 13 December 2007, when the funds had cleared, Mr Spencer gave instructions for the sum of £198,906.50 to be paid from BPE’s client account to Baileys' client account. The difference between the two figures represented BPE’s fees which were to be paid by Whiteshore and accordingly had been deducted from the loan monies. The transfer took place prior to satisfaction of one of the conditions precedent to the loan (namely the receipt of a certified copy of Whiteshore's board minute), but it was common ground that no point arose in relation to this aspect.
xxiii)	On 14 December 2007 Mr Chapman, although acting on behalf of High Tech, wrote to Mr Spencer acknowledging receipt on behalf of Whiteshore of the £198,906.50 advanced by Mr Gabriel. The letter was in the following terms: 
“Your Client:	Richard Gabriel
Our Client:	High Tech Fabric Maintenance Limited
Property:	Unit 4 D Site Kemble
I write to formally acknowledge receipt of £198,006.50 being monies advanced by your Client Richard Gabriel to Whiteshore Associates Limited. I confirm that sufficient monies have been forwarded to High Tech Fabric Maintenance Limited to enable the transfer to Whiteshore to be completed.

I have remitted sufficient funds to Lloyds TSB to enable them to release their charge over the Property. As soon as I receive DS3 from the bank I will forward it to you.
I am aware that still outstanding are issues relating to covenants required not only for the Ministry of Defence in relation to the clawback provisions on the title but also in relation to the management arrangements for the site.
I enclose:	
	1.	A certified copy of a minute of Whiteshore Associates Limited that I  have been asked to forward; 	
2.	Cheque for £1,775.00 to cover Stamp Duty Land Tax and Companies House fee.
 
xxiv)	Whiteshore's board minute, forwarded in satisfaction of one of the conditions precedent, and signed by Mr Smith, recited as follows: 

“1. Peter Little was appointed Chairman of the Meeting.
2.	The Chairman declared the meeting quorate.
3.	The Chairman reported that it was proposed to acquire the freehold title to a Property called Unit 428 at D Site, Kemble Airfield from High Tech Fabric Maintenance Limited for £150,000.00 plus VAT. The Chairman had negotiated a facility with Richard Gabriel (“the Lender”) for £200,000.00 to be secured on the Property in the terms of a facility letter a copy of which is attached to these minutes. It was resolved:
	3.1	to approve the purchase of the property on the terms outlined
3.2	to approve facility and authorise the Chairman to sign the same on behalf of the company
3.3	to grant a legal charge to the Lender on the terms of the facility
4.	There being no further business the Chairman declared the Meeting closed."

 
It was common ground that the board minute was not forward by Mr Spencer to Mr Gabriel at the time.
xxv)	As outlined in Mr Chapman's letter, from the sum of £198,906.50, the sum of £150,000 was duly paid to Lloyds TSB to enable it to release its charge over Building 478, and the VAT payable by Whiteshore to High Tech was remitted to HMRC. The balance of the sum of £198,906.50 was applied, at Mr Little's direction, mainly in payment of debts of Blueshore in relation to the Southgate Street development and also in payment of some bills incurred in connection with building works being carried out by Mr Little on Mr Gabriel's house. 
xxvi)	On 18 December 2007 Baileys paid the sum of £1775 to the credit of BPE’s client account maintained in respect of Mr Gabriel, with regard to SDLT and Land Registry and other fees payable in connection with Whiteshore's acquisition of the property. On 8 January 2008 BPE paid the SDLT, as this was a necessary prerequisite to registration of Mr Gabriel's legal charge.  In due course, Whiteshore was duly registered as proprietor of the property at HM Land Registry and Mr Gabriel was duly registered as the proprietor of a first charge. The legal charge was also registered at Companies House. 
xxvii)	There was little or no serious discussion about the progress of any development during 2008 between Mr Gabriel and Mr Little. Whilst some work may have been carried out at the Property, little or no tangible development progress was made. Indeed at the date of the trial, no real development had begun; see paragraph 38 of the judgment. 
xxviii)	Until shortly before 12 March 2009, the date on which the 15 month period for payment to Mr Gabriel of £270,000 was due to expire, Mr Little was suggesting to Mr Gabriel that he was going to get his money back. However, Mr Little was also encountering problems over the obtaining of an enhanced planning permission and problems with finding a potential tenant or purchaser for the Property. By the due repayment date it was becoming clear that Mr Gabriel was not going to receive the £270,000 on that date. This created some friction between Mr Gabriel and Mr Little. Over the course of 2009, Mr Little and Mr Smith paid Mr Gabriel a total of £8,191.56 by way of “interest”.
xxix)	From October 2009 relations soured as Mr Gabriel discovered that there had been no development at the Property. Mr Gabriel decided to enforce his charge by selling the Property.
xxx)	The Property was sold at auction in July 2010 for £13,000 to Mr Little. The evidence of the quantity surveyors and valuers called at trial was that the actual costs of developing the Property were likely to be so high as to make any development along the lines envisaged by the 2009 planning permission uneconomic. The valuation evidence was hedged about with uncertainties. The tentative consensus was that a valuation of the Property in July 2010, on an undeveloped basis, at around £40,000 would not be inappropriate. 
The Little appeal
The judge's critical conclusions of fact and of law in relation to the case against Mr Little and High Tech
20.	In rejecting Mr Gabriel's case that Mr Little had made fraudulent representations and that Mr Little and High Tech were liable for dishonest assistance in breach of trust, the judge, based on his findings of fact as summarised above, reached the following conclusions of fact and of law:
i)	He accepted that, following the meeting at the Red Hart public house Mr Gabriel was under the impression that Mr Little wanted him to lend money for the development of the Property and that there was no discussion between Mr Gabriel and Mr Little about an inter-company transfer from High Tech or about the funds being provided by Mr Gabriel in order to pay off High Tech's bank indebtedness. 
ii)	He was quite satisfied that, as far as Mr Gabriel was concerned, it was a projected development of the Property which led him to be willing to advance £200,000; and that, as far as the costs of the projected development were concerned, there was discussion around that figure. However he doubted that it was ever understood by Mr Gabriel as a certain amount. The figure was never more than a very rough approximation.
iii)	Although the judge concluded that Mr Little did speak enthusiastically to Mr Gabriel about development of the Property, the judge was:
 "not satisfied that Mr Little told Mr Gabriel explicitly that his loan money would only be used for the purpose of development and no other purpose". 
The judge concluded that Mr Little had never addressed his mind as to what Mr Gabriel was likely to be thinking. Moreover, although the judge took the view that the facility letter clearly identified the purpose of the loan, he did not think that Mr Little would have taken this in from his “flick through” perusal of the document. The judge concluded that the reality was that Mr Little gave no thought to Mr Gabriel's understanding of the matter at all. He said: 
“Accordingly, I do not find that Mr Little made a representation which he knew to be untrue or about the truth of which he did not care".” 
See paragraph 74 of the judgment.
iv)	He found that there was no doubt that Mr Spencer, as Mr Gabriel's solicitor, had explicitly been told about the intention to use Mr Gabriel's loan money for Whiteshore to purchase the Property from High Tech, and that, if Mr Spencer had applied his mind to the matter, he would have realised that the facility letter was wrong. But, in reaching his finding that Mr Little was not dishonest, the judge placed considerable weight upon the fact that Mr Spencer, Mr Gabriel's agent, knew the true position and rejected the argument advanced on behalf of Mr Gabriel, in reliance upon dicta of Scrutton J (as he then was) in Wells v Smith [1914] 3 KB 722 at 725, 83 LJKB 1614, 111 LT 809 to the effect that he would be “very slow to allow the effects of actual fraud to be nullified by constructive notice”. Thus at paragraph 75 the judge said:
“I accept Mr Bradley's submission that accordingly there would be no misrepresentation in relation to the intended utilisation of Mr Gabriel's money, since Mr Gabriel's agent with authority to receive the information knew the true position. Mr Booth sought to counter this by reference to an argument that it would be no answer to say that the agent knew the true position when there was fraud. He relied upon what Scrutton J (as he then was) said in Wells v Smith [1914] 3 KB 722 at 725, 83 LJKB 1614, 111 LT 809 about how he would be “very slow to allow the effects of actual fraud to be nullified by constructive notice”. Possibly, this is to be understood as applicable to a case where the agent himself is implicated in a fraud, but in any event the premise of the argument is that Mr Little was fraudulent. I do not accept the premise."
Thus the judge held that the premise of such a principle, as applied to the present case, was that Mr Little was fraudulent, and that was not the position.
In relation to Mr Gabriel's case against Mr Little and High Tech based on the provision of dishonest assistance in a breach of trust, the judge rejected the argument that the facility letter created a so-called Quistclose trust. He held that, whilst the facility letter did identify the purpose of the loan, it did not, simply by doing so, create a trust. Relying upon Lord Millett's observations in Twinsectra v Yardley  [2002] 2 AC 164 at 73 he held that, although, in the present case, the purpose of the loan was spelt out in the facility letter, that was not enough to create a trust. He referred to the fact that (1) the facility letter did not use a word of exclusivity such as “only” to describe the purpose; and (2) there was no requirement to keep the loan money separate such as in a special bank account. He considered that their combined absence was of materiality, and when combined with "the inherent uncertainty in the word “development”", he was reinforced in his view that no trust was created. He went on to observe that it was commonplace for loan instruments to describe the purpose of a loan but the potential ramifications for holding that a trust was thereby created were wide ranging. He pointed out that Whiteshore, as the recipient of the loan, did not receive Mr Gabriel's money on the basis that it was only to be spent on development; he said that, as far as Mr Little was concerned, not having taken in what the facility letter said, Whiteshore was receiving the money so that it could in large part be paid over to, or for the benefit of, High Tech. 
v)	Accordingly, the judge rejected Mr Gabriel's contention that a trust was created. It therefore followed that High Tech could have no liability to Mr Gabriel for knowing receipt of trust property, nor could Mr Little be said to have assisted in a breach of trust. 
vi)	So far as the claim against High Tech for money had and received, the judge pointed out that counsel had not made any oral submissions in relation to that issue. The judge held that since there was nothing to suggest that Mr Little or High Tech would have thought there was reason why the money should not go to High Tech, he need say no more about this way of putting the claim.
vii)	In conclusion the judge not only rejected the argument that a trust was created, he also did not accept that dishonesty on the part of Mr Little had been established. In reaching this conclusion he relied on the following facts:
a)	Mr Little did not realise that Mr Gabriel was under the impression that his money was only for the purpose of developing the Property. Mr Little certainly did not set out to deceive.
b)	The voicemail message left by Mr Little for Mr Gabriel's solicitor was inconsistent with the suggested deception. 
c)	Similarly inconsistent with such an intended deception was the information which he openly provided to his own solicitor and which the latter passed to Mr Spencer. Mr Little's complete openness with both his own and the counterparty's solicitor could scarcely be called a badge of fraud. 
d)	Accordingly the judge concluded that Mr Little could not be said to have had
“consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour”; 
see Barlow Clowes International Ltd (in liquidation) v Eurotrust International [2005] UKPC 37, [2006] 1 WLR 1476, at 16, cited at paragraph 78 of the judgment. 
Mr Gabriel's arguments in relation to the Little appeal
21.	Mr Gabriel relied upon approximately 18 grounds of appeal in support of his challenge to the judge's decision in relation to the claim against Mr Little and High Tech. Mr Michael Booth QC and Mr Adam Chichester Clark, counsel for Mr Gabriel, submitted some 33 pages of skeleton argument in support of the appeal, together with a further skeleton argument in response to the skeleton argument submitted on behalf of Mr Little and High Tech.
22.	Mr Gabriel's position appeared to be that, if and to the extent that his judgment against BPE was maintained, he had no interest in pursuing the appeal against Mr Little and High Tech. Another - perhaps surprising - aspect of the Little appeal, and indeed Mr Gabriel's claim against Mr Little generally, was that Mr Gabriel had at the time refused a personal guarantee from Mr Little, which the latter had offered after Whiteshore had been unable to repay the loan within the timeframe envisaged. Mr Gabriel had apparently refused the offer on the grounds that such a guarantee would have been worthless.
23.	Mr Booth QC's lengthy written and oral submissions can be summarised as follows:
i)	Any factual findings sought by Mr Gabriel from the Court of Appeal were firmly based upon the primary facts found by the judge and his findings as to credibility. Inferences from primary facts and decisions as to inherent probability were properly matters for the Court of Appeal to consider.
ii)	The judge was wrong to find that Mr Little was not guilty of making fraudulent misrepresentations. The judge failed to make a number of critical findings that it was necessary for him to make in order properly to determine the constituent elements of the claim. He failed to draw the correct inferences from the primary findings of fact which he did make. He had applied the wrong legal test in concluding that the requisite mens rea for fraudulent misrepresentation was not established and had applied that test to a case not being advanced by Mr Gabriel. There were circumstances in which it was appropriate to displace a trial judge's findings where the evidence was clear; see Barton v County NatWest Limited [1999] Lloyd's Law Reports 408. This was one such case.
iii)	The judge's findings as to credibility and his primary findings of fact, and/or the inferences which should properly have been drawn from such findings, inevitably showed that deceit had been made out as against Mr Little. The judge should have concluded that Mr Little was guilty of fraud.
iv)	In particular, the judge failed to appreciate that, far from being a badge of honesty, Mr Little's communications with Mr Spencer were a deliberate ruse adopted by Mr Little in order to achieve his deception of Mr Gabriel. Thus the judge was wrong to decide that there was no fraud because Mr Little had telephoned Mr Spencer directly and left a voicemail saying that the money was to be used for purchase. Mr Booth put this argument as follows in his written skeleton argument:
“71. Mr Little needed the money and the only way to get it was to take a calculated risk. Mr Gabriel required a first charge over the Property, which in turn required the simultaneous release of the charge held by Lloyds TSB (using Mr Gabriel’s money).  So the loan, the “purchase” and the release of the charge would have to be effected simultaneously by High Tech’s lawyer and Mr Spencer of BPE.
72. Unless Mr Little told Mr Spencer that the loan money or part was to be applied to a purchase, it was inevitable that he would take instructions from Mr Gabriel on receiving the sale and purchase documents from High Tech’s solicitor. If Mr Spencer had already received instructions from Mr Little, then Mr Spencer might or might not take instructions/further instructions from Mr Gabriel. The loan document would not necessarily refer to the purchase aspect, and it might be that the deal would go through without the truth being discovered by Mr Gabriel.  
73. Mr Little had to take that chance as otherwise Mr Gabriel would definitely find out and the deal would not proceed if he knew its true terms (as the Judge correctly found). If Mr Little gave “instructions,” there was a chance that Mr Spencer might (having regard to the background) take those instructions on trust. Mr Little would not otherwise get the money so it was a risk he had to take.  (As it happened, Mr Little was right to think that Mr Spencer would not pass on his instructions to Mr Gabriel and apparently took the view that the purpose of the loan was not important). 
74. Thus the Judge failed to appreciate the risk Mr Little had to take and why the transaction could not otherwise have worked [misunderstanding the submissions about this at Judgment/paragraph 55]. Properly understood the message Mr Little left on Mr Spencer’s voicemail was not “openness” but a necessary risk to achieve his deception of Mr Gabriel [Judgment/paragraph 66]. The fact that Mr Little knew that Mr Gabriel   did not know how his money had been applied is clear from the post-deal assurances Mr Little gave to him and Mrs Winston. 
75. The Judge also failed to realise that Mr Little had little or nothing to lose. Having told Mr Spencer in advance what the purpose of the loan was, if the ruse was discovered by Mr Gabriel, Mr Little could always have said that he was not trying to conceal anything because he had told Mr Spencer of his true intentions and explain the whole thing away as a misunderstanding. Besides the worst that could happen was that he would not receive the money and he and Mr Gabriel would cease to be friends. It is obvious that Mr Little’s pressing financial concerns mattered more to him, and he was prepared to take his one chance to obtain the money.
76. Perhaps the most compelling fact was that Mr Little chose to contact Mr Spencer at all.  If he had been acting honestly and believed that he had told Mr Gabriel of his true intentions at the Red Hart Meeting, there was simply no need for him to contact Mr Gabriel’s solicitor directly.  He need only instruct his own solicitors, in the confidence that Mr Gabriel would give similar instructions to Mr Spencer.  Nor did the elaborate “purchase” transaction referred to in his voicemail make any sense.  If Mr Little’s intention had always been to borrow the money and to use it to release the Lloyds TSB’s charge (which meant Mr Gabriel could have the first charge over the Property he required), there was no reason for a transfer of the Property to another company: thus there was no need to involve Whiteshore at all.  In reality it was a device to conceal the fact that the money borrowed would not be used for the development of the Property, as the Judge should have found.”
v)	The judge erred in law in failing to find that notice to an agent was not a defence to a fraud on the principle. The judge should have followed the decision of Scrutton J (as he then was) in Wells v Smith [1914] 3 KB at 722 to 725 to the effect that the mere provision of notice of the truth to an agent (constructive notice) is no answer to fraud. The question is whether the principal receives notice, or the person giving notice to the agent believes that the principal has received notice. 
vi)	The Judge wrongly found that the Facility Letter did not oblige the recipient of the loan to use it for a specific purpose, namely development of the Property; on the evidence before him he should have found that the monies lent by Mr Gabriel were impressed with a Quistclose trust. A reasonable person would have taken the terms of the Facility Letter to mean that Whiteshore could not apply the money for anything else but development at the Property. In particular, the following facts and matters pointed to this conclusion:
a)	Whiteshore was an SPV established for developing property, which was de facto controlled and in part owned by Mr Little. It never had any assets or income other than Mr Gabriel’s loan with which it purchased the Property.
b)	Mr Little effectively already owned the Property and for all practical purposes High Tech was indistinguishable from Mr Little personally. 
c)	The Facility Letter was agreed in the context of the prior Red Hart meeting which focused on Mr Little’s proposals for development of the Property in the context of the use of the loan money.
d)	The grant of Mr Gabriel’s loan was conditional upon security in the form of the first charge over the Property. It would have been obvious to both parties that the security was inadequate unless development took place (and/or unless the monies lent were only applied for development at the Property or were retained by Whiteshore). 
vii)	The judge erred in stating that the word development “reinforced” his view as it was inherently uncertain. If correct, this meant that the terms of the Facility Letter would have created no trust, even if the Facility Letter had said: (1) that the money was to be used exclusively for development; and; (2) that it was to be placed into a segregated account. Moreover the Learned Judge erred in finding that there was inherent uncertainty in the meaning of the word “development.”
viii)	The judge failed to consider the question whether, irrespective of whether the facility letter created a Quistclose trust, High Tech and/or Mr Little were liable for knowing receipt of trust funds, or funds paid over in breach of fiduciary obligation, and/or in restitution. Thus the judge failed to consider the question whether High Tech’s retention of the monies was unconscionable. 
ix)	As a matter of law, "High Tech was liable for knowing receipt or in restitution if Mr Little/High Tech should have thought that there was a reason why the money should not go to High Tech"; see paragraph 88 of Mr Booth's written submissions. In fact High Tech had acted with a want of probity in receiving the monies, taking into account Mr Little’s knowledge and conduct which was to be attributed to High Tech, given that the company was his alter ego.
x)	Mr Little’s evidence was that he understood that there was a clear distinction between a loan for the purpose of development and a loan for the purpose of purchase. Yet he signed the facility letter, which contained terms that plainly identified the purpose of the loan as development. Even if (contrary to the above submissions) he did not read it, having signed it, both he and his alter ego High Tech were fixed with notice of its contents. 
xi)	Thus the judge should have made High Tech liable for knowing receipt regardless of whether Mr Little/High Tech’s conduct fell short of actual dishonesty or lack of probity. It was unconscionable for High Tech to receive the monies because Mr Little/High Tech had constructive knowledge of a breach of trust, based on what the reasonable man would have understood in Mr Little’s position; see BCCI v Akindele [2001] Ch 437 at 450G-455G per Nourse LJ. His knowledge thus fell within categories (iv) and/or (v) of the five mental states set out in the judgment of Peter Gibson J in Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1992] 4 All ER 161 at 235.  
xii)	Similarly, if the loan monies were paid over to High Tech on the basis of a misunderstanding, even a bona fide misunderstanding, caused by Mr Little’s failure to read the document and to appreciate that it did not reflect his intention, then High Tech cannot in conscience retain the money by which it has been unjustly enriched because it is fixed with Mr Little’s constructive notice of the position. It matters not whether the basis of Mr Gabriel’s right to a remedy rests upon the payment to High Tech being categorised as having been made by mistake or pursuant to the commission of a tort by Mr Little and/or the Second Defendant, or whether it was simply received “without basis”.  But in the event there were strong reasons to suggest a want of probity on the part of Mr Little/High Tech.  Accordingly the judge should have found that both were liable for money had and received.
Discussion and determination of the Little appeal
24.	It is not necessary for me to summarise the arguments put forward by Mr Patrick Green QC and Mr Matthew Bradley, counsel for Mr Little and High Tech, in their written and oral submissions, since, largely for the reasons put forward in those submissions, I would dismiss the Little appeal. 
25.	Mr Booth's submissions, as developed in his oral argument, amounted, on analysis, to an out-and-out challenge to the judge's findings of fact coupled with an invitation to this court to arrive at entirely different conclusions of primary and secondary fact. 
26.	In my judgment, Mr Booth has put forward no reasons which would begin to justify this court in setting aside the judge's findings of fact (whether primary or secondary) and substituting our own findings either that an actionable misrepresentation had been made, or that any such misrepresentation was fraudulent or reckless. The judge, over a trial period of nine days, had the inestimable advantage of hearing the witnesses and assessing their credibility. He clearly reached his conclusions on the evidence with care and after due consideration. Despite preferring Mr Gabriel’s testimony on a number of issues, he accepted Mr Little's evidence to the effect that no sufficiently clear and unequivocal representations had been made and that he had been acting honestly.
27.	Mr Booth's criticism of the judge’s approach to the question of the necessary elements required to establish the tort of deceit is also misplaced. The judge clearly appreciated that, in order for Mr Gabriel to succeed in his claim in deceit, he had to prove that Mr Little had made a false representation, knowing it to be untrue, or reckless as to whether it was true; that Mr Little intended that Mr Gabriel should act in reliance upon it; and that Mr Gabriel acted in reliance upon the misrepresentation and thereby suffered loss; see paragraph 18-01 of Clark & Lindsell on Torts, 20th edition.
28.	But, as is apparent from his judgment, based on the extensive factual materials before him, the judge came to the clear conclusions that the requisite elements of the tort were not satisfied. Shortly stated, my reasons for rejecting Mr Booth's challenge to this conclusion may be summarised as follows.
29.	First, the judge concluded that, notwithstanding his finding that, in the light of their discussions about development of the property, Mr Gabriel thought that his money was to be used for the purposes of development of the property, there was no oral representation made by Mr Little, either at the Red Hart meeting or at the completion meeting, that the loan monies were going to be used only for the purpose of development, or substantially for the purposes of development. It is instructive that neither at paragraph 21 nor at paragraph 74 of the judgment, does the judge conclude that any representation was made by Mr Little to this effect or at all. This was notwithstanding the judge's conclusion that "it was Mr Little's proposals for the development which were the focus of the discussion" and that "there was no doubt that Mr Little never intended Mr Gabriel's loan to be used for the actual development of the Property". 
30.	Second, the judge effectively came to the conclusion that, notwithstanding that the facility letter referred to the loan as being made available "as a contribution to the costs of development of the property" and its purpose as being "to assist with the costs of development of the property", any such representation as may have been contained in the facility letter to the effect that the loan would be used as a contribution to development (and therefore a priori not for the purchase of the property), did not amount to a fraudulent misrepresentation on Mr Little's part. That was because, as the judge concluded, Mr Little (a) would not have appreciated, from his flick through of the facility letter at the meeting, that it contained any such representation; and (b) never addressed his mind to what Mr Gabriel was thinking. Thus the judge concluded that, simply by being present when the facility letter was signed, Mr Little did not make any representation which he knew to be untrue, nor was he reckless as to whether any such representation was true; see in particular paragraphs 74 and 78 of the judgment. 
31.	Third, contrary to Mr Booth's submission, the judge did not decide "that it was necessary for [Mr Gabriel] to establish that [Mr Little] was motivated by an intention to mislead [Mr Gabriel] in order to succeed on the claim "; see paragraph 8 of Mr Gabriel's written statement on his application for permission to appeal. The judge did not confuse the issue of motive with the requirement to establish the requisite degree of knowledge or recklessness, or with the requirement to establish an intention on the part of the defendant that the representation should be acted upon. He did not apply the wrong test in relation to the necessary intention required to constitute the tort of deceit. 
32.	It is trite law in this context that:
“..if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure a person to whom the statement was made.";
see e.g. Derry v Peek (1889) 14 App. Cas. 337 at 374 per Lord Herschell.  But the judge's reference in paragraph 78, for example, to his conclusion that "Mr Little certainly did not set out to deceive" did not demonstrate any failure on his part to appreciate the relevant test for the establishment of the tort. In context, this comment and those relating to the voicemail message left by Mr Little for Mr Gabriel's solicitor, were merely the building blocks upon which the judge based his conclusions of fact that, despite the presence of the statements in the facility letter about the purpose of the loan, Mr Little (a) did not know such statement to be untrue, nor was he reckless as to whether they were true and (b) did not intend Mr Gabriel to rely upon them. In other words, they were relevant to the judge's finding of honesty on the part of Mr Little. As was stated in Barings plc v Coopers & Lybrand (No 5) [2002] EWHC 461 (Ch) lack of dishonest intent may be powerful evidence of a bona fide belief in the truth of the facts asserted by the defendant. 
33.	Thus, whilst the motive of the representor is irrelevant, an intention to influence the mind of the representee must be shown if the requisite dishonest intention is to be established.  In other words, the claimant has to demonstrate an intention to deceive. Thus, for example in Bradford Building Society v. Borders [1941] 2 A.E.R. 205, Lord Wright said at page 220:
"Fraud involves deliberate intent, which is called mens rea. Nothing short of the wicked or guilty mind will serve, as this House held in most striking circumstances in Derry v. Peek, where the statement complained of was, to the knowledge of the directors, not true in fact, but they mistakenly thought that it was as good as true, whereas events completely falsified their expectation, to the damage of the plaintiffs. However, the directors were held not to be liable, because they were innocent of any intention to deceive."
The judge's clear conclusion was that Mr Gabriel had not established the necessary fraudulent intent on the part of Mr Little. 
34.	Fourth, again contrary to Mr Booth's submissions, the judge's findings as to credibility and his primary findings of fact, did not "inevitably" show "that deceit had been made out as against Mr Little" or that the judge should have concluded that Mr Little was guilty of fraud. On the facts before him the judge was clearly entitled to find that Mr Little was not guilty of deceit. In particular the judge was entitled to conclude that Mr Little had been entirely honest and open in his voicemail communications with Mr Spencer, and in making it clear that the funds were going to be applied in the actual purchase of the property. Indeed Mr Booth's argument, presented both at the trial and on appeal, that such communications were "a deliberate ruse adopted by Mr Little in order to achieve his deception of Mr Gabriel" was, in my view, a wholly artificial construct that was miles away from the reality of the facts in this business transaction. As the judge found, not only was it obvious from the communications between Mr Gabriel's solicitors, BPE, and High Tech’s solicitors, prior to the meeting, that the loan monies were to be applied in the purchase by Whiteshore of the property from High Tech, but also there was open discussion at the completion meeting of the fact that there was to be a transfer of the property from one of Mr Little's companies, i.e. High Tech, to Whiteshore and talk of the bank's charge being discharged. Moreover the board minutes envisaged in the facility letter clearly referred to the fact that the loan monies were to be applied in purchase of the Property. Whilst Mr Gabriel did not actually see these minutes, or indeed ever ask to see them, their existence, and their requirement as a precondition to the loan, like the communications between Mr Little and the solicitors, and the discussion about the transaction at the meeting, wholly undermine the suggestion that Mr Little was somehow engaging in a sophisticated and deceptive ruse, when communicating the true nature of the transaction to Mr Spencer.
35.	 Fifth, Mr Booth's argument, as contained in ground 5(1) of his notice of appeal, that the judge somehow mis-portrayed Mr Gabriel's case as being based on an alleged oral representation "that the purchase money was to be used for development and no other purpose (despite the fact that this is no part of the Appellant's case….)" was without merit in the light of his pleaded case, his written opening submissions at trial and the evidence which Mr Gabriel actually gave the trial. As I have already said, the judge did not find that any oral misrepresentation had been made by Mr Little. 
36.	Sixth, I reject Mr Booth's argument that the judge erred in law in failing to find that notice to an agent was not a defence to a fraud on the principal and that he should have followed the decision of Scrutton J (as he then was) in Wells v Smith [1914] 3 KB at 722 to 725 to the effect that the mere provision to an agent of notice of the falsity of a misrepresentation is no answer to a claim in fraud. The judge made no decision in relation to the legal question as to whether, in any particular circumstances, the knowledge of the claimant's agent that a particular representation made by a defendant was false, was a defence by the defendant to a claim for fraudulent misrepresentation. He did not need to do so. That was because, in circumstances where he had decided that neither Mr Little nor Mr Spencer had been fraudulent, the principle identified by Scrutton J (i.e. a principal is not fixed with constructive notice of the agent's knowledge that a fraudulent misrepresentation was untrue) simply did not come into play. That the judge took this approach was clear from the last sentence of paragraph 75 of the judgment. 
37.	The judge was entitled, however, to rely on the communications by Mr Little to Mr Spencer as to the actual use to which the loan monies were to be put as clear evidence of Mr Little's honesty. He would also have been entitled to rely on the fact of those communications to Mr Spencer, as Mr Gabriel's solicitor, to reach the conclusion that no negligent or innocent misrepresentation had been made by Mr Little or Whiteshore simply by reference to what was said in the facility letter as to the purpose of the loan; see Strover v Harrington [1988] Ch. 390, at 409G where Sir Nicolas Browne-Wilkinson V-C said as follows:

“In my judgment, similar principles apply in a case such as the present. In this, as in all other normal conveyancing transactions, after there has been a subject to contract agreement the parties hand the matter over to their solicitors who become the normal channel for communication between vendor and purchaser in all matters relating to that transaction. In so doing, in my judgment the parties impliedly give actual authority to those solicitors to receive on their behalf all relevant information from the other party relating to that transaction. The solicitors are under an obligation to communicate that relevant information to their own clients. At the very least, the solicitors are held out as having ostensible authority to receive such information. Whether there be express or ostensible authority, the purchaser is in my judgment estopped from denying that he received the information relating to the transaction which has been communicated to his solicitors acting in the same transaction. In my judgment, such knowledge should be imputed to the principal. If that were not to be so, the consequences to which I have previously referred would follow.”
38.	No claim for negligent or innocent misrepresentation was in fact being made by Mr Gabriel at trial. Thus, whilst the judge's statement in paragraph 75 that he accepted:
"Mr Bradley's submission that accordingly there would be no misrepresentation in relation to the intended utilisation of Mr Gabriel's money, since Mr Gabriel's agent with the authority to receive the information knew the true position…" 
was not actually germane to any misrepresentation claim which the judge had to decide, it did not impact on his determination of the claim in deceit.
39.	For the above reasons, I conclude that Mr Gabriel has put forward no basis upon which this court should set aside the judge's conclusions in relation to the claim in deceit.
40.	I turn now to address Mr Gabriel's appeal in relation to his claims that the facility letter created a Quistclose trust, and/or that High Tech and/or Mr Little were liable on the basis that they had knowingly received, or assisted in the receipt trust funds, or funds paid over in breach of fiduciary obligation, and/or in restitution. The argument that the facility letter created a Quistclose trust was also taken in relation to the BPE appeal. 
41.	In my judgment the judge was clearly correct in concluding in paragraphs 76 -77 that no Quistclose trust was created for the reasons which he gave. As Lord Millett stated in Twinsectra v Yardley at [73], in the passage quoted by the judge: 
“73. A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cashflow. Commercial life would be impossible if this were not the case.”
42.	In order to establish that loan monies are impressed with a trust in favour of the lender it is necessary to show: 
“ either a mutual intention that the monies should not fall within the general fund of the company's [i.e. borrower's] assets but should be applied for a special designated purpose, or that having originally been paid over without restriction the recipient has later constituted himself a trustee of the money: ”
see per Lord Mustill In re Goldcorp Exchange Ltd[1995] 1 AC 74, at 100.
43.	In the present case neither the facility letter, nor any of the surrounding circumstances, suggested or reflected any mutual intention on the part of Mr Gabriel, Mr Little or Whiteshore that the loan monies should not be at the free disposal of Whiteshore. The critical points as to why, on the facts of this case, there was no such trust were summarised by Mr Roger Stewart QC, counsel for BPE, in his helpful submissions which in this respect I gratefully adopt:
"In this case, there were no words equivalent to those in Quistclose itself such as that the “borrowing shall be on condition that it is used to pay the forthcoming dividend” nor was there confirmation such as that that the money “will only be used for the purpose of paying the dividend due on [a particular day];
Read as a whole the facility letter was wholly inconsistent with the existence of a trust:
i.	The money was to be made available to the borrower on drawdown subject to Conditions Precedent which had nothing to do with the commencement of development;
ii.	The defined intended purpose was “to assist with the costs of development of the Property;
iii.	 The events of default did not include the non-application of funds for the supposed purpose;
iv.	 There was a defined repayment period rather than return being contemplated if development did not take place.
v.	Thus Condition 4 referred to the Loan being “payable” upon satisfaction of the Conditions Precedent – which implied that it was available to the borrower without restriction rather than being held in a defined account;
vi.	 There was no requirement for the funds to be kept separate or distinct pending use.”
44.	The circumstances relied upon by Mr Gabriel, such as, for example, the fact that Whiteshore was an SPV, controlled and in part owned by Mr Little, which never had any assets or income other than Mr Gabriel’s loan with which it purchased the Property, and the other matters referred to by Mr Booth, can in my judgment make no difference to the clear construction and effect of the facility letter. Such circumstances do not, either singly or cumulatively, clothe the transaction with the incidents of a trust.
45.	Nor do I consider that there is any merit in Mr Booth's alternative argument (not apparently developed at trial) that, irrespective of whether the facility letter created a Quistclose trust, High Tech and/or Mr Little were liable for knowing receipt and/or in restitution because High Tech’s retention of the monies was somehow unconscionable. 
46.	I found Mr Gabriel's case based on these arguments very confused and hard to follow. In the absence of the loan monies being impressed with a Quistclose type trust in favour of Mr Gabriel that they should only be applied in the development of the property (which I have held that they were not), it is difficult, if not impossible, to see how either High Tech or Mr Little could be made liable for knowing receipt of trust funds in breach of trust, or for knowing receipt of funds transferred in breach of some other fiduciary obligation (for example, a fiduciary obligation of a director to his company). But as I have already said, there was no Quistclose trust affecting the monies lent by Mr Gabriel to Whiteshore, and Mr Booth did not provide any satisfactory basis to support the proposition that any other type of trust arose, or that Whiteshore, as a contracting party, was subject to a fiduciary obligation to apply the money only for the purposes of development. The mere fact that the facility letter stated the purpose of the loan clearly did not impose any fiduciary obligation on Whiteshore.
47.	Similarly, it is difficult, if not impossible, to see how, on the basis of the judge's findings that Mr Little did not act dishonestly, coupled with the fact that, in the absence of fraud, Mr Gabriel clearly had notice, through the agency of Mr Spencer, as to the proposed application of the funds in the purchase of the property (as per Strover v Harrington), High Tech or Mr Little had any restitutionary obligation to Mr Gabriel in respect of the sums advanced on the grounds that High Tech was unjustly enriched or that it was somehow "unconscionable" for High Tech to retain the loan monies. 
48.	As the judge recorded at paragraph 77 of his judgment, no oral submissions were made to him in relation to the money had and received claim. Nor was Mr Booth satisfactorily able to articulate before this court the basis upon which he submitted that Mr Gabriel had a claim for unjust enrichment as against High Tech or Mr Little, other than vague arguments that it would be "unconscionable" because Mr Little had:
 "signed the facility letter, which contained terms that plainly identified the purpose of the loan as development. Even if (contrary to the above submissions) he did not read it, having signed it, both he and his alter ego High Tech are fixed with notice of its contents”;
 and that:
“…. if the loan monies were paid over to High Tech on the basis of a misunderstanding, even a bona fide misunderstanding, caused by Mr Little’s failure to read the document and to appreciate that it did not reflect his intention, then High Tech cannot in conscience retain the money by which it has been unjustly enriched because it is fixed with Mr Little’s constructive notice of the position. It matters not whether the basis of Mr Gabriel’s right to a remedy rests upon the payment to High Tech being categorised as having been made by mistake or pursuant to the commission of a tort by Mr Little and/or the Second Defendant, or whether it was simply received “without basis”.  But in the event there were strong reasons to suggest a want of probity on the part of Mr Little/High Tech."  
49.	But I do not see how these assertions provide the basis for any claim in unjust enrichment on the facts of this case and on the basis of the judge's findings that Mr Little had not acted dishonestly and that there was nothing to suggest that High Tech or Mr Little would have thought that there was any reason why the money should not go to High Tech (see paragraph 77 of the judgment). Under the terms of the facility letter Whiteshore was entitled to draw down the money once the conditions precedent had been satisfied; it was entitled to direct their transfer to High Tech's account; and the latter obtained title to the funds once they had been transferred. There was no mistake vitiating the transfer of funds. Moreover, whatever was stated in the facility agreement about the purpose of the loan, there was no positive contractual obligation (let alone a trust or fiduciary obligation) imposed by the facility letter to apply the actual funds lent by Mr Gabriel in development of the property, and nothing else. It would not, for example, have been a breach of contract for Whiteshore to have paid the funds into an overdrawn bank account. Thus there were no traditional grounds such as failure of consideration, want of authority, mistake, or invalidity, upon which reliance could be placed to support a claim in unjust enrichment as against High Tech or Mr Little. Even if, contrary to my analysis, there had been such a contractual obligation, and the payment to High Tech had constituted a breach of contract on Whiteshore's behalf, that would not have given rise to any restitutionary liability on either Mr Little’s or High Tech's behalf, although it might have given rise to a liability in tort for damages for inducing a breach of contract by Whiteshore. But that was not a claim that Mr Gabriel had ever made against them either in his pleadings or at trial.
50.	Accordingly I would dismiss the Little appeal. 
The BPE appeal and cross-appeal
The judge's critical findings of fact and conclusions of law
51.	In relation to Mr Gabriel's case against BPE, the judge made the following critical findings of fact and reached the following conclusions of law:
i)	So far as the claim against BPE was based on a Quistclose or other type of trust or mandate, the judge held that, since he had concluded that there was no trust, there could be no liability on BPE's part for assisting in a breach of trust.
ii)	He made it clear that, in any event there was no question of any dishonesty on Mr Spencer's part.
iii)	So far as Mr Gabriel's claim was based on an alleged breach of BPE's duty to exercise reasonable care and skill he concluded as follows:
“[81] There can be no doubt that Mr Spencer made a serious drafting error over the facility letter's description of the purpose of Mr Gabriel lending £200,000. Mr Spencer sought in evidence to brush aside his error on the basis that, he said, everyone knew the true position. Nevertheless, he accepted that he had made a mistake. The fact that the mistake stemmed from Mr Spencer having used the draft Southgate Street development facility letter as a template explains but does not excuse the error. BPE, through Mr Spencer, was undoubtedly in breach of its duty to exercise reasonable care and skill in the drawing up of the facility letter.
[82] Mr Spencer's error was not merely a mistake in drafting. I have already set out my conclusion on the evidence that Mr Gabriel was at all material times under the impression that his loan money was going to be used on the development of the Property. I have also set out my conclusion on the evidence that Mr Gabriel never instructed Mr Spencer otherwise. Yet, from what Mr Spencer had learned from Mr Little and from Mr Chapman the amount of £150,000 plus VAT, out of Mr Gabriel's £200,000, was going to be passed immediately over to Mr Little's company, High Tech, before Whiteshore could acquire the Property. It was clearly Mr Spencer's duty to provide this information to his client so that his client could make an informed decision about the transaction. But, he did not do so. As Mr Booth submitted, this also was a plain breach of duty which was compounded by the facility letter's description of the loan's purpose and Mr Spencer providing it to Mr Gabriel for him to read and sign.
[83] Leaving aside Mr Gabriel's understanding of the transaction with Whiteshore, it was in my view a one-sided one. Mr Gabriel was lending £200,000 to a company which he thought of as a “special purpose vehicle”. There was no reason to believe it had any assets other than what Mr Gabriel himself was providing. This special purpose vehicle was effectively controlled as a practical matter by Mr Little. As for Mr Gabriel's funds, they were to be utilised for Mr Little's sole benefit in that they were to go in reduction of the bank indebtedness of a company wholly owned and controlled by Mr Little. The only quid pro quo was the transfer of the Property from one of Mr Little's companies to, effectively, another of his companies. Mr Little was receiving the benefit of Mr Gabriel's funds but putting up nothing at all himself. It is true that Mr Gabriel was being given a charge over the Property, but the amount which it would realise if it had to be sold as a partially derelict and undeveloped building was necessarily uncertain.
[84] In the above circumstances the question arises whether Mr Spencer had a duty to counsel Mr Gabriel against the transaction in the same way as he had advised against the abortive proposal to invest in the Southgate street development. The starting point is, of course, that a solicitor's duty is to be measured against his retainer. This has been well settled at least since Midland Bank Trust Co v Hett Stubbs& Kemp [1979] Ch 384, [1978] 3 All ER 571, [1978] 3 WLR 167. Moreover, unless instructed expressly a solicitor does not normally have a duty to advise on the commercial wisdom of a transaction particularly where, as here, the client is an experienced businessman. It was explained in Pickersgill v Riley [2004] PNLR 31:
“8 As to the extent to which a solicitor should make enquiries or investigate matters that he has not been asked to enquire into or investigate, their Lordships think that para 10-160 in Jackson & Powell on Professional Negligence (5th ed, 2002) correctly states the position 'In the ordinary way a solicitor is not obliged to travel outside his instructions and make investigations which are not expressly or impliedly requested by the client.' In support of that proposition the text goes on to refer to Clark Boyce v Mouat [1994] 1 AC 428, a Privy Council decision, where Lord Jauncey of Tullichettle said, at p 437 –
'When a client in full command of his faculties and apparently aware of what he is doing seeks the assistance of a solicitor in the carrying out of a particular transaction, that solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction.'
9 And in Reeves v Thrings & Long [1996] PNLR 265 Sir Thomas Bingham MR said, at p 275, in a dissenting judgment:
'It will always be relevant to consider what the solicitor is asked to do, the nature of the transaction and the standing and experience of the client. Thus on the facts here Mr Sheppard was not retained to advise on the wisdom of offering the price Mr Reeves had informally agreed to pay
. . . But it was in my view Mr Sheppard's duty to draw Mr Reeves' attention to any pitfall, particularly any hidden pitfall, the contract might contain.'
Simon Brown LJ said, at p 279:
'I cannot accept that Mr Sheppard was under any further duty to his client, any duty to advise him upon the commercial implications or importance of the access provision or to warn him against the risks that it might pose for the future development, operation or sale of the hotel. These matters are well within the client's competence to appreciate and evaluate for himself, business considerations rather than legal ones.'
And, at p 285, Hobhouse LJ said:
'Once Mr Reeves was told what the legal position was, he required no further advice from Mr Sheppard in order to evaluate its implications and commercial significance. Mr Reeves was an experienced businessman and under no disability.'”
[85] Nevertheless, the principle that a solicitor's duty is strictly circumscribed by his instructions must not be taken too far. Mr Booth referred me to the observations of Laddie J in Credit Lyonnais v Russell Jones & Walker [2002] PNLR 2 at 28:
“However if, in the course of doing that for which he is retained, he becomes aware of a risk or a potential risk to the client, it is his duty to inform the client. In doing that he is neither going beyond the scope of his instructions nor is he doing 'extra' work for which he is not to be paid. He is simply reporting back to the client on issues of concern which he learns of as a result of, and in the course of, carrying out his express instructions. In relation to this I was struck by the analogy drawn by Mr Seitler. If a dentist is asked to treat a patient's tooth and, on looking into the latter's mouth, he notices that an adjacent tooth is in need of treatment, it is his duty to warn the patient accordingly. So too, if in the course of carrying out instructions within his area of competence a lawyer notices or ought to notice a problem or risk for the client of which it is reasonable to assume the client may not be aware, the lawyer must warn him.”
I think that this passage accurately reflects the legal position.
[86] Applying the above principles to the facts of this case, I accept that Mr Spencer had no duty to advise Mr Gabriel as to the commercial risk inherent in this loan. Nevertheless, from what he learned as Mr Gabriel's solicitor he should in my view have explained to Mr Gabriel that, although he was advancing £200,000, his funds were going to be applied substantially for Mr Little's benefit and in reality Mr Little was not putting anything at all into the project.
[87] I am clearly of the view that BPE is liable for Mr Spencer's failure to exercise reasonable care and skill. For completeness, I should also note that there were two other areas where Mr Spencer fell into error. First, he paid away Mr Gabriel's funds before satisfaction of the conditions precedent set out in the facility letter and, secondly, the charge which he drafted only secured the principal amount of £200,000 and not the return of £70,000. However, I leave those errors out of account since in the event neither caused Mr Gabriel any loss. I therefore consider the damages recoverable in respect of the breaches of duty which I have identified above.”
iv)	In relation to the quantum of damages, the judge said as follows:
“[88] Mr Gabriel was adamant that he would not have lent the money at all if he had known that it was in major part to be used on acquisition of a property from one of Mr Little's companies. I have no doubt that this is so. A transaction in which Mr Little was putting up a property and he was putting up funds would be entirely different from a transaction into which only he was putting anything at all. Mr Gabriel explained his assessment of the risk that, on the basis the Property was going to be developed with his funds, there was likely to be a substantial increase in the value of the property such that there would be ample to cover repayment to him of the loan. However, if there were no plans to develop in the near future and no funding for a development the risk would be very different. Mr Davie stressed that a half finished development would be of no more value, and hence provide no better security, than no development at all; he suggested that Mr Gabriel was so keen to lend money to Mr Little that it would have made no difference to Mr Gabriel whether he was lending for development or for the purchase. I reject this. I can quite understand why Mr Gabriel would have viewed funding the development of an existing property as a quite different sort of transaction from only funding an initial acquisition of the property from Mr Little and would not have done so. Mr Little was his friend in whom he then trusted. He was not approaching this transaction with suspicion. But, it is plain, as the history of the Southgate street development shows, that as an experienced businessman there were limits to the commercial risks which he was prepared to run out of friendship.
[89] Despite the fact that this is a “no transaction” case, it is now well established since the Banque Bruxelles decision that this does not mean that a professional adviser is necessarily liable in damages for all the consequences of a client's entry into the transaction. He will only be liable for losses falling within the scope of the duty which was broken. Lord Hoffmann described two categories of case at [1997] AC 191 at 214C-F:
“. . . a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.
The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong.”
It seems to me that the present case is not one in which Mr Spencer was being only asked to provide information on some discrete aspect of a proposed transaction like a valuer being asked to provide a valuation of property for security purposes; nor, on the other hand, is it one where Mr Gabriel expressly sought advice as to what he should do. Mr Spencer's duty was to draw up a facility letter which reflected the proposed transaction and accurately to inform Mr Gabriel of the nature of the loan transaction into which he was entering and why his £200,000 was being borrowed.
[90] I fully accept that BPE would not be liable for the consequences of Whiteshore not repaying Mr Gabriel's loan insofar as that was caused by its impecuniosity: Haugesund Kommune v Depfa ACS Bank [2011] PNLR 344. But, this is not a case where it was ever contemplated that the “clean vehicle”, Whiteshore, would be able to repay Mr Gabriel other than from proceeds of the developed property. Also, I agree with Mr Davie that BPE would not be liable if what Mr Gabriel had in mind, that is expenditure of about £200,000 on a property which would not have an acquisition cost, was unviable and bound to fail so that Mr Gabriel would never have recovered his loan. Certainly, the evidence was to the effect that what was being proposed for the Property was likely to cost far in excess of £200,000. Nevertheless, I am not persuaded that no development whatsoever, particularly with Mr Little's own company doing the construction, could have been achieved so as to make Mr Gabriel's investment of £200,000 a viable proposition. Clearly, there would have been risks, not least from the unusual nature and location of the property, and it is quite possible that development plans would have required re-thinking. But, I do not think it would be right for me to conclude that this was necessarily going to be a doomed venture for Mr Gabriel from the outset.
[91] In the present case Mr Spencer's breach of duty meant that Mr Gabriel was not able to know the true nature of the loan transaction into which he was entering. He was thus deprived of the choice whether or not to enter into the transaction with knowledge of its true nature. As I have concluded, he would not have entered into the loan if he had known what was known to Mr Spencer. In these circumstances, it seems to me that it was quite foreseeable that if BPE's duty was broken in the way which occurred Mr Gabriel would be likely never to recover his loan and have to depend on recovery from disposal of a wholly undeveloped property in a poor state of repair. Doubtless, the fall in property values in 2008 made this disposal more problematic, but it cannot be said that it was that fall which caused Mr Gabriel's loss. It is my view that in the particular circumstances of this case Mr Gabriel is, subject to any questions of contributory negligence and mitigation, entitled to recover all his losses from having entered into this transaction. In coming to this conclusion, I have endeavoured to follow the approach of Chadwick J in Bristol West Building Society v Fancy Jackson [1997] 4 All ER 582, [1997] NPC 109 (insofar as he addresses the case of Steggles Palmer) and of the Court of Appeal in Portman Building Society v Bevan Ashford [2000] PNLR 344.
[92] It is suggested by Mr Davie that Mr Gabriel should have been put on the alert at the completion meeting of 7 December 2007 when he could see that the solicitors were exchanging documentation. Mr Gabriel had no reason to be suspicious and was fully entitled to expect that his solicitor would draw up accurate documentation. It was also suggested that Mr Gabriel contributed to his own misfortune in making no inquiries about Whiteshore, declining a personal guarantee, obtaining no valuation of the Property, not checking development costs and not linking stage payments of his loan to progress of a development. These criticisms would perhaps have force in a wholly arms length commercial transaction between businessmen unknown to each other. However, this was an arrangement between close friends, one of whom was godfather to the other's child. Mr Gabriel had no reason to mistrust Mr Little at all. It is quite understandable in the circumstances that at the time he had no reason to doubt that the terms of the facility letter would be observed.
[93] ……
[94] Mr Gabriel is entitled to be compensated for all his loss by BPE. The starting point is his expenditure of £200,000. From that figure must be deducted £8,191.56, the total of what Mr Gabriel and Mr Smith had repaid Mr Gabriel by the time their payments stopped. ……Based on my judgment, Mr Gabriel is entitled to recover damages in the sum of £191,808.44 from BPE for breach of its duty to exercise reasonable care and skill."
The BPE cross-appeal      
52.	It is convenient to deal with the arguments raised in connection with the BPE cross-appeal before dealing with the BPE appeal itself.
Mr Gabriel's submissions in relation to the BPE cross-appeal
53.	In addition to the submissions which he put forward in relation to the existence of  a Quistclose trust, with which I have already dealt, Mr Booth also submitted in connection with the BPE cross-appeal that, even if there was no Quistclose trust, nonetheless BPE acted in breach of trust. In summary Mr Booth's submissions on this issue were as follows:
i)	Even if there was no Quistclose trust, BPE acted in breach of trust in paying the sum of £198,906.50 to High Tech (and not Whiteshore, and not solely for development at the Property) contrary to:
a)	 the express terms of the Facility Letter;
b)	his instructions;
c)	 and/or in the knowledge that Mr Little did not intend to use the monies or 88% of the £200,000 for the purpose of development but for the purpose of sale.
ii)	The judge found that Mr Gabriel did not instruct Mr Spencer that the loan’s purpose or any part of it was to fund the purchase by Whiteshore of the Property from High Tech, that he had no idea that Whiteshore/Mr Little’s intention was to apply it in that way and that he would not have entered the transaction if he had known. Whatever Mr Spencer believed, it followed that, on any view, he had no instructions from Mr Gabriel, hence no authority, to cause that payment to High Tech to be made in circumstances where he knew that it was to be applied for that purpose.
iii)	The judge failed to consider this separate ground for alleging a breach of trust on the part of BPE. Paragraph 13(4) of the Amended Particulars of the Claim ("the APOC") clearly pleaded as an implied term of BPE 's retainer a duty to apply the loan monies only in accordance with Mr Gabriel's instructions and/or his expressed intentions and paragraph 49 (1) of the APOC pleaded that the transfer was a breach of trust. That claim was maintainable even in circumstances where, as the judge held, Mr Spencer had not been dishonest. 
iv)	The judge found (in paragraphs 23-24 of the judgment) that Mr Spencer simply assumed that Mr Gabriel knew what Mr Little intended to do with Mr Gabriel’s money. But, since Mr Spencer’s evidence was rejected, and Mr Gabriel's evidence regarded as reliable it would follow that Mr Spencer’s instructions from Mr Gabriel were that the money was to be applied for the purpose of development of the Property and so in accordance with the express terms of the Facility Letter. Given that the position in law was that where a solicitor pays money away contrary to his instructions (and in this case, the express terms of the Facility Letter signed by Mr Gabriel), he would usually be treated as dishonest (see Lewin on Trusts 18th edition paragraph 40-31) the likelihood was that once the judge made those findings he would have found dishonesty. But he dismissed dishonesty peremptorily (paragraph 80), without specifying why. But, it may be that having found that Mr Spencer was not dishonest in paying the monies to High Tech, he considered that it was not necessary to consider whether he did so in breach of trust.
v)	Breach of trust for this purpose depended upon the precise terms of the retainer. Money paid to a solicitor to effect a transaction and held by a solicitor on client account was trust money (see in this context Target Holdings Ltd v. Redferns [1996] 1 AC 421, at 436A- C, per Lord Browne-Wilkinson, Solicitors Account Rules 1998 (Rules 1 and 22)). The issue was therefore what trigger allowed the solicitors to pay the money away, and therefore the instruction and its nature needed to be considered (Lloyds TSB Bank PLC v Markandan & Uddin [2012] EWCA Civ 65 paras 37, 44-45 and 49-50). Where a solicitor parts with his client’s money contrary to the terms of his authority, he acts in breach of trust (as well as in breach of his retainer): see Target Holdings Ltd at 429A, 429H. Although the judge did not analyse it factually in these terms, it was quite plain what his findings mean, alternatively to what inevitable further factual inferences they gave rise. 
vi)	In the present case the only instructions Mr Gabriel gave were that the money was to be paid to the borrower to be solely applied by the borrower for development at the Property and, in any event, Mr Spencer had no authority to pay the monies out to a third party for a different purpose. The purpose of the loan was recorded in the terms of the facility letter drafted by Mr Spencer (which Mr Spencer asked Mr Gabriel to read and approve, which he did).
vii)	There was thus no room for doubt about the instructions from Mr Gabriel. It mattered not what Mr Little communicated to Mr Spencer in his voicemail because whatever he communicated was not and could not have been taken by Mr Spencer as being instructions from the client. Even if there had been any room for doubt, the onus was on Mr Spencer to clarify his instructions. He did not seek to do that with Mr Gabriel. Where there was a dispute as to a solicitor’s retainer and/or the instructions given by a client, the starting point in determining the nature of the retainer was that the client’s word is to be preferred to that of his solicitor in the absence of a written retainer (and/or attendance note): Gray & Anor v Buss Murton (A Firm) [1999] PNLR 882 892F-893A  and Rule 2.02 of the Solicitor’s Code of Conduct 2007.
viii)	It followed that the £200,000 was held in trust by BPE from the point that it was paid into Mr Gabriel's client account at BPE, and could only have been applied/paid over in the way Mr Gabriel instructed. That could only be strictly in accordance with his instructions and/or the facility letter. But 
a)	the facility letter provided for borrowing facilities for Whiteshore, i.e. drawdown of money by it; it did not provide for payment to a third party;
b)	the facility letter prominently and unequivocally specified that the purpose of the loan was to fund the development of the Property (which of course could have been the only instructions given by Mr Gabriel given the judge's factual findings as to what Mr Gabriel believed);
c)	clause 4 specified that the loan should be payable upon satisfaction of the Conditions Precedent. Under clause 6 that included provision of the existing planning permission and a certified copy of the Board Minutes for the Borrower approving the terms of the Facility Letter and authorising its acceptance and the execution of the security documents. That meant that the funds were only to be released once Whiteshore had made it clear that it agreed and approved the terms of the Facility Letter.
ix)	Since the judge found that Mr Spencer merely assumed that Mr Gabriel knew of Mr Little’s true intentions and thus that he had not instructed him on that basis, it follows that Mr Spencer had no authority to pay Mr Gabriel’s money to High Tech in circumstances where he knew that the money or most of it would not be spent on development at the Property. 
x)	Liability for breach of trust was strict: it was not necessary to prove negligence or dishonesty. 
Discussion and determination of the BPE cross-appeal                                                                                                                                                                                                             
54.	Substantially for the reasons advanced by Mr Roger Stewart QC, on behalf of BPE, I consider that the BPE cross-appeal should be dismissed. I have already expressed my conclusion that the facility letter, as construed against the surrounding circumstances, did not give rise to any Quistclose trust. 
55.	I also take the view that Mr Booth's alternative argument, based on the contention that BPE was liable for breach of trust, on the grounds that it applied the loan monies without authority in payment to Bailey's, similarly fails. 
56.	As I have already said, the facility letter did not impose any obligation on Whiteshore to retain the specific funds borrowed, and not to use them, until development of the property actually started, and then only to use them for the actual purpose of the development. Nor did the judge find that Mr Gabriel had given any express or implied instruction to Mr Spencer that the funds lent were to be used for the purposes of development, let alone only for that purpose, or (more importantly) that they were to be retained by Whiteshore pending use for "development", whatever that term involved. That is clear from paragraphs 22, 23, 25, 73 and 82 of the judgment, extracts from which I have quoted above. Whilst the judge found that Mr Gabriel never instructed Mr Spencer that the loan monies were to be applied in purchasing the property, he made no finding as to what Mr Gabriel's actual instructions to Mr Spencer were. Mr Gabriel complained about this in paragraph 8 of his respondent's notice, asserting that the judge 
"should have expressly found as a fact that [Mr Gabriel] instructed [BPE ] through Mr Richard Spencer that the loan monies were to be applied for the development at the property..". 
57.	But on the evidence I consider that there is no justification for interfering with the judge’s conclusion in this respect, which was basically that there was a misunderstanding between the two men. Moreover, even on the hypothesis that such an instruction had been given by Mr Gabriel to Mr Spencer, (namely "that that the loan monies were to be applied for the development at the property"), absent a specific instruction from Mr Gabriel that there was to be no drawdown of the loan until Whiteshore had satisfied certain conditions precedent demonstrating application of the funds for "development" purposes, or that, even when the loan had been drawn down, it was a condition that Whiteshore was not to be free to apply the monies save for specific, defined, development-related purposes, I do not consider that payment of the funds by BPE to Whiteshore, or at its direction, to Bailey's, could possibly have been regarded as a payment made by BPE without Mr Gabriel's authority. Whilst Bailey's were formally acting for High Tech at the completion meeting, the transfer to Bailey's bank account of the funds was clearly made at Whiteshore's direction, as was set out in Bailey’s letter of 14th December 2007 acknowledging receipt of the funds and referring to  “monies advanced by your client Richard Gabriel to Whiteshore Associates Limited”. The simple point is that BPE had instructions from Mr Gabriel to transfer the loan monies to, or at the direction of, Whiteshore as borrower. The fact that, as the judge found, BPE may have been in breach of its contractual duty to Mr Gabriel in failing to clarify his instructions or in failing to provide him with the information that the funds were going to be applied in purchase of the property from High Tech, did not vitiate Mr Spencer's authority to transfer the funds to Whiteshore, or at its direction, and so render BPE liable for breach of trust; see per Millett LJ in Bristol and West v Mothew  [1998] Ch 1 at 15G to 16B and at 24 A-D.
58.	Accordingly I would dismiss the BPE cross-appeal.
BPE's submissions in relation to the BPE appeal
59.	Mr Stewart accepted that, insofar as BPE was obliged properly to draw up the facility letter and charge, then, based on the judge’s findings of fact, it did so incorrectly and in breach of its duty of care, in that:
i)	it failed to record the purpose of the loan as it understood it (namely that it would be used for the purchase of the Property); 
ii)	it failed to draw up the charge so that it would provide security not merely for the initial loan of £200,000 but also in respect of the "interest" of £70,000;
iii)	it paid away money before a condition precedent in the facility letter was satisfied.
60.	Mr Stewart's first proposition was that the judge was wrong to find that BPE had any duty to advise Mr Gabriel which extended beyond drawing up the facility letter and charge competently. He referred to the judge’s two findings at paragraph 86 of the judgment namely:
a)	 that Mr Spencer had no duty to advise Mr Gabriel as to the commercial risks inherent in the loan; and
b)	that
“Nevertheless, from what he learned as Mr Gabriel’s solicitor he should in my view have explained to Mr Gabriel, that although he was advancing £200,000 his funds were going to be applied substantially for Mr Little’s benefit and in reality Mr Little was not putting anything at all into the project”.
Mr Stewart submitted that these two findings were contradictory and could not stand together; that, having correctly found, on the basis of the authorities referred to in paragraphs 84 and 85 of his judgment, that BPE had no duty to advise Mr Gabriel as to the commercial risks inherent in the loan, it was inconsistent for the judge to have found that there was nonetheless a duty to explain that they were going to be applied substantially for Mr Little’s benefit. 
61.	Mr Stewart submitted that, given the commercial features affecting the property and the loan which were known to Mr Gabriel, the judge should have concluded that BPE had no duty to advise Mr Gabriel at all in relation to the commercial aspects of the transaction; this was not a case where Mr Spencer should have been characterised as a person who was providing advice to Mr Gabriel as to whether he should enter into the loan transaction. 
62.	Mr Stewart’s second proposition was that the judge should have found that the losses suffered by Mr Gabriel were outside the scope of BPE's duty and/or not caused by its breaches of duty. He submitted that the judge was wrong to conclude, as he did in paragraph 90 of the judgment, that Mr Gabriel was entitled to recover all of his losses incurred as a result of entering into the transaction. In particular Mr Stewart submitted that:
i)	The judge approached the matter in an inconsistent fashion. He correctly found that BPE would only be responsible for losses flowing within the scope of its duty; in so doing he correctly relied upon the statement of Lord Hoffmann in South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 ("Saamco”) that a duty of care which imposes upon an informant responsibility for losses which would have occurred even if the information which he had given was correct was not fair and reasonable; (see paragraph 89 of the judgment).
ii)	Likewise the judge correctly accepted that BPE would not be liable for the consequences of Whiteshore not repaying Mr Gabriel’s loan insofar as that was caused by its impecuniosity; (see paragraph 90 of the judgment). He further correctly accepted that BPE would not be liable if what Mr Gabriel had in mind, i.e. expenditure of about £200,000 on a property which would not have had an acquisition cost, was unviable and bound to fail; ( see paragraph 90 of the judgment).
iii)	Mr Stewart submitted that this was a "category 1" type of case, within the categorisation adopted in Haugesund Kommune v Depfa ACS Bank at paragraph 44, by reference to page 214C/F of Lord Hoffmann's speech in Saamco; in other words this was a case where BPE's duty was only to supply information; and, if it was negligent, its only responsibility was for the foreseeable consequences of the information being wrong, or incomplete. Mr Stewart submitted that the judge wrongly characterised this case as a category 2-type case, and therefore wrongly visited Mr Gabriel's entire losses on BPE.
iv)	 Thus the basis upon which the judge reached his conclusion appeared to be:
a)	that BPE fell into some kind of intermediate category whereby it was neither advisor nor only providing information on a discrete aspect of the transaction; (see paragraph 89 of the judgment);
b)	that the Judge was
“not persuaded that no development whatsoever, particularly with Mr Little’s own company doing the construction, could have been achieved so as to make Mr Gabriel’s investment of £200,000 a viable proposition” 
with the consequence that it would not be right 
“to conclude that this was necessarily going to be a doomed venture for Mr Gabriel from the outset” (paragraph 90); 
and
c)	that BPE's breaches meant that Mr Gabriel was not able to know the true nature of the loan transaction into which he was entering with the result that he was deprived of the choice as to whether or not to enter into it with the consequence that it was
 “foreseeable that if [the solicitors] duty was broken in the way which occurred Mr Gabriel would be likely never to recover his loan and have to depend on recovery from disposal of a wholly undeveloped property in a poor state of repair."
63.	Mr Stewart submitted that, given the evidence, the judge's findings as set out above were illogical and contradictory. The judge should have considered whether, on the balance of probabilities, Mr Gabriel would still have lost his money if the transaction had been precisely as he thought it was; and then concluded that the overwhelming likelihood was that he would have done with the consequence that the losses did not fall within the scope of BPE’s duties, or, alternatively, were not caused by any breach of duty on the part of BPE. 
64.	Mr Stewart's third proposition was that, if any losses were caused by BPE's breaches of duty they were caused, alternatively substantially contributed to, by Mr Gabriel's own negligence. In this context, Mr Stewart referred to the judge's findings that there was no contributory negligence on the part of Mr Gabriel, in making no enquiries about Whiteshore, declining a personal guarantee, obtaining no valuation of the Property, failing to check development costs and not linking stage payments to progress of the development. Mr Stewart criticised the judge's reasons on the basis that they appeared to have been based on findings that: 
“this was an arrangement between close friends, one of whom was godfather to the other’s child” ;
and that Mr Gabriel had no reason to mistrust Mr Little at all, with the consequence that he had:
 “no reason to doubt that the terms of the facility letter would be observed” (paragraph 92).
65.	Mr Stewart submitted that the judge’s conclusions on this point lacked logic. The judge had found that Mr Gabriel required the facility letter to be drawn up and a legal charge to be taken over security. That was because Mr Gabriel wished to protect his position.  In such circumstances it was no answer to BPE's plea of contributory negligence to refer to the fact that he was close friends with Mr Little. Such a friendship might have led to an entirely informal arrangement based upon complete trust – but that was not this transaction.
66.	Mr Stewart submitted that each of the failures on Mr Gabriel's part was basic and caused or substantially contributed to Mr Gabriel’s loss: thus:
i)	without a valuation, he had no idea at all as to what security he had – the level achieved at sale shows that there was no real security at all;
ii)	without checking development costs, Mr Gabriel had no idea at all as to the viability of a development or whether it could be funded;
iii)	without a personal guarantee, Mr Little could always walk away from Whiteshore;
iv)	without linking stage payments to progress on development, Mr Little and Whiteshore were always free to spend money as they liked.
67.	In the circumstances, Mr Stewart submitted that, even if any loss flowed from BPE's breaches of duty, Mr Gabriel’s own negligence was responsible for at least 75% of any loss.
Mr Gabriel's submissions in relation to the BPE appeal
68.	Mr Booth, on behalf of Mr Gabriel, sought to uphold the judgment for the reasons given by the judge. In particular he submitted:
i)	Whilst a solicitor was not generally under a duty to advise generally on commercial risks, it was a basic obligation to ascertain and/or advise his client that the transaction that he was entering into was fundamentally different to that which he believed that he was entering into and of obvious risks that arose as a consequence: Boyce v Rendells [1983] 2 EGLR 146 per Lawton LJ at 149H; Pickersgill v Riley [2004] UKPC 14, [2004] PNLR 31 per Lord Scott of Foscote at para. 7; Credit Lyonnais SA v Russell Jones & Walker [2002] EWHC 1310 (Ch), [2002] PNLR 2 per Laddie J at para.28. 
ii)	It was also an obligation of a solicitor not to pay away his client’s money to a third party in the knowledge that the money would not be applied for the express purpose set out in the formal written agreement signed and agreed by his client, and to advise his client of what he proposed to do. 
iii)	This was an obvious case where BPE’s duty was to advise Mr Gabriel about the risks of entering into the transaction. Had Mr Spencer advised/informed Mr Gabriel properly, it would have become apparent that there was no deal available to be done and that there was no consensus ad idem. 
iv)	Accordingly this was a category 2 case. BPE’s duty of care was to be equated with that of the adviser whose duty was to advise a claimant as to what course of action he should take; in those circumstances BPE was liable for the whole of the overall loss, since that represented the foreseeable consequence of the breach of duty: see  Lloyds Bank Plc v Crosse & Crosse [2001] EWCA Civ 366 per Jonathan Parker LJ at paragraph 87 relying on Steggles Palmer (a case decided on appeal in Bristol v West Building Society v Fancy & Jackson and other cases [1997] 4 All ER 582) and Portman Building Society v Bevan Ashford [2000] 7 EG 1.  
v)	In the present case, the approach adopted by Chadwick J (as he then was) in Steggles Palmer was in point and was correctly applied by the judge. In addition, Mr Booth placed particular reliance on the decision in Portman Building Society v Bevan Ashford. That was a case where the lenders had believed that there was no second charge on the property, and that the borrowers were providing the balance of the purchase price from their own resources.  It was argued that in Steggles Palmer Chadwick J had misapplied the principles set out in Saamco and Nykredit.  Otton LJ rejected the argument in the following terms:

 “Thus, I am satisfied that, in these circumstances, [the lender] was rightly held by Longmore J to be entitled to recover the whole of its loss. Longmore J was correct to follow the reasoning of Chadwick J. in the application of the Saamco principle, which has the effect that where a negligent solicitor fails to provide information which shows that the transaction is not viable or tends to reveal an actual or potential fraud on the part of the borrowers, the lender is entitled to recover the whole of its loss. In other words, the whole of the loss suffered by the lender is within the scope of the solicitor's duty and is property recoverable. 

I am also satisfied that far from being an incorrect application of the Saamco principle, the decision of Chadwick J. is a proper application of the principle. If the whole of the loss suffered by the lender is within the scope of the relevant duty, he should be entitled to recover the whole of the loss.” [Mr Booth's emphasis.]
vi)	Accordingly, BPE’s duty was that of an adviser; it was obliged to advise Mr Gabriel as to what course of action he should take; as a result it was liable for the whole of Mr Gabriel’s losses, since that represents the foreseeable consequence of BPE's breach of duty. Had Mr Gabriel known the true position, he would have been unwilling to have made any loan to Whiteshore. It was impermissible to try to dress up the advice as "information", as Mr Stewart sought to do. 
vii)	There was no basis for BPE's contention that Mr Gabriel had been negligent. The allegations of contributory negligence had not been adequately pleaded. On the transaction as Mr Gabriel thought it was, he had a friend who was tied by contract to spend the money on development; he had a solicitor who he thought had drafted a binding agreement to that effect; Mr Little had every incentive to spend the money on development of the Property, and he was entering into a transaction where he would be mad to do so unless he genuinely believed that, despite the interest payment, he could turn a profit. All this information was coming from an experienced builder and property developer, in circumstances where Mr Gabriel had no reason to doubt his honesty, commitment, or expertise. So, Mr Gabriel had every reason to suppose he would be protected. 
Discussion and determination of the BPE appeal
69.	Having read the transcripts of the evidence at trial, the witness statements and the relevant contemporaneous documents, I have had considerable difficulty in accepting the judge's findings of primary fact:
i)	that  Mr Gabriel was not aware that his loan monies were going to be used in Whiteshore’s purchase of the Property from High Tech; and
ii)	that, if he had been informed of that fact, he would not have made the loan to Whiteshore .
However, Mr Stewart presented his submissions in relation to the BPE appeal on the basis that this Court should not, or, at least, did not need to go behind the judge’s findings of primary fact. In those circumstances, I have not addressed the question whether, on the basis of the materials before him, the judge was entitled, or correct, so to conclude. 
70.	It is not necessary for me in this judgment to set out an exhaustive analysis of the principles that can be distilled from cases such as Saamco, Nycredit Mortgage Bank plc v Edward Erdman Group Ltd (Interest on Damages) [1997] 1 WLR 1627, and Aneco Reassurance Underwriting Ltd (in liquidation) v Johnson & Higgins Ltd [2002] 1 Lloyd's Rep 157. This court has already done so, for example in Portman Building Society v Bevan Ashford, Lloyds Bank plc v Crosse & Crosse and Haugesund Kommune v Depfa ACS Bank.  I merely summarise (with a grateful acknowledgement to the judgment of Jonathan Parker LJ in Lloyds Bank plc v Crosse & Crosse) what I regard as the correct approach in this case to ascertaining the quantum of damages for which BPE may be liable in circumstances where Mr Spencer, as the judge held, in breach of his duties of care and skill, failed to inform Mr Gabriel that his loan monies were going to be applied in Whiteshore's purchase of the Property from High Tech and in the discharge of the Lloyds TSB charge.
71.	The approach which I have adopted is as follows: 
i)	The first point is that the enquiry is essentially a factual one which is highly dependent on the particular circumstances of the case; see e.g. per Otton LJ in Portman Building Society v Bevan at 85K-L, per Rix LJ  in Haugesund Kommune v Depfa ACS Bank at [80]. As Harvey MacGregor QC states in the 18th edition of MacGregor on Damages, at 6-132:
“Hard and distinct roles on scope of duty cannot be laid down. Each particular case must be taken as it comes.”
ii)	The first step in the process of determination is to decide whether Mr Gabriel suffered any loss as a result of making the loan to Whiteshore pursuant to the terms of the facility letter. Thus if, for example, he had been told that the loan monies were going to be applied in the purchase of the property from High Tech, and the discharge of its charge to Lloyds TSB, but he would nonetheless have lent the money on the terms of an amended facility letter, he would have suffered no loss as such an alternative transaction would have been equally disastrous; see e.g. per Lord Hoffmann in Saamco at page 218 E, and per Lord Nicholls in Nycredit at page 1631 H. But, in the present case, on the basis of the judge's findings of fact, this court must assume that Mr Gabriel’s overall loss was indeed the £200,000 which he advanced, less the sum of £8191.56 which he had been repaid.
iii)	The next step is to determine whether BPE is liable for the whole of the overall loss, or only some (and if so what) part of it; see per Lord Nicholls in Nykredit at 1632A. That requires  an identification of the kind of loss for which Mr Gabriel is entitled to be compensated by BPE, which question itself depends on the prior question namely what was the scope of BPE's duty of care;  see per Lord Hoffmann in Saamco at 211 A-B, 211H-212 D. Thus Mr Gabriel has to show not merely that BPE was in breach of a duty which was owed to him, but also that it was a duty in respect of the kind of loss which he had suffered. As Lord Bridge said in Caparo Industries Plc v Dickman [1990] 2 AC 605, at 627:
“It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless."
iv)	In analysing the scope of the duty, a judge needs to differentiate between:
a)	a duty to provide information for the purpose of enabling the client to decide upon a course of action; and
b)	a duty to advise someone as to what course of action he should take.
As Lord Hoffmann said in Saamco at 214 E-F:
“If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong.”
v)	The next question, having ascertained the scope of BPE's duty of care, is to address the question of causation. This enquiry involves answering the question: "what are the consequences of the duty of care having been breached?"; i.e. the consequences to the lender of having lent without knowledge of the true facts, ( rather than what would have been the consequences of disclosure). As Lord Hoffmann put it in Saamco at 215E, that is not the same question as "what the consequences would have been had the duty of care been fulfilled". 
72.	Adopting the above approach, I conclude as follows.
The scope of BPE's duty
73.	Mr Spencer had a duty to ensure that he correctly understood his client’s instructions in relation to the transaction. On the basis of the judge's findings, he failed to appreciate (because he did not adequately clarify his instructions) that Mr Gabriel thought his loan was for the purposes of development of the Property. That failure was compounded by Mr Spencer drafting the facility letter in terms which expressly recited that development was the purpose of the loan. In those circumstances, in my judgment, Mr Spencer had a duty to inform his client that, whatever the facility letter apparently said, at least in the short term, the loan monies were going to be immediately applied in Whiteshore’s purchase of the property from High Tech, and the discharge of the Lloyds TSB charge. Because (as the judge found) he did not communicate that information to Mr Gabriel, he was, in my judgment, in breach of the duties of care which he owed as a solicitor acting in the transaction.
74.	But such a duty, in my judgment, came within category 1 of Lord Hoffmann's categorisation. It was a duty to provide Mr Gabriel with information for the purpose of enabling Mr Gabriel to decide what commercial course of action he should take. It was not a duty to advise Mr Gabriel as to what course of action he should take or as to the commercial risks inherent in the loan. 
75.	In my judgment, the judge's finding in paragraph 86 that Mr Spencer:
“should have explained to Mr Gabriel, that although he was advancing £200,000 his funds were going to be applied substantially for Mr Little's benefit and in reality Mr Little was not putting anything at all into the project”
wrongly equated Mr Spencer's duty with a category 2 duty; namely a duty to advise Mr Gabriel as to what course of action he should take, or as to the commercial risks inherent in the loan. 
76.	Moreover, whatever Mr Gabriel may have thought, there was no finding by the judge, and no evidence, that the agreed basis of the deal as between Mr Gabriel and Mr Little was that the latter, or one of his companies, should contribute the unencumbered equity in the Property, as part of his side of the "deal", or that Mr Little had made any representation to the effect that he would do so. Nor was there any finding or evidence that Mr Gabriel had ever informed Mr Spencer that such was the commercial basis for the transaction. Further there was no evidential basis for Mr Gabriel's assertion that Whiteshore was, as at the date of the loan, to be a "clean" special purpose vehicle, with no existing liabilities, and certainly no basis to support any agreement, or representation, by Mr Little that it was to be the existing owner of the Property as at that date. On the contrary, as the judge found, Mr Gabriel knew from his participation in the completion meeting, that there was going to be a transfer from one of Mr Little's companies to Whiteshore, and that a charge in favour of Lloyds TSB needed to be discharged if Mr Gabriel was to have a first charge of the property. 
77.	Similarly, whatever Mr Gabriel may have thought as to the purpose for which the loan monies were to be applied, neither the judge's findings, nor the underlying evidence, support the proposition that there had been any commercial agreement as between Mr Gabriel and Mr Little to the effect that Whiteshore would be obliged to spend £200,000, or indeed any sum, on development, or that Mr Spencer had been instructed, or was under a duty, to make provision in the contract to such effect. Likewise, Mr Gabriel had not, as part of the commercial deal between the two men, imposed any contractual obligation on Whiteshore either to develop the Property within a stipulated time frame or to apply the loan monies in such development - and for no other purpose; nor had Mr Gabriel  agreed with Mr Little/ Whiteshore any financial controls (such as stage payments) as regards the application and retention of the loan monies. Importantly Mr Gabriel had not instructed Mr Spencer to give effect to any such proposals.
78.	In those circumstances I do not agree with the judge that Mr Spencer had any obligation to explain to Mr Gabriel, 
"that although he was advancing £200,000 his funds were going to be applied substantially for Mr Little's benefit and in reality Mr Little was not putting anything at all into the project."
The commercial aspects of the deal, and the value (if any) which each party was going to contribute to it, whether by way of proposed building works, development expertise, property or cash, were not within Mr Spencer's remit. There was no evidence that Mr Gabriel had taken Mr Spencer into his confidence in relation to such matters; on the contrary, as the judge found in paragraph 68 of the judgement, Mr Gabriel admitted that he had never sought advice from Mr Spencer as to the commercial wisdom of the proposed transaction. In my judgment, given the circumstances surrounding the loan, including the presence of the risk factors which I identify below, it cannot be said that the losses suffered by Mr Gabriel fell within the scope of BPE's duty of care. It follows that I do not regard the present case as one which falls within the template of Chadwick J's decision in Steggles Palmer, where he effectively equated the position of the solicitors with the adviser whose duty it is to advise as to what course of action should be taken. The facts of this case distinguish this case from the situation in Steggles Palmer.
What were the consequences to Mr Gabriel of having lent without the knowledge that his loan monies were going to be applied in purchase of the Property?
79.	One then has to ask oneself the causation question "what are the consequences of that duty of care having been breached?" That is not the same question as "what the consequences would have been had the duty of care been fulfilled": see per Lord Hoffmann in Saamco at 215E. As is clear from the authorities, the fact that, if the duty had been fulfilled, the claimant would have made no loan at all, does not predicate that a claimant will recover his losses in full, or even to a limited extent. 
80.	In my judgment it is not possible to characterise the losses incurred by Mr Gabriel in relation to his loan, whether on the realisation of his security, or earlier, as “the foreseeable consequences of the information being wrong”; per Lord Hoffmann in Saamco at 214 E-F, or as otherwise incurred in consequence of Mr Spencer's breach of duty.
81.	The realities of the transaction in relation to which Mr Gabriel was apparently prepared to commit himself meant that recovery of his loan, and his £70,000 "interest" payment, had always been highly speculative.  Irrespective of Mr Gabriel's lack of knowledge as to the application of the funds, the risk factors to which the transaction had always been subject, included the following: 
i)	Mr Gabriel’s security was always an undeveloped property in a poor state of repair, in relation to which he had never sought either an independent verification as to the costs of development, or a valuation of the property, either in its existing state or as (prospectively) developed.
ii)	There was no positive evidence to the effect that, if £200,000 had been spent on developing the property, its value would have been such as to ensure recovery of Mr Gabriel's loan or, in other words, that the transaction was viable. On the contrary, such evidence as was before the judge suggested that expenditure in such amount would not have increased the value of the property. As Mr Stewart submitted, the  judge, in my view wrongly, reversed the burden of proof by finding that the defendants had not persuaded him that no development was possible. That the value of the developed property, by the utilisation of funds of £200,000, would have been such as to ensure recovery of Mr Gabriel's loan was a matter for Mr Gabriel to allege and to prove.
iii)	Mr Gabriel had, apparently, expressly instructed Mr Spencer not to conduct searches (of the relevant registers) in relation to the Property, notwithstanding that Mr Gabriel had insisted on having security by way of a first charge. As the judge found, Mr Gabriel appears to have appreciated, at the latest by the completion meeting, that the bank’s charge over the Property required to be discharged. The reality, of course, was that, unless monies were made available to Mr Little, or one of his companies, to discharge the Lloyds TSB charge, Mr Gabriel could not obtain a first charge over the Property as security for his loan.
iv)	There had been no contractual requirement imposed by Mr Gabriel that Whiteshore should be a "clean" company with no existing liabilities as at the date of completion or that it should be the unencumbered owner of the Property as at that date. Indeed, Mr Gabriel had not sought any verification of Whiteshore's financial position, whether by requesting copies of a balance sheet, or information as to its existing assets or liabilities, or its ability to fund and carry out the required development to the Property.
v)	Even if the loan monies had not been applied in purchase of the Property, as I have already decided, there was nothing in the terms of the facility letter to oblige Mr Little to spend £200,000, or indeed any sum, on its development. That was perhaps not surprising, given the absence of any commercial agreement between the two men to that effect. There was, moreover, no allegation, or finding by the judge, that BPE had been instructed, or was under a duty, to make provision in the facility letter to such effect. As Mr Gabriel knew, the entire £200,000 was being paid to a company controlled by Mr Little, with the result that, once the loan was drawn down, Mr Gabriel had no control over how such money was spent.  As the judge found, none of the balance of monies available was spent on development, but was in fact used to discharge other debts of Mr Little's other companies and business ventures. On the evidence before the court, I agree with Mr Stewart that the overwhelming likelihood was that, given the financial constraints to which Mr Little's businesses were subject at the time, the balance of the loan monies would have been similarly applied.
vi)	Mr Gabriel’s contractually agreed return on his loan also reflected the high risk nature of his investment. £70,000 by way of interest after 15 months represented a gross return of 35%, or 28% per annum. Such interest would only be paid by a borrower who could not borrow on more favourable terms elsewhere.
82.	In the absence of any finding of deceit, or misrepresentation against Mr Little, or of any deliberate concealment of the intended application of the loan monies, I am unable to conclude that Mr Spencer's failure to inform Mr Gabriel that the loan monies were going to be used to purchase the property from High Tech, and thereby discharge the Lloyds TSB charge, caused the losses which Mr Gabriel suffered. This was not a case (contrast Steggles Palmer) where the information as to the destination of the loan monies (i.e. in discharge of the Lloyds TSB charge) would have shown Mr Little to have been a fraudster. The judge's findings of fact in relation to Mr Little do not permit of that result.
83.	Mr Gabriel’s inability to recover the amount of his loan from Whiteshore arose as a result of the following matters, which can properly be described as "the causes" of his loss:
i)	the Property was only worth £13,000 in its undeveloped state at the time of enforcement of the legal charge; (even at the date of the loan, it was highly speculative as to whether the envisaged development could have been carried out, and at what cost, and what the Property would have been worth, if and when developed); 
ii)	Mr Gabriel had not, as part of the commercial deal between the two men, imposed upon Mr Little, or Whiteshore, any obligation that, as at the date of the loan agreement, or at least prior to drawdown of the funds, Whiteshore should be the registered proprietor of the Property, free from any charge or other encumbrances, and not subject to an obligation to pay the vendor the outstanding sale price; in other words Mr Gabriel had not stipulated that Mr Little was obliged to contribute the Property "clean" as part of the consideration for Mr Gabriel's agreement to make the loan; 
iii)	Mr Gabriel had not, as part of the commercial deal between the two men, imposed any contractual obligation on Whiteshore either to develop the Property within a stipulated time frame or to apply the loan monies in such development and for no other purpose; he had not agreed with Mr Little/ Whiteshore any financial controls (such as stage payments) as regards the application and retention of the loan monies;
iv)	Whiteshore was not in any financial position to repay the loan other than from the proceeds of the Property.
84.	All those matters were, in my judgment, the foreseeable consequences of the commercial risks which Mr Gabriel took when making a business decision to make a loan to a friend without first:	
i)	obtaining an independent professional valuation of the Property in its undeveloped, or prospectively developed, state, or an independent professional estimate as to the likely costs of development;
ii)	agreeing with Mr Little/Whiteshore that the latter should be the unencumbered beneficial owner of the Property prior to drawdown of the loan and not subject to any existing liabilities, whether to the vendor of the Property or otherwise; in other words that Mr Little should contribute the property "clean" to the deal;
iii)	agreeing with Mr Little/Whiteshore that the latter should be obliged to develop the Property within a stipulated time frame, to apply the loan monies in such development and for no other purpose, and to be subject to appropriate financial controls (such as stage payments) to ensure that the monies were indeed applied for that, and no other, purpose, or otherwise being retained.
All these points gave rise to obvious commercial risks of which, as a sophisticated businessman, Mr Gabriel must, or should, have been aware. Unless Mr Gabriel had specifically raised such concerns with Mr Spencer, and had asked him to make contractual provision in the facility letter, or otherwise, to ensure that Whiteshore only spent the funds advanced on development, and otherwise retained them, (which Mr Gabriel did not), they remained commercial risks for which Mr Gabriel had to bear full responsibility.
85.	Accordingly, I conclude that, whether one approaches the matter by asking the question whether the losses fell within the scope of BPE's duty, or were caused by breaches of such duty, the judge was wrong to hold BPE responsible for Mr Gabriel's losses in relation to the loan. 
86.	In the circumstances it is not necessary to address the question of contributory negligence. Had it been necessary to do so, I would have concluded that Mr Gabriel had undoubtedly been negligent in connection with the transaction for failing to make the enquiries which I have indicated above. I agree with Mr Stewart’s submissions (as rehearsed at paragraph 65 above) that the judge's conclusions on this point at paragraph 92 of the judgment lack logic. I would agree that, even if any loss at all had flowed from BPE's breach of duty, Mr Gabriel's own negligence was responsible for at least 75% of any such loss. Contrary to Mr Booth's submission, the case in contributory negligence was properly pleaded and adequately rehearsed in BPE's opening and closing submissions at trial.
87.	I would therefore allow the BPE appeal.
Disposition
88.	It follows that I would dismiss the Little appeal, dismiss the BPE cross-appeal and allow the BPE appeal.

Lord Justice Fulford :
89.	I agree.

Lord Justice Maurice Kay :
90.	I also agree.